Microeconomics Midterms Reviewer PDF

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Example Reviewer for the application of Basic Microeconomics Concepts...

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What are the four categories of resources? A. Information technology, physical capital, financial capital, and high skilled workers B. Land resources, labor, capital goods, and entrepreneurship C. Machines, technology, minerals, and energy resources D. High skilled workers, low skilled workers, knowledge workers, and service sector workers E. Forest, minerals, ocean, and energy resources Which of the following is an example of a macroeconomic question? A. Who are the winners and loser from the imposition of a tax on cigarettes? B. What would be the likely impact of an increase in business taxes on the overall level of inflation in the country? C. How will a consumer react if their income decreases? D. What is the optimal number of workers for an ice cream shop to employ during the summer months? E. How many smartphones should Samsung produce this quarter? Which of the following demonstrates nonrivalry in consumption? A. Information B. Oil C. Workers D. Equipment E. Income Which of the following is NOT an economic resource? A. Money B. Land C. Water D. Capital E. Labor Which of the following would best be described as a positive statement? A. Free markets are inherently unfair institutions B. Countries normally experience higher unemployment during recessions C. Business profits should be redistributed through taxes to benefit more of society D. Increasing taxes is positively wrong E. The focus of government spending should be on improving wellbeing What must be true for a resource to NOT be scarce? A. One person’s consumption of a resource interferes with another’s consumption of that resource. B. It must be free. C. It must be non-rival. D. It must be capital. E. It must be labor.

Which of the following best describes what we mean by resources in economics? A. Natural resources like natural gas and trees B. The factors used to produce goods and services C. Human resources like workers D. The ability to handle a situation E. Monetary wealth Which of the following is NOT a microeconomic question? A. How does a mother’s education influence a child’s health? B. How do labor unions influence wages in the trucking industry? C. What happens to a firm’s revenue if they increase a good’s price? D. How is the unemployment rate related to business cycles? E. How should a firm respond if it knows a competing firm will advertise? What are the elements of property rights that help markets function? A. central planning of resource use, central planning of allocation of goods, centrally set prices B. durability, portability, divisibility C. exclusivity, enforceability, and transferability D. non-rivalry and non-excludability E. rivalry and non-excludability What does it mean to say that a resource is scarce? A. There is an unlimited amount of the resource available. B. Nobody wants to buy this resource. C. A society does not have enough money to purchase this resource. D. The resource is no longer available E. There is not enough of this resource to satisfy all the wants and needs of a society. Which of the following are features of a market economy but not a command economy? A. Decisions about how production is allocated to households are determined by a central authority. B. Buyers and sellers rely on prices created in markets to provide information about the relative value of goods, services, and resources. C. Decisions about what is produced are determined by a central authority. D. Resources are allocated by a central authority. E. Prices are set by a central authority. Which of the following best describes the difference between microeconomics and macroeconomics? A. Microeconomics is about normative analysis; Macroeconomics is about positive analysis B. Microeconomics is about efficiency; Macroeconomics is about equity C. Microeconomics is about individuals, households, and firms; Macroeconomics is about economies as a whole

D. Microeconomics is about how much total output there is in an economy; Macroeconomics is about how much individual firms produce. E. Microeconomics is about markets for financial assets; Macroeconomics is about markets for the factors of production

Which of the following are characteristics of a scarce resource? A. The supply of the resource exceeds the demand of the resource. B. The resource has unlimited supply and limited demand. C. There is limited supply of a resource with no demand for that resource. D. There is a fixed quantity of the resource available but no demand for it. E. There is a demand for that resource with limited supply. Alex and Henry are baking cookies and cupcakes. The input table below shows the amount of time it takes them to create each good. Time to make cookies Time to make cupcakes Henry 1 hour 2 hours Alex 1 hour 3 hours Assuming Alex and Henry decide to specialize and trade cupcakes and cookies with one another, what would be a term of trade or exchange price that would satisfy both of them? A. Any price where a cupcake costs less than 2 cookies. B. Any price where a cupcake costs between 2 and 3 cookies C. Any price where a cupcake cost more than 3 cookies D. We cannot determine a mutually agreeable trading price E. Any trading price is possible The production possibilities curves (PPC) of for Firm A and Firm B are shown here:

As more of Good S is produced, what happens to the opportunity cost of producing Good S for each firm?

A. B. C. D. E.

Increases for Firm A; stays the same for Firm B Increases for both firms Decreases for Firm A; stays the same for Firm B Increases for Firm A, decreases for Firm B Decreases for both firms

Which of the following concepts can be modeled using a PPC? A. When all resources are being used, making more of one good means making less of the other good. B. A society can produce more of any good just by reallocating its resources more efficiently C. Prices that the goods will sell for will be determined in a market D. Societies have preferences about what should be produced E. Governments, rather than markets, are more efficient allocators of resources Jessica can produce 222 boats in a day or 100100100 umbrellas in a day. Paul can produce 333 boats in a day or 120120120 umbrellas in a day. This means that for every boat that Jessica produces, her opportunity cost is 505050 umbrellas. For every boat Paul produces, his opportunity cost is 404040 umbrellas. Which of the following best illustrates the idea of comparative advantage? A. Jessica produces fewer boats in a day than Paul, so she has comparative advantage in producing boats. B. Paul is relatively better at producing boats because he gives up fewer umbrellas per boat. C. Paul is better at producing boats because he can produce more boats in a day. D. There is no comparative advantage in this case because Paul can produce more goods in a day. E. Jessica produces fewer umbrellas in a day than Paul, so she has comparative advantage in producing boats. Which of the following statements about specialization and trade is true? A. A country should specialize in and export the good for which it has absolute advantage. B. A country should specialize in and import the good for which it has comparative advantage. C. A country should specialize in and import the good for which it has absolute advantage. D. A country should specialize in and export the good for which it has a comparative advantage. What is the difference between an implicit cost and an explicit cost? A. Implicit costs should be ignored when calculating the total economic costs of a decision B. Explicit costs should be ignored when calculating the total economic costs of a decision C. An implicit cost does not always involve a monetary expense, but an explicit cost does D. Opportunity costs can be explicit, but not implicit E. Opportunity costs can be implicit, but not explicit What is a key assumption of rational consumer choice theory?

A. B. C. D. E.

Consumers are satisficers Consumers maximize total utility Consumers leave some of their budget unspent Consumers maximize profit Consumers spend their money on the cheapest goods

The table below shows Casandra's marginal utility, expressed in utils (u), experienced each time she visits Wild Waves Water Park in a year. Number of park visits Casandra's marginal utility (MU) 1 55u 2 50u 3 40u 4 25u 5 12u 6 2u 7 -6u How many times will Casandra visit Wild Waves if she has a pass offering her unlimited visits for free? 6 times Explanation: Marginal utility is the change in a consumer's happiness from consuming one additional unit of a good As long as marginal utility is positive, consuming additional units of a good will increase a consumer's total utility If marginal utility is negative, a consumer will not wish to consume a good no matter how cheap it is If park visits were free, Casandra would still only visit the part 6 times, since the 7th visit actually reduces her total utility. In other words, makes her less happy than after just 6 visits. Melanie still enjoys drinking jasmine green tea, but she receives less and less additional happiness with each tea she consumes. What is the term for what the statement above describes? A. Diminishing average utility B. Increasing average utility C. Diminishing marginal utility D. Increasing total utility E. Diminishing total utility What is the definition of the utility maximization rule? A. consumer's utility is maximized when she has spent all her available budget on the goods that give her the highest marginal utility B. A consumer should split their income so that they spend the same amount of money on each good. C. A consumer is behaving optimally when they buy goods that are all the same price.

D. A consumer is behaving optimally when they spend the income on the cheapest goods available. E. A consumer's utility is maximized when the marginal utility per dollar spent on each good is the same for all goods. According to the law of diminishing marginal utility, which of the following is true? A. The total satisfaction from consuming more of a good always decreases as consumption increases B. Total satisfaction from a good increases at an increasing rate as more of the good is consumed C. Consuming more of a good will always make a consumer worse off D. The satisfaction of consuming additional units of a good will decrease as consumption of the good increases E. When marginal utility decreases, total utility will also decrease The table below shows the production possibilities of Country X for two goods. Apples (tons) Wool (bales) 500 0 400 4,000 300 8,000 200 12,000 100 16,000 0 20,000 What is the opportunity cost of one ton of apples in Country X? A. 4,000 bales of wool B. 250 bales of wool C. 0.025 bales of wool D. 100 bales of wool E. 40 bales of wool Explanation: For every 100 tons of apples produced, Country X gives up 4,000 bales of wool. Therefore, each ton of apples costs Country X 40 bales of wool. What measure reflects all of the benefits to sellers? A. Total utility B. Marginal utility C. Total revenue D. Marginal Cost E. Total costs Which

A.

of these graphs shows what happens when the technology used to produce queso, but not kolaches, improves?

B.

C.

D.

E.

Explanation: This shows a decrease in the ability to produce both goods, not an increase in the ability to produce one good and not the other. A shift inward of a PPC indicates a loss of technology or resources, not a gain in technology or resources. Karna is a rational consumer who is spending his entire income on books and coffee. He currently is allocating his consumption so that the following equation is true:

If the price of books decreases to $5, which of the following best describes why he will change his purchases of coffee and books? A. As the price of books decreases, his bang per buck he gets for books has gone up. Because the bang per buck he gets on books and coffee are no longer equal he will buy more books. B. He will buy the same amount of coffee because his marginal utility per dollar spent on coffee hasn't changed. He will decrease the number of books he buys because the marginal utility per dollar spent on books is smaller. C. When he reallocates more of his income to books, the marginal utility of each additional book he buys will increase. D. His income has increased, so he will increase his consumption of both books and coffee. E. When he reallocates more of his income to coffee, the marginal utility of each additional coffee he buys will increase. Explanation: When the price of books decreases, the marginal utility per dollar spent on books will be higher. A rational consumer will then purchase more of the good for which they are getting a higher marginal utility per dollar spent. Which of the following is NOT a likely consequence of weakly established or absent property rights? A. pollution B. prices that do not reflect the true value and cost of something C. innovation D. overuse of a resource E. uncertainty about ownership claims

Explanation: When property rights are weakly established, there is no guarantee that someone who creates a better or more efficient way of doing something will be rewarded for their efforts. As a result, there is less incentive to innovate if property rights are weak or absent. Which of the following best captures the idea of the fundamental economic problem? A. Infinite resources and limited wants B. Limited wants and limited resources C. Limited resources and unlimited wants D. Unlimited resources and unlimited wants E. Lack of demand for limited resources Two agents with identical resources can each make the same two goods: baseball trophies and racing medals. Which of the following best captures the idea of absolute advantage for these two agents? A. One agent has higher opportunity costs of one good, and the other agent has higher opportunity costs of the other good. B. One economic agent has a lower opportunity cost of one good, and another economic agent has a lower opportunity cost of a different good. C. An agent is able to produce more of a good or service than another economic agent given the same resources. D. One agent is able to sell its goods at for a higher price than the other. E. Both agents have identical opportunity costs. Using the same amount of time and resources, Tomer can either write 100100100 lines of code or process 202020 reports, and Charlotte can either write 120120120 lines of code or process 202020 reports. If Charlotte and Tomer specialize and trade, who should produce which good? A. Charlotte should specialize in reports, Tomer should specialize in writing lines of code. B. Charlotte should specialize in writing lines of code but nobody should specialize in processing reports. C. There is no opportunity for gains from trade because neither person has a comparative advantage in producing either good. D. There is no opportunity for specialization because they both have an absolute advantage in producing one good. E. Charlotte should specialize in writing lines of code, Tomer should specialize in reports Explanation: Each agent should specialize in what producing the good they have a comparative advantage at producing. Charlotte has a comparative advantage in writing lines of code and Tomer has a comparative advantage in reports.

A production possibilities curve The PPC shown is bowed out from the origin. What does the shape of this PPC indicate about how opportunity cost changes as more of one good is produced? A. Constant opportunity cost B. Decreasing opportunity cost C. Zero opportunity cost D. The PPC does not provide information about opportunity costs E. Increasing opportunity cost Explanation: The first scooter (from 1 to 2 scooters) costs only a fraction of a gallon of ice cream, as output falls from 8 gallons to just under 8 gallons. The ninth scooter (from 8 to 9) costs more than three gallons of ice cream (as output falls from 3.5, point, 5 to 0). As output of scooters increased, the opportunity cost of additional scooters increases. The graph below illustrates two production possibilities of the country of Xam.

Xam's production possibilities Which of the following movements would represent economic growth? A. From U to Z B. From U to Y

C. From U to W D. From Z to V E. X to Z Which of the following would NOT be part of the opportunity costs of going to college? A. The money spent on tuition B. Interest payments on student loans C. Money spent on textbooks D. Foregone wages given up to attend college E. Money spent on clothes Explanation: You would have had to buy clothes whether you attended college or not. All the other costs could have been avoided had you decided not to attend college. A company can use its current resources to produce hats and boots as shown in this production possibilities curve (PPC).

Which of the following represents a movement from inefficiency to efficiency in this PPC? A. From S to R B. From S to U C. From V to T D. From T to S E. From S to V The Queen's Kitchen is a restaurant that serves classic British, Welsh, and Irish dishes. Its chef can make bowls of cawl and plates of flummery according to the production possibilities curve (PPC) shown here.

Based on the production possibilities curve shown here, what is the opportunity cost of a plate of flummery when the chef goes from producing 10 plates of flummery to 11 plates of flummery? A. 1 bowl of cawl B. 3 bowls of cawl C. 0.75 of a bowl of cawl D. 1.33 of a bowl of cawl E. 1/3 of a bowl of cawl Explanation: When a producer increases their production of flummery from 10 to 11 plates, they go from making 9 bowls of cawl to 6 bowls of cawl. The one additional plate of flummery costs 3 bowls of cawl. The figure below is the production possibilities curve showing production of T-Rex costumes and Velociraptor costumes in a single day.

Based on the production possibilities curve shown here, what is the opportunity cost of a T-Rex costume? A. 0.25 T-Rex costumes B. 0.25 of a T-Rex costume

C. 4 Velociraptor costumes D. 0.40 E. 10 Velociraptor costumes The production possibilities curves (PPCs) for Jacque and Rosie are shown here:

As more albums are produced, what happens to each producer’s opportunity costs for sushi donuts? A. Rosie’s decreases; Jacque’s increases B. Rosie’s increases; Jacque’s decreases C. Rosie’s stays the same; Jacque’s increases D. Both are constant E. Both increase Explanation: Rosie’s PPC is bowed in, indicating her opportunity costs are decreasing. Therefore, producing more of either good results in lower opportunity costs. Jacque’s PPC is bowed out, indicating her opportunity costs are increasing. Therefore, producing more of either good results in higher opportunity costs. The table below represents points along Country Z's production possibilities frontier. Point on PPC Good A Good B M 400 0 N 350 100 O 300 200 P 250 300 What is country Z’s opportunity cost of each unit of good A if it increases production from 300300300 units of good A to 350 units of good A? A. 100 units of good B B. 100 Units of good A C. 50 units of good A D. 2 units of good B

E. 0.5 units of good A Explanation: Every time Country Z makes 50 more of good A, it gives up making 100 units of good B. Therefore, the opportunity cost of each unit of good A is: 100 = 2 units of good B. 50 Using the same amount of time and resources, Kim can write either 10 articles or complete 5 worksheets and Leah can either write 3 articles or complete 9 worksheets. Who has a comparative advantage in each thing? A. Nobody has a comparative advantage in either good. B. Kim has a comparative advantage in both goods. C. Kim has a comparative advantage in worksheets; Leah has a comparative advantage in writing articles. D. Leah has a comparative advantage in both goods. E. Kim has a comparative advantage in writing articles, Leah has a comparative advantage in worksheets. Tomer and Charlotte have the same resources and time. Tomer can either write 100 lines of code or process 20 reports, and Charlotte can either write 120 lines of code or process 20 reports. Who has an absolute advantage in each thing? A. Charlotte has an a...