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Principle of Microeconomics

Movie theaters often offer reduced rates for children under 10. This suggests that demand for adult admission is ______ than demand for children's admission.
a. more elastic.
b. less elastic.
c. more variable.
d. lower.

When an increase in the scale of production leads to higher average costs, the industry exhibits:
a. diminishing returns.
b. economies of scale.
c. diseconomies of scale.
d. constant returns to scale.

An industry with a positive sloping long-run supply curve is called:
a. a constant-cost industry.
b. a decreasing-cost industry.
c. an increasing-cost industry.
d. a decreasing-profit industry.

China has a comparative advantage in textile and an absolute advantage in radios. Japan has a comparative advantage in radios and an absolute advantage in textiles. According to this scenario:
a. Japan should export both radios and textiles.
b. China should import both radios and textiles.
c. China should export textiles and import radios.
d. Japan should export textiles and import radios.

The process of selling state firms to individuals is called:
a. privatizing.
b. transitioning.
c. public transfer.
d. central planning.

Inflation and unemployment are the focus of :
a. economic history.
b. microeconomics.
c. positive economics.
d. macroeconomics.

Internet advertising costs are based on the:
a. product to be advertised.
b. number of times an advertisement appears on someone's computer screen.
c. size of the advertisement.
d. amount of animation that the advertisement contains.

A firm in a perfectly competitive industry is producing 50 units, which is its profit maximizing quantity. Industry price is $2, total fixed costs are $25, and total variable costs are $40. The firm's economic profit is:
a. $15.
b. $30.
c. $35.
d. $60.

There are 100 dog kennels in Atlanta. An economist studying the pricing behavior of dog kennels tells you that she is limiting her analysis to a time period that does not allow for any new dog kennels to enter the industry or for any established dog kennels to leave the industry. The time period this economist is referred to is:
a. the market period.
b. the industry run.
c. the long run.
d. the short run.

The production possibilities curve is a curve that shows:
a. the combinations of goods and services consumed over a period of time in an economy.
b. the amount of goods and services consumed at various average price levels.
c. the rate at which an economy's output will grow over time if all resources are used efficiently.
d. the possible combinations of goods and services available to an economy, given that all productive resources are fully employed and efficiently used.

Insurance policies in which every firm within a given area pays the same price for medical insurance are based upon a:
a. experience rating.
b. community rating.
c. asymmetric information rating.
d. adverse selection rating.

When economists say, "there's no such thing as a free lunch," they are using the:
a. spillover principle.
b. principle of diminishing returns.
c. marginal principle.
d. principle of opportunity cost.

Two goods are substitutes if the:
a. price elasticity of each is greater than one.
b. income elasticity of each is positive.
c. cross-price elasticity is negative.
d. cross-price elasticity is positive.

Suppose that video game cartridges are a normal good. If the income of video game players increases, you predict that in the market for video games:
a. both equilibrium price and quantity will fall.
b. both equilibrium price and quantity will increase.
c. equilibrium price will increase and quantity will decrease.
d. equilibrium price will fall but quantity will increase.

The free-rider problem occurs for:
a. private goods and public goods.
b. private goods but not public goods.
c. public goods but not private goods.
d. neither public nor private goods.

Air pollution is an example of a (n):
a. imperfectly competitive market structure.
b. public good.
c. spillover.
d. moral hazard.

If the demand for coffee decreases as income decreases, coffee is a (n):
a. normal good.
b. inferior good.
c. substitute good.
d. complementary good.

When one firm uses the same strategy as the other firm used in the previous time period, this is known as a:
a. tit-for-tat strategy.
b. grim trigger strategy.
c. dominant strategy.
d. predatory strategy.

Natural monopoly occurs when there are:
a. large economies of scale.
b. firms joining together to limit output and raise prices.
c. different prices for different consumers or groups of consumers.
d. patents.

If the government imposes a maximum price that is above the equilibrium price,
a. this maximum price will have no economic impact.
b. quantity demanded will be less than quantity supplied.
c. demand will be greater than supply.
d. the available supply will have to be rationed.

Econoland produces two goods: televisions and pizzas. As more televisions are produced, the number of pizzas that must be given up increases. This most likely occurs because:
a. as more of a good is produced the resources used to produce that good will increase in price.
b. consumers would be willing to pay higher prices for the good as more of the good is produced.
c. resources are not perfectly adaptable for the production of both goods.
d. as more of a good is produced the quality of that good declines and therefore the costs of production increase.

If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run:
a. labor's marginal product is constant.
b. labor's marginal product decreases after a certain point.
c. total product is negative.
d. total product never changes.

High taxes reduce the incentive of some individuals to work. This statement is best described as a (an):
a. positive statement.
b. Marxist ideology.
c. normative statement.
d. irrational statement.

Which of the following is an example of fixed costs?
a. the price of gasoline.
b. a hospital bill.
c. automobile insurance.
d. labor costs.

The Federal Trade Commission Act:
a. prohibited selling products at "unreasonable low prices" with the intent of reducing competition.
b. was passed to establish a body to enforce antitrust laws.
c. outlawed stock purchases that would substantially reduce competition.
d. made it illegal to monopolize a market.

The problem of ______ arises when one party to a contract passes the cost of his or her behavior on to the other party to the contract.
a. adverse selection.
b. moral hazard.
c. spillovers.
d. an injunction.

If the price of a car in the United States is $10,000, and the exchange rate between the dollar and the British pound falls from $1.50 to $1.25 per pound, then the price of the American car in Britain will:
a. fall.
b. rise.
c. remain the same.
d. be irrelevant, because the British government will impose restrictions on imports from the United States.

The law of diminishing marginal utility implies:
a. supply curves always slope upward.
b. total utility will always increase by an increasing amount as consumption increases.
c. a consumer will always buy positive amounts of all goods.
d. demand curves always slope downward and to the right.

Under the kinked demand model when one firm ____ its price, the other firms ____ their price.
a. lowers, don't change.
b. lowers, raise.
c. raises, don't change.
d. raises, raise.

Which of the following would be an example of a spillover benefit?
a. More people start to ride the bus and as a result air pollution is reduced.
b. Firms are able to reduce their costs of production by using a more efficient technology.
c. You enjoy a movie at the theater.
d. A firm has just gotten permission to open a landfill on property that is adjacent to your home.

If the supply of land were perfectly inelastic, a tax on land would be paid:
a. partly by sellers and partly by buyers.
b. entirely by sellers.
c. entirely by buyers.
d. it is impossible to determine given this information.

In the market for insurance:
a. buyers and sellers have perfect information.
b. buyers generally have less information than sellers.
c. sellers generally have less information than buyers.
d. there is no adverse selection problem.

When the government eliminates artificial barriers to entry all of the following will occur except:
a. more firms will enter the market.
b. prices to consumers will decrease.
c. competition in the market will decrease.
d. service will improve.

In the short run, the firm should shut down when:
a. price is equal to the average total cost of production.
b. price is equal to the minimum of the average variable cost of production.
c. price is equal to the minimum of the marginal cost of production.
d. price is equal to the minimum of the average total cost of production.

For a monopolist, if total revenue increases as output decreases, then marginal
revenue is:
a. equal to price.
b. zero.
c. positive.
d. negative.

The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs from $2.00 to $1.50, he will increase sales from 400 to 450 hot dogs per day. Using the initial value formula, we can tell that the demand for hot dogs is:
a. elastic.
b. inelastic.
c. unitary elastic.
d. perfectly elastic.

When a firm increases output and accepts a lower price to keep new firms from entering, it is engaging in:
a. limit pricing.
b. cartel behavior.
c. collusion.
d. price fixing.

A tariff imposed on imported shoes will cause the domestic price of shoes to ____and the domestic production of shoes to _____.
a. increase; increase.
b. increase; decrease.
c. decrease; increase.
d. decrease; decrease.

The added revenue that a firm earns from selling an additional unit of output is:
a. total revenue.
b. marginal revenue.
c. variable revenue.
d. fixed revenue.

"The law of demand" implies that:
a. as prices fall, demand increases.
b. as prices rise, demand increases.
c. as prices fall, quantity demanded increases.
d. as prices rise, quantity demanded increases.

A distinguishing feature of a public good is that it:
a. is not possible to exclude people who don't pay for the public good.
b. is possible to exclude people who pay for the public good.
c. may have external costs.
d. may have external benefits.

In order to practice price discrimination a firm must:
a. avoid detection by the government.
b. have some degree of market power.
c. calculate the utility of different consumer groups for their product.
d. advertise their product.

Total variable costs:
a. initially increase as output increases and then decrease.
b. always decrease with output.
c. always increase with output.
d. initially decrease and then increase with output.

Education generates spillover benefits. A free market with no government intervention will produce:
a. an efficient level of education.
b. more than the efficient level of education.
c. less than the efficient level of education.
d. zero units of education.

Advertise selection is the name given to describe the situation that occurs when:
a. people have perfect information.
b. high-quality products are driven from the market by low-quality products due to imperfect information.
c. actions that were expected to happen do not occur.
d. when low-quality products are driven from the market by high-quality products because of imperfect information.

Companies that provide services like electricity or cable television are examples of:
a. monopolistically competitive firms.
b. natural monopolies.
c. perfectly competitive firms.
d. oligopoly firms.

You are the owner and only employee of a company that writes computer software. Last year, you earned total revenues of $90,000. Your cost for equipment, rent, and supplies were $60,000. To start this business you quit a job at another computer software firm that paid $40,000 a year. During the year, your economic costs were:
a. $40,000
b. $60,000
c. $100,000.
d. $130,000.

A decrease in the equilibrium price of a normal good could be the result of:
a. an increase in the price of a substitute good.
b. an increase in income.
c. new technology in the production of the good.
d. an increase in the number of people who use the good.

Which of the following would not be considered price discrimination?
a. Charging more money for long distance calls during business hours than on weekends.
b. Giving students a discount on ski lift tickets.
c. Charging higher rates for oil delivery to people who live farther from your business.
d. Charging less money to wash a large luxury car than a small economy car.

A decrease in the purchasing power of income means that the _____ value of income has fallen:
a. real.
b. positive.
c. face.
d. nominal.

Solution Preview

Movie theaters often offer reduced rates for children under 10. This suggests that demand for adult admission is ______ than demand for children's admission.
a. more elastic.
b. less elastic.
c. more variable.
d. lower.
The more elastic the demand curve, the more the change in quantity demanded is proportionately larger than the change in price. The answer is therefore a.

When an increase in the scale of production leads to higher average costs, the industry exhibits diseconomies of scale.

An industry with a positive sloping long-run supply curve is called an increasing-cost industry. A decreasing cost industry will have a negatively sloped long run supply curve.

China has a comparative advantage in textile and an absolute advantage in radios. Japan has a comparative advantage in radios and an absolute advantage in textiles. According to this scenario:
a. Japan should export both radios and textiles.
b. China should import both radios and textiles.
c. China should export textiles and import radios.
d. Japan should export textiles and import radios.
A country should specialize in products and services in which they have a comparative advantage. The answer is therefore c.

The process of selling state firms to individuals is called privatizing (or privatization).

Inflation and unemployment are the focus of macroeconomics.

Internet advertising costs are based on the number of times an advertisement appears on someone's computer screen. This is also called CPM (Cost Per Impression); other types of cost structures exist, but they aren't listed as an option in this question.

A firm in a perfectly competitive industry is producing 50 units, which is its profit maximizing quantity. Industry price is $2, total fixed costs are $25, and total variable costs are $40. The firm's economic profit is $35. This is the difference between its income (2x50) and its costs.

There are 100 dog kennels in Atlanta. An economist studying the pricing behavior of dog kennels tells you that she is limiting her analysis to a time period that does not allow for any new dog kennels to enter the industry or for any established dog kennels to leave the industry. The time period this economist is referred to is the short run.

The production possibilities curve is a curve that shows the possible combinations of goods and services available to an economy, given that all productive resources are fully employed and efficiently used.

Insurance policies in which every firm within a given area pays the same price for medical insurance are based upon a community rating. Asymmetric information and adverse selection are related terms. Adverse selection occurs when the market favors a lesser quality good due to incomplete or asymmetric information.

When economists say, "there's no such thing as a free lunch," they are using the principle of opportunity cost.

Two goods are substitutes if the cross-price elasticity is positive.

Suppose that video game cartridges are a normal good. If the income of video game players increases, you predict that in the market for video games both equilibrium price and quantity will increase. For normal goods, an increase in income causes an increase in the ...

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