# Econ Exam 2

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1. The price elasticity of demand measures...
A) The slope of the demand curve
B) How Frequently the market price of a good changes
C) Both A and B (The slope of the demand curve/ the responsiveness of quantity demanded)
D) The responsiveness of quantity demanded to changes in price
D) The responsiveness of quantity demanded to changes in price
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2. Doug wants to start up his own business and needs \$25,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 3%, or he can take out a loan for \$25,000 and pay 5% interest. Doug should compare:
A) The implicit cost of \$750 to the explicit cost of \$1,250 and choose to use his savings
B) The implicit cost of \$750 to the explicit cost of \$1,250 and choose to borrow the money
C) The explicit cost of \$750 to the implicit cost of \$1,250 and choose to use his savings
D) The explicit cost of \$25,750 to the explicit cost of \$26,250 and choose to borrow the money
A) The implicit cost of \$750 to the explicit cost of \$1,250 and choose to use his savings
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3. When a person's income increases,
A) The bundles of goods and services that become affordable must include more expensive goods and services
B) The bundles of goods and services that become affordable don't change
C) more bundles of goods and services become affordable
D) fewer bundles of goods and services become affordable
C) more bundles of goods and services become affordable
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4. Given the marginal-utility-to-price ration equalization principle, MU1/P1=MU2/P2. What will happen if P1 decreases?
A) the consumer should consume more of good 1 and less of good 2
B) the consumer should consume more of good 2 and less of good 1
C) total utility of good 1 is greater than total utility of good 2
D) total utility of good 2 is greater than total utility of good 1
A) the consumer should consume more of good 1 and less of good 2
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5. After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the..
A) marginal utility is positive for the fourth slice and negative for the fifth slice
B) marginal utility for four pizza slices is negative
C) total utility for five pizza slices is negative
D) marginal utility for the fourth slice is the largest among all slices
A) marginal utility is positive for the fourth slice and negative for the fifth slice
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6. Hideki attends baseball games and goesto movie theaters. Assume that baseball and movie tickets are normal goods. After the price of baseball tickets goes up, which of the following is correct?
A) The substitution effect predicts that Hideki will substitute spending toward baseball and away from movie
B) The quantity of baseball tickets that Hideki consume will decrease
C) The income effect will induce Hideki to increase spending on both movie and baseball tickets
D) The quantity of movie tickets that Hideki consume will increase
B) The quantity of baseball tickets that Hideki consume will decrease
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7. According to the law of diminishing marginal returns,
A) the additional output generated by additional units of an input will diminish
B) output will fall and then rise as additional units of input are employed
C) employing additional inputs will diminish total output
D) the additional inputs necessary to produce an additional unit of output will diminish
A) the additional output generated by additional units of an input will diminish
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8. In a two-nation world, comparative advantage in the production of a particular product means that one nation can produce:
A) more of the product than the other nation
B) the product at a lower domestic opportunity cost than the other nation
C) the product with fewer inputs than the other nation
D) the product at a lower average cost than the other nation
B) the product at a lower domestic opportunity cost than the other nation
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9. France and Italy can produce two goods, fish (F) and chicken (C). The cost ratios for two goods are constant and given by France: 1F=2C and Italy: 1F=4C. If these two countries specialize based on comparative advantage,
A) Italy will both produce chicken and catch fish
B) France will both produce chicken and catch fish
C) France will produce chicken and Italy will catch fish
D) Italy will produce chicken and France will catch fish
D) Italy will produce chicken and France will catch fish
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10. Suppose the government has decided to impose a tax on sellers. Which of the following is correct?
A) If supply were less elastic, the deadweight loss would be larger
B) If demand were less elastic, the deadweight loss would not be affected
C) If supply were less elastic, the tax revenue would be larger
D) If demand were less elastic, the tax revenue would be smaller
C) If supply were less elastic, the tax revenue would be larger
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11. The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by
A) 7% and quantity supplied rises by 5%
B) 8% and quantity supplied rises by 8%
C) 5% and quantity supplied rises by 7%
D) 10% and quantity supplied remains the same
A) 7% and quantity supplied rises by 5%
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12. Which of the Statement is correct?
A) When MP is higher than AP, AP is decreasing. When MP is less than AP, AP is decreasing
B) When MP is higher than AP, AP is increasing. When MP is less than AP, AP is decreasing
C) When MP is higher than AP, AP is increasing. When MP is less than AP, AP is increasing
D) When MP is higher than AP, AP is decreasing. When MP is less than AP, AP is increasing
B) When MP is higher than AP, AP is increasing. When MP is less than AP, AP is decreasing
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13. Mary's income increases by 10% and her demand for books decreases by 5%, all else constant. Mary's income elasticity of demand for books is _____. Thus, books are a/an _____ good and _____ for Mary.
A) -2.0, normal, neither a luxury or a necessity
B) 0.5, normal, a necessity
C) 2.0, inferior, a luxury
D) -0.5, inferior, a necessity
D) -0.5, inferior, a necessity
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14. Maggie decides to become a full-time fashion blogger and quits her job. Her previous job paid her \$45,000 a year. SHe spent \$10,000 buying a camera and fashion apparel. She earns \$80,000 in her first year as a blogger. What is Maggie's economic profit as a blogger?
A) \$25,000
B) \$35,000
C) \$70,000
D) \$80,000
A) \$25,000
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15. Suppose a firm's marginal product of labor of producing the 3rd unit of a good is equal to 2. Additionally, suppose a firm pays its workers \$10. What is the firm's marginal cost of producing the 3rd unit?
A) \$5
B) \$10
C) \$20
D) \$2
A) \$5
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16. Assume that we know that the cross elasticity of demand between goods A and B is 0.5. If the price of B increases, the demand for A ____ because A and B are ____
A) Decreases, complements
B) Decreases, substitutes
C) Increases, compliments
D) Increases, substitutes
D) Increases, substitutes
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17. Which of the following makes supply more elastic?
A) The producer has unused capacity when price change happens
B) There is limited availability of input goods
C) The product is complex to manufacture.
D) The producer has little time to respond to price changes
D) The producer has little time to respond to price changes
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18. The long-run average total cost curve:
A) will rise if economies of scale are incurred
B) is based on the assumption that all resources are variable
C) will fall if diminishing returns are encountered
D) will rise if diminishing returns are encountered
B) is based on the assumption that all resources are variable
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19. At a price of \$10, the quantity demanded of wine is 1,250 bottles. When the price increases to \$30, the quantity demanded of wine is 750 bottles. The price elasticity of demand for wine is:
A) -1/2, and demand is inelastic
B) -4/3, and demand is inelastic
C) -4/3, and demand is elastic
D) -1/2, and demand is elastic
A) -1/2, and demand is inelastic
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20. Do we expect to observe the law of diminishing returns in the short run or long run? Why?
A) We observe diminishing returns in the long run, because marginal product of a variable will always decrease in the long run
B) We observe diminishing returns in the short run, because in the long-run the average cost will always decrease
C) We observe diminishing returns in the short run, because there is sufficient time for inputs to alter in the long run
D) We observe diminishing returns in both the long run and short run, because average cost could increase in both cases
C) We observe diminishing returns in the short run, because there is sufficient time for inputs to alter in the long run
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21. Why is the minimum efficient scale important for a firm's decision making?
A) Minimum efficient scale denotes the point where long-run average costs are minimized
B) Minimum efficient scale tells firms when to stop increasing production in the short run
C) Minimum efficient scale denotes the point after which firms experience constant returns to scale forever
D) Minimum efficient scale denotes the point from which firms can enjoy decreasing long-run average cost as they increase output
A) Minimum efficient scale denotes the point where long-run average costs are minimized
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22. Consider the diagram below. Suppose the World price of coffee is \$2 per pound. What is the quantity of coffee imports for the U.S. (in millions of pounds)?
A) 120
B) 320
C) 220
D) 200
D) 200
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23. What is the increase in economic surplus from autarky to free trade?
A) 200
B) 150
C) 50
D) 100
A) 200
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24. If the world price of the product is \$6 and a tariff of \$1 per unit imported is imposed, then the quantity of output that would be supplied domestically would be
A) 1,600 units, and the quantity of output that would be imported would be 400 units
B) 1,600 units, and the quantity of output that would be imported would be 800 units
C) 1,400 units, and the quantity of output that would be imported would be 800 units
D) 1,400 units, and the quantity of output that would be imported would be 400 units
A) 1,600 units, and the quantity of output that would be imported would be 400 units
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25. What is the total variable cost of producing 4 units?
A) \$22
B) \$10
C) \$28
D) \$5.5
A) \$22
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26. Which of the following is correct?
A) Average variable cost is \$8 when 6 units are produced
B) Average fixed cost is \$6 when 3 units are produced
C) Average total cost is \$6.8 when 5 units are produced
D) Marginal cost is \$8 when 1 unit is produced
A) Average variable cost is \$8 when 6 units are produced
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27. Suppose the country is originally in autarky. Please note that the world price is \$5 and that S and D represents domestic supply and demand. What is the transfer from producer surplus to consumer surplus if imports are allowed?
A) A+B
B) C+D
C) A+B+C+D+E+F
D) G
B) C+D
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28. Chile and Argentina each have 600 workers available. The table shows how many workers it takes to produce grapes and how many workers it takes to produce beef in each country. Argentina has ___.
A) a comparative advantage in both grapes and beef
B) a comparative advantage in beef
C) a comparative advantage in neither grapes nor beef
D) a comparative advantage in grapes
D) a comparative advantage in grapes
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29. Suppose in autarky, Chile produces 75 tons of grapes and 150 tons of beef and Argentina produced 100 tons of grapes and 75 tons of beef. After specialization and trade, Chile trades 100 tons of beef to Argentina for 100 tons of grapes. Which of the following is true?
A) Argentina will gain 25 tons of beef
B) Chile will gain 100 tons of grapes
C) Chile will e worse off after trading with Argentina
D) Only Argentina will gain from this trade
A) Argentina will gain 25 tons of beef
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30. Which of the following terms of trade would make trade beneficial for both Chile and Argentina?
A) 1/4 ton of grapes for 1 ton of beef
B) 1/4 ton of beef for 1 ton of grapes
C) 3 tons of beef for 1 ton of grapes
D) 1 ton of grapes for 1 ton of beef
D) 1 ton of grapes for 1 ton of beef
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31. The price of an apple is \$1; the price of a banana is \$2. You have \$4 to spend. What is the optimal consumption of apples and bananas?
A) 2 apples and 2 bananas
B) 3 apples and 3 bananas
C) 4 apples and 0 bananas
D) 2 apples and 1 banana
D) 2 apples and 1 banana
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32. The price of an apple is \$1; the price of the banana is \$1 and you have \$4 to spend. What is the optimal consumption?
A) 2 apples and 2 bananas
B) 4 apples and 4 bananas
C) 2 apples and 1 banana
D) 3 apples and 3 bananas
A) 2 apples and 2 bananas
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33. An increase in the quantity of product X demanded from 14,000 to 16,000 units implies that the price of product X was...
A) increased and the demand is elastic
B) increased and the demand is inelastic
C) reduced and the demand is elastic
D) reduced and the demand is inelastic
D) reduced and the demand is inelastic
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34. In the picture below, curve ___ represents the Average Variable Cost curve and curve ___ represents and the Marginal Cost curve.
A) 1,3
B) 3,1
C) 2,1
D) 3,4
B) 3,1
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35. The below supply curve is:
A) Semi Elastic
B) Perfectly Elastic
C) Perfectly Inelastic
D) Unit Elastic
B) Perfectly Elastic
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36. Which of the following graphs is implying the law of diminishing marginal utility? (Numbers next to each curve represent total utility)
D

37. Suppose the price decreases from \$8 to \$4. Calculate the price elasticity of demand using the midpoint formula.
A) -1
B) -2
C) -0.8
D) -1/2
A) -1
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38. The table below shows Bob's total utility from consuming slices of pizza. What is the marginal utility of Bob's 4th slice of pizza?
A) 7
B) 8
C) 1
D) 40
A) 7
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39. Based on the table, which of the following is correct?
A) Marginal returns to each input unit are all greater than 0
B) Diminishing marginal returns set in with the addition of the third unit of input
C) As marginal return increase, output increases up to 6 units
D) Output can increase indefinitely by increasing input
B) Diminishing marginal returns set in with the addition of the third unit of input
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40. What is the marginal product of labor when labor input is 4?
A) 1
B) 3
C) 4
D) 2
A) 1
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 Author: Zaqxz ID: 326635 Card Set: Econ Exam 2 Updated: 2016-12-10 03:56:56 Tags: economics Folders: Description: Micro Final Practice Show Answers: