ECON 2302 FINAL EXAM with Answers

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ECON 2302 ECON/2302 ECON2302 FINAL EXAM

The study of microeconomics and macroeconomics differ in that

a.	microeconomics is concerned with the domestic economy, while macroeconomics is concerned only with the international economy
b.	microeconomics examines the individual units of the economy, while macroeconomics studies the whole economy
c.	microeconomics studies the actions of households, while macroeconomics studies the actions of business firms
d.	microeconomics studies the economy in terms of private individuals and firms, while macroeconomics includes the effect of government

2. Which of the following correctly matches the income payment with the resource?

a.	rent-land; wages-labor; interest-capital; profits-entrepreneurship
b.	profits-land; wages-labor; rent-capital; interest-entrepreneurship
c.	taxes-land; interest-labor; rent-capital; profits-entrepreneurship
d.	Interest-land; taxes-labor; interest-capital; rent-entrepreneurship

3. A shortage of a good means

a.	an excess supply of the good
b.	an excess demand of the good
c.	Quantity demanded is less than the quantity supplied
d.	the quantity supplied exceeds the quantity demanded

4. "John buys more of good X as his income increases, ceteris paribus," means

a.	there is no cause-and-effect relationship between John's income and the quantity of good X he purchases if ceteris paribus applies
b.	John's demand for good X depends exclusively on income
c.	John's income and purchases of this good are being held constant
d.	the change in John's income is the only factor being considered in explaining the change in his purchase of good X

5. A normal good is a good for which demand increases as the

a.	income of demanders increases
b.	Price of the good increases
c.	Price of close substitutes decreases
d.	total number of consumers decreases

6.Exhibit B-3 shows an economy's production possibilities table. The first unit of capital goods production will cost ______ units of consumption goods

a.	1
b.	25
c.	23
d.	2

7. Exhibit B-3 shows an economy's production possibilities table. The second unit of capital goods production will cost ______ units of consumption goods

a.	4
b.	25
c.	23
d.	1

8. Farmers can produce wheat and/or rice. What will happen in the wheat market if there is an increase in demand for rice?

a.	Wheat supply will increase.
b.	Wheat supply will decrease.
c.	Wheat demand will increase.
d.	Wheat demand will decrease.

9. Farmers can produce wheat and/or rice. What will happen in the wheat market if there is an increase in the price of fertilizers?

a.	Wheat supply will increase.
b.	Wheat prices will rise.
c.	Wheat demand will increase.
d.	Wheat demand will decrease.

10. What will happen in the oil market if suppliers become more optimistic of the future?

a.	Oil supply will increase.
b.	Oil prices will rise.
c.	Oil supply will decrease.
d.	Oil demand will decrease.

11. What will happen in the gasoline market if oil prices rise?

a.	Gas supply will increase.
b.	Gas prices will fall.
c.	Gas demand will decrease.
d.	Gas prices will rise.

12. What will happen in the syrup market if honey prices rise?

a.	Prices will fall.
b.	Demand will increase.
c.	Supply will decrease.
d.	Indeterminable.

13. What will happen in the tomato market if a freeze destroys a significant share of market supply?

a.	Prices will fall.
b.	Demand will increase.
c.	Supply will decrease.
d.	Indeterminable.

14. What will happen in the cell phone market as technology improvements bring costs down?

a.	Prices will rise.
b.	Demand will increase.
c.	Supply will decrease.
d.	Quantity-demanded will increase.

15. If Weiskamp T-shirt Co. lowers its price from $6 to $5 and finds that students increase their quantity demanded from 400 to 600 T-shirts, demand is

a.	price inelastic
b.	price elastic
c.	unit elastic
d.	cross elastic

16. In Exhibit D-1, price elasticity of demand within the price range $8 and $6 is

a.	4.27
b.	1.5
c.	1.6
d.	0.9

17. In Exhibit D-1, price elasticity of demand within the price range $10 and $8 is

a.	1.0
b.	0.7
c.	1.5
d.	2.0

18. The cross elasticity of demand for substitute goods must

a.	be greater than one
b.	be less than one
c.	be zero
d.	exceed zero

19. The cross elasticity of demand for complementary goods must

a.	be less than one
b.	be greater than one
c.	exceed zero
d.	be negative

20. If Herbert the hair stylist raises the price of his cuts from $13 to $15 and the quantity demanded for his cuts falls from 300 to 260, demand is

a.	price inelastic
b.	price elastic
c.	unit elastic
d.	cross elastic

21. Refer to Exhibit E-2. Each dessert is priced at $1. If you had $10 to spend on desserts, which of the following combinations of goods would you buy?

a.	5 units of brownies, 4 units of ice cream, and 1 unit of pie
b.	4 units of brownies, 5 units of ice cream, and 1 unit of pie
c.	4 units of brownies, 4 units of ice cream, and 2 units of pie
d.	4 units of brownies, 3 units of ice cream, and 3 units of pie

22. Refer to Exhibit E-3. Clothes and amusements are priced at $10 each. If you had a budget of $50, which of the following combinations of goods would you buy?

a.	4 units of clothes and 1 unit of amusement
b.	3 units of clothes and 3 units of amusement
c.	2 units of clothes and 3 units of amusement
d.	1 unit of clothes and 4 units of amusement

23. When demand is inelastic, a decrease in price will cause

a.	no change in total revenue.
b.	an increase in total revenue.
c.	a decrease in total revenue.
d.	There is insufficient information to answer this question.

24. When demand is elastic, an increase in price will cause

a.	no change in total revenue.
b.	an increase in total revenue.
c.	a decrease in total revenue.
d.	There is insufficient information to answer this question.

25. Average total cost equals

a.	(fixed costs + variable costs)/quantity produced.
b.	(fixed costs + variable costs)/change in quantity produced.
c.	change in total costs/quantity produced.
d.	change in total costs/change in quantity produced.

26. At P = $20, AVC = $10, AFC = $10, & Q = 20, the result is

a.	loss of $10
b.	profit of $10
c.	loss of $20
d.	Normal economic profit

27. At P = $20, AVC = $10, AFC = $8 & Q = 20, the result is

a.	loss of $10
b.	Normal economic profit
c.	profit of $20
d.	profit of $40

28. At P = $24, Q = 200, MC = MR, AFC = $6, AVC = $25, the firm should

a.	Increase output.
b.	Decrease output.
c.	Shut down operations.
d.	Stay at the current output level, although profit = -$1,400.

29. Economic profit is defined as

a.	price minus the sum of average fixed and marginal cost
b.	total revenue minus total implicit cost
c.	total revenue minus the average total cost
d.	total revenue minus the sum of implicit and explicit costs

30. What should a profit-maximizing monopolist do if she is currently producing where MC < MR?

a.	increase output until MC = MR
b.	decrease output until MC = MR
c.	shut down in the long run
d.	keep producing at this level

31. Which of the following statements is true?

a.	Accounting profit usually is greater than economic profit.
b.	Accountants ignore explicit costs in calculating profit.
c.	Explicit costs fall as output increases.
d.	Economic profit always increases as output increases.

32. The price searcher's marginal revenue curve lies below the demand curve because

a.	the monopoly is not an efficient producer
b.	as the monopolist increases output, the price falls
c.	there is no account of implicit costs
d.	the monopolist's demand curve is the market demand

33. Monopolistically competitive firms sell goods that are

a.	close substitutes
b.	perfect substitutes
c.	not substitutes
d.	not differentiated products

34. If there is an economic profit in monopolistic competition, there is

a.	an incentive for new firms to enter
b.	an incentive for existing firms to increase prices
c.	at least one firm engaged in advertising
d.	an incentive for existing firms to decrease prices

35. One reason why firms in monopolistically competitive markets earn zero profit in the long run is because

a.	product differentiation disappears
b.	barriers to entry become prohibitive
c.	the price elasticity of demand for each firm falls to zero
d.	so many firms enter the market that each firm's demand curve eventually becomes tangent to the firm's ATC curve

36. The demand curve that a monopolist firm faces is

a.	the same as the demand curve facing a perfectly competitive firm except the monopolist is a price maker and the competitive firm is a price taker
b.	the same as the demand curve facing a perfectly competitive firm except the monopolist is a price taker and the competitive firm is a price maker
c.	horizontal, because there are no close substitutes for its product
d.	the same as its industry demand curve

37. The monopolist, unlike the perfectly competitive firm, continues to earn an economic profit in the long run because

a.	it can charge a higher price than its competitors and not lose market share
b.	it can innovate, using its profit as research investment
c.	it can out-compete its competitors
e.	barriers to entry

38. A concentration ratio refers to the

a.	ranking of firms by profitability
b.	percentage of sales accounted for by the leading firms in an industry
c.	percentage of sales accounted for by the largest firm in an industry
d.	ability of a firm to control market price

39. Mutual interdependence means that

a.	all other firms in a monopolistically competitive industry rely on one firm to take leadership in setting price
b.	monopolistically competitive firms will "follower the leader" allowing the monopoly firm to determine price
c.	each firm within an oligopoly is affected by what the other firms in the industry do
d.	all firms in the industry are independent of each other

40. Marginal physical product of labor measures the

a.	quantity of output produced by hiring workers
b.	change in output generated by hiring an additional worker
c.	change in revenue generated by hiring an additional worker
d.	change in cost generated by hiring one additional worker

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