Quiz
ECON 101- Exam Prep
Questions in this quiz (86)
1A household's consumption choices are determined by:
- Aprices of goods and services
- Bincome
- Cpreferences
- Dall of the above
2Total utility equals:
- Athe sum of the marginal utilities of each unit consumed
- Bthe area below the demand curve but above the market price
- Cthe slope of the marginal utility curve
- Dthe marginal utility of the last unit divided by price
- Ethe marginal utility of the last unit consumed multiplied by the total number of units consumed
3Total utility is always
- Agreater than the marginal utility
- Bless than the marginal utility
- Cdecreasing when the marginal utility is decreasing
- Ddecreasing when the marginal utility is increasing
- Eincreasing when the marginal utility is positive
4According to the principle of diminishing marginal utility, as consumption of a good increases, total utility:
- Adecreases and then eventually increases
- Bdecreases at an increasing rate
- Cdecreases at a decreasing rate
- Dincreases at an increasing rate
- Eincreases at a decreasing rate
5If a consumer is in equilibrium,
- Atotal utility is maximized given the consumer's income and the price of goods
- Bmarginal utility is maximized given the consumer's income and the price of goods
- Cmarginal utility per dollar spent is maximized given the consumer's income and the price of goods
- Dthe marginal utility of each good will be equal
- Enone of the above is true
6If potato chips were free, individuals would consume
- Aan infinite number of chips
- Bthe quantity of chips at which total utility from chips falls to zero
- Cthe quantity of chips at which the marginal utility from chips falls to zero
- Dzero chips, since this equates marginal utility and price
- EMegan would eat all of the potato chips. Megan loves potato chips <3
7In consumer equilibrium, a customer equates the
- Atotal utility from each good
- Bmarginal utility from each good
- Ctotal utility per dollar spent on each good
- Dmarginal utility per dollar spent on each good
- Etotal income spent on each good with total utility from each good
8Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility of the last apple is 10 and the marginal utility of the last banana is 5. If the price of an apple is $0.50, what is the price of a banana?
- A$0.05
- B$0.10
- C$0.25
- D$0.50
- E$1.00
9Squid costs $2 per kilogram and octopus costs $1 per kilogram. Jack buys only octopus and gets gets 10 units of utility from the last kilogram he buys. Assuming that Jack has maximized his utility, his marginal utility, in units, from the first kilogram of squid must be
- Amore than 10
- Bless than 10
- Cmore than 20
- Dless than 20
- Ezero
10If Soula is maximizing her utility and two goods have the same marginal utility, she will
- Abuy only one
- Bbuy equal quantities of both
- Cbe willing to pay the same price for each
- Dget the same total utility from each
- Edo none of the above
11Sergio is maximizing his utility in his consumption of beer and bubblegum. If the price of beer is greater than the price of bubblegum, then we know with certainty that
- ASergio buys more beer than bubblegum
- BSergio buys more bubblegum than beer
- Cthe marginal utility of the last purchased beer is greater than the marginal utility of the last purchased bubblegum
- Dthe marginal utility of the last purchased bubblegum is greater than the marginal utility of the last purchased beer
- Ethe marginal utilities of the last purchased beer and bubblegum are equal
12Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of bikes increases due to a decrease in supply, the quantity demanded of bikes
- Adecreases and the demand curve for roller blades shifts rightward.
- Bdecreases and the demand curve for roller blades shifts leftward.
- Cdecreases and the demand curve for roller blades will not shift.
- Dincreases and the demand curve for roller blades shifts rightward.
- Eincreases and the demand curve for roller blades shifts leftward.
13Which of the following is not a prediction of marginal utility theory?
- AOther things remaining the same, the higher the price of the good, the lower the quantity demanded.
- BOther things remaining the same, the higher the price of the good, the higher the consumption of substitutes for that good.
- COther things remaining the same, the lower the price of the good, the lower the consumption of substitutes for that good.
- DThe law of demand.
- EDiminishing marginal utility.
14Chuck and Barry have identical preferences but Chuck has a much higher income. If each is maximizing his utility,
- Athey will have equal total utilities.
- BChuck will have lower total utility than Barry.
- CChuck will have lower marginal utility than Barry for each normal good consumed.
- DChuck will have higher marginal utility than Barry for each normal good consumed.
- Ethey will have equal marginal utilities for each normal good consumed.
15The relative price of beer to back bacon are 2:1. If Bob's current consumption is at a level where MUbeer/MUbacon is 1:2, to achieve maximum utility Bob must
- Aconsume more beer and less bacon
- Bnot change his current consumption of beer and bacon
- Cconsume less beer and more bacon
- Dincrease the price of beer
- Econsume twice as much beer and half as much bacon
16Bob is initially maximizing his utility in his consumption of goods X and Y. The price of goo X doubles, ceteris paribus. for Bob to once again maximize his utility, his quantity of X consumed must
- Arise until the marginal utility of X had doubled
- Bfall to one half its previous level
- Cfall until the marginal utility of X had doubled
- Dfall until the marginal utility of X falls to one half its previous level
- Eyield infinite bliss
17Beverly is currently in consumer equilibrium. An increase in her income will
- Aincrease her total utility
- Bdecrease her total utility
- Cincrease her marginal utility of all goods
- Ddecrease her marginal utility of all goods
- Eincrease her consumption of all goods
18Bill and Ted consume 15 chocolate bars each at the current price. If Bill's demand curve is more elastic than Ted's demand curve
- ABill's willingness to pay for the 15th chocolate bar is greater than Ted's
- BTed's willingness to pay for the 15th chocolate bar is greater than Bill's
- CBill's consumer surplus is greater than Ted's
- DTed's consumer surplus is greater than Bill's
- EBill's consumer surplus equals Ted's
19The high price of diamonds relative to the price of water reflects the fact that, at typical levels of consumption,
- Athe total utility of water is relatively low
- Bthe total utility of diamonds is relatively high
- Cthe marginal utility of water is relatively high
- Dthe marginal utility of diamonds is relatively low
- Enone of the above
20The principal of diminishing marginal utility means that the consumer surplus from a second slice of pizza is
- Agreater than that of the first
- Bequal to that of the first
- Cless than that of the first
- Dequal to that of the first divided by 2
- Eequal to that of the first multiplied by 2
21Which of the following statements best describes a customer's budget line?
- Athe amount of each good a consumer can purchase
- Bthe limits to a consumer's set of affordable consumption choices
- Cthe desired level of consumption for the consumer
- Dthe consumption choices made by a consumer
- Ethe set of all affordable consumption choices
22Real income is measured in
- Amonetary units
- Bprice units
- Cunits of satisfaction
- Dunits of indifference
- Eunits of goods
23The budget line depends on
- Aincome only
- Bprices only
- Cincome and prices
- Dpreferences only
- Epreferences and prices
24Bill consumes apples and bananas. Suppose Bill's income doubles and the prices of apples and bananas also double. Bill's budget line will
- Ashift left but not change slope
- Bremain unchanged
- Cshift right but not change slope
- Dshift right and become steeper
- Eshift right and become flatter
25The initial budget equation for pop and movies is Qp=20-4Qm, and the price of pop (Pp) is $5. If the price of pop falls to $4, which of the following is the new budget equation?
- AQp=25-2Qm
- BQp=25-4Qm
- CQp=25-5Qm
- DQp=20-5Qm
- Enone of the above
26Zarina's income allows her to afford 3 tomatoes and no toothbrushes, or 2 toothbrushes and no tomatoes. The relative price of toothbrushes (price toothbrush/price tomato) is
- A2/3
- B3/2
- C6/1
- D1/6
- Eimpossible to know with this information
27If the price of the good measured on the vertical axis increases, the budget line will
- Abecome steeper
- Bbecome flatter
- Cshift leftward but stay parallel to the original budget line
- Dshift rightward but stay parallel to the original budget line
- Eshift leftward and become steeper
28If income increases, the budget line will
- Abecome steeper
- Bbecome flatter
- Cshift leftward but stay parallel to the original budget line
- Dshift rightward but stay parallel to the original budget line
- Estay parallel but shift leftward or rightward depending on whether a good is normal or inferior
29The budget equation for pop and movies is Qp=10-5Qm, with movies on the horizontal axis and pop on the vertical axis. The price of pop (Pp) is $4. That means income (Y) is ______ and the price of movies (Pm) is _______.
- AY= $50, Pm=$20
- BY=$200, Pm=$20
- CY=$40, Pm=$2
- DY=$40, Pm=$20
- Enone of the above
30The shape of the indifference curve depends on
- Athe price of goods
- Bhousehold income
- Cthe substitutability between goods for the household
- Dthe level of satisfaction for the household
- Eall of the above
31In general, as a consumer moves down an indifference curve increasing consumption of good X (measured on the horizontal axis)
- Amore of Y will need to be given up for each additional unit of X
- Ba constant amount of Y must be given up for each additional unit of X
- Cless of Y must be given up for each additional unit of X
- Dthe relative price of Y increases
- Ethe relative price of Y decreases
32Which of the following statements is false?
- AIndifference curves are negatively sloped
- BA preference map consists of a series of nonintersecting indifference curves
- CIndifference curves are bowed out from the orgin
- DThe marginal rate of substitution is the magnitude of the slope of an indifference curve
- EThe marginal rate of substitution increases with movement up an indifference curve
33In moving down along an indifference curve, the marginal rate of substitution (MRS) for compliments will
- Aincrease faster than the MRS for substitutes
- Bincrease more slowly than the MRS for substitutes
- Cbe relatively constant
- Ddecrease faster than the MRS for substitutes
- Edecrease more slowly than the MRS for substitutes
34If two goods are perfect substitutes, their
- Aindifference curves are positively sloped straight lines
- Bindifference curves are negatively sloped straight lines
- Cindifference curves are L-shaped
- Dmarginal rate of substitution is zero
- Emarginal rate of substitution in infinity
35When the price of an inferior good rises, the income effect
- Ais always larger than the substitution effect
- Bdecreases consumption of the good and the substitution effect increases consumption
- Cand the substitution effect both increase consumption of the good
- Dand the substitution effect both decrease consumption of the good
- Eincreases consumption of the good and the substitution effect decreases consumption
36For a rise in price, the substitution effect
- Aalways increases consumption
- Bincreases consumption for normal goods only
- Cdecreases consumption for normal goods only
- Ddecreases consumption for inferior goods only
- Enone of the above
37If the price of good X (horizontal axis) falls, the substitution effect is represented by a movement to a
- Ahigher indifference curve
- Blower indifference curve
- Csteeper part of the same indifference curve
- Dflatter part of the same indifference curve
- Eflatter part of a higher indifference curve
38When some hot guy took his shirt off he was not wearing an undershirt. As a result, men's undershirt sales plummeted. Ceteris paribus, we can conclude that men's undershirt
- Apreferences changed when price changed
- Bpreferences changed when income changed
- Cchoices changed when preferences changed
- Dchoices changed when prices changed
- Echoices changed when income changed
39When the price of an inferior good falls, the
1. income and substitution effect both move quantity demanded in the same direction
2. income and substitution effect move quantity demanded in opposite directions
3. income effect is usually larger than the substitution effect
4. substitution effect is usually larger than the income effect- A1 and 2
- B1 and 4
- C2 and 3
- D2 and 4
- Enone of the above
40Which of the following is not a characteristic of a perfectly competitive industry?
- Adownward-sloping industry demand curve
- Bperfectly elastic demand curve for each individual firm
- Ceach firm decides the quantity of output
- Dslightly differentiated products
- Emany firms each supplying a small fraction of industry supply
41For perfect competition to arise it is necessary that industry demand be
- Ainelastic
- Belastic
- Cperfectly elastic
- Dlarge relative to the minimum efficient scale of a firm
- Esmall relative to the minimum efficient scale of a firm
42If a firm faces a perfectly elastic demand for its product ,
- Ait is not a price taker
- Bit will want to lower its price to increase sales
- Cit will want to raise its price to increase total revenue
- Dits marginal revenue curve is equal to the price of the product
- Eit will always earn zero economic profit
43In a perfectly competitive industry, the market price is $10. An individual firm is producing the output at which MC=ATC=$15. AVC at that output is $10. What should the firm do to maximize its short-run profits?
- Ashut down
- Bexpand output
- Ccontract output
- Dleave output unchanged
- Einsufficient information to answer
44In which of the following situations will a perfectly competitive firm earn economic profit?
- AMR>AVC
- BMR>ATC
- CATC>MC
- DATC>AR
- EAR>AVC
45In the price range below minimum average variable cost, a perfectly competitive firm's supply curve is
- Ahorizontal at the market price
- Bvertical at zero output
- Cthe same at its marginal cost curve
- Dthe same as its average variable cost curve
- Enone of the above
46A firm in a perfectly competitive industry is maximizing its short-run profits by producing 500 units of output. At 500 units of output, which of the following must be false
- AMC<AVC
- BMC<ATC
- CMC>ATV
- DAR<ATC
- EAR>AVC
47If a profit-maximizing firm in perfect competition is earning economic profit, it must be producing at a level of output where
- Aprice is greater than marginal cost
- Bprice is greater than marginal revenue
- Cmarginal cost is greater than marginal revenue
- Dmarginal cost is greater than average total cost
- Eaverage total cost is greater than marginal cost
48If a perfectly competitive firm in the short run is able to pay its variable cost and part, but not all, of its fixed costs, then it is operating in the range on its marginal cost curve that is anywhere
- Aabove the break-even point
- Bbelow the break-even point
- Cabove the shutdown point
- Dbelow the shutdown point
- Ebetween the shutdown and break-even points
49The short-run industry supply curve is
- Athe horizontal sum of the individual firms' supply curves
- Bthe vertical sum of the individual firms' supply curves
- Cvertical at the total level of output being produced by all firms
- Dhorizontal at the current level market price
50The supply curve for the individual firm in a perfectly competitive industry is P=1+2Qs. If the industry consists of 100 identical firms, then what is the industry supply when P=7?
- A300
- B400
- C600
- D800
- Enone of the above
51The maximum loss for a firm in long-run equilibrium is
- Azero
- Bits total cost
- Cits total variable cost
- Dits average variable cost
- Enone of the above
52For a perfectly competitive firm in long-run equilibrium, which of the following is not equal to price?
- Ashort-run average total cost
- Bshort-run average variable cost
- Cshort-run marginal cost
- Dlong-run average cost
- Eaverage revenue
53When economic profit is zero
- Athe product will not be produced in the short run
- Bthe product will not be produced in the long run
- Cfirms will leave the industry
- Drevenues are not covering implicit costs
- Enone of the above will occur
54A perfectly competitive industry is in short-run equilibrium with price below average total cost. Which of the following is not a prediction of the long-run consequences of such a situation?
- Aprice will increase
- Bthe output of the industry will increase
- Cfirms will leave the industry
- Dthe output of each remaining firm will increase
- Eeconomic profit will be zero
55If an industry experiences external economies as the industry expands in the long run, the long run industry supply curve will
- Abe perfectly inelastic
- Bbe perfectly elastic
- Chave a positive slope
- Dhave a negative slope
- Ehave an allocative inefficiency
56Which of the following is not true of a new long-run equilibrium resulting from a new technology in a perfectly competitive industry?
- Aprice will be lower
- Bindustry output will be greater
- Cfirm profits will be greater
- Dall firms in the industry will be using new technology
- Eaverage total cost will be lower
57A long-run equilibrium in a perfectly competitive industry would not be efficient if
- Afirms are price takers
- Bnew technologies are developed
- Cthere are external economies or external diseconomies
- Dthere are external costs or external benefits
- Ethere is free entry into the industry
58Resources are used efficiently when
- Aconsumers are on their marginal social benefit curves
- Bfirms are economically efficient
- Cprice= marginal social benefit=marginal social cost
- Dthere are no external benefits or external costs
- Eall of the above are true
59Which of the following is a natural barrier to the entry of new firms in an industry?
- Alicensing of professions
- Beconomies of scale
- Cissuing a patent
- Da public franchise
- Eall of the above
60In order to increase sales from 7 units to 8 units, a single-price monopolist must drop the price from $7 per unit to $6 per unit. What is the marginal revenue in this range?
- A$48
- B$6
- C$1
- D-$1
- Enone of the above
61A profit-maximizing monopoly will never produce at an output level
- Awhere it would incur economic losses
- Bwhere marginal revenue is less than price
- Cwhere average cost is greater than marginal cost
- Din the inelastic range of the demand curve
- Ein the inelastic range of its marginal revenue curve
62A single-price monopolist will maximize profits if it produces the output where
- Aprice equals marginal cost
- Bprice equals marginal revenue
- Cmarginal revenue equals marginal cost
- Daverage revenue equals marginal cost
- Eaverage revenue equals marginal revenue
63If a profit-maximizing monopoly is producing an output at which marginal cost exceeds marginal revenue, it
- Ashould raise price and lower output
- Bshould lower price and raise output
- Cshould lower price and lower output
- Dis incurring losses
- Eis maximizing profit
64Which of the following is true for a producing single-price monopolist but not for a producing perfect competitor?
- AThe firm maximizes profit by setting marginal cost equal to marginal revenue.
- BThe firm is a price taker.
- CThe firm can sell at any level of output at any price it sets.
- DThe firm's marginal cost is less than average revenue.
- ENone of the above.
65Activity for the purpose of creating monopoly is
- Acalled rent seeking
- Billegal in Canada
- Ccalled price discrimination
- Dcalled legal monopoly
- Ecostless
66Taking rent-seeking activity into account, the social cost of monopoly is equal to the
- Adeadweight loss from monopoly
- Bmonopoly profit
- Cdeadweight loss plus monopoly profit
- Ddeadweight loss minus monopoly profit
- Econsumer surplus lost plus producer surplus lost
67When perfect price discrimination occurs, which of the following statements is false?
- Abuyers cannot resell the product
- Bthe firm can distinguish between buyers
- Cthe firm sets prices
- Dthe firm captures consumer surplus
- Eefficiency is worse than with a single-price monopoly
68The output of a (not perfect) price-discriminating monopoly will be
- Aless than a single-price monopoly
- Bmore than a single price-monopoly, but less than a perfectly competitive industry
- Cthe same amount as a perfectly competitive industry
- Dmore than a perfectly competitive industry
- Enone of the above
69Many video stores charge a lower rental for Wednesday nights compared with weekends. The price discrimination is profitable only if the average willingness to pay for DVDs on Wednesdays is
- Agreater than the average willingness to pay for DVDs on the weekends
- Bless than the average willingness to pay for DVDs on weekends
- Cpositive and the average willingness to pay for DVDs on weekends id negative.
- Dnegative and the average willingness to pay for DVDs on weekends id positive.
- Eequal to one
70A natural monopoly has
- Alow fixed cost and low marginal cost
- Blow fixed cost and high marginal cost
- Chigh fixed cost and low marginal cost
- Dhigh fixed cost and high marginal cost
- Ehigh fixed cost and increasing marginal cost
71A monopolist under rate of return regulation has an incentive to
- Ainflate costs
- Bproduce more than the efficient quantity of output
- Ccharge a price equal to marginal cost
- Dmaximize consumer surplus
- Emaximize shareholder profits
72An externality is a cost or benefit arising from an economic activity that falls on
- Aconsumers but not producers
- Bproducers but not consumers
- Cfree riders
- Drivals
- Enone of the above
73The production of too few goods with positive externalities is an example of
- Amarket failure
- Bgovernment failure
- Cproducer sovereignty
- Dcustomer sovereignty
- Eexternal costs
74Which of the following illustrates the concept of external cost?
- Abad weather reduces the size of the wheat crop
- Ba reduction in the size of the wheat crop causes income of wheat farmers to fall
- Csmoking harms the health of the smoker
- Dsmoking harms the health of nearby nonsmokers
- Epublic health services reduce the transmission of disease
75The income elasticity of demand for a better environment is
- Anegative
- Bzero
- Cpositive
- Dtrendy
- Eimpossible to know without additional information
76Levels of acid rain caused by air pollution are
- Aless than efficient levels due to external costs
- Bless than efficient levels due to external benefits
- Cmore than efficient levels due to external costs
- Dmore than efficient levels due to external benefits
- Edecreasing the earth's average temperature
77At the current level of production of buckyballs, marginal social benefit is less than marginal social cost. To achieve allocative efficiency,
- Abuckyballs should be taxed
- Bbuckyballs should not be produced
- Coutput of buckyballs should increase
- Doutput of buckyballs should decrease
- Eproperty rights in buckyballs should be established
78The production of too many goods with negative externalities is an example of
- Aredistribution
- Bconsumer sovereignty
- Cproducer sovereignty
- Dpublic failure
- Emarket failure
79An externality is
- Athe amount by which price exceeds marginal private cost
- Bthe amount by which price exceeds marginal social cost
- Cthe effect of government regulation on market price and output
- Dsomeone who consumes a good without paying for it
- Ea cost or benefit that arises from an activity but affects people not part of the original activity
80The marginal private cost curve (MC) is a positively sloped straight line starting at the origin. If marginal external costs per unit of output are constant , the marginal social cost curve is a positively sloped straight line
- Aparallel to and above MC
- Bparallel to and below MC
- Cstarting at the origin and above MC
- Dstarting at the origin and below MC
- Eidentical to MC
81A market economy tends to ________ goods with negative externalities and _______ goods with positive externalities
- Aoverproduce; overproduce
- Boverproduce; underproduce
- Cunderproduce; overproduce
- Dunderproduce; underproduce
- Eproduce; consume
82Policies for correcting problems of negative externalities include all of the following EXCEPT,
- Aemission charges
- Bpatents
- Cquantitative limits
- DPigovian taxes
- Emarketable permits
83The marginal private benefit curve (MB) is a negatively sloped straight line. If marginal external benefits per unit of output are positive and decreasing with additional output, the marginal social benefit curve is a negatively sloped straight line
- Aparallel to and above MB
- Bparallel to and below MB
- Cabove and steeper than MB
- Dabove and flatter than MB
- Ebelow and flatter than MB
84Policies to achieve allocative efficiency when there are external benefits include
- Aintellectual property
- Bsubsidies
- Cpublic provision
- Dall of the above
- Enone of the above
85Knowledge, as a factor of production,
- Adisplays diminishing marginal productivity
- Bcreates external costs
- Chas costs totalling those paid to the parent holder
- Dis encouraged by intellectual property rights
- Eis all of the above
86When market failure occurs, government will act to reduce inefficiency. This is a prediction of a
- Afair results theory of government behaviour
- Bfair rules theory of government behaviour
- Csocial interest theory of government behaviour
- Dpublic choice theory of government behaviour
- Erent-seeking theory of government behaviour
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- Quiz on ECON 101- Exam Prep, created by Megan Doleweerd on 30/11/2016.
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