Microeconomics 1 The Houston Chronicle reported that in Houston the average pric
ID: 1233630 • Letter: M
Question
Microeconomics1 The Houston Chronicle reported that in Houston the average price of new homes has decreased, while at the same time the number of new homes sold has increased. This situation could be explained by which one of the following: (draw curves before answering)
a. An Increase in demand
b. An Increase in supply
c. A Decrease in demand
d. A Decrease in supply
2. In another market, the average price of new homes fell, while at the same time the number of new homes sold decreased. The situation would best be explained by: (Draw the curves before answering)
a. An Increase in Demand
b. An Increase in Supply
c. A Decrease in demand
d. A Decrease in supply
3. A consumer is said to have achieved maximum total utility when
a. Purchases of Good A give the same satisfaction as purchases of Good B
b. Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B
c. The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B
d. The total utility derived from Good A is the same as the marginal utility derived from Good B
4. You are given the following information about a firm
Explanation / Answer
1 The Houston Chronicle reported that in Houston the average price of new homes has decreased, while at the same time the number of new homes sold has increased. This situation could be explained by which one of the following: (draw curves before answering) b. An Increase in supply 2. In another market, the average price of new homes fell, while at the same time the number of new homes sold decreased. The situation would best be explained by: (Draw the curves before answering) b. An Increase in Supply 3. A consumer is said to have achieved maximum total utility when c. The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B 4. You are given the following information about a firm’s present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should: d. Close down 5. A firm achieves its Least-Cost position in production by substituting factors of production until b. The Marginal Revenue Product of each factor is equal 6. Suppose there are 10 firms in an industry and each of them has an equal share of the total market. Now consider that mergers occur leaving only 5 firms with equal market shares. Expressing this in terms of the Herfindahl index, economists would say b. The Herfindahl index doubled: from ________ to ________ 7. The economy is currently on its production-possibility curve (frontier). A politician says if he is elected it is possible to get more of everything – more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician could be right or wrong. The politician is: C. Wrong if he is assuming a P-P curve that does not change 8. Assume your swimsuit business is at its maximum profit position and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________. (Drawing the curves will help.) d. Increase, decrease 9. Firms that shut down in the short run are still must pay: b. Marginal Costs 11. The term externality refers to: a. Black-market economic activity 12. Suzy and Sally have lemonade stands across the street from each other. Last week they each decided to drop their prices by 20%. As a result, Suzy’s revenue increased, while Sally’s revenue fell. What might account for this? c. Both have elastic demands 13. You are the Vice President for sales in your company, and your commission salary is based on total sales. Select the action that would bring you the most income if the product you sell has a price-elasticity coefficient of 3. a. Cut price by .10% (i.e. point 1) 14. True or False. If full external COSTS are not “internalized,” firms will tend to allocate more of society’s scarce resources to production than is societally warranted, and if full external BENEFITS are not “internalized,” firms will allocate less of society’s resources to production than is societally justified. TRUE 15. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy he became careless. His attitude is: “I’m insured. What do I care if this place burns down; I’ll just collect the money.” Joe’s attitude is an example of: a. A moral hazard 16. Megatrust Bank had historically scrutinized loans very carefully and extended them only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of: d. Tragedy of the Commons 17. In the short run, if a firm finds itself producing at a loss, it will a. Shut down 18. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today’s distribution would be b. Less bowed and to the left of the 1960 curve 19. Which one of the following statements is true? When output increases a. The Average fixed cost must rise 20. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its a. Average costs are at a minimum 21. Industries in which there are only a few sellers of closely identical products c. Often follow a pattern of explicit or implicit price arrangements broken occasionally by price wars when one firm tries to change the status quo 22. If the demand for a good increases when the price of another good increases, these goods are d. Capital goods 23. Which of the following pairs of products would be complementary? c. Rented videos and subscriptions to cable T.V. 24. The amount of a good that is given up to produce another good is: c. Its marginal revenue cost 25. One very important characteristic of the equilibrium price is that it d. Eliminates both surpluses and shortages, since at that price, quantity supplied equals quantity demanded 26. Rank the following market structures based on the number of participating firms: From fewest number of firms to most number of firms: a. Monopolistic competition, Oligopoly, perfect competition, Monopoly 27. If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios should they expect their future to hold as the market adjusts to its new equilibrium? d. They should expect no change in their costs or their revenue 28. If a government sets a rent controlled price below the market Equilibrium point, which one of the following can be expected a. Excess quantity demanded and surplus 29. If labor in Mexico is less productive than labor in the U.S. in all goods and services, a. Neither nation can benefit from trade 30. Which one of the following is FALSE: b. Since the 1980’s, the U.S. has imported more goods and services than it has exported, thus contributing to a negative Current Account condition.