ECON-MIDTERM2

1. Utility is the:
A) difference between a firm's total revenue and its total economic cost.
B) satisfaction consumers derive from their consumption of goods and services.
C) good not adequately provided by a free market and usually provided by the government.
D) lowest price that buyers are willing to pay for a given quantity of a good.

2. The costs economists use in the concept of economic profit are:
A) accounting costs.
B) strictly dollar costs, not opportunity costs.
C) opportunity costs, or the value of the best opportunity forgone.
D) both A and C.

5. A set of rules that specify the ways in which the resource for which they are defined may be used are:
A) free-rider rights.
B) quasi-public goods.
C) property rights.
D) public goods.

6. To be effective, property rights must be:
A) exclusive and transferable.
B) free and quasi-public.
C) constrained and marginal.
D) all of the above.

7. The free-rider problem is a direct result of:
A) marginal-cost pricing.
B) horizontally summed supply curves.
C) full-cost pricing.
D) the inability to exclude nonpayers.

8. An example of a public good is:
A) a state university.
B) fire protection.
C) the Ramada Inn.
D) food.

9. An _______ results from any action that imposes costs on others outside of any market exchange.
A) outside cost
B) external cost
C) internal cost
D) endogenous cost

10. A good for which no exclusive property rights exist is a:
A) common property resource.
B) private resource.
C) social-private good.
D) private good.

11. The best example of a common property resource is:
A) tuna in the ocean.
B) automobiles.
C) clothing.
D) education.

1. If the first four units of a good consumed have marginal utilities of 10, 9, 8, and 7, respectively, this trend is an indication of the:
A) law of consumer equilibrium.
B) law of diminishing marginal utility.
C) minimization of utility.
D) law of diminishing consumer surplus.

2. A consumer's spending is restricted because of:
A) utility maximization.
B) a budget constraint.
C) marginal utility.
D) total utility.

3. Which of the following statements is (are) true?
A) Consumers are constrained by a budget.
B) If a consumer decides to spend more on one good, he or she must decide to spend less on another good to satisfy the budget constraint.
C) The marginal decision rule states that an activity should be expanded if its marginal benefit exceeds its marginal cost.
D) All of the above statements are true.

4. If a consumer purchases a combination of commodities x and y such that MUx/Px = 50 and MUy/Py = 40, to maximize utility, the consumers should buy.
A) more of x and less of y.
B) more of both x and y.
C) less of x and more of y.
D) less of both x and y.

5. John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose. As he adjusts to this event, he will consume:
A) less peanut butter and more broccoli.
B) more peanut butter and less broccoli.
C) more peanut butter and more broccoli.
D) less peanut butter and less broccoli.

6. Assume that as the price of cauliflower falls the income effect causes consumers to buy less cauliflower. We can conclude that cauliflower is:
A) an inferior good.
B) nasty tasting.
C) expensive.
D) a normal good.

7. If the price of a good falls and the consumer decides to buy more of the good solely because it is relatively less expensive, this describes the:
A) substitution effect.
B) consumer surplus effect.
C) marginal maximizing rule.
D) income effect.

8. The substitution effect always involves a change in consumption in the _______ direction of the ________ change.
A) same; price
B) opposite; budget
C) opposite; price
D) same; budget

9. According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:
A) have an implicit reduction in income.
B) purchase fewer substitute goods.
C) have an implicit increase in income.
D) purchase more substitute goods.

10. Suppose that the price of Cracker Jacks is 50 cents a box and the price of M&Ms is 25 cents a bag. If you have $10 to spend and decide to purchase 8 bags of M&Ms, the maximum quantity of Cracker Jacks that you can purchase is ________ boxes.
A) 12
B) 20
C) 16
D) 10

11. If a consumer moves upward along an indifference curve, his or her total utility:
A) first decreases, then increases.
B) remains constant.
C) increases.
D) first increases, then decreases.

12. If you are willing to give up 10 units of good Y (on the vertical axis) for 5 units of good X (on the horizontal axis), and your level of satisfaction is unchanged, the marginal rate of substitution is:
A) 2.
B) 0.5.
C) 10.
D) 5.

1. The short run is defined as a:
A) planning period in which some factors of production are considered to be fixed in quantity.
B) period of time less than 1 year.
C) time period in which some factors of production are fixed, but it cannot exceed 1 year.
D) period of time less than 6 months.

2. A factor of production whose quantity can be changed during a particular period is a:
A) variable factor of production.
B) incremental factor of production.
C) fixed factor of production.
D) marginal factor of production.

3. The long run is a period that is:
A) at least one year.
B) more than one month.
C) long enough in which to vary the quantities of all factors of production.
D) more than one week.

4. A farm can produce 1,000 bushels of wheat per year with 2 workers and 1,300 bushels of wheat per year with 3 workers. The marginal product of the third worker is:
A) 300 bushels.
B) 100 bushels.
C) 1,300 bushels.
D) 2,300 bushels.

5. Given constant quantities of all other factors of production, when additional units of a variable factor of production add less and less to total output, then the firm is experiencing:
A) diminishing marginal returns.
B) increasing marginal returns.
C) negative marginal returns.
D) constant marginal returns.

6. Diminishing marginal returns occur when:
A) each additional unit of a variable factor adds more to total output than the previous unit.
B) an additional variable factor adds less to total output than the previous unit.
C) the marginal product of a variable factor is increasing, but at a decreasing rate.
D) all of the above are true.

7. When marginal cost is below average variable cost, average variable cost must be:
A) at its maximum.
B) at its minimum.
C) rising.
D) falling.

8. In the long run:
A) production is always greater than zero.
B) production choices are more limited than in the short run.
C) the firm considers all factors as variable.
D) the firm considers all factors as fixed.

9. In making decisions about factor mix, a firm is seeking to:
A) maximize output.
B) maximize profits.
C) maximize profits within its budget constraint, much like a consumer maximizes utility within a budget constraint.
D) do all of the above.