Microeconomics--Multiple Choice Questions.

1. If the firms in an oligopolistic industry can establish an effective cartel, we expect the output and price to approximate those of—

    1. a purely competitive producer
    2. a purely competitive industry
    3. a pure monopoly
    4. a monopolistically competitive industry
    5. none of the above

2. Why do cartels usually fail?

  1. Cartel members face a dilemma about prison
  2. Members have economic incentives to cheat on their agreements
  3. Members charge higher prices than their competitors
  4. All of the above
  5. None of the above

3. The cross elasticity of demand of good X with respect to good Y is negative. The cross price elasticity of demand of good Y with respect to good Z is positive. It follows that

  1. X and Y are purchased as complements
  2. Y and Z are purchased as substitutes
  3. X and Z are purchased independently
  4. X is an inferior good
  5. none of the above

4. "After some point, successive increases in a variable factor of production, such as labor, added to fixed factors of production, will result in progressively smaller increases in output." This definition best describes

  1. economy of scale
  2. diminishing (marginal) returns
  3. diseconomy of scale
  4. the law of decreasing elasticity of demand
  5. None of the above

5. A natural monopoly can be expected to exist when:

  1. fixed costs are relatively high
  2. average cost is rising with increases in production
  3. a single firm experiences diseconomy of scale
  4. all of the above
  5. none of the above

6. The prisoner’s dilemma suggests—

  1. oligopoly firms will be best off when they work independently
  2. oligopolies make profits 75% of the time
  3. collusion can work to the advantage of oligopolistic firms
  4. all of the above
  5. none of the above

7. The Law of Demand states that—

  1. price and quantity demanded are inversely related
  2. the larger the number of buyers, the lower the product price
  3. price and quantity demanded are directly related
  4. consumers will buy more of a given product at high prices than at low prices
  5. none of the above

8. The price elasticity of demand for widgets is 0.8. Assuming no change in demand, a 16% increase in sales implies a—

  1. 1% reduction in price
  2. 12% reduction in price
  3. 40% reduction in price
  4. 20% reduction in price
  5. none of the above

 

Quantity of D

10

 

 

 

 

Quantity of C

5

9. Referring to the budget line above, if the consumer’s budget is 200 tenge—

  1. the prices of C and D can not be determined
  2. the price of C is 20 tenge and the price of D is 40 tenge
  3. the consumer can obtain a combination of both 5 C and 5 D
  4. the price of C is 40 tenge and the price of D is 20 tenge
  5. none of the above

10. Accounting profits are typically—

  1. greater than economic profits because the former do not take explicit costs into account
  2. equal to economic profits because accounting costs include all opportunity costs
  3. smaller than economic profits because the former do not take implicit costs into account
  4. greater than economic profits because the former do not take implicit costs into account
  5. none of the abov
1. What exists when prices are below equilibrium?
a. shortage
b. scarcity
c. expected increase in price
d. all of the above
e. none of the above

2. The highest valued alternative to a chose activity is called--
a. diminishing returns
b. law of demand
c. opportunity cost
d. all of the above
e. none of the above

3. Cross Price Elasticity is used to measure
a. inferior goods
b. substitute goods
c. producers' response to price change
d. all of the above
e. none of the above

4. At price = 10, quantity = 4000. At price = 8, quantity = 5000. Price elasticity of demand--
a. is equal to about 22%
b. is perfectly elastic 
c. suggests this is a complimentary good
d. all of the above
e. none of the above

5. An inferior good is a good--
a. we buy when our income is relatively low
b. typically has a more expensive substitute
c. with a negative income elasticity of demand
d. all of the above
e. none of the above

6. Marginal cost 
a. is negative in a profit maximizing firm
b. is minimized when it intersects average cost
c.  increases with production as a reflection of diminishing returns
d. all of the above
e. none of the above

7. A Natural Monopoly--
a. has relatively large start-up costs
b. is a monopoly of a natural resource
c. is almost never profitable over the long term
d. all of the above
e. none of the above

8. Patents are granted to individuals or firms for new products and technologies--
a. to allow monopoly pricing for a certain amount of time
b. as an incentive to future innovation
c. and they encourage production below an efficient level
d. all of the above
e. none of the above

9. A sudden decrease in the demand for potatoes--
a. will result in a surplus of potatoes and lower prices
b. might effect future supplies of cabbage
c. could be a result of higher income levels
d. all of the above
e. none of the above

10. Economic Efficiency--
a. implies productive efficiency, but not distributive efficiency
b. implies distributive efficiency, but not productive efficiency
c. implies a tendency for economic profits = 0
d. all of the above
e. none of the above
1. What exists when prices are below equilibrium?
a. shortage
b. scarcity
c. expected increase in price
d. all of the above
e. none of the above

2. The highest valued alternative to a chose activity is called--
a. diminishing returns
b. law of demand
c. opportunity cost
d. all of the above
e. none of the above

3. The Law of Demand describes what kind of relationship between price and quantity?
a. consumer indifference
b. negative
c. inelastic
d. all of the above
e. none of the above

4. Cross Price Elasticity is used to measure
a. inferior goods
b. substitute goods
c. producers' response to price change
d. all of the above
e. none of the above

5. At price = 10, quantity = 4000. At price = 8, quantity = 5000. Price elasticity of demand--
a. is equal to about 22%
b. is perfectly elastic 
c. suggests this is a complimentary good
d. all of the above
e. none of the above

6. An inferior good is a good--
a. we buy when our income is relatively low
b. typically has a more expensive substitute
c. with a negative income elasticity of demand
d. all of the above
e. none of the above

7. Marginal profit 
a. equals the difference between marginal revenue and marginal cost
b. means additional profit
c. equals zero when total profit is greatest
d. all of the above
e. none of the above

8. Marginal cost 
a. is negative in a profit maximizing firm
b. is minimized when it intersects average cost
c.  increases with production as a reflection of diminishing returns
d. all of the above
e. none of the above

9. A price ceiling will--
a. bring an increase on price
b. usually cause a shortage
c. increase demand
d. all of the above
e. none of the above

10. Perfect Competition describes a market--
a. that has many good examples in the real world
b. with many sellers that produce different, assorted goods
c. like America
d. all of the above
e. none of the above

11. Higher prices always decrease demand. This is--
a. true because price is a determinant of demand
b. true because of scarcity
c. false; higher price implies less quantities demanded, but not less demand
d. all of the above
e. none of the above

12. Perfect Competition describes a market with--
a. many buyers and sellers
b. no barriers to entry
c. identical goods
d. all of the above
e. none of the above

13. A Natural Monopoly--
a. has relatively large start-up costs
b. is a monopoly of a natural resource
c. is almost never profitable over the long term
d. all of the above
e. none of the above

14. An increase in resource prices will lead to--
a. a decrease in supply, lower prices and higher demand
b. a decrease in demand, higher prices and more quantities supplied
c. a decrease in supply, higher prices and less quantity
d. all of the above
e. none of the above

15. Patents are granted to individuals or firms for new products and technologies--
a. to allow monopoly pricing for a certain amount of time
b. as an incentive to future innovation
c. and they encourage production below an efficient level
d. all of the above
e. none of the above

16. Economic Efficiency--
a. originated as an ethical argument about how an  "invisible hand" can bring about preferable
production levels, techniques, and distribution
b. encourages minimization of average costs
c. is implied by Perfect Competition
d. all of the above
e. none of the above

17. Monopoly--
a. is a market with only two or three producers
b. can never be preferable to competition
c. implies a lack of equilibrium in the market
d. all of the above
e. none of the above

18. A sudden decrease in the demand for potatoes--
a. will result in a surplus of potatoes and lower prices
b. might effect future supplies of cabbage
c. could be a result of higher income levels
d. all of the above
e. none of the above

19. CD's and cassette tapes--
a. are perfect substitutes
b. probably have a positive cross price elasticity of demand
c. are inferior goods
d. all of the above
e. none of the above

20. Economic Efficiency--
a. implies productive efficiency, but not distributive efficiency
b. implies distributive efficiency, but not productive efficiency
c. implies a tendency for economic profits = 0
d. all of the above
e. none of the above

1. After the parking station raised the parking price per night from 60 tenge to 100 tenge it lost half of their permanent clients. Shall we characterize it as:

a. change in quantity of parking places demanded per night

b. shift in supply of parking stations

c. shift in demand for parking stations

d. decrease of demand for cars
e. none of the above

2. Which of the following is not a characteristic of complementary goods?

a. negative cross elasticity

b. an increase in the price for good x decreases the amount of good y purchased

c. these goods are normally used together

d. the purchase of these goods will decrease with the increase of income

e. none of the above

3. Which of the following is not a barrier to entry?

a. patents

b. licenses

c. inefficiency

d. ownership of essential resources

e. none of the above

4. In a market economy, a change in which of the following would lead to a change in the pattern of demand?

I. The distribution of income

II. The age structure of the population

III. The amount spent on advertising

a. I only

b. I and II

c. II and III

d. I, II, and III

5. The short-run marginal cost curve eventually rises because of:

a. diseconomies of scale

b. diminishing marginal returns

c. increasing fixed costs

d. profit maximization

e. none of the above

6. A purely monopolistic industry:

a. has significant entry barriers

b. has a downward sloping demand curve

c. produces a product or service for which there are no close substitutes

d. has all of the above

e. none of the above

 

 

7. If following the price reduction total revenue declines, then

a. demand is inelastic

b. demand is elastic

c. demand is of unit elasticity

d. the good is inferior

e. none of the above

8. The short run supply curve for a competitive firm is the:

a. entire ATC curve

b. segment of the marginal cost curve lying above the AVC curve

c. segment of the MC curve lying above the ATC curve

d. entire marginal cost curve

e. none of the above

9. The cross-elasticity of demand for bacon with respect to the price of eggs is –2. What do we call these goods?

  1. complement goods

  2. inferior goods

  3. substitute goods

  4. superior goods

  5. none of the above

    6. 10. Normal profits are:

    a. identical to economic profits

    b. the profits reported by accountants on a firm’s annual financial statement

    c. considered an implicit cost by economists

    d. high profits

    e. none of the above

    11. Consumer surplus

    a. is what you get when you buy something at a discount price

    b. is the difference between a good's price and what it is worth to the buyer

    c. rarely happens in monopoly markets

    d. all of the above

    e. none of the above

    12. A natural monopoly can be expected to exist when:

    I. fixed costs are relatively high

    II. average cost is rising with increases in production

    III. a single firm experiences diseconomy of scale

    a. I only

    b. I. and II.

    c. I, II, and III.

    d. I and III.

    e. none of the above

    13. The best example of a competitive industry would be

    a. automobiles

    b. cabbage

    c. vodka

    d. education

    e. commercial airplanes

    14. At price = 10, quantity = 4000. At price = 8, quantity = 5000. Price elasticity of demand—

    a. is equal to about 22%

    b. is perfectly elastic

    c. suggests this is a complimentary good

    d. all of the above

    e. none of the above

    15. Higher prices tend to decrease quantities demanded. This is—

    a. true because people like to buy stuff cheaply

    b. true because of scarcity

    c. true because of the law of supply

    d. all of the above

    e. none of the above

    16. Perfect Competition describes a market with—

    a. at least a few buyers and at least a few sellers

    b. no barriers to entry

    c. almost identical goods

    d. all of the above

    e. none of the above

    17. A Natural Monopoly—

    a. has increasing average costs

    b. is a monopoly of a natural resource

    c. is never profitable over the long term

    d. all of the above

    e. none of the above

    18. Economic Efficiency—

    a. implies productive efficiency, but not distributive efficiency

    b. implies marginal revenue = marginal profit

    c. implies a tendency for average costs = 0

    d. all of the above

    e. none of the above

    19. Monopoly—

    a. is a market with only two or three producers

    b. can never be preferable to competition

    c. implies a lack of equilibrium in the market

    d. all of the above

    e. none of the above

    20. A sudden decrease in the demand for potatoes—

    a. will result in a surplus of potatoes and lower prices

    b. might effect future supplies of cabbage

    c. could be a result of higher income levels

    d. all of the above 

    e. none of the above
  6. Cetaris parabus, what would make a firm’s demand curve less elastic?

      

Product differentiation
More firms in the industry
Income equality
All of the above
None of the above

Product differentiation—
Might be nothing more than the label on a product
  7. Puts the competition in monopolistic competition
  8. Gives firms a kinked demand curve
  9. All of the above
  10. None of the above
  • At 8:45 in the morning, there is not enough water pressure for me to take a shower in the KIMEP Student Hotel. This is a good example of—
    1. A free rider problem
    2. A negative externality
    3. A merit good
    4. All of the above
    5. None of the above
  • The kinked demand curve
    1. is a model for all oligopolistic industries
    2. shows how prices can fluctuate greatly in monopolistic competion
    3. proves that it is possible for cost changes not to be passed on to consumers
    4. all of the above
    5. none of the above
  • Merit goods
    1. Carry positive externalities
    2. Tend to be over-provided in private markets
    3. Have inelastic demand
    4. All of the above
    5. None of the above
  • A cartel is—
    1. An association of firms for the purpose of expanding production
    2. Perfectly legal in most free-market countries
    3. An agreement to produce at more efficient levels
    4. All of the above
    5. None of the above
  • Why do cartels usually fail?
    1. Cartel members face a dilemma about prison
    2. Members have economic incentives to cheat on their agreements
    3. Members charge higher prices than their competitors
    4. All of the above
    5. None of the above
  • Monopolistic competition shares all the conditions of pure competition except--
    1. many sellers
    2. identical product
    3. perfect and free information
    4. free entry and exit from the market
    5. none of the above
  • The best example of a monopolistically competitive industry is—
    1. Long-distance telephone service in Kazakkhstan
    2. Mobile phone sales in Almaty
    3. Food service at KIMEP
    4. Airline service to Astana
    5. All of the above are good examples
  • In the long run, a per-unit tax is most likely to be passed on to consumers--
    1. in a monopoly industry
    2. in a competitive industry
    3. when producers are in collusion
    4. in an oligopoly
    5. none of the above
  • Aigerim watches publicly supported television, but she does not pay taxes. Aigerim is a—
    1. Couch potato
    2. Free rider
    3. Tragedy of the commons
    4. All of the above
    5. None of the above
  • Almagul paid her doctor for a flu vaccination. She is enjoying--
    1. an external benefit of consumption
    2. a public good
    3. a free good
    4. all of the above
    5. none of the above
  • The best example of a positive externality is—
    1. The exhaust from a city bus
    2. The sun
    3. The good smell of my neighbor’s cooking
    4. Enjoying Panfilov Park on a Sunday afternoon
    5. None of the above are good examples
  • The best example of a negative externality:
    1. A hangover
    2. getting sick from smoking cigarettes
    3. blocking my neighbor's view by building a garage in front of his window
    4. street lights
    5. negative economic profits
    If there is a concern among producers for market share, we expect

      

there are few consumers in the market
labor costs do not change
prices will stay relatively constant 
products are differentiated
none of the above
  • In monopolistic competition, price tends—
  • To encourage overproduction of goods in the industry
  • To minimum average cost
  • To give more than satisfactory levels of profit
  • All of the above
  • None of the above
    • The market for business education in Almaty is dominated by three schools. This market is best classified as—

      

Perfect Competition
Monopoly
Oligopoly
Monopolistic Competition
none of the above

OPEC is a good example of--
Prisoner’s Dilemma
A cartel
  • A natural monopoly
  • All of the above
  • None of the above
    • 

  • The kinked demand curve shows—
    • 

      


    1. inelastic demand below current prices and elastic demand above current prices
      2. 

    2. That prices will always change when costs change
      3. 

    3. The advantages of collusion
      4. 

    4. All of the above
      5. 

    5. None of the above
    



  • Tragedy of the Commons is a situation brought about when—
    • 

      


    1. People fail to care for their property
      2. 

    2. Property has poorly defined rights, or common ownership
      3. 

    3. The marginal benefit of resource use is less than the marginal cost
      4. 

    4. All of the above
      5. 

    5. None of the above
    

    



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