Set of flashcards Microeconomics Mock Exam

Flashcards	34
Language	English
Category	Micro-Economics
Level	University
Created / Updated	22.06.2020 / 04.11.2020
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Consider the following statements:

Statement I: If close substitutes are easily available for a particular good, the price elasticity of demand for that good cannot be identified.
Statement II: If a relatively large proportion of a person’s income is spent on a particular good, the price elasticity of demand for that good is most likely relatively high.

Which of the following is true?

Both statements are incorrect

Both statements are correct.

Only one statement II is correct

Both statements are incorrect

Both statements are correct.

Only one statement II is correct

Consider the following statements:

Statement I: If the price elasticity of demand for a good equals -1.25, an increase in price will result in a decrease in total revenue.

Statement II: If a decrease in price leads to a decrease in total revenue, demand for the good is price elastic.

Which of the following is true?

Only Statement I is correct.

Only Statement II is correct.

Both Statements are incorrect.

Only Statement I is correct.

Only Statement II is correct.

Both Statements are incorrect.

When a rent ceiling (maximum price) is imposed below the equilibrium market price, which of the following is most likely?

The unit price falls while quantity supplied increases

The unit price rises while quantity demanded falls

The unit price falls and the quantity supplied also falls.

The unit price falls while quantity supplied increases

The unit price rises while quantity demanded falls

The unit price falls and the quantity supplied also falls.

Which of the following is least likely regarding indifference curves?

For a given consumer, the slope of one indifference curve changes along the indifference curve.

The indifference curves for two consumers can never intersect.

Indifference curves are convex when viewed from the origin.

For a given consumer, the slope of one indifference curve changes along the indifference curve.

The indifference curves for two consumers can never intersect.

Indifference curves are convex when viewed from the origin.

Robert’s MRSxy is given by 2.5. If Good Y is on the y axis and Good X is on the x axis, the slope of the indifference curve is closest to?

2.5

-2.5

-0.4

2.5

-2.5

-0.4

This question addresses the budget constraint: The amount of Good A that a consumer would have to give up in order to consume 1 more unit of Good B is given by:

The ratio of the price of Good A to Good B

The marginal rate of substation of Good B for Good A

The ratio of the price of Good B to Good A

The ratio of the price of Good A to Good B

The marginal rate of substation of Good B for Good A

The ratio of the price of Good B to Good A

For any particular good, an decrease in the price of a complement would most likely result in?

A movement along the demand curve to the right

A shift in the demand curve to the left

A shift in the demand curve to the right

A movement along the demand curve to the right

A shift in the demand curve to the left

A shift in the demand curve to the right

Consider the following statements:

Statement I: The availability of close substitutes for a particular good A has no effect on the price elasticity of demand for that good A.

Statement II: If a comparatively small proportion of a person’s income is spent on a particular good, the price elasticity of demand for that good is comparatively high (i.e. very elastic).

Which of the following is most likely true?

Both statements are incorrect

Both statements are correct.

Only one statement is correct

Both statements are incorrect

Both statements are correct.

Only one statement is correct

Consider the following statements:

Statement I: If the price elasticity of demand for a good equals -2.5, an increase in price will result in a decrease in total revenue.

Statement II: If a decrease in price leads to an increase in total revenue, the demand for that good is price elastic.

Which of the following is most likely true?

Only Statement I is incorrect.

Only Statement II is incorrect.

Both Statements are incorrect.

Only Statement I is incorrect.

Only Statement II is incorrect.

Both Statements are incorrect.

When a price floor is imposed above the equilibrium market price, which of the following is most likely true?

Price falls while quantity supplied increases

Price rises while quantity demanded falls

Price and quantity supplied both fall

Price falls while quantity supplied increases

Price rises while quantity demanded falls

Price and quantity supplied both fall

Which of the following statements is most likely true?

The indifference curves for two different consumers cannot intersect.

For a given consumer, the slope of one indifference curve changes along the indifference curve.

Total utility enjoyed by a consumer changes along one given indifference curve.

The indifference curves for two different consumers cannot intersect.

For a given consumer, the slope of one indifference curve changes along the indifference curve.

Total utility enjoyed by a consumer changes along one given indifference curve.

Peter’s MRSxy is given by 1.5. If Good Y is on the y axis and Good X is on the x axis, the slope of the indifference curve is closest to?

1.5

-0.67

-1.5

1.5

-0.67

-1.5

This question addresses the budget constraint: The amount of Good A that a consumer would have to give up in order to consume one more unit of Good B is given by:

The ratio of the price of Good A to Good B

The marginal rate of substitution of Good B for Good A

The ratio of the price of Good B to Good A

The ratio of the price of Good A to Good B

The marginal rate of substitution of Good B for Good A

The ratio of the price of Good B to Good A

Which one of the following statements is correct?

If a monopolist faces the inverse demand function P = 50 - 5Q, which of the following statements is true?

I. The equation of the average revenue curve is AR(Q) = 50 – 5Q.

II. The marginal revenue curve is twice as steep as the average revenue curve.

III. For outputs less than 5, marginal revenue is positive, for outputs more than 5, marginal revenue is negative.

Only the statements I and II are true

Only the statements II and III are true.

All three statements, I, II, and III are true

Only the statements I and II are true

Only the statements II and III are true.

All three statements, I, II, and III are true

Suppose that a monopolist faced demand P = 120 - 4Q and has constant marginal cost MC = 30. If this monopolist engages in first degree price discrimination, total output will equal?

11.25

30

22.5

11.25

30

22.5

Which-one(s) of the following statement(s) is/are correct?

I. Under the conditions of perfect competition, the supply function calculates the quantity a supplier is willing to produce in function of the selling price as well as the cost of the input factors needed for production, and the cost of complementary goods and/or substitutes.

II. Given everything else is held constant, an increase in the cost of labour leads to upward shift of the supply curve. Mathematically, this corresponds to a higher intercept.

III. An increase in the cost of the input factors has no effect on the supply curve because the market price decides, which quantity a firm is willing to supply.

Statements I and II are correct.

All three statements are correct.

Statements II and III are correct.

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Statements I and II are correct.

All three statements are correct.

Statements II and III are correct.

Which-one of the following statements is correct?

Given are the following denotations:

MP_L : marginal product of labour

MP_K : marginal product of capital

P_L : price of labour

P_K : price of capital

If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL = MPK .

If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL/PL = MPK/PK .

If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL × PL = MPK × PK .

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If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL = MPK .

If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL/PL = MPK/PK .

If a firm wants to maximise output per monetary unit of input cost, then, given a two-factor production function with labour and capital, the following condition must hold: MPL × PL = MPK × PK .

Which one of the following statements is correct?

Under the conditions of perfect competition, firms are price takers only if they must lower their price to sell more units

Under the conditions of monopolistic competition, in the absence of price discrimination, marginal revenue is not constant. It increases if more units are produced and sold at the market price

Under the conditions of perfect competition marginal revenue is equal to average revenue.

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Under the conditions of perfect competition, firms are price takers only if they must lower their price to sell more units

Under the conditions of monopolistic competition, in the absence of price discrimination, marginal revenue is not constant. It increases if more units are produced and sold at the market price

Under the conditions of perfect competition marginal revenue is equal to average revenue.

Given is the supply function of a specific firm:

QS x = –400 + 8Px

a) The inverse supply function is:

Px = 0.25QS x + 50

Px = 0.152QS x + 5

Px = 0.125QS x + 50

None of the above

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Px = 0.25QS x + 50

Px = 0.152QS x + 5

Px = 0.125QS x + 50

None of the above

If the unit price is $200, how big is the quantity supplied and the corresponding producer surplus?

Q supplied 1500 units / P surplus 180,000

Q supplied 1750 units / P surplus 180,000

Q supplied 1000 units / P surplus 90,000

Q supplied none of the above / P surplus 90,000

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Q supplied 1500 units / P surplus 180,000

Q supplied 1750 units / P surplus 180,000

Q supplied 1000 units / P surplus 90,000

Q supplied none of the above / P surplus 90,000

Assume that an individual supplier has the following supply function:

QS x = –200 + 4Px – 5 W

Where: QS x : quantity supplied

Px : selling price for one unit

W : wage per hour

Which of the three functions below represents the aggregate market supply curve?
Assume that the wage per hour is 20, and that the market consists of 10 identical firms.

Px = 0.025QS x + 150

Px = 0.025QS x + 75

Px = 0.25QS x + 75

None of the above

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Px = 0.025QS x + 150

Px = 0.025QS x + 75

Px = 0.25QS x + 75

None of the above

Which-one(s) of the following statement(s) is/are correct?

I. Consumer choice theory can be defined as the branch of microeconomics that relates consumer demand curves to production and cost theory.

II. A consumption bundle, or consumption basket, is a specific combination of goods and services that a consumer would like to consume.

III. Under reasonable assumptions, it is possible to come up with a rule that translates the quantities of goods in different baskets into a number. That assignment is called the utility function of that consumer.

Statements I and II are correct

All three statements are correct.

Statements II and III are correct.

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Statements I and II are correct

All three statements are correct.

Statements II and III are correct.

Rowena and John both have identical bundles of good A and good B, however they are NOT on the same indifference curve.

The marginal rate of substitution MRSA for B for Rowena is 5, whereas the MRSA for B for John is 0.2 . They both agree to exchange one unit of A for one unit of B.

Which of the following statements is correct?

If Rowena gives to John one unit of B in exchange for one unit of A, they will, as a result, both end up on a higher-ranking indifference curve.

If Rowena gives to John one unit of B in exchange for one unit of A, she will, as a result, end up on a higher-ranking indifference curve. Al, however, will stay on the original indifference curve

If Rowena gives to John one unit of A in exchange for one unit of B, they will, as a result, both end up on a higher-ranking indifference curve

None of the above.

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If Rowena gives to John one unit of B in exchange for one unit of A, they will, as a result, both end up on a higher-ranking indifference curve.

If Rowena gives to John one unit of B in exchange for one unit of A, she will, as a result, end up on a higher-ranking indifference curve. Al, however, will stay on the original indifference curve

If Rowena gives to John one unit of A in exchange for one unit of B, they will, as a result, both end up on a higher-ranking indifference curve

None of the above.

Which-one of the following statements is correct?

A travel agent (operating in imperfect competition) offering package tour holidays to Iceland is considering a price reduction of 500 francs on two-week all-inclusive vacations to Iceland from 10,000 francs to 9,500 francs. The number of monthly bookings is, as a consequence, expected to increase from 5 to 7. Therefore, the marginal revenue earned per additional booking amounts to:

16,500 francs

8,250 francs

8,500 francs

None of the above

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16,500 francs

8,250 francs

8,500 francs

None of the above

Which-one of the following statements is correct?

A company introduces a new product. The product is patented, therefore they are the only supplier. Given a constant marginal cost of 10, and a price elasticity of demand of -1.11, the unit price, according the inverse elasticity pricing rule (IEPR), should be:

IEPR: (P* – MC* ) / P* = -1/ e_Q,P

50

100

120

None of the above

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50

100

120

None of the above

Which-one(s) of the following statement(s) is/are correct?

I. Price discrimination (charging different prices for different consumers) offers a firm with market power an opportunity to capture more surplus.

II. Block pricing is an example of third-degree price discrimination. So is the splitting of the price charged to consumers into a subscription and a usage charge.

III. Price discrimination (charging different prices for different consumers) offers a firm, given certain conditions are met, an opportunity to capture more surplus. Yet, this is not true for firms that have no information about so-called reservation prices (i.e., a consumer’s maximum willingness to pay for that unit) or about how the price-elasticity of demand differs across consumers.

All statements are correct.

Only statement I is correct.

Statements I and III are correct.

None of the above

All statements are correct.

Only statement I is correct.

Statements I and III are correct.

None of the above

Which one of the following statements is correct?

First-degree price discrimination describes the practice of charging different uniform prices to different consumer groups or segments in a market.

Third-degree price discrimination describes the practice of offering consumers a quantity discount

Screening describes a process for sorting consumers based on a consumer characteristic that (1) the firm can see (such as age or status) and (2) is strongly related to a consumer characteristic that the firm cannot see but would like to observe (such as willingness to pay or elasticity of demand).

First-degree price discrimination describes the practice of charging different uniform prices to different consumer groups or segments in a market.

Third-degree price discrimination describes the practice of offering consumers a quantity discount

Screening describes a process for sorting consumers based on a consumer characteristic that (1) the firm can see (such as age or status) and (2) is strongly related to a consumer characteristic that the firm cannot see but would like to observe (such as willingness to pay or elasticity of demand).

Which one of the following statements is correct?

The Cournot model pertains to a homogeneous products oligopoly. In that model, the only decision each firm needs to make is to determine the maximum level of marginal cost which is compatible with maximising profit.

The Herfindahl-Hirschman Index HHI is a useful measure to determine the share of industry sales revenue generated by the four firms with the largest sales revenue in the industry.

The Cournot and Bertrand models make different predictions about the quantities, prices, and profits that will arise under oligopolistic competition. This is partly due to the fact that they make different assumptions about how a firm expects its rival to react to its competitive moves.

The Cournot model pertains to a homogeneous products oligopoly. In that model, the only decision each firm needs to make is to determine the maximum level of marginal cost which is compatible with maximising profit.

The Herfindahl-Hirschman Index HHI is a useful measure to determine the share of industry sales revenue generated by the four firms with the largest sales revenue in the industry.

The Cournot and Bertrand models make different predictions about the quantities, prices, and profits that will arise under oligopolistic competition. This is partly due to the fact that they make different assumptions about how a firm expects its rival to react to its competitive moves.

Which one of the following statements is correct?

A reaction function shows a firm’s best response (i.e., profit-maximising output choice) to the output level of a rival firm.

In the Cournot model, each firm’s output choice depends on the market price, and the market price depends solely on the output of the dominant, leading firm.

In homogenous products oligopoly markets, a small number of firms sell products that are substitutes for each other but also differ from each other in significant ways.

A reaction function shows a firm’s best response (i.e., profit-maximising output choice) to the output level of a rival firm.

In the Cournot model, each firm’s output choice depends on the market price, and the market price depends solely on the output of the dominant, leading firm.

In homogenous products oligopoly markets, a small number of firms sell products that are substitutes for each other but also differ from each other in significant ways.

ROLEY is a high-end producer of smoothies. It is well known, and its products are truly sought-after. With respect to a box containing 10 bottles each, each of their clients has the following inverse demand function:

P = 12 – 0.5 Q^d

Q^d : quantity demanded

P : unit price

The marginal cost of producing one box of 10 bottles is 2. ROLEY now follows a pricing strategy based on block pricing. If the price of the first block is equal to the price charged in the absence of price discrimination, the unit price for the second block and the quantity of the second block (for each individual commercial client) are as follows:

Unit price for the 2nd block 7/ Quantity of the 2nd block 10

Unit price for the 2nd block 4.5/ Quantity of the 2nd block 5

Unit price for the 2nd block 2/ Quantity of the 2nd block 20

Unit price for the 2nd block none of the above / Quantity of the 2nd block none of the above

Unit price for the 2nd block 7/ Quantity of the 2nd block 10

Unit price for the 2nd block 4.5/ Quantity of the 2nd block 5

Unit price for the 2nd block 2/ Quantity of the 2nd block 20

Unit price for the 2nd block none of the above / Quantity of the 2nd block none of the above

Microeconomics Mock Exam

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