Principles of Microeconomics Final Exam

9 February 2023
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When a tax is imposed on the buyers of a good, the demand curve shifts
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downward by the amount of the tax
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Efficiency is attained when
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total surplus is maximized.
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The size of the deadweight loss generated from a tax is affected by the
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elasticities of both supply and demand.
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The maximum price that a buyer will pay for a good is called the
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willingness to pay.
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When a tax is placed on a product, the price paid by buyers _________, and the price received by sellers __________.
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rises; falls
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Consumer surplus is equal to the
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Value to buyers - Amount paid by buyers.
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The decrease in total surplus that results from a market distortion, such as a tax, is called a
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deadweight loss.
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Laissez-faire is a French expression which literally means
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allow them to do.
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The Laffer curve relates
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the tax rate to tax revenue
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The "invisible hand" is
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a concept developed by Adam Smith to describe the virtues of free markets.
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If the size of a tax increases, tax revenue
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may increase, decrease, or remain the same
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A country has a comparative advantage in a product if the world price is
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higher than that country's domestic price without trade.
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Trade enhances the economic well-being of a nation in the sense that trade results in a(n)
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increase in total surplus
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Several arguments for restricting trade have been advanced. Those arguments do not include
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the no-deadweight-loss argument
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What is the fundamental basis for trade among nations?
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comparative advantage
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The term market failure refers to a market that fails to
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allocate resources efficiently
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An externality is the impact of
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one person's actions on the well-being of a bystander
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If education produces positive externalities, we would expect
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the government to subsidize education
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Dioxin emission that results from the production of paper is a good example of a negative externality because
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self-interested paper producers will not consider the full cost of the dioxin pollution they create
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Research into new technologies is what type of externality?
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positive externality
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Corrective taxes give factory owners an economic incentive to
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reduce pollution
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Total revenue equals
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price x quantity
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At the profit‐maximizing level of output, __________________ equals ____________________.
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marginal revenue; marginal cost
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The value of a business owner's time is an example of
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opportunity cost
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A difference between explicit and implicit costs is that
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implicit costs do not require a direct monetary outlay of the firm, where explicit costs do
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When price is greater than marginal cost for a firm in a competitive market, there are opportunities to
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increase profit by increasing production
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Foregone rent on office space owned and used by the firm is an example of what kind of cost?
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implicit
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The difference between accounting profit and economic profit is
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implicit costs
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A production function describes how a firm turns
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inputs into output
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The marginal product of labor is equal to the
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increase in output obtained from a one unit increase in labor.
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Total cost can be divided into two types of costs:
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fixed costs and variable costs
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What measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"
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marginal cost
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If marginal cost is equal to average total cost, then average total cost is
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minimized
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When marginal cost is less than average total cost, average total cost is
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falling
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The firm's efficient scale is the quantity of output that minimizes
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average total cost
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The competitive firm's long‐run supply curve is that portion of the marginal cost curve that lies above average
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total cost
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The marginal cost curve crosses the average total cost curve at
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the efficient scale, the minimum point on the average total cost curve, and at a point where the marginal cost curve is rising.
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What explains why long-run average cost at first decreases as output increases?
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gains from specialization of inputs
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Diseconomies of scale occur when
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long-run average total costs rise as output increases
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Buyers and sellers are price takers is a characteristic of which type of market?
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competitive
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If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
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exactly triple
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If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a one‐unit decrease in output will _____________ the firm's profit
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increase
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In the short run, a firm operating in a competitive industry will shut down if price is
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less than average variable cost
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Which of these curves is the competitive firm's short‐run supply curve?
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the marginal cost curve above average variable cost
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A firm that shuts down temporarily has to pay
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its fixed costs but not its variable costs
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When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
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sunk costs
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Which of the following represents the firm's long‐run condition for exiting a market?
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exit if P < ATC
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In the long run, each firm in a competitive industry earns
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zero economic profits
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In the short run, a firm incurs fixed costs
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whether it produces output or not
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Average total cost is equal to
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total cost/output
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a perfectly inelastic demand implies that buyers
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purchase the same amount as before when the price rises or falls
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When describing the opportunity cost of two producers, economists use the term
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comparative advantage
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the invisible hand works to promote general wellbeing in the economy primarily through
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people's pursuit of self-interest
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Any point on a countries PPF represents a combination of two goods that an economy
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can produce using all available resources and technology
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trade between the U.S. and India
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benefits both the U.S. and India
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the term "price takers" refers to buyers and sellers in
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perfectly competitive markets
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Economics primarily deals with the concept of
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scarcity
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the 2 loops in the circular flow diagram represent
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the flow of inputs and outputs and the flow of dollars
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Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. As a result, people in Mass. start buying their alcohol in surrounding states. Which principle does this best illustrate?
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people respond to incentives
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A bow shaped PPF can be explained by the fact that
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the OC of one good in terms of the other depends on how much of each good the economy is producing
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if goods A and B are compliments then an increase in the price of good A will result in
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less of good B being sold
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an increase in quantity demanded results into a movement __________ and to the __________ along the demand curve.
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downward; right
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an improvement in technology will shift the __________ curve to the _____________.
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supply; right
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if a price ceiling is not binding, then there will be
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no effect on the price or quantity sold
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suppose that the supply curve is highly elastic and the demand curve is highly inelastic. if a tax is imposed on this market, who will suffer the greater tax burden, buyers or sellers?
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buyers
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the price elasticity of demand measures
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buyers responsiveness to the change in the price of a good
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when demand is inelastic, the price elasticity of demand is
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less than 1, and price and total revenue will move in the same direction
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if the price elasticity of supply is 1.2, and price increased by 5% , quantity supplied would
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increase by 6%