ECO/365

PRINCIPLES OF MICROECONOMICS

The Latest Version A+ Study Guide

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ECO 365 Week 5 Final Examination Link

https://uopcourses.com/sd_product/eco-365-week-5-final-
examination/

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question1

Penelope has recently started a printing business in Duluth. She had to pay a fee to obtain a
trade license from the Minnesota government and took a loan from the local bank to
purchase inkjet printers, laser printers, and screen printers. She employs 20 workers who are
paid a wage of $30 per hour. She is also a trained ballet dancer who used to earn an
average of $50,000 a year. Penelopes implicit cost of running the business is:

$72,000 per annum.

the amount she used to earn as a ballet dancer.

 the interest she has to pay on the loan.

the fee paid to the government.

question2

Suppose Timothy consumes two goods, soda and chips. The slope of his indifference curve
for these two goods reflects:

the rate at which he is willing to substitute one good for the other.

the total utility he gets from the consumption of the two goods.

the relative price of soda.

the relative price of chips.

question3

Which of the following is an example of a negative externality?

Christina accepting a payment in cash rather than in check for her laundry services

Smith reducing the consumption of imported wine following an increase in the price
of imported wine

 Tom playing music loudly in his room, disturbing his roommate who has an exam
the next day

Phoebe refusing to contribute to the building of a childrens park in her

neighborhood

question4

The exhibit given below shows the demand curve for and the supply curve of laptops, D and
S1. The government decides to impose a price ceiling on the price of laptops. At the same
time, the price of inverter boards that provide power to backlight lamps inside laptop screens
increases. Identify the correct statement.

At a price ceiling of P1, the quantity demand and supplied in the market will be Q 2.

A price ceiling above P3 will eliminate shortage in the market.

The government should set the price ceiling at P1 to eliminate shortage.

A price of P2 will be binding in this market.

question5

Which of the following reflects the law of demand?

 John purchasing a bigger apartment after an increase in his salary

Jimmys demand for donuts decreasing from 4 per week to 2 per week after its
price decreased from $1 to $0.5 per donut

Jacques purchasing 4 bottles of lemonade instead of 3 when its price decreased

from $12 to $10 per bottle

Jonathan, a coffee drinker, switching to green tea after a fall in the price of green
tea

question6

The Rhodes and Samson families, with annual incomes of $100,000 and $120,000,
respectively, live in a society where the primary objective of the government is to maximize
the sum of the utility attained by everyone in the society. Which of the following is likely to be
true in such a society?

The government will redistribute income between the two families in such a way
that the welfare of the Rhodes family improves.

The government will tax the Samson family and provide income transfers to the
Rhodes family, but there will exist an inequality of income between the two
families.

The government will tax the Rhodes family and provide income transfers to the
Samson family to maximize total utility.

The government will redistribute income between the two families in such a way
that both the families will have the same level of post-tax income.
question7

Which of the following is an example of adverse selection?

Thomas refuses to pay for the construction of a swimming pool in his

neighborhood that will be open to the public free of cost.

Patrick uses the service of a mechanic to inspect the condition of a second-hand

Dodge he is interested in buying.

When the National Museum increased its entry fee, there was a reduction in its
sale of tickets.

Harry refuses to buy health insurance at high premiums because he feels that he is
in good health.

question8

Moonlife LLC. observed that its total revenue is proportional to the quantity of good sold. It is
likely that Moonlife LLC. is a:

perfectly competitive firm.

monopoly.

monopsony.

 monopolistic competitor.

question9

Suppose both Ross and Vivian produce butter and cheese. When Ross works for 10 hours a
day, he produces 6 pounds of butter and 24 pounds of cheese. When Vivian works for the
same hours, she produces 20 pounds of cheese and 40 pounds of butter. Rosss opportunity
cost of producing a pound of butter is:

5 pounds of cheese.

4 pounds of cheese.

18 pounds of cheese.

1/4 pounds of cheese.

question10

Scarcity occurs because of:

the excess of quantity supplied over quantity demanded.

limited human needs and wants.

 the limited supply of resources.

overutilization of labor.

question11

A sudden increase in the demand for air conditioners increased the earnings of the workers
employed in air conditioner-manufacturing firms and attracted workers from other sectors.
Which of the following will be true in the market for workers employed in air conditioner-
manufacturing firms?

There will be a rightward shift of the labor supply curve, leading to an increase in
the equilibrium wage and employment.

There will be a leftward shift of the labor supply curve, leading to a decrease in the
equilibrium wage and employment.

There will be a rightward shift of the labor supply curve, leading to a decrease in
the equilibrium wage and an increase in employment.

There will be a leftward shift of the labor supply curve, leading to an increase in the
equilibrium wage and a decrease in employment.

question12

The exhibit given below shows the market for wheat in Zenetia. At a price of p, the profit-
maximizing quantity for a wheat producer is _____.

 Q'

Q''

between Q and Q'

question13

Mike sells navel oranges in a market where there are a lot of other sellers and faces a
perfectly elastic demand curve for oranges. He hires 10 workers in a perfectly competitive
market to help him with picking oranges. Given this information, it can be said that:

Mike can employ only 10 workers as the supply of workers is fixed in a perfectly
competitive labor market.

the demand for workers is a positive function of the prevailing market wage rate.

the demand curve for orange pickers is vertical.

Mike cannot bargain with the workers over their wage rates.

question14
The table given below shows three buyers willingness to pay for an antique
necklace. At a market price of $25,000, the total consumer surplus in the market is
_____.

$30,000

$7,000

$26,000

$6,000

question15

A perfectly competitive firm sells 10 units of Good X at a price of $2 per unit. It incurs a fixed
cost of $5 and a variable cost of $40 to produce the good. Which of the following is true?

The average revenue of the firm is $20.

The firm should operate in the short run but shut down in the long run.

The firm should shut down.

 The marginal cost of the good is $4.

question16

Given an increase in the market demand for its product, a firm decides to hire an additional
worker. The amount of output produced by 25 workers is 80 units. The marginal product of
the 26th worker is 15 units. After the 26th worker is hired, the total output would increase to
_____.

6 units

95 units

1,200 units

15 units

question17

Bryan is trying to decide whether he should give up his job as a software programmer and
invest in a start-up. Bryan earns an annual salary of $80,000 and has a saving of $50,000.
The start-up would require an initial investment of $600,000. Bryan plans to take a loan from
Trust Bank, a local commercial bank, which charges an interest rate of 5 percent on loans
and provides an interest of 7 percent on savings deposits. Which of the following is true in
this case?

Bryan should invest in the start-up as he has to pay a lower interest rate on loans
than he receives on his savings deposits.

 Bryan should not invest in the start-up as his economic profit is lower than his
accounting profit.

The interest rate of 5 percent on loans is a part of the implicit cost of setting up the
start-up and will be included in the calculation of his accounting profit.

The 7 percent interest that Bryan could have earned on his savings will be included
in the calculation of his economic profit.

question18

Squeeze Inc. sells orange juice in a market where there are a large number of consumers
and sellers. New firms can enter the market easily and also exit whenever they want to. It
sells 40 bottles in a month at a price of $4 per bottle and incurs a cost of $5 per bottle. The
average revenue of the firm:

will be greater than the marginal revenue.

will be less than the marginal revenue.

is $4, which is equal to the marginal revenue.

is $2, which is less than the market price.

question19

The state government of Dalmatia noticed that whenever its baseball team played a match in
any of the local stadiums, the prices of tickets became too high. It decided to impose a price
ceiling on the ticket prices. The exhibit given below shows the demand curve for and the
 supply curve of baseball game tickets in Dalmatia. If the government were to impose a
binding price ceiling, it should set the price at:

$80 per ticket, which would give rise to a shortage of 16,000 tickets.

$80 per ticket, which would give rise to a surplus of 8,000 tickets.

$120 per ticket, which would give rise to a shortage of 10,000 tickets.

$120 per ticket, which would give rise to a surplus of 20,000 tickets.

question20

The exhibit given below shows the demand curve for Good X, labeled D. At a price of $6 per
unit, the quantity demanded of Good X is 5 units. A decrease in price to $4 per unit increases
the quantity demanded to 8 units. Assuming that a decrease in price leads to new consumers
buying the good, what is the consumer surplus received by the new consumers in the
market?

$10

$3

$13


$2

question21

The exhibit given below shows the supply curve of printing machines. At a price of $400 per
machine, the producer surplus is:

$100.

$300.

$400.

$200.

question22

Paula wants to buy 3 packs of frozen yoghurt when it is priced at $2 per pack. When the
price increases to $3.50 per pack, she wants to buy 2 packs. This reflects the:

law of diminishing marginal utility.

maximization of total utility by Paula.



law of demand.

maximization of marginal utility by Paula.

question23

Color Mate Inc., a company that produces interior and wall paints, dumps its chemical waste
in a river. Which of the following is likely to be true in this case?

The social cost of the company is lower than the private cost, and the equilibrium
quantity of paints produced is larger than the social optimum.

The social cost of the company is higher than the private cost, and the equilibrium
quantity of paints produced is larger than the social optimum.

The social cost of the company is higher than the private cost, and the equilibrium
quantity of paints produced is less than the social optimum.

The social cost of the company is lower than the private cost, and the equilibrium
quantity of paints produced is less than the social optimum.

question24

Which of the following is a difference between liberalism and libertarianism?

Libertarians believe that the government should redistribute income from the rich to
the poor, while the liberals believe that the government should not redistribute
income.


Libertarians believe that equality of opportunities is more important than the

equality of incomes, while liberals believe in policies that equalize the distribution
of income.

Libertarians argue that the government should maximize total utility, while liberals
argue that the average utility of members of society should be maximized.

Libertarians emphasize the importance of the maximin criterion, while liberals

emphasize the importance of an egalitarian society.

question25

Adrianne and Joanna love watching plays on Broadway. Adrianne values a play at $85, and
Joanna values it as $82. When the price of tickets increased from $80 to $83 following the
imposition of a tax, Joanna stopped watching plays on Broadway, while Adrianne continued
to buy tickets. Identify the correct statement.

Total consumer surplus decreased by less than the tax revenue.

The decrease in Adriannes surplus is equal to the tax revenue.

The deadweight loss is $3.

The decrease in Adriannes consumer surplus is equal to the deadweight loss.

question26
During the winter break, Sam decides to go for a skiing vacation in Aspen instead of taking
piano lessons. The opportunity cost of the skiing vacation is the:

amount paid to the skiing instructor.

value of piano lessons.

cost of accommodation and food in Aspen.

cost of buying a piano.

question27

Liz starts driving rashly after buying insurance. This is an example of a(n):

moral-hazard problem.

common-resource problem.

free-rider problem.

negative externality.

question28
The exhibit given below shows Melanies budget constraint for two goods, wine and cheese.
The slope of the budget constraint equals:

2/3

3/2

question29

Suppose both Monica and Edith grow roses and make guns. If Monica devotes 10 hours to
growing roses, she grows 16 roses, and if she devotes 10 hours to making guns, she
produces 4 guns. If Edith divides her 10 hours equally, she produces 12 roses and 6 guns.
Identify the correct statement.

Monica has an absolute advantage in growing roses, and Edith has an absolute
advantage in making guns.

Monica has an absolute advantage in both growing roses and making guns.

Monica has an absolute advantage in making guns, and Edith has an absolute
advantage in growing roses.

 Edith has an absolute advantage in both growing roses and making guns.

question30

Recent political unrest has caused many citizens of Serria to flee the country. This is likely to:

shift the labor demand curve in Serria to the left.

increase labor employment in Serria.

shift the labor supply curve in Serria to the right.

increase the equilibrium wage rate in the labor market in Serria.