Sample Final Examination Econ 100B Spring 2002

 

1)   If the demand for oranges is written as Q = 100 - 5p, then the inverse demand function is

A) Q = 5p - 100.

B) Q = 20 - .2p.

C) p = 20 - 5Q.

D) p = 20 - .2Q.

 

2)   If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a

A) decrease in the demand curve for pizza.

B) decrease in the quantity demanded of pizza.

C) decrease in the price of pizza.

D) All of the above.

 

3)   After tickets for a King’s game are purchased at the official box office price, a market often develops whereby these tickets sell at prices well above the official box office price. Which of the following scenarios would NOT be able to explain this result?

A) The official price was below equilibrium from the moment the tickets were available.

B) Increased publicity causes the demand curve for the event to shift rightward.

C) The event was not a sellout.

D) Not everyone who wanted a ticket was able to buy one at the box office.

 

4)   Restricting imports tends to

A) shift the demand curve for the product to the left.

B) shift the demand curve for the product to the right.

C) change the shape of the supply curve.

D) increase the quantity supplied of a product.

 

5)   The change in price that results from a leftward shift of the supply curve will be greater if

A) the demand curve is relatively steep than if the demand curve is relatively flat.

B) the demand curve is relatively flat than if the demand curve is relatively steep.

C) the demand curve is horizontal than if the demand curve is vertical.

D) the demand curve is horizontal than if the demand curve is downward sloping.

 

6)   Suppose the demand curve for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the price elasticity of demand equals

A) -1.5.

B) -0.67.

C) -4.

D) -2.5.

 

Note:  what answer emerges if you use the formula:  p/intercept – P?

 

7)   If the demand curve for comic books is expressed as Q = 10,000/p, then demand has a unitary elasticity

A) only when p=10000.

B) only when p=100.

C) always.

D) never.

 

8)   The cross price elasticity of demand between two goods will be positive if

A) the two goods are complements.

B) the two goods are substitutes.

C) the two goods are luxuries.

D) one of the goods is a luxury and the other is a necessity.

 

9)   Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference curves implies that the MRS of "y" for "x"

A) is decreasing as "x" increases.

B) is increasing as "x" increases

C) is constant as "x" increases.

D) cannot be calculated for large levels of "x".

 

10) Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his marginal rate of transformation of food for shelter?

A) -5

B) -50

C) -.02

D) None of the above

 

11) The marginal rate of transformation of y for x represents

A) the slope of the budget constraint.

B) the rate at which the consumer must give up y to get one more x.

C) - Px/Py.

D) All of the above.

 

 

 

 

 12)      If the consumer's income increases while the prices of both goods remain unchanged, what will happen to the budget line?

A) The budget line rotates inward from the intercept on the horizontal axis.

B) The budget line rotates outward from the intercept on the vertical axis.

C) The budget line shifts inward without a change in slope.

D) The budget line shifts outward without a change in slope.

 

 

13) If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S, we know that

A) the consumer's income is 250.

B) the price of shelter is 5.

C) the price of shelter is 5 times the price of food.

D) All of the above.

 

14) The consumer is in equilibrium when

A) MRT = MRS.

B) Px/Py = MUx/MUy.

C) the budget line is tangent to the indifference curve at the bundle chosen.

D) All of the above.

 

15) With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that

A) they both have the same marginal utility for food.

B) they both have the same marginal utility for shelter.

C) they both have the same MRS of food for shelter.

D) All of the above.

16) Suppose the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x changes, then the demand for x is

A) perfectly elastic.

B) perfectly inelastic.

C) unit elastic.

D) There is not enough information to determine the price elasticity of demand for x.

 

17) When the price of a good changes, the substitution effect can be found by comparing the equilibrium quantities purchased

A) on the old budget line and the new budget line.

B) on the original indifference curve when faced with the original prices and when faced with the new prices.

C) on the new budget line and a hypothetical budget line that is a parallel shift back to the original indifference curve. 

D) on the new indifference curve.

 

 

Figure 5.4

 

18) Figure 5.4 shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect?

A) 3

B) 10

C) 15

D) 7

 

19) Figure 5.4 shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his income effect?

A) 3

B) 10

C) 15

D) 7

 

20) If a good is an inferior good, then its

A) demand curve will be upward sloping.

B) income effect reinforces the substitution effect.

C) income elasticity is negative.

D) Engel curve cannot be drawn.

 

21) Suppose that the interest rate paid to savers increases.  As a result, Tom wishes to save more. This suggests that, for Tom, 

A) the substitution effect is greater than the income effect.

B) the income effect is greater than the substitution effect.

C) utility maximization is not occurring.

D) future consumption is a luxury.

 

22) Under which of the following conditions will there be no substitution bias in the CPI?

A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods.

B) Higher-price goods increase in price by a greater percentage than do lower-priced goods.

C) All goods change in price by the same amount.

D) All goods change in price by the same percentage.

 

23) If a person supplies less hours of labor in response to a wage increase, then

A) the substitution effect is greater than the income effect.

B) the income effect is greater than the substitution effect.

C) the income effect equals the substitution effect.

D) the person is not maximizing utility.

 

 

Figure 6.2

 

24) At Joey's Lawncutting Service, a lawn mower cannot cut grass without a laborer. A laborer cannot cut grass without a lawn mower. Which graph in Figure 6.2 best represents the isoquants for Joey's Lawncutting Service when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A) Graph A

B) Graph B

C) Graph C

D) Graph D

 

25) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie (capital) or any combination of both. Each minute of the instructor's time delivers the same amount of information as a minute of the movie. Which graph in Figure 6.2 best represents the isoquants for lectures in microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A) Graph A

B) Graph B

C) Graph C

D) Graph D

 

26) Which graph in Figure 6.2 represents the isoquants where, as the amount of labor

used increases and the amount of capital used decreases, the marginal product of labor rises when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A)    Graph A

B)     Graph B

C)    Graph C

D)    Graph D

 

27) To say that isoquants are convex is to say that

A) the marginal rate of technical substitution falls as labor increases.

B) capital and labor are perfect substitutes.

C) labor, but not capital, is subject to the law of diminishing marginal returns.

D) there are constant returns to scale.

 

 

28) One way to explain the convexity of isoquants is to say that

A) as labor increases and capital decreases, MPL rises while MPK  falls.

B) as labor increases and capital decreases, MPL falls while MPK rises.

C) as labor increases and capital decreases, MPL and MPK both fall.

D)    as labor increases and capital decreases, MPL and MPK both rise.

 

29) Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AVC =

A) q.

B) q/10.

C) 10/q.

D) 1.

 

30) When a firm produces one unit, the variable cost is $3.  When the firm produces

two units, the variable cost is $6.  What is the marginal cost associated with two units of production?

A)    $2

B)     $0.5

C)    $6

D)    $3

31) When the isocost line is tangent to the isoquant, then

A) MPL = MPK.

B) the firm is producing that level of output at minimum cost.

C) the firm has achieved the right economies of scale.

D) All of the above.

 

Figure 7.1

32) Figure 7.1 shows the long-run expansion path. The long-run average cost curve will be

A) horizontal.

B) downward sloping.

C) upward sloping.

D) vertical.

 

33) If a production function is represented as q =  La Kb, the long-run average cost curve will be horizontal as long as

A) a + b = 0.

B) a + b = 1.

C) q > 0.

E)     L = K.

 

34) If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output?

A) p = MC.

B) MR = MC.

C) p > AVC.

E)     All of the above.

 

 

 

 

 

35) General equilbrium analysis is the study of

A)    how an equilibrium is determined in all markets simultaneously.

B)     how an equilibrium is determined in all closely related markets.

C)    the effects of a change in a market, and all spillover effects in all related markets.

      D) All of the above.

 

 Figure 10.1

36) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. The contract curve can found by connecting points

A) a and b.

B) a and c.

C) b and d.

D) c and d.

 

37)  If only two people are trading their endowments and no production is possible, then 

the equilibrium they reach will

A)    be on their contract curve.

B)     result in unequal marginal rates of substitution for the two people.

C)    result in one person being worse off than with his or her endowment.

D)    All of the above.

 

38) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. If the endowment is at point a and trade is possible, which of the following points are possible equilibria?

A) a and b

B) a and c

C) b and d

D) c and d

 

 

 

39) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. Considering only the labeled points, point c is a possible equilibrium

A) only if it was the endowment.

B) only if point a is the endowment.

C) if either point a or b is the endowment.

D) only if point d is the endowment.

 

40) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. Point a is not Pareto efficient because 

A) Al's MRS exceeds Bruce's MRS.

B) the point is not near the center of the box.

C) Al's indifference curve is not far enough away from the origin.

D) All of the above.

 

41) Any competitive equilibrium is Pareto efficient because, with a competitive

equilibrium

A)    the marginal rates of substitution are equal for all consumers.

B)     the price line is the contract curve.

C)    mutual gains from trade exist.

D)    the slope of the price line equals the ratio of the MRS for all consumers.

 

42) Humana Hospital's average price/marginal cost ratio of 227% might best be explained by the fact that

A) a patient cannot choose to which hospital they will go.

B) insurance companies continually audit the billing practices of hospitals.

C) once admitted to a hospital, the patient has little opportunity to shop for the best prices.

E)     hospitals are usually located very close to one another.

 

43) A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization, the implicit demand elasticity is

A) -0.2.

B) -0.8.

C) -1.25.

D) -5.0.

 

 

44) Perfect competition and monopolistic competition are similar in that both market structures include

A) price-taking behavior by firms.

B) a homogeneous product.

C) no barriers to entry.

D)    very few firms.

 

Figure 13.1

45) Figure 13.1 shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. For firm B,

A) setting a high price is the dominant strategy.

B) setting a low price is the dominant strategy.

C) there is no dominant strategy.

D) doing the opposite of firm A is always the best strategy.

 

 

46) Figure 13.1 shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. The Nash equilibrium in this game

A) does not exist.

B) occurs when both firms set a low price.

C) occurs when both firms set a high price.

E)     occurs when firm A sets a high price and firm B sets a low price.

 

 

47) If a firm is a price taker in both the labor market and the output market, it will

A) earn zero economic profit in the short run.

B) hire labor until the marginal product of labor equals zero.

C) hire labor until the marginal revenue product equals the output price.

D)    hire labor until the marginal revenue product equals the wage rate.

 

48) The demand for a monopoly's output is p = 100 - Q. The firm's production function is Q = 2L. Which of the following is the firm's demand for labor?

A) w = 200 - 8L

B) w = 200 - 4L

C) w = 100 - L

D)    w = 2L

 

 

 

 

 

49) Monopolization of both the labor market and the output market results in 

A) higher wages than when both are competitive.

B) a higher output price than when both are competitive.

C) a lower level of output than when both are competitive.

D)    All of the above.

 

50) A monopoly's demand curve for labor 

A) is below that of a competitive market.

B) is the same as that of a competitive market.

C) is above that of a competitive market.

D) equals p * MPL.