Microeconomics Exam #2

The study of economics exists because people are confronted with the basic problem of

• elasticity
• negative externality
• scarcity
• overabundance
• monopoly

The table shows the total benefit associated with reducing different levels of pollution on a small island. The cost of eliminating one ton of pollution is $150. Which of the following is the optimal quantity of pollution to eliminate?

• 5 tons
• 4 tons
• 3 tons
• 2 tons
• 1 ton

If a hurricane reduced the crab population, the price of crabs and quantity sold would change in which of the following ways?

• Price: Increase Quantity: Increase
• Price: Increase Quantity: Decrease
• Price: Decrease Quantity: Increase
• Price: Decrease Quantity: Decrease
• Price: No change Quantity: Decrease

To determine whether two goods are complements, one would calculate the

• price elasticity of demand
• price elasticity of supply
• income elasticity of demand
• cross-price elasticity of demand
• input-price elasticity of supply

For a normal good, the income effect of a price change refers to the change in the consumption of the good that occurs because of the change in

• consumers’ purchasing power
• the demand for a substitute good
• the supply of the good
• relative price
• marginal utility

The average fixed cost of producing four units of output is equal to

• 120
• 95
• 75
• 50
• 30

In the short run, the lowest price at which the firm will continue to produce is

• 80
• 74
• 50
• 35
• 30

Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce’s economic profit from choosing to work as a graphic artist?

• -45000
• -20000
• 20000
• 45000
• 70000

Game theory is most useful in describing outcomes in markets where

• firms are price takers
• there is only one producer
• there are many small producers
• products are identical for all firms
• there are interdependent firms

Which of the following is a characteristic of firms in a perfectly competitive industry?

• Engaging in collusive behavior
• Facing significant barriers to entry
• Setting the market price
• Producing identical products
• Earning positive long-run economic profit