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ECO 100 Review - Microeconomics.pdf

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Department
Economics
Course
ECO101H1
Professor
All Professors
Semester
Winter

Description
1 of 12 pages ECONOMICS 100 MICROECONOMICS REVIEW SPRING 2012 Yikes , the Final Exam is coming soon … time to do some review! To huet started on the Micro part of the course, here are 40 MC questions. All of the following questions have appeared on past f inal exams. Note that there are no questions in this assignment on Income and Substitution Effects, the Labour Market or models between Competition and Monopoly. These topics may be includeon the final exam, albeit not necessarily as part of the MC se ction. (Answers provided on the last page.) One way to test your readiness for the Final Exam is to try these questions in one sitting, without peeking at answers. I’d suggest you also time yourself and see if you can complete all 40 questions within 7 0 minutes. (The Exam has 50 MC questions for 50 Marks in 90 minute; 80% of that time is 72 minutes, but on the E xam you also need to bubble the Scantron sheet carefully.) 1. Country Z, which has a concave production-possibilities curve [PPC], produces only motor scooters and radios with factors capital and labour. Under which one of the following conditions will the PPC curve for country Z shift totally outward i.e., the new PPC curve will not touch the old PPC curve? a. country Z and country A engage in mutually beneficial trade b. an innovation is introduced in the motor scooter industry in country Z c. a company in country A purchases and then operates one of the manufacturing companies in country Z d. the government in country Z reduces taxes, which leaves all residents with higher levels of disposable incomes e. none of the above 2. Apples are produced by one variable factor [labour] and one fixed factor [land]. Which one of the following statements is not correct? a. average product will reach a maximum when marginal product equals average product b. marginal product equals average product at the labour input where straight line ray from the origin is tangent to the total product curve c. marginal product will reach a maximum when average product reaches a maximum d. the law of diminishing marginal returns [marginal productivity] starts at the point where marginal product reaches a maximum e. none of the above is incorrect. 2 of 12 pages 3. The demand curve for cod would shift outward (increase) if: a. the price of a salmon [a substitute good] were to decrease b. disposable incomes were to decrease and cod has a negative income elasticity c. the price of rice [a complementary good] were to increase d. cod workers received a pay reduction and cod is a normal good e. None of the above. 4. A perfectly competitive industry is in long run equilibrium with firms making normal profits (i.e. zero economic profit). Under which one of the following circumstances would the industry supply curve shift to the right in the short run? a. property taxes decrease for each firm b. the government imposes a quota on the industry's production c. the government introduces a specific commodity tax on the industry d. energy prices decrease for each firm e. both a) and d). 5. Which one of the following statements is not correct? a. if an industry demand curve were to exhibit unitary elasticity over the entire price range, then the total revenue for the industry would be constant b. in the short run, if a specific commodity tax [e.g., $1.00 per unit of output] were imposed on a perfectly competitive industry, the more elastic the demand curve, the greater the amount of tax revenue for the government c. in the long run, a perfectly competitive industry has a constant cost long run supply curve: this supply curve is then classified as a perfectly elastic supply curve d. if the cross elasticity of demand for two goods were positive, then the two goods would be substitutes 6. The price elasticity of demand for Product W is calculated at 3 (technically -3) for a small range on the downward sloping demand curve. Within this range, if the price were to increase by 10%, then the quantity demanded for Product W would: a. increase by 10% b. decrease by 10% c. increase by 30% d. decrease by 30% e. none of the above. 3 of 12 pages 7. If the price for Good B were to decrease from $10 to $8 and as a result the quantity demanded were to increase from 10 million units to 12 million units, then the demand curve, in the range analyzed, would be: a. elastic b. have unitary elasticity c. inelastic d. perfectly elastic 8. Timothy spends all his disposable income on Product A and Product B. As a result of a decrease in his disposable income, which one of the following combinations would not be possible for Timothy when he reaches his new equilibrium position? a. Timothy could purchase more of Product A and more of Product B b. Timothy could purchase more of Product A and less of Product B c. Timothy could purchase less of Product A and more of Product B d. Timothy could purchase less of Product A and less of Product B 9. With the imposition of an excise tax (sales tax), the price to the buyer will be unchanged if a. the supply is elastic b. the demand is elastic c. the supply is perfectly elastic d. the supply is perfectly inelastic e. the demand is inelastic 10. Consider a perfectly competitive industry [and its associated firms] in the short run production period. Which one of the following statements is correct? a. an increase in fixed costs would cause an increase in the marginal cost curve b. the minimum output which a firm would produce is represented by the output associated with the minimum point of the firm's average total cost curve c. average fixed cost is represented by the vertical difference between the average variable cost curve and the average total cost curve at each level of output d. a firm's short run supply curve is identical to the firm's marginal cost curve starting from the minimum point of the average total cost curve 4 of 12 pages 11. A perfectly competitive industry is initially in long run equilibrium (each firm is making only normal profits). Which one of the following statementsis correctin the new short run equilibrium? a. if there were a decrease in the industry supply curve, then each firm would produce a smaller output and make economic losses b. if there were an increase in demand, then each firm would produce a smaller output and make economic profits c. if there were an increase in the industry supply curve, then each firm would produce a larger output and make economic losses d. if there were a decrease in demand, then each firm would produce a larger output and make economic losses 12. Which one of the following statements is correct in the short run for a perfectly competitive industry and its associated firms? Initially, each firm is making a normal rate of return (i.e., a normal profit): a. the firm would produce an output if average revenue were greater than average fixed costs but less than average variable costs at the output where marginal revenue equals marginal cost b. if the industry demand were to increase, then more firm's would enter in the short run c. the firm would shutdown if average revenue were less than average variable costs at the output where marginal revenue equals marginal cost d. if the government were to introduce an effective price ceiling [i.e., a price ceiling which is less than the initial industry price] then supply would exceed demand 13. A perfectly competitive industry is in long run equilibrium. (Each firm is making normal profits.) The government introduces a specific commodity subsidy of $2.00 per unit of output. Which one of the following statementsis correctin the new short run equilibrium? a. the price, which consumers pay, would be $2.00 below the initial industry price b. each firm would produce a larger output and make economic profits after the subsidy is received c. the amount of the subsidy paid by the government would equal $2.00 times the initial industry output d. each firm would be paid the initial industry price plus the amount of the subsidy times the final industry output 5 of 12 pages 14. A perfectly competitive industry has a constant cost long run supply curve. Which one of the following statements is not correct in the new long run equilibrium? a. if the government imposed a $3.00 per unit specific commodity subsidy, the consumer price would decrease by $3.00 b. if material costs increased such that the average total cost curve in the long run for each firm shifted vertically upwards by exactly $2.50, the consumer price would increase by exactly $2.50 c. if there were an increase in industry demand then each firm would produce an unchanged quantity and more firms would enter the industry d. if there were a decrease in industry demand then each firm would produce a lower output and some firms would leave the industry 15. Each firm in a perfectly competitive industry is currently producing 1,000 units of output in the short run where industry price equals its short run marginal cost. In this position, total revenue is $50,000; total short run costs [fixed plus variable] are $80,000; and total fixed costs are $20,000. The firm's best profit strategy in the short run is to: a. maintain output at its present level b. shut down c. increase its output until marginal cost equals the minimum point of average total cost d. increase its output until the average fixed cost curve falls to a value of $10 16. A perfectly competitive industry is in long run equilibrium. Under these conditions, which one of the following statements is correct? a. the values of marginal revenue, marginal cost, average revenue and average cost are equal b. the values of marginal revenue and marginal cost are equal but they do not equal the values of average revenue and average total cost c. the values of marginal revenue and average revenue are equal but they do not equal the values of marginal cost and average total cost d. the values of marginal revenue and average total cost are equal but they do not equal the values of marginal cost and average revenue 17. An unregulated pure [single plant] monopolist will select a profit maximizing output where: a. price equals marginal cost b. the supply and demand curves intersect c. marginal c
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