Micro1 - ©Prep101 www.prep101.com/freestuff Practice Micro Exam Q1 Last year CD-players were selling for $30 and MP3-players were selling for $40

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Unformatted text preview: ©Prep101 www.prep101.com/freestuff Practice Micro Exam Q1. Last year CD-players were selling for $30 and MP3-players were selling for $40. David bought himself a CD-player for $30. Now CD-players sell for $50 and MP3players sell for $55. David’s friend offers him $50 for the CD-player. What is David’s opportunity cost if he decides to keep the CD-player? a) b) c) d) e) $55 $30 $40 $50 $55 Q2. Dennis is self-employed and earns $30,000 a year. His total business expenses are $5,000. Dennis was offered a job at the local restaurant for $15,000 a year, but he turned down the offer. The economic profit Dennis gets from being self-employed is a) b) c) d) e) $25,000 $15,000 $10,000 $20,000 $45,000 Q3. Robert can produce either 2 units of good A or 2 units of good B in an hour, while Raymond can produce either 2 units of good A or 4 units of good B in an hour. What would be the total output of goods A and B in an 8-hour day if Raymond and Robert each specialized in producing the good for which they have a comparative advantage? a) b) c) d) e) 32 units of A and 48 units of B 16 units of A and 16 units of B 16 units of A and 32 units of B 8 units of A and 32 units of B 16 units of A and 8 units of B Page 1 of 21 ©Prep101 www.prep101.com/freestuff Tony and Martha both can produce goods A and B. Use the following information to answer question 4: Good A Good A 200 200 150 150 100 100 Tony 50 50 50 100 150 200 Good B Martha 50 100 150 200 Good B Q4. If Tony and Martha each specialized in producing the good for which they have a comparative advantage, Tony would produce____ and Martha would produce____. a) b) c) d) e) 100 units of good B; 50 units of good A 250 units of good B; 250 units of good A 200 units of good B; 50 units of good B 200 units of good B; 150 units of good A 100 units of good A; 150 units of good A Q5. Using the same resources, Jan can produce either good X or good Y. As a result of a decrease in the price of good X, a) b) c) d) e) The quantity of good X supplied will increase The supply of good X will increase The supply of good X will decrease The supply of good Y will increase The supply of good Y will decrease Q6. Which of the following is true if a decrease in the price of good X causes the supply curve for good Y to shift to the left? a) b) c) d) e) Goods X and Y are substitutes in production Goods X and Y are complements in production X is a normal good and Y is an inferior good Goods X and Y are complements in consumption a) and d) Page 2 of 21 ©Prep101 www.prep101.com/freestuff Q7. What will happen to the price and equilibrium quantity if demand for good X decreases and supply of X increases? a) The price will fall and the equilibrium quantity will increase b) The price will fall and the equilibrium quantity will decrease c) The price may increase, decrease or remain the same and the equilibrium quantity will decrease d) The price will fall and the equilibrium quantity may increase, decrease, or remain the same e) The price will increase and the equilibrium quantity may increase, decrease, or remain the same Use the following graph for good A to answer questions 8 and 9: Price I A B C Marginal Cost E F G H D Marginal Benefit Marginal Revenue Q1 Q2 Quantity of good A Q8. If the price increases from B to A, in a perfectly competitive market, the consumer surplus a) b) c) d) e) Will decrease by the area EFG Will decrease by the area EHG Will decrease by the area ABFE Will decrease by the area ABGE Will increase by the area EFG Q9. Assume the market for good A is perfectly competitive. If the government imposes a quota and only Q1 units of good A are allowed to be produced, a) b) c) d) e) There is a deadweight loss equal to the area EFG There is a deadweight loss equal to the area FHG There is a deadweight loss equal to the area EHG There is a deadweight loss equal to the area AEHC There is a deadweight loss equal to the area AEFB Page 3 of 21 ©Prep101 www.prep101.com/freestuff Use the following graph of a competitive market for good Z to answer question 10: Price ($) 10 S 8 7 6 4 D 5 11 14 17 Quantity of Z Q10. If the producers of good Z secure a government subsidy and increase production to 14 units, which of the following statements is correct? a) b) c) d) e) There is an additional surplus to the society equal to $4.5 The production of Z has become more efficient There is a deadweight loss equal to $6 There is a deadweight loss equal to $4.5 There is an additional surplus to the society equal to $12 Q11. The price elasticity of a horizontal demand curve is____ and the price elasticity of a vertical demand curve is ____. a) b) c) d) e) Zero; infinity Zero; 1 Infinity; zero Infinity; 1 1; zero Q12. All else constant, ______________, the more elastic is the demand. a) b) c) d) e) The greater the proportion of income spent on a good The closer the substitutes for a good The longer the time that has passed after the price change All of the above None of the above Page 4 of 21 ©Prep101 www.prep101.com/freestuff Q13. Suppose the price of good X falls from $6 per unit to $4 per unit. If the price elasticity of demand is 0.6 (calculated using the midpoint method), what will happen to the quantity demanded of good X? a) b) c) d) e) Will decrease by 24% Will increase by 40% Will increase by 24% Will decrease by 40% Will not be affected Q14. Suppose 22 units of good A are demanded at a particular price. If the number of units of good A demanded falls to 18 when the price per unit rises by 2 percent, a) b) c) d) e) demand for good A in this price range must be demand for good A in this price range must be demand for good A in this price range must be demand for good A in this price range must be demand for good A in this price range must be inelastic elastic unit elastic perfectly elastic perfectly inelastic Q15. As a result of an increase in the price of good B from $7.50 to $8.50, the quantity of good B supplied increases from 115 units to 135 units. Which of the following statements is correct? a) b) c) d) e) The supply of good B is elastic and the elasticity equals to 1.28 The supply of good B is inelastic and the elasticity equals to 1.28 The supply of good B is elastic and the elasticity equals to 0.78 The supply of good B is inelastic and the elasticity equals to 0.78 The supply of good B is elastic and the elasticity equals to 2.50 Page 5 of 21 ©Prep101 www.prep101.com/freestuff Use the following graph to answer question 16: Total Revenue Good X Good Y Quantity Q16. Which of the following statements is true? a) b) c) d) e) The price elasticity of good X is higher than the price elasticity of good Y The price elasticity of good Y is higher than the price elasticity of good X The price elasticity of goods X and Y cannot be calculated with given information Good X is a normal good and good Y is an inferior good None of the above Use the following graph to answer questions 17 and 18: Price ($) SS 1000 900 800 LS D2 D1 100 120 140 Quantity (thousands of units) Q17. Suppose the market for rental housing is unregulated. What will happen in the short run if the demand for rental housing increases from D1 to D2? a) b) c) d) e) The number of units rented will increase to 120,000 and rent will rise to $900 The number of units rented will remain at 100,000, but rent will rise to $1,000 The number of units rented will increase to 140,000, but rent will remain at $800 There will be an excess quantity of housing units demanded of 40,000 units None of the above Page 6 of 21 ©Prep101 www.prep101.com/freestuff Q18. Suppose the market for rental housing is regulated. What will happen in the short run if the demand for rental housing increases from D1 to D2 and there is a strictly enforced rent ceiling at $800 per unit? a) b) c) d) e) There will be a housing shortage of 20,000 units There will be a housing shortage of 40,000 units There will be an excess supply of 40,000 units of housing There will be an excess supply of 20,000 units of housing Increase in demand will have no effect of the number of housing units rented Suppose good X is a prohibited good. Use the following table to answer question 19: Price of good X ($) Quantity of good X Demanded Quantity of good X supplied 11 5000 3000 12 4000 4000 13 3000 5000 14 2000 6000 15 1000 7000 Q19. Which of the following is true if a $2-per-unit cost of breaking the law is imposed on buyers? a) b) c) d) e) 3000 units will be sold at $11 per unit 3000 units will be sold at $12 per unit 2000 units will be sold at $11 per unit 4000 units will be sold at $12 per unit 5000 units will be sold at $11 per unit Q20. The minimum wage laws are more likely to a) b) c) d) e) Increase unemployment among high-skilled workers Increase unemployment among low-skilled workers Decrease unemployment among low-skilled workers Decrease unemployment among high-skilled workers Both a) and c) Q21. Kathy consumes only two goods: apples and pizza. Both apples and pizza sell at $5. When Kathy spends all of her income, her marginal utility of apples is 6 and her marginal utility of pizza is 7. Which of the following statements is correct? a) b) c) d) e) Kathy could be better off by consuming less pizza and more apples Kathy could be better off by consuming fewer apples and less pizza Kathy could be better off by consuming fewer apples and more pizza Kathy has maximised her utility by consuming at an optimal level None of the above Page 7 of 21 ©Prep101 www.prep101.com/freestuff Use the following table to answer question 22: Fish Pounds consumed 0 1 2 3 4 5 Beef Total utility 0 15 29 41 50 54 Pounds consumed 0 1 2 3 4 5 Total utility 0 30 55 74 85 87 Q22. Suppose the price of fish is $10 per pound and the price of beef is $8 per pound. If Susan has $44, how much of each good should she purchase to maximize utility? a) b) c) d) e) 5 pounds of beef and 0 pounds of fish 4 pounds of beef and 1 pounds of fish 3 pounds of beef and 2 pounds of fish 2 pounds of beef and 3 pounds of fish 1 pound of beef and 4 pounds of fish Q23. Suppose Sarah consumes two ordinary goods. She is at a point on her budget line where her marginal rate of substitution is greater than the magnitude of the slope of her budget line. As Sarah moves towards her optimum point, she will move to a) b) c) d) e) A flatter budget line A higher indifference curve A lower budget line A steeper budget line A lower indifference curve Q24. Janet consumes pizza (measured on the x-axis) and orange juice (measured on yaxis). Suppose Janet’s income increases three-fold, while the prices of pizza and orange juice increase two-fold. Janet’s budget line will a) b) c) d) e) Shift left but not change slope Not shift but become flatter Shift right but not change slope Not shift but become steeper Shift right and become flatter Page 8 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 25: Good Y B C A D E Good X Q25. Suppose Brian consumes at point A. Assume both X and Y are normal goods. If the price of good X rises, the substitution effect is _____ and the income effect is ______. a) b) c) d) e) Movement from A to D; movement from D to E Movement from A to B; movement from B to C Movement from A to B; movement from B to E Movement from A to E; Movement from E to C Movement from A to C; Movement from C to E Q26. Suppose there are two goods, good X and good Y. Let the Income be given by I, the quantity of good X demanded be Qx and the quantity of good Y demanded be Qy. The price of a unit of good X is $5 and the price of a unit if good Y is $3. The budget equation is given by a) b) c) d) e) Qy = Qy = Qy = Qx = Qx = (1/3)*(I – 5Qx) (1/5)*(I – 3Qx) I – 5* Qx (1/3)*(I – 5Qy) 5*(I – 3Qy) Page 9 of 21 ©Prep101 www.prep101.com/freestuff Use the following table to answer question 27: Method A B C Quantity of Labour 10 15 20 Quantity of Capital 15 12 10 Q27. If the price of labour is $8 per unit and the price of capital is $15 per unit, which of the three methods of production is (are) not economically efficient? a) b) c) d) e) Method A Method B Methods B and C Methods A and C Methods A, B, and C Q28. George produces and sells 100 rocking-chairs a year. Each chair sells at $30. George’s opportunity cost is $2,200. If George spends $500 to buy materials, what is his economic profit? a) b) c) d) e) $800 $300 $2,500 $3,000 $2,700 Suppose there are only 4 firms in the Steel industry and 5 firms in the Coal industry. Use the following information to answer question 29: Steel Industry Firm A B C D Coal Industry Firm E F G H I Sales 350 300 250 100 Q29. What is the Herfindahl-Hirschman Index in the Steel industry? a) b) c) d) e) 1850 2850 3000 1000 500 Page 10 of 21 Sales 300 250 200 150 100 ©Prep101 www.prep101.com/freestuff Use the following figure of short-run average cost curves to answer question 30: Cost MC 1 2 3 Output Q30. The vertical gap between curves 1 and 3 is equal to a) b) c) d) e) Average variable cost Average fixed cost Average total cost Average marginal cost Opportunity cost Q31. A firm’s marginal cost is 40, its average total cost is 60, and its output is 200 units. If minimum average total cost is achieved at 220 units, the firm’s total cost of producing 201 units is a) b) c) d) e) Between 12,000 and 12,040 Between 13,200 and 13,040 Between 12,000 and 12,060 Less than 8,800 Greater than 13,200 Page 11 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure of a perfectly competitive firm’s short-run and long-run cost curves to answer question 32: Price and Cost MC SRAC LRAC $10 20 25 100 180 Output Q32. Given that the price of a unit of output is $10, the firm will want to a) b) c) d) e) Reduce its plant size and produce 100 units of output Expand its plant size and produce 180 units of output Reduce its plant size and produce 25 units of output Expand its plant size and produce 100 units of output Expand its plant size and produce 25 units of output Q33. Suppose in a perfectly competitive industry, a firm produces (and sells) 20 units of good. If the firm operates at the break-even point and incurs total costs of $300, variable costs of $240 and fixed costs of $60, what is the marginal revenue from selling one more unit of good? a) b) c) d) e) $3 $10 $12 $15 $20 Page 12 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 34: P MC 8 ATC AVC 7 6 MR 5 D 10 Q 15 18 Q34. Assume this is a single-price monopoly. At the profit-maximizing output, total cost is closest to a) b) c) d) e) $60 $78 $55 $49 $45 Use the following figure of a single-price monopoly to answer question 35: P 10 8 6 MC 4 2 MR 10 20 D 30 40 Q Q35. If this market were perfectly competitive, the output level would exceed the singleprice monopoly output level by a) b) c) d) e) 5 units of output 20 units of output 10 units of output 30 units of output 15 units of output Page 13 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 36: Price MC 200 180 170 160 140 ATC D2 110 MR2 D1 80 60 MR1 40 20 50 250 350 400 500 550 650 Quantity Q36. Assume in a monopolistic competition, a profit maximising firm faces demand curve D2. In the short-run, economic profit (loss) is a) b) c) d) e) 100,000 30,000 20,000 -10,000 0 Use the following table showing the payoff matrix for a non-repeated duopoly game to answer question 37: Firm Y Lower Price Increase Price X: $4 X: $40 Lower Price Firm X Y: $10 Y: -$20 X: -$20 X: $20 Increase Price Y: $50 Y: $40 Q37. In equilibrium, firm Y’s payoff is a) b) c) d) e) $10 -$20 $50 $40 $0 Page 14 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 38: Wage rate ($/h) S 9 8 7 6 5 10 20 30 40 50 Labour Q38. At the wage rates above $7 per hour _____, and at the wage rates below $7 per hour____. a) The income effect is smaller than the substitution effect; the income effect is greater than the substitution effect b) The income effect is greater than the substitution effect; the income effect is smaller than the substitution effect c) The income effect equals the substitution effect; the income effect is greater than the substitution effect d) The income effect is smaller than the substitution effect; the income effect equals the substitution effect e) There is a shortage of labour supply in the market; labour market is in equilibrium Use the following supply schedule of a resource to answer question 39: Price of a resource ($) 5 6 7 8 9 10 Quantity of resource supplied 1 2 3 4 5 6 Q39. What is economic rent if 3 units are supplied at a price of $7 per unit? a) b) c) d) e) $21 $15 $8 $3 $0 Page 15 of 21 ©Prep101 www.prep101.com/freestuff Q40. A machine that costs $1,500 and is expected to last for two years will generate marginal revenue product of $1,050 annually. What is the present value of the machine, if the interest rate is 5 percent? a) b) c) d) e) $2,245 $1,500 $1,952 $1,000 $500 Use the following figure to answer question 41: Wage rate (S per hour) MCL S $12 $10 $8 MRP 10 15 16 20 Labour Q41. If this labour market were controlled by a monopsony, then the equilibrium wage rate would be a) b) c) d) e) $12 $10.5 $10 $8 None of the above Page 16 of 21 ©Prep101 www.prep101.com/freestuff Suppose the demand for labour is given by LD curve and the supply is given by the LS curve. Use the following figure to answer question 42: Wage rate ($) LS + tax 8 LS 6 5 4 LD 2 10 20 30 40 50 Labour (hours) Q42. If an income tax is imposed, the government will collect ___ in tax revenue; the workers will pay ___ and the employers will pay ___ in taxes. a) b) c) d) e) $40; $20; $20 $40; $40; $0 $40; $0; $40 $20; $10; $10 $20; $20; $0 Use the following table to answer question 43: Current gross income $4,000 $8,000 $10,000 Plan A $200 $400 $800 Tax payment Plan C $200 $500 $800 $500 $2,000 $500 Plan B Q43. Which tax plan is proportional? a) b) c) d) e) Plan A. Plan B. Plan C. Plan D. None of the above Page 17 of 21 Plan D $100 $200 $400 ©Prep101 www.prep101.com/freestuff Use the following table to answer question 44: p Quantity demanded 300 280 260 240 220 200 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 Quantity supplied 220 240 260 280 300 320 Q44. Suppose a $1.00 excise tax is added to each unit of a commodity. What is the total amount of tax revenue raised by the government? a) b) c) d) e) $550 $400 $360 $240 $100 Use the following figure of a natural monopoly to answer question 45: Price ($) 30 20 18 16 15 ATC 10 MC MR 10 40 60 D 80 Quantity Q45. If the producer captures the regulator, the economic profit is a) b) c) d) e) $800 $400 $120 $80 $0 Page 18 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure of oligopolistic industry to answer question 46: Price ($) 10 MC 8 6 4 2 D MR 5 10 15 20 25 Quantity Q46. If the industry is regulated according to the capture theory, ____ units of output will be produced and ___ of deadweight loss will be created. a) b) c) d) e) 15; $0 10; $20 10; $10 10: $90 10; $0 Use the following table to answer question 47: Nitrogen dioxide (tonnes) 1 2 3 4 5 6 Total Benefit ($) $160 $300 $420 $520 $600 $660 Marginal Social Cost ($) 40 60 80 100 120 140 Q47. The efficient level of pollution is _____ tons. a) b) c) d) e) 1 ton 2 tonnes 3 tonnes 4 tonnes 5 tonnes Page 19 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 48: Cost & benefit ($) 20 15 10 5 MB 2 4 6 8 Quantity Q48. Suppose the marginal cost is $15, and this cost is independent of the quantity produced. An independent government agency determines that the efficient number of output is 6. The marginal external benefit is ___. a) b) c) d) e) $20 $15 $10 $5 $0 Use the following figure to answer question 49: Cost & benefit ($) MSC 12 10 MPC 8 6 4 D=MB 0 50 70 Quantity Q49. Suppose the government wants to impose Pigovian tax to enforce the efficient level of output. The government will collect ___ in tax revenues and will eliminate a deadweight loss equal to ___ associated with the externality. a) b) c) d) e) $240; $40 $200; $80 $200; $40 $120; $20 $100; $40 Page 20 of 21 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 50: $ S = MC 5 4 3 MSB 2 1 MB = D 5 10 15 20 25 Quantity Q50. What is the amount of a voucher that government needs to provide for the outcome to be efficient? a) b) c) d) e) $5 $4 $3 $2 Cannot be determined with given information Page 21 of 21 ...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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