Econ 101: Orazem

Final Exam Review

  1. Economics can be defined as the study of
  2. Business firms and how they can increase their profits

b.  Choice under conditions of scarcity

  1. How households allocate their income to different uses
  2. Use the following table for problems 2-4, which give the number of hours it takes a worker in each given country to produce one unit of the indicated goods.

1 Sweater / 1 Fish
Norway / 2 hours / 4 hours
Sweden / 6 hours / 2 hours

From this data, you can see that Norway has an absolute advantage in producing

a.  Sweaters

  1. Fish
  2. Both goods
  3. Neither goods
  1. From the data, we can see that opportunity cost of producing a fish in Sweden is
  2. 3 sweater(s)

b.  1/3 sweater(s)

  1. 2 sweater(s)
  2. ½ sweaters(s)
  3. We can conclude that Sweden has a comparative advantage in producing
  4. Sweaters

b.  Fish

  1. Both goods
  2. Neither goods
  3. As we move rightward along a production possibilities frontier, we also move

a.  Downward, and the frontier become steeper

  1. Upward, and the frontier becomes steeper
  2. Downward, and the frontier becomes flatter
  3. Upwards an the frontier becomes flatter
  4. Use the following table for problems 6-8, which give the number of hours it takes to produce a ton of each given product in each country.

1 Ton of Corn / 1 Ton of Wheat
U.S / 10 hours / 5 hours
Mexico / 15 hours / 10 hours

In Mexico, the opportunity cost of a ton of wheat is

a.  2/3 ton of corn

  1. 1 ton of corn
  2. 1.5 tons of corn
  3. Base on the information given, which of the following statements is true

a.  The United States has an absolute advantage in both goods

  1. Mexico has a comparative advantage in producing wheat
  2. The U.S has a comparative advantage in both goods
  3. None of the above
  4. If trade opens up between the U.S. and Mexico, and these are the only two goods traded, then
  5. The U.S. will export both corn and wheat to Mexico

b.  Mexico will export corn and the U.S. will export wheat

  1. Mexico will export wheat and the U.S. will export corn
  2. If the U.S. imposes a tariff on imported bicycles, then,
  3. The price of the U.S. produced bicycles will rise
  4. The price of the imported bicycles purchased in the U.S will rise
  5. The quantity of bicycles produced in the U.S. will rise

d.  All of the above

  1. One key difference between a quota and a tariff is that
  2. Tariffs reduce the volume of trade, while quotas do not

b.  Tariffs generate revenue for the government, while quotas generally do not

  1. Quotas benefit domestic producers of the protected good, while tariffs do not
  2. A Pareto improvement is best defined as
  3. The gainers are forced to compensate for the losers losses
  4. Many people are gained and no one is harmed
  5. The gains to gainers are greater than the losses to losers
  6. The height of the market demand curve at any quantity tells us

a.  The cost to some firm of the last unit produced

  1. The cost to some consumers of the last unit produced
  2. The sum of the total cost and the value of the last unit consumed and produced
  3. A price ceiling imposed on an otherwise well functioning, perfectly competitive market will always cause
  4. A decrease in a market consumer surplus

b.  Either a gain in market consumer surplus or a gain in market producer surplus or both

  1. A deadweight loss
  2. When an excise tax is imposed on a market with a perfectly inelastic supply curve, there is no deadweight loss
  3. As long as the tax is imposed on buyers
  4. As long as the tax is imposed on sellers
  5. Regardless of whether the tax is imposed on buyers or sellers
  6. A firm’s additional revenue per period from one more unit of capital is called
  7. Marginal cost

b.  Marginal revenue

  1. Discounted capital
  2. If the interest rate is 12%, then the present value of $100 to be received two years in the future is

a.  $144

  1. $112
  2. $89.29
  3. $79.72
  4. A Gini coefficient is a measure of income inequiality derived from
  5. The poverty rate
  6. Income mobility studies

c.  The Lorenz curve

  1. None of the above
  2. Most people seem to agree that income inequality due to ______is entirely fair.
  3. Inherited wealth
  4. Difference in wages

c.  Compensating wage differentials

  1. None of the above
  2. In a competitive labor market, a higher minimum wage can be expected to cause
  3. Higher wages for skilled workers
  4. Higher employment for skilled workers
  5. Lower wages for unskilled workers not covered by minimum wage

d.  All of the above

  1. Which of the following is not true for monopolistically competitive firms in the long run?
  2. Economic profit equals zero

b.  Average total cost is minimized

  1. Price exceeds marginal revenue
  2. A key feature of oligopoly is
  3. Differentiated output
  4. Standardized output
  5. No barriers to entry

d.  None of the above

  1. A natural oligopoly is a oligopoly that can be explained by

a.  Economics of scale

  1. The reputation of existing firms
  2. All of the above
  3. None of the above
  4. The restaurant industry in a large city most closely resembles the market structure of
  5. Perfect competition

b.  Monopolistic competition

  1. Monopoly
  2. Oligopoly with cooperative behavior
  3. Both monopoly and monopolistic competition share the following features?
  4. No significant barriers to entry
  5. Zero economic profit in the long run

c.  Downward sloping demand curve

  1. All of the above
  2. A monopoly is a only seller of a good or service with
  3. No barrier to entry

b.  No close substitutes

  1. No close complements
  2. No government involvement
  3. For a single-price monopoly, the marginal revenue curve
  4. Is vertical

b.  Lies below the demand curve

  1. Lies above the demand curve
  2. Is the same demand curve
  3. Which of the following can explain why a market becomes a monopoly rather than a purely competitive market?

a.  Economies of scale

  1. Easy exit and entry
  2. Horizontal demand curve
  3. Standardized product
  4. Which of the following is a characteristic of a perfect competition?

a.  There are many buyers and sellers

  1. The firm faces a downward sloping demand curve
  2. Every seller offers a different product from other sellers
  3. All of the above
  4. Which of the following is true in the short run when a perfectly competitive firm is producing the profit maximizing output level?
  5. TR=TC

b.  P=MC

  1. P=AVC
  2. None of the above
  3. A perfectly competitive firm earns positive economic profit whenever
  4. P > MC
  5. P > MR

c.  P > ATC

  1. ATC > MC
  2. Which of the following statements about perfect competition is false?
  3. In the short run, the number of firms in the industry is fixed
  4. Each firm chooses the price at which it will sell its output
  5. For each firm, marginal revenue is the same as market price
  6. There are not significant barrier to entry or exit
  7. In a perfectly competitive, increasing-cost industry, an increase in demand will, in the long run cause
  8. An increase in price

b.  An increase in market output

  1. An increase in the number of firms
  2. All of the above
  3. In a competitive industry, a rightward shift of the demand curve will cause
  4. Economic profit for each firm in the long run
  5. Economic loss for each firm in the long run

c.  Economic profit for each firm in the short run, and entry in the long run

  1. According to the shut-down rule, a firm should shut down in the short fun whenever—at the output level where MR = MC—
  2. Total cost exceeds total revenue

b.  Total variable cost exceeds total revenue

  1. Total fixed cost exceeds total revenue
  2. For problems 35-38, refer the following data.

P / Q / TC
$100 / 4 / $350
$90 / 5 / $375
$80 / 6 / $425
$70 / 7 / $500

For this firm, the marginal revenue when price is lowered from $100 to $90 is

a.  $50

  1. $90
  2. $100
  3. $400
  4. $450
  5. At which output level or levels could this firm make a positive economic profit?
  6. 4
  7. 5
  8. 6

d.  All of the above

  1. None of the above
  2. For this firm, as output increases from 4 to 5 to 6 to 7,
  3. Marginal cost increases
  4. Marginal cost decreases
  5. Marginal revenue increases
  6. Total revenue decreases
  7. For this firm the profit maximizing output level is
  8. 4

b.  5

  1. 6
  2. 7
  3. None of the above—the firm should shut down
  4. Economic profit is
  5. The same as accounting profit
  6. The difference in the firm’s total revenue and it’s explicit costs
  7. The difference in the firm’s marginal revenue and marginal cost
  8. None of the above
  9. The demand curve facing the firm shows us, for any give output level,
  10. Total revenue
  11. Total cost

c.  The maximum price the firm can charge

  1. None of the above
  2. The firm maximizes profit by producing the output level at which
  3. Total revenue equals total cost
  4. Total revenue minus total cost is greatest
  5. Marginal revenue minus marginal cost is greatest
  6. If the firm doubles its output, but finds that its LTTC less than doubles, the firm is experiencing

a.  Economies of scale

  1. Constant returns to scale
  2. Diseconomies of scale
  3. When a firm increases its employment from four to five workers, with no other change, its total output rises from 1,000 to 1,500. For this change in employment, the marginal product of labor is
  4. 100
  5. 200
  6. 250

d.  500

  1. 550
  2. The firm’s marginal cost curve
  3. Intersects the minimum point of ATC curve only
  4. Intersects the minimum point of AVC curve only

c.  Intersects the minimum point of ATC curve and the AVC curves

  1. None of the above
  2. Which of the following statements about the budget line is true?

a.  The consumer can afford every combination of goods on the budget line

  1. The consumer can afford every combination of goods below the budget line, but no those on the line.
  2. The consumer can afford every combination of goods on the upper half of the budget line.
  3. None of the above
  4. A rise in income will
  5. Shift the budget line rightward and increase its slope
  6. Shift the budget line leftward and decrease its slope
  7. Shift the budget line rightward, with no change in slope
  8. None of the above
  9. The law of diminishing marginal utility tells us each time we increase the quantity of a good consumed by one unit,
  10. Total utility decreases, but by less and less each time

b.  Total utility increases, but by less and less each time

  1. Total utility increases by more and more each time
  2. None of the above
  3. The cross-price elasticity between good X and good Y is -2. This tells us that goods X and Y are
  4. Inferior
  5. Complements
  6. Substitutes
  7. None of the above
  8. The price elasticity of demand for a good is greater than one, we say that demand for the good is
  9. Inelastic

b.  Elastic

  1. Perfectly elastic
  2. Perfectly inelastic
  3. The rise in the price of a substitute for a good will cause
  4. Both equilibrium price and quantity of the good to increase
  5. Both equilibrium price and quantity of the good to decrease
  6. Both equilibrium price and quantity of the good to remain the same
  7. If there is an excess supply of a good, we can generally expect
  8. The price of the good to rise

b.  The price of the good to fall

  1. The supply curve to shift leftward
  2. The demand curve to shift rightward

Good luck on the final!