MICRO TEST 2
1. When a government imposes a tax on buyers or sellers of a good, society
a. Loss of some of the benefits of an efficient market
b. effective but unequal
c. better because the government's tax revenue exceeds the deadweight loss
d. move from an elastic supply curve to an inelastic supply curve
2. When a profit-maximizing competitive firm finds that it needs to minimize losses
because there is currently no way to earn positive profits, it will produce at the level of
output where price equals
a. sunk costs
b. average variable cost
c. marginal cost
d. average fixed cost
3. A competitive firm decides to shut down in short run if
a. fixed costs are higher than variable costs
b. marginal cost is higher than average variable cost
c. marginal cost is higher than average total cost of the firm.
d. market price is lower than the firm’s average variable cost
4. For good X, the supply curve is upward sloping, and the demand curve is downward
sloping. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium
quantity in the market by 300 units. The deadweight loss from the tax is:
a. $3000
b. $4500
c. $2250
d. $1750
The formula for the area of this triangle (the deadweight loss) is:
DWL = ½ . (size of tax) . (reduction in quantity)
🧮 Calculation
Given the information from the problem:
Size of Tax: $15 per unit
Reduction in Quantity (∆Q): 300 units
You can plug these values directly into the formula:
DWL = ½ .$15.$300 = $2250
5. When firms in an oligopoly agree to fix prices, it is called
a. Natural Monopoly
b. Competition
c. Free Market
d. Cartel
6. A lack of cooperation by oligopolistic firms to try to maintain monopoly profits
a. is the desire of the whole society
b. not a concern due to antitrust laws
c. not the desire of the whole society
d. may or may not be the desire of the whole society
7. The two main reasons why economists often give conflicting advice to policymakers
are due to differences in
a. scientific and educational assessment
b. opinions and education
c. opinions and values
d. scientific assessment and value
8. If a firm sells both printers and ink cartridges, the cross- price elasticity of demand
between the two products is
a. Equal to 0
b. Positive
c. Negative
d. Higher than 1
Explanation
Cross-price elasticity of demand measures how the quantity demanded of one good
changes when the price of another good changes.
Complements: These are goods that are used together, like printers and ink
cartridges. You can't use a printer without ink.
Let's think about the relationship:
1. If the price of printers goes up (↑), fewer people will buy printers.
2. Since fewer people are buying printers, the demand for ink cartridges will go
down (↓).
The cross-price elasticity formula looks at the direction of these changes:
A positive (↑) change in the price of printers leads to a negative (↓) change in the
quantity demanded of ink.
A negative value divided by a positive value (or vice-versa) always results in a negative
number.
9. The outcomes in the “prisoner's dilemma” are
a. No prisoner confessed
b. both prisoners confessed
c. exactly one prisoner confessed
d. Not enough information is given to answer this question.
10. Like a monopoly, an oligopoly recognizes that an increase in output always
a. reduce profits
b. reduce product prices
c. reduce revenue
d. reduce productivity
11. Holding other things equal, when gasoline prices increase, the demand for gasoline
will decrease significantly after 10 years because
a. Consumers are less sensitive to price changes when they have more time to adjust
their consumption behavior.
b. Consumers are more sensitive to price changes when they have more time
to adjust their consumption behavior.
c. The supply of gasoline increases very little when the price of gasoline increases.
d. Consumers will have more real income after 10 years
12. If the opportunity cost of producing 1 shirt in Vietnam is 2 kg of rice, and in Japan it is
5 kg of rice, then
a. Unknown
b. Vietnam has a comparative advantage in shirts
c. Japan has a comparative advantage in shirts
d. Both should not trade
13. In the long run, zero economic profit occurs in
a. Oligopoly and Monopoly
b. Competition and Monopoly
c. Competition and Monopolistic Competition
d. Monopolistic Competition and Monopoly
14. The rate at which a person is willing to trade one product for another while
maintaining the same level of satisfaction is
a. relative price ratio
b. marginal rate of substitution
c. relative spending ratio
d. value of marginal product
15. Substitute effect is
a. Prices of other goods fall
b. Consumers feel richer due to a fall in the price of a good
c. Consumers' real income increases
d. Consumers switch their choices to goods that are relatively cheaper
16. If the government abolishes the electricity monopoly and allows more businesses to
enter the market, what will happen?
a. Electricity price increases, output decreases
b. Electricity price decreases, output increases
c. Electricity price increases, output increases
d. Electricity price and output remain unchanged
17. A consumer will choose an optimal consumption point at which
a. the marginal rate of substitution is maximum
b. the price ratio is the lowest
c. the rate at which consumers are willing to trade one good for another
equals the relative price ratio
d. All of the above are correct.
18. For Giffen goods, when price falls, quantity demanded falls because
a. Neither effect
b. Income effect > substitution effect
c. Substitution effect > income effect
d. Both effects are negative
19. A dominant strategy is
a. is the best strategy for the participant, regardless of the strategies of the
other players.
b. make it more beneficial for everyone involved
c. increase the total value received by the player
d. make at least one participant better without affecting the competitiveness of any
other participant
20. Which of the following statements is true about the role of economists?
a. In trying to explain the world, economists are scientists; in trying to
improve it, they are policy advisors.
b. As for economists, they are best thought of as policy advisors.
c. As for economists, it is best to think of them as scientists.
d. By trying to explain the world, economists are policy advisors; when trying to improve
the world, they are scientists.
21. When price is greater than marginal cost, selling more at the current price will
increase profits. This concept is called
a. income effect
b. price effect
[Link] effect
d. output effect
22. An important difference between a monopolistically competitive firm maximizing
profits in the short run and the long run is that in the short run
a. Price may exceed marginal cost, but in the long run price equals marginal cost.
b. Price can exceed marginal revenue, but in the long run price equals marginal revenue.
c. There are many businesses in the market but in the long run there are only a few
businesses in the market.
d. Price may exceed average cost, but in the long run price equals average
cost.
23. When size of taxes double, deadweight loss will
a. Remain unchanged
b. double
c. Decrease
d. More than double
24. The law of diminishing marginal productivity states
a. As labor is added, output increases, but at a slower rate
b. As labor is added, output always increases faster than before
c. As labor is increased, output falls immediately
d. As labor is reduced, output increases
25. What is a monopoly?
a. price takers have upward sloping supply curves.
b. price taker and no supply curve
c. price takers and no supply curve
d. price makers have upward sloping supply curves.
26. Which of the following, there is least likely to happen to a monopolistically
competitive firm?
a. Profits in the short run
b. Profits in the long run
c. total revenue equals total cost in the long run
d. total costs exceed total revenues in the short run
27. Trade between countries
a. limit a country’s ability to produce goods itself
b. must be mutually beneficial to both countries, otherwise it will not benefit the
countries mutually.
c. can best be understood by examining a nation’s absolute advantage.
d. allows each country to consume at a point outside its production limit.
28. The convex curve of the indifference curve represents the consumer
a. not willing to give up a product he already had a lot of
b. not willing to buy a product he already has a lot of
c. more willing to buy products he already has a lot of
d. more willing to give up a product he already has a lot of
29. Sellers in a competitive market can
a. influence market prices by adjusting output
b. sell at the current price, so he has little reason to sell at a lower price.
c. affect the profits of competing firms by adjusting output
d. all of the above are correct
30. Consumers
a. have equal satisfaction with all indifference curves
b. prefer higher indifference curves than lower indifference curves
c. prefer to choose straight indifference curves rather than right angle indifference
curves
d. prefer to choose indifference curves with positive slopes
31. Which of the following sentences is correct?
a. Free trade benefits a country both when it exports and imports.
b. Tariffs and quotas differ in that tariffs are a form of tax and so cause deadweight
losses, whereas quotas do not cause deadweight losses.
c. Voluntary restrictions on Vietnam's pork exports are better for Singapore than
Singapore's tariffs on Vietnam's pork exports.
d. Free trade benefits a country when it exports, but hurts it when it imports.
32. Suppose the cost of operating a 100-room hotel for one night is $10,000 and there
are 5 rooms available for tonight. If the marginal operating cost of a room per night is
$30 and a customer is willing to pay $60 per night, the hotel manager should
a. rent out rooms because marginal revenue is greater than marginal cost
b. Rent out rooms because marginal revenue is greater than average cost
c. Do not rent out rooms because marginal revenue is less than marginal cost
d. Do not rent out rooms for less than average cost
33. When the concentration ratio is 90%, it means that
a. 10% of the market share is held by the largest firm
b. the 4 largest firms account for 90% of total market sales
c. 90% of the market share is held by small firms
d. There are 90 firms in the market
34. Most Common Advertising and Product Packaging in the Market
a. Competition
b. Monopolistic Competition
c. Oligopoly
d. Monopoly
35. Which of the following tools helps us assess how taxes affect economic welfare?
(i) consumer surplus
(ii) producer surplus
(iii) tax revenue
(iv) deadweight loss
a. Only (i), (ii) and (iii)
b. Only (iii) and (iv)
c. (i), (ii), (iii) and (iv)
d. Only (i) and (ii)
36. In any market structures, the supply curve is closely related to
a. consumer income tax rate
b. consumer preferences
c. government bond interest rates
d. production costs of the firms
37. One owner coffee shop given up sale manager at a company, with salary 15
million/month. The revenue of coffee shop is 100 million, and explicit cost is 90
million. The economic profit is
a. 10 million
b. –5 million
c. 15 million
d. 25 million
38. A natural monopoly is
a. lower average costs as other firms enter the market
b. are often less concerned about the emergence of new entrants reducing their
monopoly power.
c. take advantage of economies of scale
d. all of the above are correct
39. When selling price is greater than average variable cost in the short run, the
marginal cost curve of a competitive firm is considered to be the firm's supply curve
because
a. The marginal cost curve determines the level of output a firm is willing to
supply at each price level.
b. The position of the marginal cost curve determines the price at which a firm will sell.
c. Among the cost curves, only the marginal cost curve is upward sloping.
d. Businesses know that marginal revenue must be greater than marginal cost for profit
to be highest.
40. Competitive firms
a. They have a horizontal demand curve and can sell only a limited quantity of the
product at each market price.
b. They have a horizontal demand curve and can only sell as much output as
they want at the market price.
c. They have a downward sloping demand curve and can only sell as much output as
they want at the market price.
d. They have a downward sloping demand curve and can sell only a limited quantity of
the product at each market.