Economics 165 Final Exam
Spring 1998

1. The question of HOW production will be organized in a market economy is most directly determined by:

a. suppliers or entrepreneurs

b. the National Economic Planning Commission

c. consumers

d. economic forecasters

2. The difference between a scarce (economic) good and a free good is that

a. for free goods at a price of zero enough of the good is available to completely satisfy consumers' demand for the good

b. free goods no longer exist -- there are only scarce goods

c. free goods are made with natural resources

d. free goods are provided by the government

3. A reduction in the amount of unemployment

a. moves the economy along the production possibilities frontier

b. moves the economy further away from the production possibilities frontier

c. shifts the production-possibilities frontier

d. moves the economy closer to the production possibilities frontier

4. A production possibilities frontier will shift out when:

a. the production of investment goods decreases

b. the quantity and/or productivity of resources (factors of production) increases

c. unemployment is decreased

d. the labor force decreases

5. The typical demand curve is

a. vertical

b. horizontal

c. positively sloped

d. negatively sloped

6. Suppose the law prohibiting possession of marijuana in quantities of less than one ounce were abolished and at the same time penalties for the production or sale of marijuana were increased. As a result of these two changes, the demand for marijuana would (increase/decrease) and the supply of marijuana would (increase/decrease), the price of marijuana then should (rise/fall/neither rise nor fall).

a. decrease, decrease, neither

b. decrease, increase, fall

c. increase, decrease, rise

d. increase, decrease, neither

7. If the demand for product J shifts to the left as the price of product K increases, then

a. J and K are complementary goods

b. J and K are not related goods

c. the number of consumers of product K has increased

d. J and K are substitute goods

8. Suppose that as the price of gasoline rises from $1.00 per gallon to $1.50 per gallon, the quantity of gasoline sold increases from 100 trillion gallons to 150 trillion gallons. Which of the following is a possible explanation for this?

a. There were fewer users of automobiles

b. The price of public transportation increased over the same time period

c. The demand curve for gasoline is perfectly inelastic

d. All of the above are possible explanations

9. Price elasticity of supply is the

a. change in quantity supplied due to a change in quantity demanded

b. percentage change in quantity supplied divided by the percentage change in price

c. responsiveness of supply to changes in costs

d. responsiveness of the price to changes in supply

Use the graph below to answer question number 10

10. If a price ceiling is imposed on the rental price of housing (assume the government can enforce the price ceiling) then:

a. a ceiling price of OC will result in a shortage of DG units of housing

b. a ceiling price of OA will result in a shortage of DG units of housing

c. a ceiling price of OC will result in a surplus of DG units of housing

d. a ceiling price of OA will result in a surplus of DG units of housing

11. Suppose the price of a certain good fell from $1 to $.50 and the quantity demanded increased from 250 to 750 units. Over this range of the demand curve, the elasticity of demand is:

a. 1

b. .75

c. 1.5

d. 1.2

12. The price that one is willing to pay for a unit of a good depends on its

a. marginal utility

b. cost of production

c. total utility

d. supply

13. Utility refers to the

a. satisfaction derived from consuming a good or service

b. net social benefit of a good or service

c. market value of a good or service

d. scarcity price of a good or service

14. When U.S. residents demand German marks:

a. they plan to spend those marks on American produced goods

b. they can only use those marks to purchase gold from the German Central Bank

c. U.S. residents at the same time supply dollars to German residents

d. U.S. residents at the same time demand U.S. dollars from German residents

15. Which of the following could NOT result from a tariff?

a. consumers to be better off because there are more goods available

b. consumers to be worse off because there are fewer imports

c. domestic producers to be better off because they sell more goods

d. domestic producers to be better off because they sell at a higher price

Use the Table below to answer question number 16

16. In the table above, the total variable cost of producing 5 units is:

a. $37

b. $24

c. $61

d. $48

17. Explicit costs differ from implicit costs in that explicit costs are:

a. paid to others whereas implicit costs do not represent a payment to others

b. true costs; implicit costs are not part of total economic costs

c. not deductible for tax purposes

d. not necessarily paid whereas implicit costs are always directly paid

Use the table below to answer question number 18

18. In the table above, the average fixed cost associated with an output of 100 units per day is _________ ?

a. $30.01

b. $1.20

c. $120

d. $0

19. If marginal cost lies below average total cost, then

a. average fixed cost must be rising

b. average total cost must be rising

c. average total cost must be falling

d. marginal cost must be falling

e. marginal cost must be rising

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. 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

22. A perfectly competitive firm

a. is likely to earn positive economic profit in the long run

b. will always exit the industry if it is incurring losses in the short run

c. is a price taker

d. always produces at the minimum average total cost

23. At the output where a firm's average total cost equals its price, the firm is

a. incurring an economic loss

b. earning more than a break-even return

c. earning an economic or pure profit

d. earning zero economic profits

e. earning less than a break-even return

24. Where marginal cost is rising and exceeds marginal revenue, a profit-maximizing firm would

a. continue producing the same level of output in the short run

b. shut down in the long run

c. produce more

d. produce less

25. A decrease in demand that results in economic losses in a perfectly competitive industry will:

a. encourage entry into the industry

b. encourage exit from the industry

c. induce new, more efficient, firms to enter the industry

d. cause existing firms in the industry to expand the scale of their operation

26. If entry of new firms into a perfectly competitive market results in higher resource costs, the long-run market-supply curve will be

a. negatively sloped

b. perfectly inelastic

c. perfectly elastic

d. positively sloped

27. Monopolists

a. are guaranteed at least a zero economic profit

b. are guaranteed more than a normal profit

c. are guaranteed an economic profit

d. none of the above are correct

28. For the monopolist, at the profit maximizing level of output in the short run, all of the following necessarily hold except

a. Price is greater than MC

b. ATC is greater than Average Variable Cost (AVC)

c. Marginal Cost (MC) equals Average Total Cost (ATC)

d. Marginal Revenue (MR) equals MC

29. In monopolistic competition there are

a. many firms each producing a homogeneous product

b. a few firms each producing a differentiated product

c. many firms each producing a differentiated product

d. a few firms each producing a homogeneous product

30. If additional firms enter a monopolistically competitive industry

a. the price would most likely increase

b. the demand facing an existing firm would decrease

c. the demand facing an existing firm would increase

d. the profits of an existing firm would increase

31. In oligopoly markets there

a. is a single source of supply

b. is a single source of demand

c. are a large number of firms each selling a homogeneous product

d. are a large number of firms each selling a highly differentiated product

e. is a small number of firms each selling either a differentiated or a homogenous product

32. "Mutual Interdependence" means that

a. each firm in the market makes homogeneous products

b. a single firm will consider reactions of rivals to any action the single firm takes

c. pricing actions of rivals in the market are of no consequence to a single firm

d. each firm in the market makes differentiated products

e. the demand curves of the firm and the market are identical

33. All markets that are not perfectly competitive have which of the following characteristics?

a. each firm's demand curve is the industry demand curve

b. products that the various firms sell are always differentiated to some extent

c. firms in the market have some control over price (face a downward sloping demand curve)

d. there are only a few firms in the industry

e. all the firms make substantial profits

34. If a firm which is unable to price discriminate is faced with a downward sloping demand curve:

a. its supply curve is its marginal cost curve above its average variable cost curve

b. its marginal revenue curve is less than its price

c. its marginal revenue curve equals its price

d. its most profitable output is where marginal cost equals price

35. The price elasticity of demand for labor will be greater

a. the more difficulty it is to substitute capital for labor

b. the smaller is the proportion of total costs accounted for by labor

c. the greater is the price elasticity of demand for the output

d. the shorter is the time period for adjustment

36. An increase in the market demand for labor will cause:

a. the supply of labor to rise

b. the wage rate to rise and the quantity of labor employed to rise

c. the level of employment to fall

d. the wage rate to fall

37. A firm which is perfectly competitive in both its output and labor market should hire an additional worker if

a. marginal product would be decreased

b. marginal product would be increased

c. total revenue is less than total cost

d. marginal revenue product is less than the wage rate

e. marginal revenue product is more than the wage rate

38. If both the output and the labor market are perfectly competitive, the wage will be

a. about equal to the value of the additional output produced by the last worker hired

b. mainly determined by the bargaining power of unions

c. driven down to the subsistence level

d. about equal to the value of the average product of labor

39. A monopsonist, 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. A monopsonistic firm will pay a wage that is

a. greater than the marginal factor cost

b. equal to the opportunity cost of the employer

c. less than the marginal factor cost

d. equal to the marginal factor cost

e. equal to the cost of capital

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