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Unformatted text preview: ©Prep101 www.prep101.com/freestuff Practice Micro Exam
Q1. Last year CDplayers were selling for $30 and MP3players were selling for $40.
David bought himself a CDplayer for $30. Now CDplayers sell for $50 and MP3players sell for $55. David’s friend offers him $50 for the CDplayer. What is David’s
opportunity cost if he decides to keep the CDplayer?
a)
b)
c)
d)
e) $55
$30
$40
$50
$55 Q2. Dennis is selfemployed 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 selfemployed 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 8hour 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 $2perunit 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 highskilled workers
Increase unemployment among lowskilled workers
Decrease unemployment among lowskilled workers
Decrease unemployment among highskilled 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 xaxis) and orange juice (measured on yaxis). Suppose Janet’s income increases threefold, while the prices of pizza and orange
juice increase twofold. 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 rockingchairs 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 HerfindahlHirschman 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 shortrun 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 shortrun and longrun 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 breakeven 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 singleprice monopoly. At the profitmaximizing output, total cost
is closest to
a)
b)
c)
d)
e) $60
$78
$55
$49
$45 Use the following figure of a singleprice 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 shortrun, 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 nonrepeated 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.
 Fall '07
 Dickenson
 Microeconomics

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