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Midterm Exam 3 with Answers - Microeconomic Principles | ECON 103, Exams of Microeconomics

Material Type: Exam; Professor: Rustici; Class: Microeconomic Principles; Subject: Economics; University: George Mason University; Term: Spring 2016;

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Microeconomics 103 – Rustici (Spring 2016)
Exam 3
1.) Suppose workers in Sir Lanka earn 12 cents an hour on average while workers in the USA earn $15
per hour on average. What is the economic reason for this situation?
A. US multinational corporation exploit workers in small countries by depressing wages.
B. Americans earn more because the government protects workers with minimum wage laws and
encourages unions.
C. American labor is more productive because our workers are paid more than workers in Sir Lanka.
D. Employers in Sri Lanka are greedy and don’t want to pay a “living wage”.
E. None of the above is correct
2.) At what quantity would the firm maximize profits?
A. Where total revenue is equal to total cost
B. Where marginal revenue is equal to total revenue
C. Where average variable cost is equal to average revenue
D. Where marginal cost is equal to average fixed costs
E. This is a trick question: none of the above are correct
3.) Which of the following is not true with respect to relative price?
A. The price of the good affects human values relative to scarcity for the good
B. The price of the good is determined by all other variables
C. The prices of other goods affect the relative price of the good
D. The price of the good can affect the prices of other economic goods
E. The price of the good affects the quantity supply and quantity demand for the good
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Microeconomics 103 – Rustici (Spring 2016) Exam 3 1.) Suppose workers in Sir Lanka earn 12 cents an hour on average while workers in the USA earn $ per hour on average. What is the economic reason for this situation? A. US multinational corporation exploit workers in small countries by depressing wages. B. Americans earn more because the government protects workers with minimum wage laws and encourages unions. C. American labor is more productive because our workers are paid more than workers in Sir Lanka. D. Employers in Sri Lanka are greedy and don’t want to pay a “living wage”. E. None of the above is correct 2.) At what quantity would the firm maximize profits? A. Where total revenue is equal to total cost B. Where marginal revenue is equal to total revenue C. Where average variable cost is equal to average revenue D. Where marginal cost is equal to average fixed costs E. This is a trick question: none of the above are correct 3.) Which of the following is not true with respect to relative price? A. The price of the good affects human values relative to scarcity for the good B. The price of the good is determined by all other variables C. The prices of other goods affect the relative price of the good D. The price of the good can affect the prices of other economic goods E. The price of the good affects the quantity supply and quantity demand for the good

4.) Suppose the bank pays savers 3.5% and charges borrowers 7% who pay their loans on time and in full. Assume that there is 1.5% administration expenses associated with operating the bank. If the quantity of loanable funds is $2 million, what are the bank’s total profits? A. $60, B. $40, C. $2, D. $20, E. There is not enough information provided to answer this question 5.) Which of the following is not true? A. Advertising lowers prices and is a form of competition B. The law of diminishing returns is a variable determining where the labor supply curve is located in the x-y space. C. The “substitution effect” is a variable determining the slope or elasticity of the labor supply curve. D. The “income effect” is a variable determining the slope of elasticity of the labor supply curve. E. Advertising is a mechanism for expanding consumer choices. 6.) Which of the following is not true? A. The single-price monopolist has a marginal revenue curve above the demand curve because it cannot sell additional output without lowering price on previous output. B. Perfect price discriminating monopolists do not restrict output but raise price as compared to the perfect price competition market. C. All firms (competitive or monopolistic) set MC = MR to find the quantity of output that maximizes profits. D. The market demand curve in the perfect price competition model slopes downward E. If a perfect price discriminating monopolist cannot prevent resale of its product it will likely become a single-price monopoly

C. Cartel members face a prisoner’s dilemma situation. D. Cartel members cannot prevent new competition coming from the outside the cartel E. Cartel members must prevent all methods of non-price competition 11.) The “Law of Supply” states: A. An inverse relationship between relative price of the good and quantity demanded. B. A positive relationship between relative price of the good and the quantity demanded. C. A positive relationship between the relative cost of the good and its elasticity D. A positive relationship between the relative price of the good and the supply. E. None of the above defines the Law of Supply 12.) Which of the following is true with respect to Standard Oil Company? A. John D. Rockefeller’s Standard Oil Company was broken up by the government for behaving as a monopolist (restricting output and raising prices) B. Standard Oil had only a few competitors in 1911 when the government broke up the company. C. Rockefeller was gaining market share from 1890-1911. D. The Standard Oil case proved that Rockefeller prevented the introduction of new technologies and new consumer products E. None of the above is true 13.) Suppose there are three industries in a perfectly competitive economy (X), (Y) and (Z). You notice that marginal firms in X and Z are exiting their respective industries and entering industry Y. If al the factors of production used in X, Y, and Z are specialized economic goods, we can infer which of the following? A. Industry Y earns less than the general rate of return on investment B. Industries X and Z do not earn accounting profits C. The prices of factors of production in X and Z will rise relative to those in Y

D. The prices of consumer goods in Y have risen relative to those in X and Z E. None of the above can be inferred

  1. According to David Ricardio’s Law of Comparative Advantage, which of the following is true? A. Everyone can have a comparative advantage in everything. B. If person “A” makes more shoes per hour than person “B”, the person “A” has a comparative advantage over “B” in shoes C. Comparative advantage is absolute-meaning it cannot be changed. D. It is impossible to have specialization and comparative advantage at the same time E. Profitable investments into future productivity can shift someone’s comparative advantage.
  2. Which economist formulated the “contestability hypothesis”? A. Adam Smith B. Carl Menger C. William Baumol D. George Stigler E. David Ricardio Short Answer:
  3. Diagram the perfect price competition for the firm and the industry. List all 6 assumptions of the model. Also diagram the single-priced monopoly model, list its 3 assumptions. Finally, illustrate on the graph the 5 effects of monopoly relative to perfect price competition. Be sure to label everything.
  4. Suppose there is new information concerning a severe drought in the pineapple growing regions of Hawaii. Diagram the effects of successful profit seeking speculators in the pineapple market. LABEL EVERYTHING. Also, list the 4 important functions that speculator preform.
  5. Diagram the bank. LABEL EVERYTHING including each axis, curves, and illustrate the gains to the borrowers, savers and the bank. Also, in 5 sentences or less, explain why banks exist.