Copy (2) of MICRO Exam 1 Study Spr07-1
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Copy (2) of MICRO Exam 1 Study Spr07-1

Course: ECO 201, Spring 2010

School: KCTCS

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MICRO EXAM 1 Study Spr07 Dr. Anealia Sasser Use the following to answer question 1: S1 S2 Price D1 D2 0 Quantity 1. Refer to the above diagram. Which of the following will increase equilibrium price and reduce equilibrium quantity? A) a shift of supply from S1 to S2, with demand remaining at D1. B) a shift of supply from S2 to S1, with demand remaining at D2. C) simultaneous shifts of demand from D1 to D2...

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EXAM MICRO 1 Study Spr07 Dr. Anealia Sasser Use the following to answer question 1: S1 S2 Price D1 D2 0 Quantity 1. Refer to the above diagram. Which of the following will increase equilibrium price and reduce equilibrium quantity? A) a shift of supply from S1 to S2, with demand remaining at D1. B) a shift of supply from S2 to S1, with demand remaining at D2. C) simultaneous shifts of demand from D1 to D2 and supply from S1 to S2. D) simultaneous shifts of demand from D2 to D1 and supply from S2 to S1. 2. Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences: A) a consumer surplus of $10 and Tony experiences a producer surplus of $190. B) a producer surplus of $200 and Tony experiences a consumer surplus of $10. C) a consumer surplus of $770 and Tony experiences a producer surplus of $480. D) a producer surplus of $10 and Tony experiences a consumer surplus of $190. 3. Graphically, producer surplus is measured as the triangle: A) under the demand curve and below the actual price. B) under the demand curve and above the actual price. C) above the supply curve and above the actual price. D) above the supply curve and below the actual price. Page 1 4. (Last Word) A prescription drug that has the same chemical properties and product quality as a previously patented drug is called a: A) synergistic drug. B) knock-off drug. C) generic drug. D) quasi-legal drug. 5. Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount. A) True B) False 6. A decrease in supply with no change in demand will increase equilibrium price and reduce equilibrium quantity. A) True B) False 7. Graphically, consumer surplus is measured as the triangle: A) under the demand curve and below the actual price. B) under the demand curve and above the actual price. C) above the supply curve and above the actual price. D) above the supply curve and below the actual price. 8. A decrease in supply is shown as a: A) movement from a higher point to a lower point on an existing supply curve. B) rightward shift of a supply curve. C) movement from a lower point to a higher point on an existing supply curve. D) leftward shift of a supply curve. 9. A shortage of a product will occur and a secondary market will emerge if the: A) product supply curve suddenly shifts to the right. B) preset price is below the equilibrium price. C) product demand curve suddenly shifts to the left. D) preset price is above the equilibrium price. Page 2 Use the following to answer question 10: S a Price b P1 c d e f D 0 Q1 Q2 Quantity Q3 10. Refer to the above diagram. At Q2: A) maximum willingness to pay exceeds minimum acceptable price. B) the sum of consumer and producer surplus is maximized. C) minimum acceptable price exceeds maximum willingness to pay. D) an efficiency loss of b + d occurs. 11. An industry is in long-run equilibrium when: A) normal profits are zero. B) total revenue exceeds total economic costs. C) total economic costs exceed total revenue. D) economic profits are zero. 12. A firm's economic profit is: A) usually lower than its normal profit. B) profit over and above that which it needs to compensate for the time and other resources the owner supplies to the business. C) a cost of production. D) a signal to the firm that it is producing too much output. 13. Costs can be defined as total payments made to workers, land owners, and capital suppliers less normal profits. A) True B) False Page 3 14. The advent of DVDs threatens to eventually demolish the market for videocassettes. This is an example of: A) creative destruction. B) derived demand. C) capital accumulation. D) the difference between normal and economic profits. Use the following to answer question 15: Answer the next question(s) using the following data which show all available techniques for producing 20 units of a particular commodity: Resource Land Labor Capital Entrepreneurial ability Resource prices $4 3 3 2 Possible production techniques #1 #2 #3 #4 4 4 2 2 2 1 1 4 2 1 5 3 1 4 3 1 #5 4 3 2 1 15. Refer to the above data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would: A) not be adopted because, although it reduces production costs, it does not increase profit. B) be adopted because it would lower production costs and increase economic profit. C) not be adopted because it entails higher production costs than other available techniques. D) be adopted, even though economic profits would be reduced slightly. 16. If a competitive industry is neither expanding nor contracting, we would expect: A) normal profits to be zero. B) economic profits to be zero. C) consumer demand and derived demand to be equal. D) external costs or benefits to be large. 17. In a market economy a significant change in the demand for product X will: A) alter the profits or losses received by certain firms. B) cause a reallocation of scarce resources. C) cause some industries to expand and others to contract. D) do all of the above. Page 4 18. The regulatory mechanism of the market system is: A) self-interest. B) private property. C) competition. D) specialization. 19. Consumer sovereignty refers to the: A) fact that resource prices are higher than product prices in capitalistic economies. B) idea that the pursuit of self-interest is in the public interest. C) idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of goods produced must be appropriate to consumer demands. D) fact that a Federal agency exists to protect consumers from harmful and defective products. 20. Which of the following is one of the Four Fundamental Questions? A) Which products will be in scarce supply and which in excess supply? B) Who should appoint the head of the central bank? C) How much should the society save? D) What goods and services will be produced? 21. The demand for a luxury good whose purchase would exhaust a significant portion of one's income is: A) perfectly inelastic B) perfectly elastic C) relatively inelastic D) relatively elastic Page 5 Use the following to answer question 22: $20 18 16 Total revenue 14 12 10 8 6 4 2 1 2 3 4 5 6 7 Quantity demanded 8 TR 22. Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be: A) inelastic for price declines that increase quantity demanded from 2 units to 3 units. B) elastic for price declines that increase quantity demanded from 5 units to 6 units. C) unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.. D) inelastic for price increases that reduce quantity demanded from 4 units to 3 units. Use the following to answer question 23: Answer the next question(s) on the basis of the following demand schedule: Price $6 5 4 3 2 1 Quantity demanded 1 2 3 4 5 6 Page 6 23. Refer to the above data. Which of the following is correct? A) Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges. B) Although the slope of the demand curve is constant, price elasticity increases as we move from high to low price ranges. C) Although the demand curve is concave to the origin, price elasticity of demand is constant throughout. D) A steep slope means demand is inelastic; a flat slope means demand is elastic. Use the following to answer question 24: Price per ticket $13 11 9 7 5 3 Quantity demanded 1,000 2,000 3,000 4,000 5,000 6,000 24. Refer to the above information. Over the $13-$11 price range, demand is: A) perfectly elastic. B) perfectly inelastic. C) elastic. D) inelastic. 25. In which price range of the accompanying demand schedule is demand elastic? Price $4 3 2 1 Quantity demanded 2 4 6 8 A) B) C) D) $4-$3 $3-$2 $2-$1 below $1 Page 7 26. would We expect the cross elasticity of demand for Pepsi in relation to other soft drinks to be greater than that for soft drinks generally because: A) soft drinks are normal goods. B) the income effect always exceeds the substitution effect. C) there are fewer good substitutes for soft drinks generally than for Pepsi. D) there are more good substitutes for soft drinks generally than for Pepsi. 27. If a firm finds that it can sell $13,000 of a product when its price is $5 per unit and $11,000 of it when its price is $6, then: A) the demand for the product is elastic in the $6-$5 price range. B) the demand for the product must have increased. C) elasticity of demand is 0.74. D) the demand for the product is inelastic in the $6-$5 price range. Use the following to answer question 28: 28. Refer to the above diagrams. The case of substitute goods is represented by figure: A) A. B) B. C) C. D) D. 29. Price elasticity of supply is: A) positive in the short run but negative in the long run. B) greater in the long run than in the short run. C) greater in the short run than in the long run. D) independent of time. Page 8 30. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A) negative and therefore these goods are substitutes. B) negative and therefore these goods are complements. C) positive and therefore these goods are substitutes. D) positive and therefore these goods are complements. 31. Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A) increased by 7 percent. B) decreased by 7 percent. C) decreased by 9 percent. D) decreased by 12 percent. 32. Which of the following statements is correct? A) Supply is more elastic in the short run than in the long run. B) Demand is more elastic in the short run than in the long run. C) Demand is more elastic when a large number of substitute goods are available. D) Supply is more elastic when there are a small number of producers in the industry. Use the following to answer question 33: Price per ticket $13 11 9 7 5 3 Quantity demanded 1,000 2,000 3,000 4,000 5,000 6,000 33. Refer to the above information. Over the $11-$9 price range, demand is: A) perfectly elastic. B) perfectly inelastic. C) elastic. D) inelastic. Page 9 34. (Consider This) Elastic demand is analogous to a __________ and inelastic demand to a _________. A) normal wrench; socket wrench B) tight rubber band; loose rubber band C) Ace bandage; firm rubber tie-down D) one-foot ruler; tape measure 35. A perfectly inelastic demand schedule: A) rises upward and to the right, but has a constant slope. B) can be represented by a line parallel to the vertical axis. C) cannot be shown on a two-dimensional graph. D) can be represented by a line parallel to the horizontal axis. 36. Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product. A) True B) False 37. If the price elasticity of demand for gasoline is 0.20: A) the demand for gasoline is linear. B) a rise in the price of gasoline will reduce total revenue. C) a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent. D) a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent. 38. (Last Word) Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be: A) more elastic than the demand for the original software. B) upsloping rather than downsloping. C) less elastic than the demand for the original software. D) of less value than the original software. 39. Price elasticity of demand is generally: A) greater in the long run than in the short run. B) greater in the short run than in the long run. C) the same in both the short run and the long run. D) greater for "necessities" than it is for "luxuries." Page 10 40. Which of the following generalizations is not correct? A) The larger an item is in one's budget, the greater the price elasticity of demand. B) The price elasticity of demand is greater for necessities than it is for luxuries. C) The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product. D) The price elasticity of demand is greater the longer the time period under consideration. 41. Suppose that when your income increases from $28,000 to $30,000 per year, your purchases of X increase from 4 to 5 units because of that income increase. Thus: A) X is an inferior good. B) X is a substitute good. C) the income effect exceeds the substitution effect. D) the demand for X is elastic with respect to income. 42. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: A) 0.8. B) 1.2. C) 1.6. D) 8.0 Use the following to answer question 43: Answer the next question(s) on the basis of the following demand and supply data: Quantity demanded per month Price 30 $8 36 7 42 6 50 5 Quantity supplied per month 44 38 30 20 43. Refer to the above data. The demand for this product is elastic in the $8-$7 price range. A) True B) False Page 11 44. The elasticity of demand: A) is infinitely large for a perfectly inelastic demand curve. B) tends to be inelastic in high-price ranges and elastic in low-price ranges. C) tends to be elastic in high-price ranges and inelastic in low-price ranges. D) is the same at each price-quantity combination on a stable demand curve. 45. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A) the price elasticity of demand is 0.44. B) A is a complementary good. C) the price elasticity of demand is 2.25. D) A is an inferior good. Use the following to answer question 46: 46. Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoints formula) relating to this price change is about: A) 5 and supply is elastic. B) 1 and supply is unit elastic. C) .25 and supply is inelastic. D) 2.5 and supply is elastic. Page 12 Use the following to answer question 47: 47. Refer to the above diagram. The decline in price from P1 to P2 will: A) increase total revenue by D. B) increase total revenue by B + D. C) decrease total revenue by A. D) increase total revenue by D - A. 48. A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus, A) the demand for pizza is elastic above $5 and inelastic below $5. B) the demand for pizza is elastic both above and below $5. C) the demand for pizza is inelastic above $5 and elastic below $5. D) $5 is not the equilibrium price of pizza. Use the following to answer question 49: Price per ticket $13 11 9 7 5 3 Quantity demanded 1,000 2,000 3,000 4,000 5,000 6,000 Page 13 49. Refer to the above information. Over the $5-$3 price range, demand is: A) perfectly elastic. B) perfectly inelastic. C) elastic. D) inelastic. 50. The price elasticity of demand is: A) negative, but the minus sign is ignored. B) positive, but the plus sign is ignored. C) positive for normal goods and negative for inferior goods. D) positive because price and quantity demanded are inversely related. Page 14 Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. B A D C B A B D B B D B B A B B D C C D D C A C A C A D B B B C C C B A C A A B D B A C Page 15 45. 46. 47. 48. 49. 50. C C D A D A Page 16

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