Sample Midterm for Microeconomics

9 September 2016

The society would have to save more now than a society that did not emphasize the production of capital goods. C)The society will grow faster than a society that emphasizes the production of consumer goods. D)All of the above are correct. 2. The opportunity cost of attending college is likely to be highest for a high school graduate: A)who has access to student loans. B)whose family is extremely wealthy. C)who will attend a more expensive college. D)who started a successful business in high school. 3. Benny has one hour before bedtime and he can either watch TV or listen to his new Korn CD. He chooses to listen to the CD.

The scarcity problem’s influence on Benny is seen in: A)a the decision to listen to music. B)the decision not to watch TV. C)the fixed amount of time before bed. D)the decision to choose between TV and music. 4. Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her baby-sitting job that pays $30. The cost of seeing the movie is therefore: A)$7. B)$30. C)$37. D)$37 minus the benefit of seeing the movie. 5. When considering an economy producing only two goods, economic growth can be illustrated by: A)a movement along its production possibilities frontier.

Sample Midterm for Microeconomics Essay Example

B)a movement of its production possibilities frontier toward the origin. C)moving to a point beneath its production possibilities frontier. D)an outward shift of its production possibilities frontier. 6. Normative economics reflect: A)society’s laws. B)economic analysis based on facts and evidence. C)empirical and significant economic observations. D)subjective values. 7. Which one of the following statements does not characterize an economic model? A)Models are controlled experiments with the economy. B)Models should contain a set of stated assumptions. C)Models may very well omit some important economic relationships.

D)Models may be an imprecise representation of the real world. 8. A basket of goods in 1987 cost $783, while the value of the same basket in 1997 was $1133. The value of this price index in 1997, based on 1987 = 100, was: A)144. 7. B)242. C)69. 1. D)117. 4. 9. If the weekly earnings index for the construction industry was 340 for 1987 (1970 = 100): A)workers in the construction industry earned $340 per week. B)they earned 340 per cent as much in 1987 as they did in 1970. C)workers earned $100 per week in 1970 and $340 in 1987. D)real weekly earnings fell by 3. 4 percent. 10.

All of the following except one are true of economic theories or models. Which one is the exception? A)They attempt to establish cause and effect between economic variables. B)They always reflect reality. C)They are built with assumptions and then tested with facts. D)They are generalizations used to give context to our observations. 11. Why is there often disagreement amongst economists? A)Some who claim to be economists may not be sufficiently well trained. B)There is disagreement over what is, and what is not, a legitimate goal for society to try to achieve, possibly because some economists are ‘left wing’ and others are ‘right wing’.

C)The discipline is so wide and complex that no one person could be expected to cover the whole range of possible knowledge. D)There is truth in all of the above. 12. Other things equal, when the price of a good increases, we would expect: A)quantity demanded to increase. B)demand to decrease. C)supply to increase. D)quantity supplied to increase. 13. A negative relationship exists between changes in price and: A)quantity supplied. B)supply. C)quantity demanded. D)demand. Use the following to answer the next 6 questions: [pic] 14. In figure 3. , what are the implications if the price of this product is $8? A)The price would be above equilibrium. B)There would be a shortage of 300 units. C)There would be a shortage of 600 units. D)There would be a surplus of 300 units. 15. In figure 3. 4, if the price of the product is $8, how many units would be sold? A)400 units. B)500 units. C)600 units. D)800 units. 16. In figure 3. 4, what is the maximum price at which the quantity sold at a price of $8 could have been sold? A)$8. B)$10. C)$12. D)$14. 17. In figure 3. 4, what are the implications if the price of this product is $14?

A)The price would be below equilibrium. B)There would be a shortage of 600 units. C)There would be a shortage of 1200 units. D)There would be a surplus of 600 units. 18. In figure 3. 4, if the price of the product is $14, how many units would be sold? A)400 units. B)600 units. C)800 units. D)1,000 units. 19. In figure 3. 4, what is the minimum price at which the quantity sold at a price of $14 could have been sold? A)$6. B)$8. C)$10. D)$12. 20. Which of the following pairs of goods are considered substitutes? A)Snowboards and wax. B)Coffee and muffins. C)Insulin and mouthwash. D)Margarine and butter. 1. Two goods are complements if: A)a decrease in the price of one causes more of the other to be consumed. B)they are consumed together. C)an increase in the price of one causes less of the other to be consumed. D)all of the above. 22. Suppose that the demand for widgets is price inelastic. We know that the numerical value for the price elasticity coefficient is: A)greater than one. B)equal to one. C)greater than zero but less than one. D)less than zero. 23. Farmers may be better off when there is a poor harvest because: A)the demand for agricultural products is inelastic.

B)when demand is inelastic and supply decreases, the farmer’s total revenue increases. C)a small crop generates higher prices. D)all of the above. 24. If a good has a price elasticity of demand that is greater than one, then: A)demand is unit elastic and a change in price does not affect sellers’ revenue. B)demand is elastic and a change in price causes sellers’ revenue to change in the opposite direction. C)demand is inelastic and a change in price causes sellers’ revenue to change in the same direction. D)quantity demanded is not very sensitive to price changes. 25.

Total revenue received by the seller of a good increases if: A)demand for the good is inelastic and the seller raises the good’s price. B)demand for the good is unitary elastic and the seller lowers the price. C)demand for the good is elastic and the seller lowers the price. D)A and C above. 26. A good is more likely to exhibit an elastic demand: A)the shorter the time period in which people have to adjust to any price change. B)the less elastic is the demand for any complementary goods. C)the lower the price of the good relative to other goods. D)the more people consider the good a luxury. 27.

When two goods are complementary, the cross-price elasticity of demand: A)is positive. B)equals zero. C)is negative. D)may be either positive or negative. 28. If the number of apples sold falls from 700 to 500 when the price of oranges falls from $5 to $4 per bushel, the (arc) cross-price elasticity is: A)1. 5. B)-1. 56. C)1. 8. D)-1. 75. 29. If a good is a luxury, its income elasticity of demand is: A)positive and less than 1. B)negative but greater than -1. C)positive and greater than 1. D)zero. 30. Which one of the following is not a characteristic of an inferior good?

A)The price elasticity of demand may be greater than one or less than one. B)The income elasticity of demand is negative. C)The income elasticity of demand is between zero and one. D)The demand for the good increases as income falls. 31. Income elasticity of demand allows us to distinguish between different kinds of goods since: A)normal goods have a positive income elasticity. B)inferior goods have a negative income elasticity. C)luxury goods have an income elasticity greater than one. D)all of the above. 32. If the supply curve of wheat is vertical, then:

A)quantity supplied is not sensitive to price. B)the elasticity of supply is zero. C)we are in the very short run. D)all of the above are correct. 33. Supposing that cigarette smokers demand is more price insensitive than the cigarette manufacturers supply, this means that tax incidence is: A)borne entirely by the manufacturers. B)borne entirely by the consumers. C)borne more by the manufacturers. D)borne more by the consumers. 34. If the government puts a $2 per unit tax on a product and as a result, price rises by $0. 75, which of the following statements is correct?

A)The sellers pay more of the tax than the buyers. B)The buyers pay more of the tax than the sellers. C)The government’s tax revenue falls. D)The quantity demanded of the product falls by 37. 5%. 35. If the government increases the excise tax on cigarettes by 10%, which of the following statements is correct? A)The government’s tax revenue will fall since the demand for cigarettes is inelastic. B)The quantity demanded of cigarettes will fall by more than 10% because the demand is inelastic. C)Both the quantity demanded and supplied of cigarettes will fall by more than 10% because the demand is inelastic.

D)The government’s tax revenue could decrease if the increased tax resulted in a significant increase in the sale of illegal cigarettes. 36. You wait in line to buy a ticket for a show and are fortunate to buy the last ticket for $65. The lady behind you offers to buy the ticket for $100 but you refuse. We can conclude that the value you place on the show is: A)less than $65. B)$65. C)$100. D)at least $100. 37. After a price ceiling is imposed, the total economic surplus in that market will: A)rise. B)remain unchanged. C)fall. D)be reallocated from consumers to producers. 38.

After a price floor is imposed, the total economic surplus in that market will: A)be reallocated from producers to consumers. B)remain unchanged. C)rise. D)fall. 39. Which of the following statements best characterizes the inefficiency induced by a price ceiling? A)Trades that would have occurred in an unregulated market aren’t made. B)The extra benefit from the last unit consumed is less than the extra cost. C)The enforcement of the price ceiling is extremely costly. D)Producers are encouraged to produce too much. 40. The reduction in the total economics surplus due to any market constraint policy is: A)producer surplus.

B)deadweight loss. C)total economic surplus. D)consumer surplus. 41. In general, a $1 tax place on each unit a producer sells will be: A)entirely borne by the producers. B)split 50/50 between producers and consumers. C)entirely borne by the consumers. D)shared between producers and consumers. Use the following to answer the next 6 questions: [pic] 42. Referring to figure 5. 3, if the original equilibrium is at C, then an increase in the cost of production implies: A)S’ shifts so S, resulting in an increase in consumer surplus. B)S’ shifts to S resulting in a decrease in consumer surplus.

C)S shifts to S’, resulting in a decrease in consumer surplus. D)S shifts to S’, resulting in an increase in producer surplus. 43. Referring to figure 5. 3, suppose that the shift in supply from S to S’ represents a tax being imposed in this market, then at the new equilibrium the per unit amount of the tax is represented by: A)OG. B)OA. C)HJ. D)EG. 44. Referring to figure 5. 3, if S’ represents the tax-inclusive supply curve, then the amount of tax revenue raised by this tax is equal to the area: A)EGJCI. B)AGJH. C)EAHI. D)EGJI. 45. Referring to figure 5. , the increase in price due to the tax is given by: A)EA. B)AG. C)HJ. D)OE. 46. Referring to figure 5. 3, after the imposition of a tax, the decrease in price obtained by the supplier is: A)GL. B)GK. C)EG. D)AG. 47. Referring to figure 5. 3, as a result of a tax being imposed, the total benefit of the trades that do not occur is represented by: A)JFBC. B)IFBC. C)MOFI. D)MOBC. 48. A market failure/inefficiency exists when: A)the price established in the market equals the marginal cost of production. B)resources are optimally allocated.

C)the price established in the market does not equate the marginal social benefit of a good and the marginal social cost of production. D)competitive markets’ clearing price equals both the marginal social cost and marginal social benefits. 49. When economists describe a good as being ‘under-priced’, they mean that: A)output should be increased because the marginal social benefit in consumption exceeds the marginal social cost of production. B)too much of the good is being produced since there is a negative externality associated with the good. C)resources are properly allocated since society wants more of the good at a lower price.

D)there is an under-allocation of resources in the production of the good. 50. In a market economy, the ideal solution to the problem of externalities is to: A)prohibit all production involving spillover costs. B)regulate both the amount people may consume and the price they pay for goods whose production involves spillover costs. C)charge or tax producers of a good the precise marginal cost of the externality generated in production. D)allow producers to produce the output level where both the marginal private benefit and the marginal private cost equal the price.

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