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Last Updated: Aug 1st, 2015
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Version: 2015-16 Exam Version - 30 Answers + Explanations
In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the:
- Demand for airline tickets is perfectly inelastic.
- Supply of airline tickets is perfectly inelastic.
- Demand elasticity for airline tickets is greater than zero in absolute value.
- Supply elasticity of airline tickets is less than infinity.
Explanation: In this example, we see demand increase by 4% relative to 10% price increase. This means airline tickets has a PED of -0.4, thus greater than zero as an absolute value.
Many call centers that provide telephone customer services for U.S. companies have been established in India, but few or none have been established in China. Why?
- Indian labor costs are equal to Chinese labor costs.
- China is at a more advanced stage of economic development than India.
- China lacks the political infrastructure to support call centers.
- Chinese labor lacks the specific language skills needed to make call centers profitable in China.
Explanation: Indian culture specifies English as an official language and it spoken fluently throughout the country. In contrast, Chinese culture speaks Mandarin or Cantonese and vastly fewer citizens speak English fluently.
There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best characterized as:
- Perfectly competitive.
- An oligopoly.
- A pure monopoly.
- Monopolistically competitive.
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30 Brand New Answers for 2015-161. Because you can only obtain more of one good by giving up some of another good, the shape of a production possibility curve is _______________.
- perfectly vertical
- perfectly horizontal
Explanation: When resources in the economy are fixed, businesses must make tradeoffs when choosing which products or services to produce. For example, where there is X tons of steel available, the economy will naturally balance the PPF with a downward facing slope based on the economic possibilities for this resource.
2. Refer to the table shown. The average product when eight workers are employed is
The average product when eight workers are employed is __6__
7. The price of a ticket to a rock concert is set at $35. All the tickets for the concert sell out 1 hour after they go on sale and there are still 1,000 fans who want to buy tickets. It follows that
- the quantity of tickets demanded is equal to the quantity supplied at the $35 price.
- the equilibrium price of tickets to the concert is less than $35.
- the equilibrium price of tickets to the concert is more than $35.
- the equilibrium price of tickets to the concert is $35.
Explanation: If the price of tickets were at equilibrium, there would not be any customers still wanting to buy tickets. The only way to reduce the demand is to raise the prices of the tickets, thus the price of concert tickets must be higher to reach equilibrium.
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Principles of Microeconomics 365 Exam Answers Preview
1) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about:
2) A basic difference between microeconomics and macroeconomics is that microeconomics
A. focuses on the choices of individual consumers, while macroeconomics considers the behavior of large businesses
B. focuses on financial reporting by individuals, while macroeconomics focuses on financial reporting by large firms
C. examines the choices made by individual participants in an economy, while macroeconomics considers the economy's overall performance
D. focuses on national markets, while macroeconomics concentrates on international markets
3) An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in
A. microeconomic research
B. macroeconomic research
C. theoretical research, because there is no data on these variables
D. empirical research, because there is no economic theory related to these variables
4) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during this time, was unable to restrain output among members in its effort to lift oil prices. What best describes these events?
A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.
B. The rise in demand shifted the demand for oil to the right. As price rose, the supply of oil also rose.
C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oil supplied rose.
D. The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.
5) Price elasticity of demand is the:
A. change in the quantity of a good demanded divided by the change in the price of that good
B. change in the price of a good divided by the change in the quantity of that good demanded
C. percentage change in price of that good divided by the percentage change in the quantity of that good demanded
D. percentage change in quantity demanded of a good divided by the percentage change in the price of that good
6) The distinction between supply and the quantity supplied is best made by saying that
A. the quantity supplied is represented graphically by a curve and supply as a point on that curve associated with a particular price
B. supply is represented graphically by a curve and the quantity supplied as a point on that curve associated with a particular price
C. the quantity supplied is in direct relation with prices, whereas supply is in inverse relation
D. the quantity supplied is in inverse relation with prices, whereas supply is in direct relation
7) When labor is the variable input, the average product equals the
A. marginal product divided by the number of workers
B. marginal product multiplied by the number of workers
C. number of workers divided by the quantity of output
D. quantity of output divided by the number of workers
8) The increase in output obtained by hiring an additional worker is known as
A. the average product
B. the marginal product
C. the total product
D. value added
9) Which of the following is the best example of a long-run decision?
A. An automobile manufacturing company is considering whether or not to invest in robotic equipment to develop a more cost-effective production technique.
B. An automobile manufacturing company is considering whether or not to expand its existing workforce, while keeping the same factory and equipment.
C. A business consulting firm is considering whether or not to hire interns to assist with research and data processing.
D. A business consulting firm is considering whether or not to add new computers while maintaining the same number of employees.
10) Other things being equal, when average productivity falls,
A. average fixed cost must rise
B. marginal cost must rise
C. average total cost must rise
D. average variable cost must rise
11) According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, then on busy days when the effective hourly wage is higher, taxi drivers will
A. work the same number of hours as they will on slower days
B. work fewer hours than they will on slower days
C. work more hours than they will on slower days
D. not work any hours
12) A firm's demand for labor is derived from the
A. opportunity costs associated with labor and leisure
B. desires and needs of the entrepreneur
C. cost of labor inputs
D. demand for its output
13) Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day
A. is $0 because Owen does not have to purchase another van
B. is $5
C. is $75
D. cannot be calculated without knowing Owen's total fixed costs
14) Expected economic profit per unit is equal to
A. expected price
B. expected average total cost
C. the difference between expected average price and expected average total cost
D. the difference between expected total revenue and expected total cost
15) If a firm in a perfectly competitive market experiences a technological breakthrough,
A. other firms would find out about it eventually
B. other firms would find out about it immediately
C. other firms would not find out about it
D. some firms would find out about it, but others would not
16) A significant difference between monopoly and perfect competition is that
A. free entry and exit is possible in a monopolized industry, but impossible in a competitive industry
B. competitive firms control market supply, but monopolies do not
C. the monopolist's demand curve is the industry demand curve, while the competitive firm's demand curve is perfectly elastic
D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.
17) A monopoly firm is different from a competitive firm in that
A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product
B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic
C. a monopolist can influence market price while a competitive firm cannot
D. a competitive firm has a U-shaped average cost curve while a monopolist does not
18) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a
A. horizontal demand curve and price equals marginal cost in equilibrium
B. horizontal demand curve and price exceeds marginal cost in equilibrium
C. downward-sloping demand curve and price equals marginal cost in equilibrium
D. downward-sloping demand curve and price exceeds marginal cost in equilibrium
19) As long as marginal cost is below marginal revenue, a perfectly competitive firm should
A. increase production
B. hold production constant
C. decrease production
D. reconsider past production decisions
20) Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as the marginal
A. benefit of advertising is positive
B. cost of advertising is positive
C. benefit of advertising exceeds the marginal cost of advertising
D. cost of advertising exceeds the marginal benefit of advertising
21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while local chapters of the Nature Conservancy say they will befoul the landscape. The Sierra Club argues that wind turbines
A. are a source of negative externalities
B. reduce negative externalities elsewhere in the economy
C. create a free-rider problem
D. are a way of solving a free-rider problem
22) When negative externalities are present, market failure often occurs because
A. the marginal external cost resulting from the activity is not reflected in the market price
B. the marginal external cost resulting from the activity is reflected in the market price
C. the existence of imports from foreign countries takes jobs and income away from U.S. citizens
D. consumers will consume the good at a level where their individual marginal benefits exceed the marginal costs borne by the firm producing the good
23) A merger between a textile mill and a clothing manufacturing company would be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
24) A merger between a baby food company and a life insurance company would be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
25) The fact that U.S. managers' salaries are substantially greater than those of comparable managers in Japan may be related to
A. an increase in the demand for CEOs
B. an increase in the supply of CEOs
C. the comparatively greater competitive markets in Japan
D. the greater number of public goods provided in the United States
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