199 Econ Practice Test 2
1. The time one spends researching the performance and fuel economy of new cars on the Internet is an example of a(n) A. monetary cost. B. non-monetary cost. C. information cost. D. implied cost.
2. The law of demand indicates that as the cost of an activity A. falls, less of the activity will occur. B. rises, more of the activity will occur. C. rises, the level of the activity may or may not increase depending on the individual. D. falls, more of the activity will occur.
During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest.
3. Your total utility _______with each pie you ate up to the 3rd pie. A. increased B. decreased C. stayed the same D. first increased than decreased
Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day.
4. Pat's total utility after eating 99 Reese's Peanut Butter Cups was less than his total utility after eating his hundredth. Therefore, Pat's marginal utility for the 100th peanut butter cup was A. positive, but less than one. B. positive, but less than Pat's marginal utility for the 99th peanut butter cup. C. zero D. negative
5. Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is A. 42 B. 77 C. 7 D. 4.67
6. Refer to the figure above. Total utility increases with each additional pizza consumed up to the _____ and than declines, but marginal utility _______ with each additional pizza consumed each week. A. 7th pizza, increases B. 6th pizza, increases C. 5th pizza, stays the same D. 6th pizza, decreases
7. The first time Michel tasted coffee, he thought it was bitter and bad-tasting. The second time Michel had coffee, he thought that it was barely tolerable. Eventually, Michel started to enjoy coffee, and within a few months he was drinking several cups a day. In fact, if he did not drink several cups a day, he was miserable. This suggests that, for Michel, A. demand for coffee has increased. B. coffee is a need, not a want. C. diminishing marginal utility does not apply to coffee consumption. D. economic models cannot be applied to habit-forming substances.
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.
8. If Casey's income rises to $210, the rational spending rule would predict Casey would buy A. more fish and less shrimp. B. more fish and more shrimp. C. less fish and more shrimp. D. more fish and the same amount of shrimp.
9. Curly loves pizza, and often has supper at an all-you-can eat pizza buffet. Curly eats more pizza there than at the Buy-By-the-Slice pizza stand in the student union because A. Curly is irrational and has no will-power. B. Curly does not experience diminishing marginal utility for pizza. C. Curly is setting his Marginal Utility for pizza per dollar equal at each place. D. Curly is setting his Marginal Utility for pizza equal at each place.
10. When the price of a good falls, the ratio of the marginal utility of that good divided by its price _______ and as a result, consumers purchase _______ of that good. A. rises; more B. falls; more C. rises; less D. falls; less
11. If the marginal utility per dollar is not the same for each good, the consumer could _____ her utility by spending ______ on goods for which the marginal utility per dollar is lower. A. decrease, less B. increase, more C. maximize, more D. increase, less
12. According to the textbook, the homes of the wealthy in Seattle average in excess of 10,000 square feet while the homes of the wealthy in New York City average less than 5,000 square feet. The difference is primarily due to A. greater "tastes" for space in Seattle. B. a ban on construction of new homes in excess of 5,000 square feet in NYC. C. a significantly higher price for land and construction in NYC. D. greater "tastes" for crowding in NYC.
13. Refer to the figure above. At a price of $2.00, Laura's quantity demanded is ______ and Chris' quantity demanded is _____. A. 11, 14 B. 9, 16 C. 9, 14 D. 11, 13
14. Refer to the figure above. When the price increases from $0.75 to $1.00, quantity demanded in the market will ______ by _____ cans. A. decrease, 20 B. increase, 20 C. decrease, 40 D. increase, 40
This graph shows one consumer's demand for ice cream at the student union:
15. During a regular semester, there are 500 students. Each student's demand for ice cream is as depicted above. When the price of one scoop of ice cream is $2.00, those 500 students purchase a total of A. 2,000 scoops of ice cream B. 2,500 scoops of ice cream C. 3,000 scoops of ice cream D. 5,000 scoops of ice cream
16. During the semester, the student union sells a total of 7,200 scoops of ice cream at a price of $2.00 per scoop. If every student who buys ice cream has the demand curve shown, there must be _________ students purchasing ice cream. A. 800 B. 1,200 C. 1,500 D. 2,000
17. An increase in the number of students enrolled on this campus will A. cause the demand curve shown above to shift to the right. B. cause the demand curve shown above to shift to the left. C. cause an increase in market demand by increasing the number of individual demand curves. D. not affect market demand, but increase quantity demanded by individuals.
18. Fran is one of the students whose demand is shown. When price is $4.00, Fran buys ____ scoops, but when price is $2.00, Fran buys _______ scoops. A. 1; 3 B. 2; 5 C. 2; 4 D. 2; 6
19. Refer to the figure above. At a price of $15, what is the consumer surplus for the buyer of the first unit? A. 0 B. 15 C. 5 D. 25
20. Refer to the figure above. What is the equilibrium quantity of bananas in this market? A. 0 B. 3 pounds/day C. 4 pounds/day D. 5 pounds/day
21. A person's reservation price for performing a task equals A. the equilibrium wage B. the total value of all of the other things the person could be doing during that time. C. the value of the most attractive alternative activity that the person could be doing during that time. D. the price for which the good produced could be sold.
22. Refer to the figure above. If the market price for this good is $6, how many units would this supplier produce? A. 50 B. 150 C. 250 D. 300
23. An individual's supply curve shows that person's A. willingness to pay at each quantity. B. opportunity cost of producing at each quantity C. hourly wage for producing at each quantity D. profit from producing at each quantity
24. Total revenue minus total explicit and implicit costs defines A. gross earnings. B. profit. C. net earnings. D. net worth.
25. A profit maximizing perfectly competitive firm must decide A. only on what price to charge, taking output as fixed. B. both what price to charge and how much to produce. C. only on how much to produce, taking price of the good as fixed. D. only on which industry to join, taking price and output as fixed.
26. Which firm is most likely to meet the condition for perfect competition that resources are mobile? A. a farm B. a sidewalk pretzel vendor C. a department store D. a movie theater
27. A variable factor of production A. is fixed in the long run but variable in the short run. B. plays no role in the law of diminishing marginal returns. C. is variable in both the short run and the long run. D. is variable only in the short run.
28. The long run is defined as A. one year or more. B. a period in which all factors of production are variable. C. the period of time between annual accounting reports. D. a period in which at least one factor of production is fixed.
29. Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output will require A. an additional 30 employee-hours. B. more than 30 additional employee-hours. C. a total of 60 or less employee-hours. D. less than 30 additional employee-hours.
This phone center uses only equipment and workers to provide service.
30. Relative to costs when equipment cost $10, if the price of equipment increased to $20 and nothing else changed, A. Total Cost would increase by $10 per unit of output. B. Marginal Cost would increase by $20 divided by units of output. C. Marginal Cost would not change. D. Average Total cost would increase by $10 at each level of output.
31. Refer to the figure above. Fixed cost for this firm is A. $66 B. $64 C. $50 D. $14
32. Refer to the figure above. When the pizza shop employs 3 workers per day, it will have ________ fixed cost and ____ total cost. A. $950; $450 B. $850; $500 C. $500; $950 D. $450; $850
33. The price equals marginal cost rule for profit maximization is a specific example of which of the following core principles? A. Scarcity. B. Cost-benefit. C. Comparative advantage. D. Efficiency.
34. Suppose a firm is collecting $1250 in total revenues and the total costs of its variable factors of production are $1000 at its current level of output. In the short run, one can predict that the firm will A. shut down. B. earn a profit. C. earn a loss. D. continue to operate.
35. A firm's output price is $8 and the firm is producing 77 units with a marginal cost of $11. The firm should A. lower its price. B. decrease production. C. increase production. D. raise its price.
This graph shows the cost functions of Moe's mushroom gathering business, which is perfectly competitive.
36. When mushrooms sell for $10 per bushel, if Moe chooses the profit maximizing quantity Moe will gather A. 10 bushels B. 20 bushels C. 30 bushels D. zero bushels
37. Refer to the figure above. When the demand is P1 = $30, what is the total revenue? A. $ 900 B. $1350 C. $800 D. $2400
38. Improvement in production technology causes an increase in A. the quantity supplied by firms and an increase in market supply. B. supply by firms and an increase in the market quantity supplied. C. the quantity supplied by firms and an increase in the market quantity supplied. D. supply by firms and an increase in market supply.
39. If an industry experiences an increase in the number of firms, then A. the new firms will produce more than the original firms. B. the industry supply curve will shift left. C. the new firms will produce the same amount as the original firms. D. the industry supply curve will shift right.
40. Assume that the production technology required to produce goods X and Y are very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will A. intensify its production of good X. B. shift into producing good Y. C. anticipate a price increase for good X. D. charge a higher price for good X.
41. Which of the following describes a surplus enhancing transaction? A. The Federal government taxes wealthy individuals to pay for income support payments to poor people. B. The public television station cancels Sesame Street because nobody pledged during that show even though many kids were watching it. C. I pay $5.00 for one scoop of ice cream at the ballgame even though I have a whole gallon at home in my freezer that cost me less than $5.00. D. Your state government imposes a higher minimum wage law than the one set by federal law.
42. A market equilibrium is only efficient when A. buyers and sellers each earn equal surplus from the transaction. B. consumer surplus and producer surplus are both zero C. All relevant costs, including those imposed on others, are accounted for. D. Income is distributed equitably
43. The argument that efficiency is an appropriate goal assumes that the gains from enhancing efficiency A. will be equally distributed in the population. B. will benefit the poor by more than the wealthy. C. could potentially benefit everyone. D. reduce income disparities in the population.
44. Price ceilings that are below the equilibrium price result in A. increased total economic surplus. B. shortages. C. surpluses. D. the same amount of total economic surplus with a reallocation from producers to consumers.
45. When a minimum price is set by law or regulation A. a shortage develops. B. it is called a price ceiling. C. the legal price is the maximum price allowable. D. it is termed a price floor.
46. Refer to the figure above. In equilibrium, the sale of the 17th unit A. yields zero surplus to both buyer and seller B. yields positive surplus to the buyer and zero surplus to the seller C. yields zero surplus to the buyer and positive surplus to the seller D. yields positive surplus to both buyer and seller
47. The cumulative difference between the price producers actually receive and the price for which they are willing to produce is A. producer surplus. B. deadweight loss. C. total economics surplus. D. consumer surplus.
48. Suppose a market is in equilibrium. The area between the demand curve and the market price is A. the total economic surplus. B. producer surplus. C. consumer surplus. D. the deadweight loss.
49. Refer to the figure above. Based on demand curve D and supply curve S, the dollar value of the producer surplus is A. $180. B. $75. C. $150. D. $130.
50. Refer to the figure above. Based on demand curve D1 and supply curve S, the dollar value of the producer surplus is A. $135. B. $150. C. $200. D. $212.50.
51. to Refer the figure above. When the market is unregulated, producer surplus equals A. (DB) * (BC). B. 1/2 * (DG) * (GF). C. 1/2 * (DB) * (BC). D. 1/2 * (FH) * (HC).
52. Refer to the figure above. Suppose a price ceiling is imposed at $4. The value of the consumer surplus is A. $36. B. $20. C. $24. D. $28.
53. Refer to the figure above. With the subsidy, what is the producer surplus? A. $0 B. $6,000 C. $7,500 D. $17,000
54. Refer to the figure above. Under the What'sAMatterU administration's first come, first served policy, instead of price determining who gets a parking space, ______ determines who gets a space. A. income B. opportunity cost of time C. reservation price for a permit. D. need for parking
55. Refer to the figure above. Suppose the administration at What'sAMatterU abandons its first come, first served (free parking) policy and now relies on a free market price solution. The outcome is ______ with price and quantity of ______. A. efficient; P2 and Q2 B. inefficient; P2 and Q2 C. efficient; P1 and Q1 D. inefficient; P2 and Q1
Sara, a peer-tutor, can help only three students at a time. Sara makes appointments with five students for each tutoring slot, anticipating a high proportion of no-shows. On the night before the final exam all five students show up for a 7:00 am appointment. Their respective arrival times and the maximum amounts each would be willing to pay to avoid not being able to get help for homework are as given in the table.
56. If Sara operates on a first come, first served basis, who will not be able to get any help with homework that day? A. Amy and Jeff B. Amy and Amanda C. Mike D. Mike and Lynn
57. Deadweight loss is A. present in all markets. B. the difference between consumer surplus and producer surplus. C. present in markets where equilibrium is distorted by price controls or taxes. D. always smaller than producer surplus.
58. Imposing a 100% tax on land owners was justified by the argument that A. land owners were typically wealthy and deserved to be heavily taxed. B. the supply of land was perfectly inelastic. C. land was distributed unequally. D. land owners could easily pass the tax on to their tenants.
59. Refer to the figure above. In the original un-taxed market equilibrium, price is approximately _____ and approximately _____ units are traded. A. $2.50; 10 B. $4; 20 C. $5; 20 D. $3; 20
60. Demand for cigarettes is price inelastic for adults, but price elastic for teenagers. Therefore, a tax on cigarettes will A. not raise very much tax revenue. B. generate more tax revenue from adults and have a greater effect on the number of cigarettes smoked by teenagers. C. have a greater effect on the number of cigarettes smoked by adults than by teenagers. D. generate more tax revenue from teenagers than from adults.
61. Economic profits are A. the same as accounting profits. B. equal to total revenue minus the sum of explicit fixed and variable costs. C. equal to total revenue minus both explicit and implicit costs. D. greater than accounting profits.
62. Accounting profits minus implicit costs equals A. total revenues. B. economic profits. C. explicit costs. D. fixed and variable costs.
63. It is always true that A. accounting profits are positive. B. economic profits are zero. C. economic profits are greater than or equal to accounting profits. D. accounting profits greater than or equal to economic profits.
Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year.
64. Chris's accounting profit is _______. A. $100,000 B. $64,000 C. $49,000 D. $9,000
65. Refer to the figure above. An economist would put the total cost of producing 15 units of output at A. $6. B. $63. C. $69. D. $75.
66. Generally, ______ motivate firms to enter an industry while ______ motivate firms to exit an industry. A. economic profits; economic losses B. accounting profits; accounting losses C. accounting profits; economic losses D. economic profits; accounting losses
67. If all firms in a perfectly competitive industry earn a normal profit, then A. new firms will enter the industry. B. old firms will exit the industry. C. the number of firms in the industry is stable. D. market supply will shift to the left.
68. The signal for new firms to join an industry is A. economic profits. B. normal profits. C. accounting profits. D. economic losses.
Assume that all firms in this industry have identical cost functions.
69. The long-run equilibrium supply in this industry is A. Supply A. B. Supply B. C. Supply C. D. A Supply function that lies between Supply A and Supply B.
The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions.
70. The long run equilibrium quantity in this industry is A. 300. B. 500 C. 700 D. more than 700.
71. Suppose a remote community in Montana lacks broadband access to the Internet. A proponent of the invisible hand view would argue that A. government regulation is necessary to ensure access. B. the selfish pursuit of profit by Internet service providers will bring access to those willing to pay for it. C. the consumers need to move to a large city. D. the lack of access is the efficient allocation.
72. E-commerce and an Internet presence are important to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by A. encouraging the government to set up new training programs. B. giving selfish workers the incentive to acquire the skills in order to receive high wages. C. allowing the few employees with the skills to exploit the firms. D. moving slowly until the e-commerce craze ends.
73. The ability of the invisible hand to allocate resources efficiently is A. improved by the existence of barriers to entry. B. rarely observed in practice. C. reduced by the presence of barriers to entry. D. an historic idea that has been disproven by modern economics.
74. According to the textbook, most markets in the United States A. have significant barriers to entry. B. possess a high degree of free entry. C. are protected from entry by government policy. D. are close to monopolies.
75. A promise of $1000 month from now is A. worth less than $1000 two months from now. B. worth more than $1000 today. C. worth less than $1000 today. D. worth the same as $1000 two months from now.
76. The efficient-markets hypothesis states that A. all markets produce an efficient outcome. B. production is always technically efficient. C. all relevant information about a company's current and future earnings prospects is embodied in its stock price. D. most of the relevant information about a company's current and future earnings prospects is embodied in its stock price.
77. The statement "If a deal is too good to be true, it probably is not true" is most closely related to which principle? A. The low-hanging fruit principle B. The no-cash-on-the-table principle C. The cost-benefit principle D. The diminishing marginal returns principle
78. Amazon.com's stock price has been consistently high while the company repeatedly reports accounting losses. Apparently, investors A. are irrational. B. expect Amazon to be very profitable in the future. C. have been given bad advice. D. have unfounded confidence in dot com companies.
79. Applying the No Cash on the Table principle to the stock market means new information A. provides opportunities to the first few who act on it. B. provides opportunities to all investors. C. was already contained in the stock price. D. fails to affect the market.
80. The founder of e-Bay has earned large economic profits. The No Cash on the Table principle suggests A. starting a new Internet auction company today would result in economic profits as well. B. starting a new Internet auction company today would result in, at best, a normal profit. C. all profitable e-business ideas have been developed. D. sooner or later, e-Bay will experience economic losses.
81. A firm's revenue is determined by A. its production technology. B. its implicit costs. C. its profit. D. the demand curve that the firm faces.
82. A firm is most likely to experience economies of scale if it has _____ start up costs and ______ marginal costs. A. high; increasing B. high; low C. high; high D. low; decreasing
83. If a firm's demand function shifts A. its marginal revenue function and profit maximizing output will also change. B. its cost functions will also change. C. its total cost functions will change, but its variable cost functions will be the same. D. its marginal revenue function will change, but its profit maximizing level of output will not change.
84. Refer to the figure above. This imperfectly competitive firm's demand function gives information that is used to determine A. the change in costs when output changes. B. total revenue at different price and quantity combinations. C. fixed costs in the short run. D. advertising necessary to gain market share.
85. Refer to the figure above. If this firm were to sell 20 units of output, its total revenue would be A. $50. B. $100. C. $140. D. $1,000.
86. Refer to the figure above. If this monopolistic firm's marginal cost is constant at $30, its profit maximizing output is A. 50 units. B. 40 units. C. 20 units. D. 30 units.
87. When marginal revenues are zero, A. profits are maximized. B. total costs are minimized. C. elasticity of demand is zero. D. total revenues are maximized.
88. Refer to the figure above. To profit maximize, the firm will choose to produce __________ units and charge a price of __________. A. 3.5; $33.50 B. 7; $19.30 C. 3.5; $22.50 D. 3.5; $5
89. Refer to the figure above. The profit maximizing quantity and price for this monopolist are A. 1 unit and $10. B. 2 units and $9. C. 3 units and $8. D. 4 units and $7.
90. Refer to the figure above. The distance representing the profit maximizing price to the monopolist is A. 0C. B. GI. C. 0B. D. 0A.
91. Refer to the figure above. At the point of monopoly profit maximization, consumer surplus is _______, and at the point of perfectly competitive profit maximization, consumer surplus is _____ A. $333.33; $355.51 B. $222.14; $500 C. $500.00; $222.14 D. $266.67; $355.51
92. Refer to the figure above. The deadweight loss resulting from monopoly is _______. A. $111.19 B. $277.86 C. $222.21 D. $360
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business.
Assume that the marginal and average total cost for each book is $12.
93. If the bookstore can charge two different prices for this book, the list price for the book will be _____ and the discounted price for the book will be ____. A. $18; $12 B. $18; $18 C. $36; $24 D. $36; $36
94. When the bookstore does not price discriminate, consumer surplus is ________, and when the bookstore can charge two different prices for this book, the consumer surplus will be _______. A. $50; $60 B. $60; $66 C. $66; $66 D. $66; $128
95. Suppose a single-price monopolist is considering becoming a price discriminating monopolist. If the firm does begin to price discriminate, it can expect to A. decrease its output and increase its profit. B. run into legal trouble with the anti-trust enforcers. C. increase its output, but decrease its profits. D. increase both its output and its profit.
96. One would expect to see more mail in rebate coupons being offered at A. exclusive stores catering to the wealthy. B. a luxury car dealership. C. discount stores. D. convenience stores.
This graph illustrates a hypothetical market for a newly-developed antibiotic drug. Bacteria mutate quickly, and so new antibiotics must be developed to work against bacteria strains that have evolved to be resistant to existing antibiotics.
97. The demand curve for this market is relatively steep because A. consumers do not know enough about the product. B. for some consumers this good is a necessity C. this good is a luxury good. D. production of the drug is subject to economies of scale.
98. In its efforts to keep medical costs down, the government has decided to impose a $15 price ceiling on a weekly dose of this drug. What is likely to happen? A. The firm will produce 400 doses per week causing excess supply of this drug on the market. B. This drug will disappear from the market. C. The firm will produce 325 doses per week, just meeting consumer demand. D. The firm will produce 200 doses per week, the quantity at which price equals Marginal Cost.
99. Relative to the profit maximizing output, the number of doses produced under cost plus regulation is A. less efficient. B. more likely to encourage research and development. C. more efficient. D. exactly the same, but produced at lower cost.
100. Cost plus regulation in this market would yield a result that A. is the socially optimal quantity and price. B. is the profit maximizing quantity and price. C. eliminates deadweight loss D. is adequate to assure continued production of the drug while minimizing deadweight loss
Practice Test 2 Key
1. B 2. D 3. A 4. D 5. C 6. D 7. A 8. B 9. C 10. A 11. D 12. C 13. C 14. C 15. C 16. B 17. C 18. D 19. D 20. D 21. C 22. D 23. B 24. B 25. C 26. B 27. C 28. B 29. B
30. C 31. C 32. C 33. B 34. D 35. B 36. D 37. D 38. D 39. D 40. B 41. C 42. C 43. C 44. B 45. D 46. D 47. A 48. C 49. B 50. B 51. C 52. B 53. A 54. B 55. C 56. D 57. C 58. B 59. B 60. B 61. C 62. B 63. D
64. C 65. C 66. A 67. C 68. A 69. B 70. B 71. B 72. B 73. C 74. B 75. C 76. C 77. B 78. B 79. A 80. B 81. D 82. B 83. A 84. B 85. D 86. C 87. D 88. C 89. C 90. A 91. B 92. A 93. C 94. B 95. D 96. C 97. B
98. B 99. C 100. D