Principles of Microeconomics

1) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about:

B. 0.4

2) A basic difference between microeconomics and macroeconomics is that microeconomics

C. examines the choices made by individual participants in an economy, while macroeconomics considers the economy’s overall performance

3) An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in B. macroeconomic research

4) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s.

Much of the increase in demand was met by additional supplies from sources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during this time, was unable to restrain output among members in its effort to lift oil prices. What best describes these events?

C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oil supplied rose.

5) Price elasticity of demand is the:

D. percentage change in quantity demanded of a good divided by the percentage change in the price of that good

6) The distinction between supply and the quantity supplied is best made by saying that

B. supply is represented graphically by a curve and the quantity supplied as a point on that curve associated with a particular price

7) When labor is the variable input, the average product equals the

D. quantity of output divided by the number of workers

8) The increase in output obtained by hiring an additional worker is known as

B. the marginal product

9) Which of the following is the best example of a long-run decision?

A. An automobile manufacturing company is considering whether or not to invest in robotic equipment to develop a more cost-effective production technique.

10) Other things being equal, when average productivity falls,

D. average variable cost must rise

11) According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, then on busy days when the effective hourly wage is higher, taxi drivers will

B. work fewer hours than they will on slower days

12) A firm’s demand for labor is derived from the

D. demand for its output

13) Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day

B. is $5

14) Expected economic profit per unit is equal to

C. the difference between expected average price and expected average total cost

15) If a firm in a perfectly competitive market experiences a technological breakthrough,

B. other firms would find out about it immediately

16) A significant difference between monopoly and perfect competition is that

C. the monopolist’s demand curve is the industry demand curve, while the competitive firm’s demand curve is perfectly elastic

17) A monopoly firm is different from a competitive firm in that

C. a monopolist can influence market price while a competitive firm cannot

18) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a

D. downward-sloping demand curve and price exceeds marginal cost in equilibrium

19) As long as marginal cost is below marginal revenue, a perfectly competitive firm should

A. increase production

20) Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as the marginal

C. benefit of advertising exceeds the marginal cost of advertising

21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while local chapters of the Nature Conservancy say they will befoul the landscape. The Sierra Club argues that wind turbines

B. reduce negative externalities elsewhere in the economy

22) When negative externalities are present, market failure often occurs because

A. the marginal external cost resulting from the activity is not reflected in the market price

23) A merger between a textile mill and a clothing manufacturing company would be considered a

B. vertical merger

24) A merger between a baby food company and a life insurance company would be considered a

C. conglomerate merger

25) The fact that U.S. managers’ salaries are substantially greater than those of comparable managers in Japan may be related to

A. an increase in the demand for CEOs

26) Suppose people freely choose to spend 40 percent of their income on health care, but the government decides to tax 40 percent of a person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

A. Taxing income results in deadweight loss, while purchasing health care on one’s own does not result in deadweight loss.

27) The U.S. textile industry is relatively small because the US imports most of its clothing. A clear result of the importation of clothing is

D. the price of clothing is lower than it would be without imports

28) Countries can expect to gain from international trade as long as they

B. specialize according to their comparative advantage

29) Which of the following is an example of the law of one price?

D. Because their countries have similar institutions, the price paid for a computer in Germany and the United States are about the same when converted into the same currency.

30) From the point of view of consumer and producer surplus, what problem may be created when a country subsidizes the cost of energy to consumers to help alleviate the burden of higher energy costs?

C. It encourages the consumption of too much fuel at the expense of other goods.