Micro Exam 1

Microeconomics 4 An effective price ceiling in the market for
Practice Exam #1 tea will most likely result in a/an

(A) decrease in demand for sugar, a
1 Which of the following factors of complement for tea
production would best be described as (B) increase in demand for coffee, a
human capital? substitute for tea
(A) money used to start a business (C) surplus of tea
(B) skills and training that help workers to (D) shortage of tea
complete their role in producing a finished (E) leftward shift in the supply curve of
product good X
(C) effort put forth by human workers
5 On a downward sloping, straight line
(D) currency provided to businesses
demand curve, which of the following is
through subsidies and other government
always true?
programs
(A) Price elasticity of demand is the same
(E) tools used to produce a finished product
at all points along the curve
2 Which of the following would make it (B) Price elasticity increases as quantity
possible for a country to consume beyond increases
its individual production possibilities (C) Price elasticity decreases as quantity
curve? increases
(A) decreasing the unemployment rate (D) Demand is perfectly elastic at the
(B) producing only products for which they midpoint of the demand curve
have an absolute advantage (E) Total revenue is higher when demand is
(C) importing products from other countries elastic than when demand is inelastic
at a relatively lower opportunity cost
(D) imposing a tariff on all imports 5 Skip this question. If your teacher gave this
(E) producing more consumer goods rather exam to you but he/she didn’t purchase
than capital goods Jacob Clifford’s Ultimate Review Packet
then you
3 Assume that pizza and stromboli are (A) should cheat since your teacher is a
substitutes. Which of the following best cheater
describes the effect on the pizza market if (B) must teach him/her about the free rider
the price of stromboli decreases? problem
(A) Demand for pizza will shift right (C) yell “my econ teacher doesn’t
(B) Demand for pizza will shift left understand econ!”
(C) Supply for pizza will shift right (D) must remind your teacher to do the
(D) Supply for pizza will shift left right thing
(E) Both demand and supply for pizza will (E) should do all of the above
shift left
© Jacob Clifford. Do not use unless you have purchased the Ultimate Review Packet. Please do not post online.
86
Created by Jacob Clifford. Please do not post online. 1

6 If consuming one unit of a good yields 50 9 Economic profit can be calculated as
utils and consuming two units of the good accounting profit plus
yields 70 utils, which of the following must (A) Implicit costs
be true? (B) Explicit costs
(A) The marginal utility of the first unit is (C) Total costs
20. (D) Fixed costs
(B) The marginal utility of the second unit (E) Variable costs
is 50.
(C) The marginal utility of the second unit 10 If a perfectly competitive firm produces at
is 20. an output level where price is greater than
(D) The total utility of consuming two units both marginal cost and average variable
is 120. cost, in order to maximize profit in the
(E) The total utility of consuming one unit short run, the firm should
is greater than the total utility of consuming (A) shut down production
two units. (B) produce more
(C) produce less
7 In the short run, diminishing marginal (D) lower price
returns begin when (E) change nothing, they are already
(A) total product of labor begins to fall. maximizing economic profit
(B) marginal product of labor becomes
negative. 11 Governments often allow some natural
(C) marginal revenue begins to fall. monopolies to exist without competition
(D) the average product of labor begins to because
fall. (A) unregulated natural monopolies are
(E) marginal product of labor begins to fall. allocatively efficient.
(B) unregulated natural monopolies are
productively efficient.
(C) natural monopolies cannot earn
economic profit unless subsidized by the
government.
(D) natural monopolies experience
economies of scale at the allocatively
efficient output.
(E) natural monopolies operate under the
protection of patents issued by the
government.
8 According to the graph above, what price

will this perfectly competitive firm charge
in the long run?
(A) P1
(B) P2
(C) P3
(D) P4
(E) P5
87

12 Monopolistically competitive firms are 14 Assume the government establishes a new
usually less efficient than perfectly binding minimum wage. For a typical firm,
competitive firms because monopolistically which of the following will happen the
competitive firms marginal resource cost (MRC) and the
(A) have a lower price than competitive marginal revenue product (MRP) of the last
industries. worker hired.
(B) have a higher quantity than competitive MRC MRP
industries. (A) Increase Increase
(C) produce unique products with no close (B) Increase Decrease
substitutes. (C) No Change Increase
(D) produce where marginal costs does not (D) Decrease Increase
equal marginal revenue. (E) Decrease Decrease
(E) produce where price is greater than
marginal cost. 15 When consumption of a good generates a
positive externality and government takes
13 A perfectly competitive firm hires three action to fix the problem created by this
workers in a perfectly competitive labor externality, what problem is the
market. The daily marginal products of the government most likely attempting to fix?
three workers are listed below. (A) The product is overproduced, given the
social costs and benefits
Number of Marginal (B) The subsidy for production of this good
Workers Product is too high
1 200 (C) Society wants government to eliminate
2 150 the spillover costs
3 50 (D) Consumption of this good widens the
income inequality gap
Which of the following is most likely true? (E) The product is underproduced, given
(A) Worker 3 will receive the lowest wage the social costs and benefits
(B) All workers will receive a wage based
on their individual marginal revenue
product
(C) Each worker will receive the same
wage, equal to the marginal revenue
product of the last worker
(D) Each worker will receive the same
wage, equal to the marginal revenue
product of the first worker
(E) Each worker will receive the same
wage, based on the average product of all
workers hired
88

Use the following graph to answer 18 In the competitive market for jelly beans (a
questions 16 & 17 normal good), all of the following are true
EXCEPT
(A) A decrease in consumer income would
shift demand to the left
(B) An increase in variable costs of
producing jelly beans would shift supply to
the left
(C) A decrease in the price of a substitute
good would shift demand to the left
(D) An increase in the number of buyers
would shift demand to the right
(E) A decrease in the price of jelly beans
would shift demand to the right
19 The quantity of acrylic paint supplied

decreased from 500 tons per week to 400
16 The graph above illustrates the production
tons per week when the price of acrylic
possibilities for Country X. Assume
paint decreased from $20 per ton to $10 per
Country X is currently producing 30 capital
ton. The price elasticity of supply for
goods and 40 consumer goods. Which of
acrylic paint over this price range is
the following combinations could Country
(A) perfectly elastic
X produce that would most likely accelerate
(B) perfectly inelastic
economic growth?
(C) relatively inelastic
(A) 0 capital goods; 50 consumer goods
(D) relatively elastic
(B) 90 capital goods; 20 consumer goods
(E) unit elastic
(C) 150 capital goods; 50 consumer goods
(D) 60 capital goods; 20 consumer goods 20 The difference between the price at which a
(E) None of the above combinations would producer would be willing to sell a candy
promote economic growth, as their current bar and the actual market price that she
combination already maximizes growth receives from the sale is best known as
(A) marginal utility
17 Using the same graph above, assuming
(B) marginal cost
Country X is producing efficiently,
(C) ability to pay
calculate their opportunity cost to increase
(D) consumer surplus
production of consumer goods from 20
(E) producer surplus
units to 30 units.
(A) 3 capital goods
(B) 10 capital goods
(C) 30 capital goods
(D) 10 consumer goods
(E) None, when producing efficiently, there
is no opportunity cost
89

21 Johnny is currently spending his entire 23 A firm experiencing diseconomies of scale
weekly snack budget on 5 bags of candy will have
and 4 juice boxes. At his current level of (A) a long-run supply curve that is
consumption, Johnny's marginal utility for horizontal.
candy is 5 utils and his marginal utility for (B) a long-run marginal cost curve that
juice boxes is 10 utils. In order to maximize decreases as output increases.
his total utility, Johnny should (C) a long-run total cost that decreases as
(A) maintain his current level of output increases.
consumption of candy and juice boxes (D) a long-run average total cost that
regardless of the prices increases as output increases.
(B) consume more candy and fewer juice (E) a long-run average total cost that
boxes regardless of the prices decreases as output increases.
(C) consume more juice boxes and fewer
candy regardless of the prices 24 Which of the following best describes a
(D) maintain his current level of perfectly competitive market?
consumption if the price of candy is $2 and (A) a market structure with a large number
the price of a juice box is $1 of interdependent large firms selling
(E) maintain his current level of identical products
consumption if the price of candy is $1 and (B) a market structure with dozens of small
the price of a juice box is $2 firms offering a differentiated product with
easy entry into the market
(C) a market that is productively efficient,
but not allocatively efficient
(D) a market that has high barriers to entry
(E) a market structure where individual
firms have no control over the price that
they charge
22 Using the graph above, if this perfectly

competitive firm maintains marginal
revenue of $50 per unit, which of the
following accurately describes the firm's
profit/loss and output in the short run?
(A) Profit; output of less than 550
(B) Profit; output of more than 550
(C) Loss; output of less than 550
(D) Loss; output of more than 550
(E) Break even; output of more than 550
90

28 In a perfectly competitive labor market,
imposing a binding minimum wage will
bring about what change(s) on the demand
and supply graph?
(A) increase in wage, decrease in quantity
of workers hired
(B) increase in wage, increase in quantity of
workers hired
(C) decrease in wage, decrease in quantity
of workers hired
(D) decrease in wage, increase in quantity
of workers hired
(E) none of the above, imposing a binding
minimum wage will have no effect on wage
25 The graph above illustrates the costs and
revenues for an unregulated monopoly or the quantity of workers hired
producing in the short run. What price and 29 A firm hires two inputs, labor and capital,
quantity combination will this firm choose in perfectly competitive resource markets.
to profit maximize or loss minimize? The firm sells its product in a perfectly
(A) P = 75; Q = 40 competitive market for $10 per unit. The
(B) P = 60; Q = 40 marginal cost to hire each unit of capital is
(C) P = 45; Q = 60 $150 per day, and the marginal product of
(D) P = 60; Q = 75 labor is 10. Assuming the firm hires the
(E) P = 30; Q = 40 least-cost combination of labor and capital,
26 Which of the following best describes the the firm's marginal product of capital and
the daily wage per worker must be equal to
marginal revenue curve as a single-price
monopolist increases its output in the short which of the following?
(A) Marginal product of capital must be 10
run?
(A) decreasing at first, then increasing and the daily wage for labor must be $50.
(B) Marginal product of capital must be 10
(B) increasing at first, then decreasing
(C) horizontal and equal to the market price and the daily wage for labor must be $100.
(C) Marginal product of capital must be 15
(D) decreasing and equal to the
monopolist's demand curve and the daily wage for labor must be $50.
(D) Marginal product of capital must be 15
(E) decreasing and below the monopolist's
demand curve and the daily wage for labor must be $75.
(E) Marginal product of capital must be 15
27 Which of the following is not true of a and the daily wage for labor must be $100.
monopolistically competitive firm in long-
run equilibrium?
(A) Price equals average total cost and
marginal cost
(B) Price equals average total cost but is
greater than marginal cost.
(C) Marginal cost equals marginal revenue
(D) The firm uses product differentiation.
(E) The firm earns a normal profit
91

30 Which of the following is the best example 33 An early frost destroys 20% of the coffee
of a pure public good? bean crop. If the supply and demand for
(A) A public fishing pond that only charges coffee beans are both relatively inelastic,
a fee to out-of-state residents and the frost does not impact the quality of
(B) A fire station that provides protection to the coffee beans that make it to market,
the surrounding community which of the following will most likely
(C) Satellite television service that charges occur to the equilibrium price and quantity
$49 per month of coffee beans?
(D) An old town firehouse that has been (A) Price and quantity will both increase
converted into a successful restaurant (B) Price and quantity will both decrease
(E) Music downloads that cost $0.99 cents (C) Price will increase, quantity will
each decrease
(D) Price will decrease, quantity will
31 Which of the following is a fundamental increase
aspect of the free market economics (E) Price will not change, quantity will
system? decrease
(A) Most economic decisions are based
upon the ideas of both Adam Smith and
Karl Marx.
(B) Public control of the means of
production.
(C) The protection of private property
rights.
(D) Economic decisions made to preserve
traditions and the status quo.
(E) Central planners set the price of
resources, but the price of products are set
by unregulated markets.
32 In 2014, 13 billion bushels of corn were

harvested and sold for $3.70 per bushel.
The next year, 13 billion bushels of corn
were harvested and sold at $3.50 per 34 The graph above shows the supply and
bushel. Which of the following changes in demand for water filters. If the government
supply and demand could have caused this imposes a price floor at $40 per unit, the
change? result will be
(A) Supply decreased while demand (A) a surplus of 300 units
decreased (B) a shortage of 300 units
(B) Supply increased while demand (C) a surplus of 400 units
decreased (D) a shortage of 400 units
(C) Supply decreased while demand (E) None of the above
increased
(D) Supply increased while demand
increased
(E) Supply increased while demand did not
change
92

35 Which of the following is true if the 38 Which of the following accurately
government enacts a per-unit tax on a differentiates allocative efficiency and
product with relatively inelastic demand productive efficiency on a firm graph?
and relatively elastic supply? (A) Allocative efficiency is where P =
(A) The price that consumers pay will minimum average total cost; Productive
decrease. efficiency is where P = MC
(B) The demand for the product will (B) Allocative efficiency is where MC =
decrease. MR; Productive efficiency is where P =
(C) The tax burden will fall equally on both minimum average total cost
consumers and producers. (C) Allocative efficiency is where P = MC;
(D) The tax burden will fall more on Productive efficiency is where P =
consumers than on producers. minimum average total cost
(E) The consumer surplus will increase. (D) Allocative efficiency is where MR = 0;
Productive efficiency is where MC = MR
36 Herman spends his entire income on only (E) Allocative efficiency is where P = MC;
two goods: bagels and juice. Currently, his Productive efficiency is where economic
MU for bagels is 12, and his MU for juice losses are minimized
is 6. If the price for each bagel is $3, and
the price for each juice is $1, this Herman 39 Assume peanut farmers hire their workers
should in a perfectly competitive labor market and
(A) buy more bagels and more juice sell their product in a perfectly competitive
(B) buy less bagels and less juice product market. A decrease in the demand
(C) buy more bagels and less juice for peanuts will result in which of the
(D) buy less bagels and more juice following changes in the labor market?
(E) none of the above, Herman is already (A) neither supply nor demand will shift, as
maximizing his utility labor and products are unrelated in this
case.
37 If none of a firm's costs are fixed, which of (B) The supply curve for labor will shift to
the following must be true as its output the right.
increases? (C) The demand curve for labor will shift to
(A) Average total cost is increasing the right.
(B) Marginal cost equals Average total cost (D) The supply curve for labor will shift to
(C) The firm is experiencing constant the left.
returns to scale (E) The demand curve for labor will shift to
(D) Average total cost equals average the left.
variable cost
(E) Marginal product of labor is decreasing 40 A firm must be able to separate consumers
into different groups based on their
elasticity of demand in order to
(A) product differentiate
(B) profit maximize
(C) price discriminate
(D) experience economies of scale
(E) maximize consumer surplus
93

41 Oligopolistic firms all share this 43 Assume this firm hires all workers for a
characteristic, which is not typically found wage of $50 per day, and can sell as many
in any other market structure. units as it produces at the market price of
(A) They spend more than half their $10 per unit. Calculate the profit-
revenue on highly competitive advertising maximizing quantity of labor and the
(B) They differentiate their products Marginal Revenue Product (MRP) for the
(C) They price discriminate last worker hired.
(D) They produce identical products (A) 4 workers; $100
(E) They are mutually interdependent (B) 4 workers; $10
(C) 5 workers; $100
42 (D) 5 workers: $50
All of the following are true statements (E) 5 workers; $10
about market structures EXCEPT
(A) The demand curve for a perfectly
competitive firm is perfectly elastic
(B) Monopolistically competitive firms
earn a normal profit in the long run
(C) Oligopolistic firms are more
interdependent than monopolistically
competitive firms
(D) Competitive firms are more likely to
experience economies of scale than
oligopolistic firms
(E) Perfectly competitive firms are always
productively efficient in the long run
44 Assume that a Regional Hospital Network

is the only firm hiring neurosurgeons.
Using the graph provided, identify the wage
and quantity of neurosurgeons hired by this
profit maximizing firm.
(A) W1; 40
(B) W2; 60
(C) W3; 65
(D) W2; 40
(E) W3; 40
94

45 Assume that all individuals benefit from flu 48 Historically, coal miners had a very high
shots, regardless of whether they purchase a risk of developing various lung diseases,
flu shot themselves. Which of the due in part to lack of ventilation.
following best explains why the number of Engineering advancements allowed better
people who choose to get a flu shot is not ventilation in mines, eliminating some of
the same as the socially optimal quantity of this risk. Which is the most likely impact of
vaccinations. these engineering advancements upon the
(A) Vaccinations generate negative supply and demand for labor in the mining
externalities. industry?
(B) Vaccinations are non-excludable. (A) Demand curve will shift left, supply
(C) Vaccinations result in diseconomies of curve will shift right
scale. (B) Demand curve will shift left, supply
(D) The marginal cost of a vaccination is curve will shift left
zero. (C) Demand curve will shift right, supply
(E) Vaccinations generate positive curve will shift right
externalities. (D) Demand curve will not shift, supply
curve will shift left
46 All of the following are true about an (E) Demand curve will not shift, supply
country's production possibilities curve curve will shift right
EXCEPT
(A) If it is bowed out (concave to the 49 If the demand for health care is very
origin), it is experiencing increasing inelastic, an increase in the price of health
opportunity costs of production care will
(B) An increase in unemployment causes (A) increase the total revenue of health care
the curve to shift inward towards the origin. providers
(C) It shows the alternative combinations of (B) decrease the total revenue of health care
goods that can be produced given a providers
country's scarce resources (C) decrease the total consumer
(D) If it is a straight line, the country is expenditures on health care
experiencing constant opportunity costs of (D) cause the demand for health care to
production increase
(E) Producing a quantity on the production (E) have no effect on the total revenue of
possibilities curve is always productively health care providers
efficient
50 If only one supplier in a perfectly
47 Sports cars are a normal good. Which of the competitive market received a per-unit
following contribute to the downward subsidy this year, how will this subsidy
sloping demand for sports cars? impact the firm's price and output in the
I. Law of diminishing marginal short run?
utility (A) price will increase; output will increase
II. Substitution effect (B) price will not change; output will
III. Income effect increase
IV. Allocative efficiency (C) price will decrease; output will increase
(D) price will not change; output will
(A) I and II only decrease
(B) II and III only (E) price will decrease; output will decrease
(C) I and III only
(D) I, II and III only
(E) I, II, III and IV
95

51 Why does the marginal cost of producing
cookies eventually increases in the short
run?
(A) economies of scale
(B) diseconomies of scale
(C) increasing fixed costs
(D) diminishing marginal product
(E) increasing marginal product
56 SpeedCo and Fast Track are the only two
52 Which of the following is always true about companies providing local 24-hour delivery
the relationship between a firm's ATC and service. If these firms do not collude and
MC curves in the short run? both follow their dominant strategy,
(A) the ATC curve intersects the MC curve according to the payoff matrix above, how
at the minimum point of the MC curve much profit will each company earn?
(B) the MC curve intersects the ATC curve (A) Fast Track: 70, SpeedCo: 60
at the minimum point of the ATC curve (B) Fast Track: 100, SpeedCo: 20
(C) the MC curve intersects the ATC curve (C) Fast Track: 20, SpeedCo: 100
at the maximum point of the ATC curve (D) Fast Track: 30, SpeedCo: 30
(D) ATC and MC are always equal (E) Fast Track: 60, SpeedCo: 70
(E) ATC and MC are never equal
57 A monopolistically competitive firm is
53 Assuming all of a firm's cost are explicit, currently in long-run equilibrium. If the
the output level where accounting profit is output of the firm is 50 units and the price
maximized will always be where the firm receives for each product is $10,
(A) Total revenue equals total implicit costs what is the total cost for this firm?
(B) price equals average total cost (A) $5
(C) price equals marginal cost (B) $10
(D) the difference between marginal (C) $50
revenue and marginal cost is maximized (D) $500
(E) marginal cost equals marginal revenue (E) There is not enough information given
to determine average total cost.
54 Which of the following is least likely to
increase economic profit in any given
market?
(A) Effective price discrimination
(B) A few firms consolidating market
shares
(C) A government subsidy
(D) An effective price floor
(E) Low barriers to entry
55 Which of the following will most likely

occur if a perfectly competitive market is
replaced by a single-price monopolist?
(A) The deadweight loss will increase
(B) Profit-maximizing output will increase
(C) Price will decrease
(D) Economic profit will decrease
(E) The firm's total revenue will increase
96

58 Floor-Mart is one of many firms hiring 60 How would making a country's income tax
workers in a perfectly competitive labor more progressive affect the income
market. If Floor-Mart's demand for labor inequality of its citizens?
increases, how will this impact the number (A) It would increase income inequality
of workers hired by Floor-Mart and the (B) It would decrease income inequality
equilibrium wage in this labor market. (C) It would not affect income inequality
(A) The firm will hire fewer workers and (D) It would increase the wage difference
the equilibrium wage will increase. between men and women
(B) The firm will hire the same number of (E) It would not affect the wage difference
workers and the equilibrium wage will between men and women
increase.
(C) The firm will hire the same number of
workers and the equilibrium wage will
decrease.
(D) The firm will hire more workers and
the equilibrium wage will increase.
(E) The firm will hire more workers and the
equilibrium wage will remain the same.
59 Assume the marginal social cost of the last

unit of Iocane Powder provided is greater
than the marginal social benefit. Which of
the following can be used to achieve a more
efficient outcome in the market for Iocane
Powder?
(A) A per-unit subsidy for Iocane Powder
(B) A lump-sum subsidy for Iocane Powder
(C) A per-unit tax for Iocane Powder
(D) A lump-sum tax for Iocane Powder
(E) Perfect price discrimination
97

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Microeconomics 4 An effective price ceiling in the market for

Practice Exam #1 tea will most likely result in a/an

8 According to the graph above, what price

19 The quantity of acrylic paint supplied

22 Using the graph above, if this perfectly

32 In 2014, 13 billion bushels of corn were

44 Assume that a Regional Hospital Network

55 Which of the following will most likely

59 Assume the marginal social cost of the last

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