2021-11-19T12:50:13+00:00

# Detailed Explanation to Microeconomics

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# Detailed Explanation to Microeconomics

Study questions for a final.

1. Which of the following is true?
a. 0 When price increases in the elastic range of the demand curve, total revenues will increase.
b. 0 When price decreases in the elastic range of the demand curve, total revenues will decrease.
c. 0 When price increases and demand is unit elastic, total revenue will increase.
d. 0 When price decreases in the inelastic range of the demand curve, total revenue will decrease.
e. 0 None of the above.

2. The three central coordination problems any economic system must solve are:
a. 0 what to produce, why to produce, how to produce.
b. 0 what to produce, why to produce, for whom to produce.
c. 0 what to produce, how to produce, for whom to produce.
d. 0 what to produce, where to produce, how to produce.

3. Positive economics:
a. 0 deals with subjective value judgments about "what ought to be."
b. 0 will make the economy positively better off.
c. 0 is the exact opposite of negative economics.
d. 0 deals with how the economy does in fact work.

4. The law of demand states that:
a. 0 there is an inverse relationship between the price and quantity demanded.
b. 0 there is a direct relationship between the price and quantity demanded.
c. 0 as income rises, quantity demanded also rises.
d. 0 a decrease in price will increase demand.

5. If at some price the quantity supplied exceeds the quantity demanded, then:
a. 0 a surplus exists and the price will fall over time as sellers competitively bid down the price.
b. 0 a shortage exists and the price will rise over time as buyers competitively bid up the price.
c. 0 the price is below equilibrium.
d. 0 equilibrium will be reestablished as the demand curve shifts to the left.

6. If demand and supply both increase, this will cause:
a. 0 an increase in the equilibrium quantity, but an uncertain effect on the equilibrium price.
b. 0 an increase in the equilibrium price, but an uncertain effect on the equilibrium quantity.
c. 0 an increase in equilibrium price and quantity.
d. 0 a decrease in the equilibrium price and quantity.

7. A price ceiling:
a. 0 is a government-imposed limit on how low a price can be charged.
b. 0 creates a surplus.
c. 0 causes the quantity demanded to exceed the quantity supplied.
d. 0 increases demand and decreases supply.

8. The most likely example of an inferior good is:
a. 0 steak.
b. 0 powdered milk.
c. 0 jewelry.
d. 0 BMWs.

9. Regarding elasticities:
a. 0 the more substitutes, the more elastic the demand and the more elastic the supply.
b. 0 the shorter the time period considered, the more elastic the supply.
c. 0 with elastic demand, a rise in price increases total revenue.
d. 0 firms have a strong incentive to separate out people with more elastic demand and charge them a higher price.

10. Regarding utility:
a. 0 the total satisfaction one gets from one`s consumption is called marginal utility.
b. 0 if you buy one Big Mac that gives you marginal utility of 400 and a second one that gives you marginal utility of 250, total utility of eating two Big Macs is 650.
c. 0 according to the law of diminishing marginal utility the more we consume of something, the smaller the total satisfaction received from that good.
d. 0 total utility received from the consumption of a good will be maximized when marginal utility is at a maximum.

11. Regarding accounting profit and economic profit:
a. 0 economic profit = total revenue - total cost.
b. 0 a calculation for economic profit is required when filling out an income tax return.
c. 0 accounting profit includes owners`opportunity costs while economic profit does not.
d. 0 economic profit = explicit and implicit revenue - explicit and implicit cost.

12. The long run:
a. 0 refers to a production planning period of longer than one year.
b. 0 typically refers to the period of time in which the firm has sufficient time to change the amounts of any of its inputs.
c. 0 means all inputs are variable.
d. 0 means all costs are fixed.

13. ___________________ is the increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit.
a. 0 Average variable cost.
b. 0 Average fixed cost.
c. 0 Average cost.
d. 0 Marginal cost.

14. Economies of scale:
a. 0 mean per-unit costs increase as output increases in the long run.
b. 0 are caused by loss of team spirit as a firm expands in size.
c. 0 is the result of mismeasurement of opportunity costs.
d. 0 occur when per unit costs increase as one input is added to production.

15. The relationship between long-run and short-run average total costs is known as:
a. 0 the envelope relationship.
b. 0 economies of scale.
c. 0 diseconomies of scale.
d. 0 technical efficiency.

16. An increase in the demand for labor could be caused by:
a. 0 a decrease in the productivity of workers.
b. 0 a decrease in the price of the product.
c. 0 a decrease in the demand for the product produced by workers.
d. 0 an increase in the price of a substitute input like capital (machines).

17. Regarding the labor market:
a. 0 a monopsony employer will hire more workers and pay a higher wage than if it were hiring workers under perfectly competitive labor market conditions.
b. 0 an increase in the demand for a product will likely lead to a decrease in the demand for the workers employed in producing the product.
c. 0 the demand for an input is called derived demand because it arises from the demand for the output that the input is used to produce.
d. 0 downsizing has been a result of outsourcing and an increase in X-inefficiency.

18. A Lorenz curve:
a. 0 with a more unequal distribution of income bows out more from the diagonal line.
b. 0 which lies on a diagonal would indicate perfect income inequality.
c. 0 shows the percentage of the population living in poverty.
d. 0 for the U.S., when compared to other nations, indicates that the U.S. has more inequality than most developing nations but less inequality than many developed nations.

19. A means-tested social program targeted to the poor and providing financial, nutritional, medical, and housing assistance is known as:
a. 0 Social Security.
b. 0 Medicare
c. 0 a public assistance program.
d. 0 Supplemental Security Income (SSI).

20. A federal program that pays benefits, based on need, to the elderly, blind, and disabled is:
a. 0 Social Security.
b. 0 Medicare
c. 0 A public assistance program.
d. 0 Supplemental Security Income (SSI).

21. In a capitalist system
a. 0 goods are distributeed based on people`s needs.
b. 0 the factors of production are owned by the state.
c. 0 political, social, and historical forces play no role in the coordination of economic activity.
d. 0 businesspeople decide how to produce efficiently, guided by their desire to make a profit.

22. Consumer sovereignty means:
a. 0 that business people have virtually total control over what gets produced.
b. 0 consumers have voting rights which can be exercised to control the regulatory environment
c. 0 consumers do not really care what businesses produce.
d. 0 consumers` wishes ultimately control what gets produced.

23. The major advantage of the corporations is:
a. 0 limited liability.
b. 0 relatively easy to form.
c. 0 direct control by owners, that is, the stockholders.
d. 0 monitoring problems.

24. For a perfectly competitive firm:
a. 0 the demand curve is perfectly inelastic at the market price and is one and the same with its marginal-revenue curve.
b. 0 economic profits can be earned in the long run but not in the short run.
c. 0 the profit-maximizing quantity to produce occurs at that output level in which price equals marginal cost.
d. 0 its total-revenue function is linear (a straight line), with a slope equal to the quantity demanded.

25. In order to maximize profits (or minimize losses) a firm should produce at the output level which:
a. 0 maximizes per-unit profit.
b. 0 maximizes total revenue.
c. 0 minimizes total cost.
d. 0 causes marginal revenue to equal marginal cost.

26. If economic profits are currently being earned by firms in a perfectly competitive market, in the long run we can expect:
a. 0 new firms to enter the business.
b. 0 the market supply curve to shift to the left.
c. 0 the market price to rise.
d. 0 a substantial economic profit to be earned by firms.

27. Zero profits mean that:
a. 0 the entrepreneur gets nothing for his or her efforts.
b. 0 if a firm has super-efficient machinery, zero profit can be avoided.
c. 0 if a firm has super-efficient workers, zero profit can be avoided.
d. 0 only at this point does market entry and exit stop.

28. A profit-maximizing monopolist will:
a. 0 produce an output level at which marginal revenue exceeds marginal cost.
b. 0 produce an output level at which the price exceeds marginal cost.
c. 0 always earn an economic profit in the short run.
d. 0 increase production for all output levels in which MR < MC.

29. Price discrimination:
a. 0 means that everyone should be charged the same price.
b. 0 means that different prices can be charged to different individuals or groups of individuals.
c. 0 is illegal.
d. 0 allows the monopolist to charge customers with less elastic demand a lower price.

30. Kellogg`s, the breakfast-food people, comprises one of four corporations that control about 92 percent of its market for breakfast food. Kellogg`s would be considered:
a. 0 a perfect competitor.
b. 0 a monopolist.
c. 0 an oligopolist.
d. 0 to be engaged in monopolistic competition.

31. Adam Smith, author of The Wealth of Nations, was a strong believer in:
a. 0 government intervention in the market.
b. 0 efforts to keep foreign goods out of one`s country.
c. 0 the benefits that come from the propensity humans have to trade.
d. 0 efforts to keep competition from happening.

32. Regarding comparative advantage,
a. 0 it can change over time.
b. 0 it is less efficient than having the government make all the decisions in trade.
c. 0 it is supported by few economists.
d. 0 it does not lead to free trade.

33. A good example of a tax based on the ability to pay is the ___________ tax.
a. 0 sales
b. 0 income
c. 0 airport
d. 0 Social Security

34. "Rent seeking:"
a. 0 means the same thing to renters and landlords.
b. 0 diverts useful resources into activities to redistribute surplus.
c. 0 is of no concern to public choice economists.
d. 0 aids the public in dramatic ways.

35. A merger in which one company buys another that does not want to be taken over is called:
a. 0 an illegal takeover.
b. 0 a vertical merger.
c. 0 a hostile takeover.
d. 0 a conglomerate merger.

36. A price-support program:
a. 0 that is set above the long-term average price level will likely accumulate surpluses over time.
b. 0 is an example of government intervention in a market to set prices below equilibrium.
c. 0 creates shortages and lower prices for consumers.
d. 0 benefits taxpayers and consumers but hurts farmers.

37. Regarding real-world markets:
a. 0 the threat of a corporate takeover puts competitive pressures on a firm and may cause it to become more efficient.
b. 0 monopolies always charge the highest price market demand allows.
c. 0 most real-world production is undertaken by owner-operated businesses, not corporations.
d. 0 the net effect of restricting entry into markets is to decrease supplier`s income.

38. In real-world markets:
a. 0 a firm`s laziness is limited by the degree of competition.
b. 0 perfect competition is not as rare as pure monopoly.
c. 0 potential profits encourage new firms to try to figure out new ways to break down barriers to entry.
d. 0 legal monopolies from patents are of unlimited value because a competitor is unable to offer a similar version of the patented good.

39. In real-world markets:
a. 0 the degree to which real-world firms maximize profits depends upon the goals of the firm and the incentive structure embodied in the firm`s organization.
b. 0 monitoring problems and costs are not that significant.
c. 0 there are few self-interested individuals who try to change institutions for their own benefit.
d. 0 competition is on the basis of price only.

40. X-inefficient firms:
b. 0 try to maximize profits.
b. 0 operate far less efficiently than they could technically.
c. 0 operate in perfectly competitive markets.
d. 0 are more profitable than monopolies.

41. One way in which firms try to protect their monopoly power is to:
a. 0 avoid lobbying government.
b. 0 raise their taxes.
c. 0 maximize short-run profits.
d. 0 differentiate their product in either real or imaginary terms.

42. Regulated natural monopolies:
a. 0 have a great incentive to hold down costs.
b. 0 seldom have large bureaucracies managing the business.
c. 0 cannot raise prices without the consent of regulatory authorities.
d. 0 are favored by most economists because of their efficiency.

43. The most important failure of market outcomes is:
a. 0 failures due to distributional issues.
b. 0 failures due to psychological problems of individuals.
c. 0 failures due to inalienable rights.
d. 0 none of the above are more important than the other.

44. An example of a sin tax is a tax on:
a. 0 incomes.
b. 0 real estate.
c. 0 alcohol.
d. 0 capital gains.

45. If the goal of government is to raise revenue, it is most effective when:
a. 0 demand is elastic.
b. 0 supply is elastic.
c. 0 supply is inelastic.
d. 0 demand is unit elastic.

46. If the goal of government is to change behavior, it is most effective when:
a. 0 demand is elastic.
b. 0 supply is inelastic.
c. 0 demand is inelastic.
d. 0 demand is unit elastic.

47. Regarding international trade:
a. 0 the benefits and costs of free trade tend to be widely scattered among many people.
b. 0 a nation imposing trade barriers can benefit if another nation also imposes trade barriers.
c. 0 embargoes are usually established for economic reasons rather than for political reasons.
d. 0 a nation should engage in international trade when the nation can give up fewer goods for the imported item than is implied by the item`s domestic opportunity cost of production.

48. Regarding trade barriers:
a. 0 a voluntary restraint agreement will reduce the price of imported goods the same as a quota.
b. 0 if trade restrictions on imports are imposed, domestic firms tend to become more efficient.
c. 0 small groups of producers have more political influence than large numbers of consumers.
d. 0 consumers are most likely to lobby government for a trade restriction.

49. The national security argument for trade restrictions is supported by economists if:
a. 0 export restrictions on goods are directly war related.
b. 0 export restrictions on goods are indirectly war related.
c. 0 transshipments of goods are possible.
d. 0 international cooperation is ignored.

50. Regarding international trade:
a. 0 most economists favor free trade.
b. 0 most economists think the infant-industry argument is theoretically justified.
c. 0 trade-adjustment assistance is a difficult policy to use since claims of injury from international trade are hard to make.
d. 0 the WTO has functions virtually the same as NAFTA.

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