Economics 165 Final Exam
Fall 1998

1. The term "marginal" in economics means

a. the minimum unit

b. the maximum unit

c. unimportant

* d. additional

2. A mixed economy is one where

a. the system changes from purely a free market economy to purely a control economy

b. the market system handles resource allocation

c. there are elements of democracy and dictatorship

* d. there are elements of a free market economy and a control (planned) economy

3. On a production possibilities frontier, the allocatively efficient combination of output is

a. at the precise midpoint of the frontier

b. at a point near the bottom of the frontier

c. at a point near the top of the frontier

d. at a point near the middle of the frontier

* e. impossible to determine since this is a value judgment to be made by society

Use the Following Graph to Answer Question 4

4. Let a production possibilities frontier for investment and consumption goods be as in the graph above. In order to increase production of investment goods from 14 to 20 units it is necessary to sacrifice (assume the economy is its employing all resources and has no technological inefficiency):

* a. 3 units of consumption goods

b. 10 or more units of consumption goods

c. 16 units of consumption goods

d. 12 units of consumption goods

e. no units of consumption goods

5. If coffee and tea are substitutes, an increase in the price of coffee will cause:

a. a decrease in the demand for tea

b. the consumer's tastes to change so that she now prefers coffee more than before its price rose

* c. an increase in the demand for tea

d. a movement along the demand curve for tea

6. If the price of a good drops the consumer will have more real purchasing power and will tend to buy more of all goods. This phenomenon is known as the

a. consumption-possibility effect

b. price effect

* c. income effect

d. substitution effect

7. Which of the following is true with regard to an increase in the supply of a good?

a. it is most likely caused by an increase in the price of the good

b. it is represented by an upward shift of the supply curve

* c. it is represented by a rightward shift of the supply curve

d. it is represented by a movement upward along the supply curve

e. it will cause an increase an increased demand for the good

8. Assume the demand for coal increases significantly. Ceteris paribus, coal prices:

* a. will increase, and miners' wages will also increase

b. will increase, but the wages of coal miners will not be affected

c. will decrease, and miners' wages will also decrease

d. will decrease, but miners' wages will be unaffected

9. Suppose that the equilibrium quantity of wheat has risen while the equilibrium price of wheat has not changed. Assuming wheat is a normal good, these changes could be explained by a(n) in consumers' income and a(n) in input prices.

* a. increase, decrease

b. decrease, decrease

c. decrease, increase

d. increase, increase

10. The price elasticity of demand coefficients are: 3.8, .1, 1.0, and .8, for the demand schedules D_A, D_B, D_C, and D_D, respectively. A 25 percent reduction in price will result in an increase in Total Revenue in the case of:

a. D_B and D_D

* b. D_A

c. D_A and D_C

d. D_B, D_C and D_D

11. The price elasticity of demand for a good is larger when

* a. the good has more substitute goods

b. the good is relatively inexpensive

c. the good is more of a necessity

d. the time period is shortened

12. The price of good X is $1.50 and that of good Y is $1. If a particular consumer's marginal utility for Y is 30, and he is currently maximizing his total utility, then his marginal utility of X must be:

a. 30 units

* b. 45 units

c. 15 units

d. 20 units

e. 60 units

13. Utility theory (the theory of consumer choice)

* a. provides a deeper understanding of demand

b. provides information about firm advertising expenditure

c. shows how total utility can be scientifically measured

d. shows how revenue can be exactly measured

14. Foreign demand for dollars increases as:

a. American travel abroad increases

b. U.S. firms' investment in foreign countries increases

c. American demand for foreign goods increases

* d. foreigner demand for American goods increases

15. An import quota is

* a. a quantitative restriction on the amount of a good that can be imported

b. the requirement that importers "quote" or report their activities to governmental officials

c. a tax on imported goods

d. a limitation on the level of a country's exchange rate

16. Normal profits equal

a. total revenue minus implicit costs

b. explicit cost minus implicit costs

* c. the implicit costs of production

d. total revenue minus total costs

17. The short-run marginal cost curve slopes upward because of

a. the price of the fixed input is increasing

b. increasing returns to scale

c. economies of size

* d. the law of diminishing marginal productivity (returns)

18. The production function:

* a. shows the relationship between inputs and output (quantity produced)

b. shows the relationship between marginal product and input prices

c. indicates the most profitable output to produce

d. shows the relationship between costs and output (quantity produced)

19. The addition to total variable cost when one more unit of output is produced is called

a. fixed cost

b. average variable cost

c. total cost

* d. marginal cost

20. The marginal product of capital divided by its price is half as large as the marginal product of labor divided by its price. For production costs to be minimized:

a. more capital should be used and less labor

* b. more labor should be used and less capital

c. the price of capital must fall

d. the firm must increase production to reach the minimum point of the short-run average cost curve

21. Suppose there are 5,000 identical firms in a perfectly competitive industry. Then each firm's marginal revenue curve is:

a. a horizontal line identical to its marginal cost curve

* b. horizontal at the market price

c. 1/5,000 of the industry demand curve

d. 1/5,000 of the industry supply curve

e. less elastic in the short run than in the long run

22. The demand curve of a perfectly competitive firm

a. is the same as the market demand curve for the entire industry

* b. is perfectly elastic

c. has a price elasticity coefficient of less than 1

d. is perfectly inelastic

23. A perfectly competitive firm maximizes profit at the output where:

a. the market price equals average variable cost

b. profit per unit is maximized

* c. marginal cost equals the market price

d. marginal cost equals average total cost

24. In the short run, the perfectly competitive firm's supply curve is that segment of the:

* a. marginal cost curve which lies at and above the average variable cost curve

b. average variable cost curve which lies below the marginal cost curve

c. marginal cost curve which lies between the average total cost and average variable cost curves

d. marginal revenue curve which lies below the demand curve

25. If the firms in an industry produce where price equals marginal cost and there is free entry and exit then, in the long-run, there will be

a. zero accounting profit

b. an economic loss

* c. allocatively efficient production and a zero economic profit

d. positive economic profit

26. If entry of new firms into a perfectly competitive market increases input prices, the long-run market supply curve will be

a. negatively sloped

b. perfectly inelastic

c. perfectly elastic

* d. positively sloped

27. A monopolist's marginal revenue is generally less than price because

a. average revenue is below total revenue

* b. to sell an additional unit of the output, the price on all the units previously sold must be decreased

c. monopolist's profits would decrease in the long run

d. monopolists are not generally liked; people and governments want to limit their earnings

28. If a monopolist lowers price and, as a result, its total revenue rises, then

a. its price must be less than its marginal revenue

b. there must be no close substitutes for the monopolist's product

c. the monopolist must be in the inelastic region of its demand curve

* d. its marginal revenue must be positive

29. In the long run, economic profits in a monopolistically competitive market

* a. are zero

b. will reduce the number of firms in the market

c. tend to be larger than in the short run

d. tend to be the same as those in the short run

30. A monopolistically competitive firm's demand curve is downward sloping because

* a. product differentiation gives the firm some control over price

b. the firm sells a homogeneous product

c. other firms are free to enter the market

d. there are a large number of firms in the market

31. An oligopoly refers to a market situation with

a. a large number of independent firms and no barriers to entry

* b. a small number of mutually interdependent firms

c. a single firm in the industry with no barriers to entry

d. a large number of firms selling a homogeneous product

32. The kinked demand curve of an oligopolist is based on the assumption that:

a. competitors will ignore a price decrease but follow a price increase

b. competitors will match both price cuts and price increases

c. other firms will determine their pricing and output policies in collusion with the given firm

d. there is no product differentiation

* e. competitors will follow a price cut but ignore a price increase

33. Long-run economic profit will be zero in an industry

a. only if the industry is perfectly competitive

b. whenever products are homogeneous (standardized)

* c. if firms can freely enter or exit the market

d. if firms don't try to maximize profit

e. whenever average cost is not minimized

34. To maximize profits, any firm must produce the quantity where

a. price equals marginal cost

b. price equals marginal revenue

c. price equals average costs

* d. marginal revenue equals marginal costs

35. The marginal factor cost is the

a. change in total cost associated with producing an additional unit of the good

* b. change in total cost associated with hiring an additional unit of the resource

c. resource cost associated with producing an additional unit of a good

d. change in resource cost associated with selling an additional unit of a good

e. change in resource cost associated with producing an additional unit of the good

36. A monopsony is a:

a. market with only one product

b. market that employs only one resource in its production process

c. market with only one seller

* d. market with only one buyer

37. In a perfectly competitive labor market, the marginal factor cost is

a. equal to the price of the good being produced

b. greater than the wage rate when the price is falling

* c. equal to the wage rate

d. less than the wage rate

38. A firm which is perfectly competitive in the output market will continue to hire labor as long as:

a. the value of the marginal product is less than marginal factor cost

b. marginal cost is greater than marginal revenue

c. marginal revenue product is less than marginal factor cost

* d. marginal revenue product is greater than marginal factor cost

39. A monoposonist, as compared to a perfect competitor in the labor market, would

a. pay the same wage and employ more labor

b. pay the same wage and employ less labor

c. pay a higher wage and employ more labor

d. pay a higher wage and employ less labor

* e. pay a lower wage and employ less labor

40. The wage rate paid by a monopsonist is

a. greater than the marginal factor cost

b. equal to the opportunity cost to the employer of an extra laborer

* c. less than the marginal factor cost

d. equal to the marginal factor cost

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