Final Exam

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Question #1

Suppose the company Intel is making positive profits initially. It has a monopoly on microprocessors – what are used as the brain for a desktop and laptop.
Due to rise of smart phones and tablets, tastes and preferences for microprocessors has been decreasing. In the long run, what happens to the P and q?

A Price and quantity both decrease

B Price is unchanged and quantity is unchanged

C Price increases and quantity decreases

D Price is unclear and quantity decreases

Question #2

A Price and quantity both decrease

B Price is unclear and quantity decreases

C Price is unchanged and quantity is unchanged

D Price increases and quantity decreases

Question #3

For the previous problem, what happens to the firm’s profit in the long run (relative to what profit was before the change in tastes and preferences)?

A Increases

B Unchanged

C Unclear

D Decreases

Question #4

Suppose a competitive firm for hardwood floors is at a point where profits are zero. Suddenly, there is an increase in tastes and preferences for these floors.
In the long run, what happens to the P and Q?

A P is unchanged; Q is unchanged

B P and Q both decrease

C P is unchanged; Q increases

D P increases; Q decreases

Question #5

Consider a good known as Siras. Suppose the number of buyers increases while the number of sellers also increases. What is the effect on the price?

A Unclear

B Increases

C Unchanged

D Decreases

Question #6

Which of the following equations will definitely apply for a monopoly in the long run?

A P=ATC

B P=MC

C MR=MC

D None of the above

Question #7

Which of the following is true concerning the Prize Linked Savings Accounts (PLSAs)?

A They are legal in only a few states in the US because of how damaging they are to a state’s poorer population

B They are far worse than regular savings accounts in every possible way which explains why no one uses PLSAs

C They tended to be blocked by states which had a monopoly on lotteries

D It is yet another topic designed by your instructor to bore you

Question #8

According to this course, which of the following does NOT tend to characterize a monopoly?

A Its profits are affected by changes in tastes and preferences

B It tends to have some barrier to entry

C Q=q

D All of the above characterize a monopoly

Question #9

Consider a firm in the competitive market. No matter whether the market’s demand curve shifts left or right, we know in the long run its economic profit will be 0.

A TRUE

B FALSE

Question #10

Suppose we have the following information for a firm in the competitive market:
P=$130; q=100;
TC=$11,000 for q=0;
AVC=$10 for q=100;
Which of the following is true for q=100?

A The price above represents the long run equilibrium

B There are no fixed costs

C Firms will enter in the long run

D Firms will close in the short run

Question #11

A firm in a competitive market has a constant and positive marginal revenue. So, the more a competitive firm makes, the higher its profits.

A FALSE

B TRUE

Question #12

Suppose a firm in the competitive market faces the following cost and revenue conditions: ATC=$20; AVC=$15; MC=$20; MR=$25. The firm should…

A decrease its output

B increase its output

C increase the price

D change nothing

Question #13

Suppose we have a market where there are 100 firms and the economic profit to each firm is $10,000. If the market is competitive, what we do know will happen in the long run?

A The market will transform into a monopoly

B The market price will go up

C Fifteen firms will leave the market

D There will be more than 100 firms in this market

Question #14

Suppose a company called Nareg V. Inc. is selling a product known as “Mikhael’s Giant Birthday Candles”. The company has the following table:
q P TR TC Profit MR MC ∆Profit
0 25 5 — — —
1 25 10
2 25 30
3 25 10
4 25 20
5 25 80
What is the quantity produced?

A 5

B 3

C 1

D 4

Question #15

Consider the following information. Suppose FC=$11,300. Further suppose that when q=9 then AVC=$1,500 and when q=10 then ATC=$2,500. If the firm decides to make 10 units (q=10), what is the MR at q=10?

A $500

B Not enough information

C $700

D $200

Question #16

Consider the following information. Suppose FC=$11,300. Further suppose that when q=9 then AVC=$1,500 and when q=10 then ATC=$2,500.
What is MC for the 10th unit?

A $50

B $500

C $200

D $100

Question #17

Suppose AVC=$20, FC=$900 and TC=$2,500. What is the ATC?

A $75

B $62.50

C $40

D $31.25

Question #18

An example of Behavioral Economics is at the supermarket when people buy more of a good because the supermarket lowers the good’s price.

A TRUE

B FALSE

Question #19

According to what was said in class, which of the following is true concerning Behavioral Economics?

A It assumes people are rational

B Its supporters believe behavioral economics is a substitute for traditional economics

C It incorporates physics into economic thought

D It tries to use nudges to influence people’s choices for their benefit

Question #20

Suppose your friend is trying to make money selling iPhone cases she designed. She tries selling them online for $15 per case. People do not buy it because they say the cases are too expensive. She then includes the words “Valentine’s Day Sale” and also includes a price of $25 crossed out to make it look like the price has been marked down to $15. People then rush to buy her cases. What cognitive bias might be relevant here?

A Planning fallacy

B Availability bias

C Framing bias

D Confirmation bias

Question #21

Wednesday nights. Often times, these nights are characterized by students being stressed out because they are cramming to finish an assignment due on Thursday. What bias might explain this cramming?

A Framing bias

B Planning fallacy

C Confirmation bias

D Availability bias

Question #22

Think about the following situation. Suppose you and your friend are about to take a final exam. Nervous about the test, you ask him what she believes is her probability of passing the class. She says the following:
“I’m not worried. My intelligence, study habits and study time are all far above the average student.”
This statement may be an example of what cognitive bias?

A Overconfidence bias

B Availability bias

C Framing bias

D Planning fallacy

Question #23

What is the definition of behavioral economics?

A A part of microeconomics focused on supply and demand

B The branch of economics that incorporates psychology into economic models

C The branch of economics that includes anthropology in economic models

D The study of how any form of human behavior is due to being rational

Question #24

Consider the following goods: milk and cereal. Milk is of course used with cereal. Which of the following is likely true about the CPED of these two goods?

A It is greater than 0

B It is inelastic

C It is less than 0

D None of the above

Question #25

Consider legal marijuana and illegal marijuana. Suppose a study is undertaken and finds the CPED is greater than zero. This study’s finding means these two goods are…

A Substitutes

B Unrelated

C Complements

D None of the above

Question #26

Recall the market for cosmetics whose IED<0. If the economy goes through a recession (when incomes fall), what would happen to the equilibrium price and quantity of cosmetics?

A Price would increase and quantity would decrease

B Price would decrease and quantity would increase

C Price and quantity would decrease

D Price and quantity would increase

Question #27

Suppose for a good known as “Kasyans” that the PED is -0.70 and the PES is 2.65. If a tax was applied in this market, what could we say about the tax burden?

A The tax burden will fall completely on the sellers

B The tax burden will fall mostly on the sellers

C The tax burden will fall equally on the sellers and buyers

D The tax burden will fall mostly on the buyers

Question #28

Suppose this good’s supply became more inelastic. What effect would this change have on the effect of a tax applied on this market?

A Increased tax burden on the sellers

B Increased tax burden on the buyers

C Not enough information

D None of the above

Question #29

Consider a tax on a good known as Ervands. If the tax is changed from being on the sellers to being on the buyers, what is the effect on the tax burden?

A No effect

B Unclear

C Sellers will now pay more of the tax

D Buyers will now pay more of the tax

Question #30

Suppose a good has a PED of -2. What can be inferred from this number?

A The good has no substitutes

B Buyers will buy the product even if the price rises by a small amount

C The good likely has many complements

D An increase in the price will cause the revenue to decline

Question #31

Consider the market for American cereals (e.g., Cheerios). Due to a reduction in trade, there are fewer cereals produced abroad that are available to American consumers. What do you think would be the effect of this decline in cereal choices from other countries on the PED for American cereals?

A Unclear

B Increase in its magnitude

C Decrease in its magnitude

D Unchanged

Question #32

What is the general definition of the PES?

A The percentage change in quantity supplied from a 1% increase in the price

B The change in quantity supplied from a given change in the price

C The unit change in quantity supplied from a $1 increase in the price

D The Price Elasticity of Supply

Question #33

Suppose the tax per unit falls. From what you learned in this class, what would be the effect on the tax revenue?

A Decrease

B Increase

C Unclear

D Stays the same

Question #34

What is the effect of a tax?

A The price buyers pay decreases

B The price sellers receive increases

C Consumers of this good are made happier by the tax

D The quantity decreases

Question #35

What is an example of a price ceiling?

A Ad valorem subsidy

B Rent control

C Minimum wage

D None of the above

Question #36

We have the following table for humidifiers:
Price Quantity supplied Quantity demanded
$200 3,500 0
$175 3,000 0
$150 2,500 500
$125 2,000 1,000
$100 1,500 1,500
$75 1,000 2,000
$50 500 2,500
$25 0 3,000
$0 0 3,500
What is the equilibrium price?

A $175

B $150

C $100

D $75

Question #37

Consider the market for agricultural products like corn where there is a minimum price determined by the government.
In this market, what type of government policy applies?

A A Backstrom-Daldumyan Tariff

B Tax

C Price floor

D None of the above

Question #38

What is a price ceiling?

A A legalized minimum price for a good or service

B A tax placed on a good or service

C A limit on the quantity of a good or service

D A legalized maximum price for a good or service

Question #39

Recall our discussion of the video game console market where tastes and preferences are moving away from the consoles to mobile devices and where the cost (of the computing chips needed for the consoles) has been increasing. Which of the following is true regarding what happened to the video game console industry in the past few years?

A Price unclear, quantity decreases

B Price increases, quantity unclear

C Supply curve shifts to the right; Demand curve shifts to the right

D Supply curve shifts to the right; Demand curve shifts to the left

Question #40

Consider the market for primary medical care – e.g., recognizing the early symptoms of a major disease. We know that primary care doctors receive much less pay than specialists, and the pay for primary care doctors is not likely to rise anytime soon. For the market for primary care, what do you think is a possible result?

A Few people want primary care services

B There is a shortage of primary care doctors

C There is an effective price floor applied in this market

D The number of people who want to become primary care doctors far exceeds the demand

Question #41

Consider the market for gas in the US. Suppose the price of gas drops. What happens to the demand for gas?

A Unchanged

B Decreases

C Unclear

D Increases

Question #42

Consider the market for dialysis services in the US. A current trend is for patients requiring these services to live longer so more people need these services. What is the effect of this trend on this market’s equilibrium price and quantity?

A The price decreases while the quantity is unclear

B The price increases while the quantity is unchanged

C Both decrease

D Both increase

Question #43

What is the definition of the demand curve?

A The curve that tells us the quantity demanded at a given price

B The curve that tells us what a country is capable of producing if it uses all its resources

C The curve that tells us how much a certain economics instructor’s enrollment will fall when the students realize how boring he is

D None of the above

Question #44

Asking if it is supply or demand that determines the price is like asking which blade of a scissor cuts paper. It is both.

A TRUE

B FALSE

Question #45

Which of the following is an example of a normative statement about microeconomics?

A A tax on gas should be removed

B A tax causes a decline in the quantity of a good or service

C The national government should increase its spending to increase GDP

D The unemployment rate for November 2019 is 3.5%

Question #46

The Circular Flow Model’s purpose is to show how a country’s government and banks interact with each other.

A TRUE

B FALSE

Question #47

For the Circular Flow Model, who supplies the outputs?

A Households

B International traders

C Firms

D The government

Question #48

Consider the principles of economics. Which of the following can be inferred from one of these principles of economics?

A When you decided whether to take this class, you did not need to consider alternative uses of your time

B The best way to allocate resources is for the supply to follow the demand

C An increase in a country’s income means its education level will fall

D The government can never improve on market outcomes

Question #49

An example of a marginal decision is whether to move to New York City or not.

A TRUE

B FALSE

Question #50

In terms of net benefit, what is the effect of an increase in the tastes and preferences for landline phones on the decision to purchase a landline phone?

A Decreases the benefit

B Increases the benefit

C Decreases the explicit cost

D Increases the opportunity cost

Question #51

What is the definition of microeconomics?

A The study of decision-making of how to distribute scarce resources by individual people and firms

B The study of money, GDP and the stock market

C The science of being boring at a national level

D None of the above

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