Microeconomics Final Exam Study Guide Part 1

Front 1

private goods, club goods, public goods, and common property good

Back 1

The four types of economic goods discussed at the beginning of the semester included:

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individuals who do not pay for the good are kept from enjoying its benefits

Back 2

A good would be considered excludable in consumption if:

Front 3

common property good

Back 3

Interstate 4 (I-4) and State Road 408 are two major highways that affect traffic flows in Orlando. Motorists are not required to pay a toll (user fee) to drive on Interstate 4, whereas they are required to pay a toll (user fee) to drive on State Road 408. If at a given time of day Interstate 4 is highly congested, then it could be considered to possess the properties of a:

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i. the good that is produced and traded is homogenous or standardized

ii. there are large numbers of independently acting buyers and sellers

Back 4

In perfectly (or purely) competitive markets:

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i. as the price of a good increases, quantity demanded will decrease, holding all other factors constant

ii. as the price of a good decreases, quantity demanded will increase, holding all other factors constant

Back 5

A fundamental characteristic of the demand side of markets for goods and services is given by the law of demand, which states that:

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ii. demand curves for a given good differ between consumers

iv. an individual has different demand curves for different goods

Back 6

In considering consumer demand for a good it is reasonable to expect that:

Front 7

$20

Back 7

A goods choke price is the dollar amount at which none of the good will be purchased and below which units will be purchased. If an individuals demand function for a good is given by the linear equation Q = 10 - 0.5P, then the choke price is:

Front 8

why supply curves are downward sloping

why demand curves are upward sloping

the effect that changing a good from being non-rival to being rival has on quantity demanded

the effect that changing a good from being rival to being non-rival has on quantity supplied

NONE OF THE ABOVE ARE CORRECT! (REAL ANSWER)

Back 8

The substitution effect, income effect, and diminishing marginal utility are all explanations for:

Front 9

the quantity demanded would increase by 15 units and total expenditures on the good would increase by $300

Back 9

Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to decrease from P = $60 to P = $40, then holding all other factors constant:

Front 10

a decrease in the price of a substitute good

Back 10

The demand for a good will decrease if there is:

Front 11

i. factors other than price that affect the quantity of a good or service a firm is willing and able to produce

iii. factors that affect a firms minimum willingness-to-accept (WTA) to produce various quantities of a good

Back 11

The determinants of supply are:

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i. more output may be obtained with a given amount of inputs compared to before the technological improvement

ii. a given amount of output may be obtained with fewer inputs compared to before the technological improvement

Back 12

If the level of technology used in the production of a good improves, and assuming the quality of the good does not change, then:

Front 13

i. as the price of a good increases, quantity supplied will increase, holding all other factors constant

ii. as the price of a good decreases, quantity supplied will decrease, holding all other factors constant

Back 13

A fundamental characteristic of the supply side of markets for goods and services is given by the law of supply, which states that:

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ii. the maximum quantity supplied at each price, holding all other factors constant

iv. the firm's minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

Back 14

Consider a firm that produces and sells units of a good in a perfectly competitive market. The firm's supply curve identifies:

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the law of supply fails to hold, and producer output is completely insensitive to changes in price

Back 15

If a firm's supply curve is vertical, then it may be concluded that:

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the demand for steel to decrease

Back 16

Steel and plastic are substitutes in the production of the body panels used as inputs in the production of automobiles. If the price of plastics decreases due to technological improvements, then it is reasonable to expect that:

Front 17

buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept

Back 17

From the competitive market framework discussed in class and chapters 3 and 4 of the text, it may be concluded that for a good to be exchanged between a seller and a buyer:

Front 18

P = 60 - Q

Back 18

Suppose two identical buyers comprise the market for a good. If each buyer's demand function is given by P = 60 - 2Q, then the market demand function is:

Front 19

below the equilibrium price, resulting in the quantity demanded exceeding the quantity supplied

Back 19

In the market for a good, a shortage will exist if the price is:

Front 20

quantity will rise, but the equilibrium price may either rise, fall, or remain unchanged

Back 20

Suppose the market for a good is perfectly competitive and that it is initially in equilibrium. If the supply of the good increases and the demand for the good simultaneously increases, then equilibrium:

Front 21

the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase

Back 21

The impacts of sustained summer droughts on the domestic supply of wheat is of increasing concern. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:

Front 22

shortage of 30 units

Back 22

Suppose the market supply of a good is given by P = 10 + 0.2Q, the market demand is given by P = 60 - 0.5Q, and the market is in equilibrium. If the government imposes a price restriction of P = $20 per unit, then subsequent to this market intervention there will be a:

Front 23

i. is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays

Back 23

In chapter 4, the economic concepts of producer surplus and consumer surplus are defined and discussed. The consumer surplus derived by an individual from a good or service:

Front 24

$1300

Back 24

Suppose the market demand for a good is described by the equation P = 120 - 0.5Q. If a change in market supply results in price decreasing from P0 = $60 to P1 = $50, then the resulting change in consumer surplus is:

Front 25

a lighthouse protecting ships from a rocky coastline

Back 25

Which of the following examples best represents a public good?

Front 26

a common property good

Back 26

Which of the following is rival and non-excludable in consumption?

Front 27

can complete the task using fewer resources than other individuals (e.g., time)

Back 27

If one individual has an absolute advantage over other individuals in completing a particular task, then this individual:

Front 28

the countrys resources were under-utilized or resources were being used inefficiently prior to the policy change

Back 28

Consider a country that uses it resources to produce consumer goods (e.g., cars and housing) and to provide infrastructure (e.g., roads and bridges). If a change in government policy results in greater production of consumer goods and infrastructure with the same amount of available resources and technology, then:

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if an economys resources are fully employed, then production of some goods must be sacrificed if resources are allocated to the production of other goods

Back 29

From a production possibilities curve (or frontier) it may be concluded that:

Front 30

country X has a comparative advantage in the production of coffee

Back 30

Suppose that for each pound of wheat that country X produces it must forego the production of 25 pounds of coffee and that for each pound of wheat that country Y produces it must forego the production of 10 pounds of coffee. It follows that:

Front 31

the production possibilities curves of such nations have shifted inward

Back 31

Some sub-Saharan nations of Africa have resource stocks that have been depleted to the point where much of the landscape has turned from productive farmland to desert over time. This suggests that:

Front 32

is a mechanism or institution that brings buyers and sellers together for the purpose of trade

Back 32

A Market:

Front 33

i. the goods that are produced and traded are homogenous or standardized

ii. there are large numbers of independently acting buyers and sellers

Back 33

Markets for goods and services appear in a number of forms. In perfectly (or purely) competitive markets:

Front 34

substitution effect

Back 34

An increase in the price of a good creates an incentive for consumers to shift their purchases away from the good to other goods whose prices are relatively lower. Such an effect of a price change is referred to as the:

Front 35

i. the quantity demanded at a given price, holding all other factors constant

ii. the total expenditures on the good at a given price, holding all other factors constant

iii. how quantity demanded changes if the price of the good changes, holding all other factors constant

Back 35

Which of the following may be determined from an individuals demand curve for a good?

Front 36

i. the maximum quantity demanded at each price, holding all other factors constant

iv. the consumers maximum willingness to pay for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

Back 36

A consumers demand curve for a good indicates:

Front 37

$200

Back 37

If an individuals demand function for a good is given by the linear equation Q = 400 - 2P, then the choke price is:

Front 38

the quantity demanded would decrease by 5 units and total expenditures on the good would increase by $500

Back 38

Suppose the market demand curve for a good is represented by the linear equation Q = 50 - 0.25P. If the market price were to increase from P = $40 to P = $60, then holding all other factors constant:

Front 39

iii. if consumers confront a decrease in the price of X, the demand for Y will decrease if X and Y are substitutes

v. if consumers confront an increase in the price of X, the demand for Y will decrease if X and Y are complement goods

Back 39

Suppose the amount of good X that consumers purchase per period depends upon its price and the price of good Y, and the amount of good Y that consumers purchase per period depends upon its price and the price of good X. If the demand curves for goods X and Y are downward sloping, then which of the following is true?

Front 40

an inferior good

Back 40

If an individual consumers income decreases and the demand for a particular good increases as a result, then it may be concluded that the good is:

Front 41

the law of demand fails to hold, and consumer purchases are completely insensitive to changes in price

Back 41

If the demand curve for a good is vertical, then:

Front 42

ii. the maximum quantity demanded at each price will rise, holding all other factors constant

iv. the consumers maximum willingness to pay for each incremental unit of the good (e.g., the first unit, second unit, etc.) will rise, holding all other factors constant

Back 42

Using the demand framework discussed in class and chapters 3 and 4 of the text, if consumer tastes/preferences change favorably towards a good, say due to learning new information about the benefits that can be obtained from its consumption, then:

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ii. factors other than price that affect the quantity of a good or service a consumer is willing and able to purchase

iii. factors that affect a consumers maximum willingness-to-pay for various quantities of a good or service

Back 43

The determinants of demand are:

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i. the level of technology used in production

ii. input prices

iii. taxes and subsidies

iv. the prices of substitutes in productionv. expectations about the future

v. expectations about the future

Back 44

As discussed in class, the determinants of supply include:

Front 45

an increase in government subsidies given to the producers of the good or providers of the service

Back 45

Which of the following will result in an increase in the supply of a good or service?

Front 46

P = 20 + Q

Back 46

Consider a market for a good that is comprised of two identical producers whose supply functions are P = 20 + 2Q. Given this information, the market supply function is:

Front 47

a decrease in the price of gasoline

Back 47

Which of the following will not cause the supply of gasoline to change?

Front 48

buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept

Back 48

Using the demand and supply framework discussed in class and chapters 3 and 4 of the text, one can conclude that in order for a good to be exchanged between a seller and a buyer, it must be that:

Front 49

P = $65 and Q = 150

Back 49

If the market demand function is given by P = 80 - 0.1Q and the market supply function is given by P = 20 + 0.3Q, then the equilibrium price and quantity are:

Front 50

i. the quantity of the good demanded will increase and the quantity supplied will decrease

ii. a shortage of units will result in the market

Back 50

If the government intervenes in a perfectly competitive market and imposes a price ceiling below the unregulated equilibrium price, then compared to the unregulated market:

Front 51

surplus of 125 units

Back 51

Consider a perfectly competitive market described by the demand function P = 80 - 0.3Q and supply function P = 30 + 0.2Q. Suppose the market is initially in equilibrium. If the government intervenes in the market and imposes of a price restriction of P = $65, the result rounded to the nearest unit will be a:

Front 52

price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged

Back 52

If the demand for a good increases and the supply of the good simultaneously decreases, then equilibrium:

Front 53

supply decreased and demand increased by an equal amount

Back 53

Suppose that both the demand for and supply of a product change simultaneously. You observe that the quantity of the good that is traded each period does not change, however, the equilibrium price increases. Which of the following has occurred?

Front 54

the area below the demand curve and above the price of the good

Back 54

Consumer surplus appears graphically as:

Front 55

$300

Back 55

Suppose the market demand for a good is described by the equation P = 40 - 0.5Q. If a change in market supply results in price decreasing from P0 = $30 to P1 = $20, then the resulting change in consumer surplus is:

Front 56

total value (or total benefit), net value (or net benefit)

Back 56

Maximum willingness-to-pay (WTP) is to ________________ , as consumer surplus is to ________________ .

Front 57

difference between the minimum amount the firm was willing to accept on each unit that it sold and the price it actually received for each unit

Back 57

The producer surplus that results from a firm producing and selling some quantity of a good is the:

Front 58

$500

Back 58

Suppose the market supply for a good is described by the equation P = 30 + 0.5Q. If a change in market demand results in price increasing from P0 = $50 to P1 = $60, then the resulting change in producer surplus is:

Front 59

the equilibrium market price will rise

the equilibrium quantity of the good that is produced and traded will fall

total economic surplus (consumer surplus + producer surplus) will fall

a deadweight loss will result tax revenue will be generated that may be used to fund public goods

Back 59

If a tax authority imposes an ad valorem tax or specific tax upon sellers in a perfectly competitive market, then:

Front 60

ii. a 6.5% sales tax charged by a local grocery store on products other than food

iv. a residential property tax paid by a homeowner that depends upon the propertys market value as determined by a county tax appraiser

Back 60

An example of an ad valorem tax is:

Front 61

$1120 in tax revenues will be generated each period

Back 61

Consider a perfectly competitive market described by the per-period demand function P = 80 - 0.3Q and per-period supply function P = 10 + 0.4Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $14 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:

Front 62

$3500

Back 62

Consider a perfectly competitive market described by the per-period demand function P = 80 - 0.3Q and per-period supply function P = 10 + 0.4Q. If the market is in equilibrium, then the per-period total economic surplus (i.e., consumer surplus + producer surplus) generated by the good each period is:

Front 63

all non-price determinants of demand (i.e., factors other than the price of the good) are held constant

Back 63

At all points along an individual demand curve or market demand curve for a good:

Front 64

the quantity demanded would increase by 5 units and total expenditures on the good would decrease by $650

Back 64

Suppose the market demand curve for a good is represented by the linear equation Q = 100 - 0.5P. If the market price were to decrease from P = $40 to P = $30, then holding all other factors constant:

Front 65

a decrease in demand and an increase in supply

a decrease in demand and a decrease in supply

Back 65

if changes in market conditions cause both the equilibrium price and quantity of output produced and traded each period to decrease, then which of the following has occurred?

Front 66

horizontally summing the demand curves of the individual consumers in the market

. summing the quantity demanded by each consumer at a given price and then repeating this over the range of prices

Back 66

The market demand curve for a good is derived by:

Front 67

total economic surplus (i.e., consumer surplus + producer surplus) will decrease

Back 67

If the government imposes a binding price floor upon a good that is produced and traded in a perfectly competitive market, then relative to the initial (unregulated) market equilibrium:

Front 68

the total economic surplus will fall by $1900

1800 will be collected in tax revenues, and a deadweight loss of $100 will result

Back 68

Consider a perfectly competitive market described by the supply function P = 20 + 0.3Q and demand function P = 120 - 0.2Q. Suppose the market is initially in equilibrium. If a specific tax of t = $10 per unit of output sold is imposed upon sellers, then: