Final Exam of Microeconomics.docx

Final Exam of Microeconomics.docx

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FinalExamofMicroeconomics

FINALEXAM

ThePowerofMicroeconomics:

EconomicPrinciplesintheRealWorld

1.TheProductionPossibilitiesFrontierorPPF:

Showsthemaximumamountsofproductionthatcanbeobtainedgivenitstechnologicalknowledgeandquantityofinputsavailable.

2.Commonshiftfactorsusedintheanalysisofdemandinclude:

1.Incomeandtastes

2.Thepricesofotherproducts

Both1and2

3.Supposeyougotothestoreandseethatthepriceofbreadhasdoubled.Hasthedemandforbreadrisenorhasbreadbecomemoreexpensivetoproduce?

Needmoreinformationtodeterminewhythepricedoubled

4.SupposeadroughtinBrazilsignificantlyreducesthecoffeecropinBrazil?

WhatislikelytohappentothepriceofcoffeeandStarbucksandwhatislikelytohappentotheprofitsfortheStarbuckscompany?

Pricesrisebecauseofanincreaseincostsandprofitsfallbecauseofadecreaseinthequantitydemanded.

5.Thefacevalueofwhatwehaveinourpocketorbankaccountisreferredto:

Nominalincome

6.Duringyearsofbumpercropswhenfoodpricesfallsubstantially,manyfarmersoftengobankrupt.Thisisbecause:

Demandishighlyinelastic

7.TheATC,AVC,andMCcurvesallslopefirstdownandthenupbecauseof:

Thelawofdiminishingreturns

8.Whichgraphinthisillustrationdepictsthecostcurveofanaturalmonopoly?

Lowerright

9.Whentherearenumerousbuyersandsellersinamarket:

Anyonefirm’soutputisminisculecomparedtomarketoutput

Nofirmhasinfluenceoverwhatotherfirmsdo

Firmsarepricetakersratherthanpricemakers

Alloftheabove

10.Thedemandcurveaccuratelymeasures:

1.Thebenefitsofconsumptiontosociety

11.Theexistenceofawiderangeofgovernmentactivitiesandagencies–fromthePentagonandtheFederalTradeCommissiontotheEnvironmentalProtectionAgencyandtheNationalInstitutesofHealth–maybeexplainedby:

Thetheoryofmarketfailure

12.Inaperfectlycompetitivemarket,thedemandcurvereflects:

1.Thewillingnessofconsumerstopayforaproduct

2.Socialbenefits

Both1and2

13.Withamonopolyindustry:

Thereisonlyoneseller

14.Dynamicefficiencymeasures:

1.Therateofprofitgrowthinanindustry

2.Therateoftechnologicalchangeandinnovationinanindustry

Both1and2

15.Monopolisticcompetitionissometimescalled:

Non-collusiveoligopoly

16.Barrierstoentrytoanoligopolisticindustrymayinclude:

Theestablishedreputationsoffirmsintheindustry

Largecapitalrequirements

Patentsandtradesecrets

Alloftheabove

17.Marketpower:

1.Signifiesthedegreeofcontrolthatafirmorasmallnumberoffirmshasoverthepriceandproductiondecisionsinanindustry

2.Iscommonlymeasuredbythefour-firmconcentrationratio

Both1and2

18.Considerafour-firmindustryinwhicheachfirmhasgrowntiredofruinouspricewarsandtheCEOShaveachancetomeetinsecret（riskingajailsentence）.Whatpricewilllikelybeset?

MR=MC

19.Theguidingphilosophyofgametheoryisthat:

Youwillpickyourstrategybyaskingwhatmakesmostsenseassumingthatyourrivalisanalyzingyourstrategyandactinginhisorherownbestinterest.

20.Duringthe“CornWars”inEngland,inthe19thcentury,landlordswereraisingtherenttheywerechargingfarmersfortheuseoftheirland,therebyforcingfarmerstopassontheincreaseinlandcoststoconsumers.AccordingtotheRicardianTheoryofrent,whichistrue?

Rentishighbecausethepriceofcornishigh.

21.Ataxonpureeconomicrentwill:

Resultinnoallocativeinefficiencies

22.Rentseekingis:

1.Thenamegiventorestrictingsupplytoincreasethepricesuppliersreceive

2.Anattempttocreateeitherownershiprightsorinstitutionalstructuresthatfavoryou

Both1and2

23.SupposeyouaretheCEOofadomesticfirmandyourforeignrivalisofferinglowerpricestoyourconsumersbecauseofaproductioncostadvantage.Onewaytobeatyourrivalisto:

1.Lobbycongresstoimposetariffs

2.Producemoreefficiently

Both1and2

24.Thewageratewillfallas:

2.Productpricefalls

25.Amonopsonistis:

Awagemaker

26.Financialcapitalincludes:

2.Stocksandbonds

27.Depreciationisa:

1.Flowconcept

28.Privategoodsare:

1.Divisible.

29.Theeconomicdifferencebetweenpublicgoodsandprivategoodsrestson:

2.Technicalconsiderations

30.Inthepresenceofpositiveexternalities,thefreemarkettendstoleadto:

1.Theunderconsumptionofgoodsthatyieldpositiveexternalities

31.Theeconomicrationalefortheprovisionofroads,bridges,lighthouses,andother“publicgoods”isbasedonatheoryof:

Marketfailure

32.Supposethegovernmentimposesnewwaterqualityregulationsonanindustry.What’slikelytohappen?

Thesupplycurveshiftsinwardandpricerises

33.SupposetoxicsoilpollutioninChinasignificantlyreducesthesoybeanharvest.Whichofthesecompaniesislikelytoseeitsprofitsriseandbethebeststockmarketinvestment?

AshippingcompanythattransportssoybeansfromBraziltoChina

34.LeslieistheCEOofacompanyfacingarevenueshortfallandshedecidestoraisepricesinordertomakeupforthatshortfall.Toherchagrin,revenuesfallfurther.DemandforLeslie’sproductis:

Elastic

35.Whichhasalowerelasticity?

CoffeeorStarbuckscoffee?

Coffee

36.TheCEOofacompanyengineersamergerwithitsbiggestrivalandissurprisedthatovertime,themergerfailstoreducecosts.Whatistheindustrylikelycharacterizedby?

Constantreturnstoscaleoverabroadspectrumofoutput

37.Youworkinanindustrythatischaracterizedbybrandproliferation.Youlikelyworkina:

Monopolisticallycompetitiveindustry

38.Givenamarketstructureofperfectcompetition,whatkindofconductwithrespecttopricingcanweexpect?

1.P=MC

2.MR=MC

Both1and2

39.Yourcompanyislosingmoneyandyouaretryingtodecidewhetherornotyoushouldshutdownyourproduction.Yourbest“shutdownpoint”iswhenpricefallsbelowthelevelwhere:

Revenuesjustcovervariablecosts

40.Supposeyougointobusinessandyouhavetoforegoa$60,000ayear,after-taxsalaryanda$20,000housingallowance.Ifyouwindupattheendoftheyearwithaccountingprofitsof$80,000,whatareyoureconomicprofits?

$0

41.Intheaccompanyingfigure,atthegivenperfectlycompetitiveequilibrium,whatisthedeadweightloss?

Zero

42.Inthemonopolyoutcome,relativetotheperfectcompetitionoutcome:

Priceishigher,quantityislower

43.Whichtypeofefficiencymightmonopoliesenjoytojustifytheirnegativeeffects?

Dynamicefficiency

44.Whichdemandcurveisthatofadifferentiatedproductrelativetoanundifferentiatedproductintheaccompanyingfigure?

D1

45.Firmsinanoligopolisticindustrythatrecognizetheirmutualinterdependenceare:

Morelikelytocollude

46.Pricesinsmallconveniencestoresaregenerallyhigherthaninsupermarkets--yetpeoplestillshopinsuchstores.Whataccountsforthis?

Location

47.Supposethefirmendsitsfiscalyearwithacapitalstockof$2,000,000.Overthecourseofthecurrentyear,thefirminvests$200,000inanewplantandequipment.Atthesametime,itincursdepreciationof$250,000.

Thecapitalstockhasdecreased

48.Relativetotaxablebondswithsimilarrisks,tax-exemptstateandmunicipalbondstypicallyoffer:

Lowerinterestrates

49.Yourgovernmentvotestoimposeataxontheairpollutionemittedbylarge,coal-firedpowerplantsinyourcountry.Whicheconomicconcepthasthegovernmentlikelyendorsed?

Pigouvianviewofinternalizingexternalities