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level: Level 1 of Exam 3

Questions and Answers List

level questions: Level 1 of Exam 3

Question	Answer
1 The percentage change in quantity demanded that results from the percentage change in price is known as the A) price elasticity of supply D) cross-price elasticity of demand B) price elasticity of demand E) cross-price elasticity of supply C) income elasticity of demand	B) price elasticity of demand
2. If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that A) Leslie has a comparative advantage. B) Eva has an absolute advantage. C) Leslie has an absolute advantage. D) Eva has a comparative advantage. E) Leslie has both comparative and absolute advantage	C) Leslie has an absolute advantage.
3. As the price of gasoline increases, the quantity demanded of gasoline decreases. This is an application of A) the law of supply B) environmental economics C) the law of demand D) how government organizations deal with pollution E) needs versus wants	C) the law of demand
4. Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is A) not rational. B) an application of the cost-benefit principle. C) an application of the scarcity principle. D) the relevant oppo11unity cost. E) less desirable than studying for the entire evening.	B) an application of the cost-benefit principle.
5. Market power measures the film's ability to A) under cut its competitors. B) resist union wage demands. C) raise its price without losing all of its sales. D) influence the price its competitors charge. E) force consumers to pay higher prices.	C) raise its price without losing all of its sales.
6. Which of the following circumstances does not involve game theory? A) A local gas station owner wondering how his competition across the street will react to his decision to lower prices. B) Negotiating a salary when two firms have made offers. C) Deciding whether to have an extramarital affair. D) Firm behavior in a perfectly competitive market. E) Playing poker.	D) Firm behavior in a perfectly competitive market.
10 Which of the following strategy(s) could be used in collecting infonnation about a good or service I. Visit stores and ask a salesperson about the product or service. II. Ask friends and family members for opinions. III. Read Consumer Reports. A) I and II B) II and III C) I and III D) III E) I, II, and III.	E) I, II, and III.
11 The quantity demanded of Honda Civics went down as the price increased, and the consumers that preferred Civics started to buy Toyota Corollas. This is because of A) income effect B) substitution effect C) Japanese cars last longer D) American cars cost more E) Demand for Honda Civic shift to the left	B) substitution effect
12 Which one of the following determinants will cause movements along the supply curve of good X? A) the price of good X. B) the price of labor used in the production of good X. C) the amount of technology used in the production good X. D) the cost of the plant used to produce good X. E) the price of fuel used in the production of good X.	A) the price of good X.
13 During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. Beyond the 3rd pie your total utility A) increases B) decreases C) stays the same D) 1s zero E) no way to predict	B) decreases
14 The economic surplus of a particular action is A) the value of the action. B) the cost of the action. C) the difference between the benefit and the cost of the action. D) the average of the benefits and costs. E) the ratio of the benefits to the costs	C) the difference between the benefit and the cost of the action.
15 A profit maximizing perfectly competitive finn must decide A) only on what price to charge, taking output as fixed. B) both what price to charge and how much to produce. C) only on how much to produce, taking price of the good as fixed. D) only on which industry to join, taking price and output as fixed. E) only on how much revenue it wishes to collect.	B) both what price to charge and how much to produce.
16 A variable factor of production A) is fixed in the long run but variable in the short run. B) plays no role in the law of diminishing marginal returns. C) is variable in both the short run and the long run. D) is irrelevant to profit maximization decisions. E) is variable only in the short run.	C) is variable in both the short run and the long run.
17 The reason an efficient market outcome may not be considered a "good" outcome is A) demand may not include all the benefits of consumption. B) incomes of consumers are taken as given. C) supply may not include all the costs of production. D) the market is less than perfectly competitive. E) consumers and producers lack infonnation.	C) supply may not include all the costs of production.
18 Deadweight loss is A) present in all markets. B) the difference between consumer surplus and producer surplus. C) positive in markets where equilibrium is distorted by price controls or taxes. D) always larger than consumer surplus. E) always smaller than producer surplus	C) positive in markets where equilibrium is distorted by price controls or taxes.
19 Constant returns to scale occur when a doubling of all inputs A) doubles the price of outputs. B) more than doubles output. C) less than doubles the price of the inputs. D) exactly doubles output. E) less than doubles output.	D) exactly doubles output.
20 Game theory is important in understanding A) how perfectly competitive firms behave. D) interdependent outcomes. B) production decisions by firms. E) the behavior of a pure monopolist. C) consumer demand	D) interdependent outcomes.