Temple University
Department of Economics
Principles of Micro - Honors
Exam 1

Directions: This is a closed book exam.  You have 50 minutes to complete all questions.  Your work must be your own; you may neither give nor receive help.  You may not use your cell phone as a calculator.
Name___________________________________
 
MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 
1) 

People trade with each other instead of living on what they themselves produce: 

1) 

_______ 
A) 

so they can take advantage of others and maybe get something for nothing. 
B) 

because, by engaging in trade, people can raise their standard of living.  
C) 

because that is what everybody else does.  
D) 

so they can amass large amounts of money. 
 
2) 

A production possibilities frontier with a bowed outward shape indicates: 

2) 

_______ 
A) 

constant opportunity costs as more and more of one good is produced. 
B) 

increasing opportunity costs as more and more of one good is produced. 
C) 

the possibility of inefficient production. 
D) 

decreasing opportunity costs as more and more of one good is produced. 
 
3) 

If George can mow 10 lawns  or cultivate 5 gardens a day while Jack can mow 6 lawns or cultivate 4 gardens a day, then: 

3) 

_______ 
A) 

Jack has an comparative advantage in lawn mowing.  
B) 

Jack has an comparative advantage in garden cultivating. 
C) 

George has an comparative advantage in both lawn mowing and garden cultivating. 
D) 

Jack has an comparative advantage in both lawn mowing and garden cultivating. 
 
4) 

The substitution effect results in:  

4) 

_______ 
A) 

sellers producing products when input prices fall. 
B) 

buyers buying more of a relatively cheaper good.  
C) 

sellers substituting less expensive inputs in production. 
D) 

buyers buying more of a good because their purchasing power has increased.  
 
5) 

The income effect occurs when: 

5) 

_______ 
A) 

buyers buy more of a relatively cheaper good. 
B) 

sellers produce more output because their profit has increased. 
C) 

sellers hire more workers because buyers incomes have increased. 
D) 

buyers buy more of a good because their purchasing power has increased.  
 
6) 

An increase in the demand for bananas will NOT be caused by:  

6) 

_______ 
A) 

a rise in the price of apples. 
B) 

buyers switching to a more healthy diet. 
C) 

a drop in the market price of bananas.  
D) 

news that bananas help relieve stress in people. 
 
7) 

Inferior goods are: 

7) 

_______ 
A) 

goods whose purchase is inversely related to consumer income 
B) 

goods whose purchase is directly related to consumer income. 
C) 

substandard. 
D) 

goods that do not work. 
 
8) 

If auto workers' wages rise, then the: 

8) 

_______ 
A) 

market demand for automobiles would decrease because the price of automobiles would be higher. 
B) 

market supply  of automobiles would increase because the price of automobiles would be higher. 
C) 

market supply of automobiles would decrease because costs of production would be higher. 
D) 

market demand for automobiles would increase because buyer incomes would be higher. 
 
9) 

If you would have been willing to pay $10 for a pizza and you only had to pay $8, what does the difference between $10 and $8 represent?  

9) 

_______ 
A) 

Marginal benefit 

B) 

Consumer surplus 
C) 

Total benefit 

D) 

Average benefit 
 
10) 

If a producer is willing to sell a unit of output at $15 and the market price is $20, the $5 difference is: 

10) 

______ 
A) 

total profit. 

B) 

average profit. 
C) 

consumer surplus. 

D) 

producer surplus. 
 
11) 

Economic efficiency is achieved when: 

11) 

______ 
A) 

partial benefits received equal to partial costs. 
B) 

marginal benefits received are equal to marginal costs 
C) 

average benefits received are equal to average costs.  
D) 

total benefits received are equal to total costs.  
 
12) 

Under a price ceiling what makes some consumers better off? 

12) 

______ 
A) 

Producers capture some former consumer surplus because of the lower price. 
B) 

Consumers capture some former producer surplus because of the higher price. 
C) 

Producers capture some former consumer surplus because of the higher price. 
D) 

Consumers capture some former producer surplus because of the lower price. 
 
13) 

If your neighbor burns auto tires in the yard and you can smell them and cannot see sunlight because of the black smoke, you are experiencing: 

13) 

______ 
A) 

a private cost. 

B) 

a positive externality. 
C) 

a private benefit. 

D) 

a negative externality. 
 
14) 

A positive externality causes:  

14) 

______ 
A) 

the marginal benefit to society to be equal to the marginal cost to producers of the last units produced. 
B) 

the marginal benefit to society to be above the marginal cost to producers of the last units produced. 
C) 

the marginal benefit to society to be less than the marginal cost to producers of the last units  produced. 
D) 

None of these is created by a positive externality. 
 
15) 

A good that is rival and nonexcludable is a: 

15) 

______ 
A) 

private good. 

B) 

commons resource or good. 
C) 

public good. 

D) 

natural monopoly. 
 
16) 

A good that is nonrivalrous and nonexcludable is a: 

16) 

______ 
A) 

natural monopoly. 

B) 

private good. 
C) 

common resource. 

D) 

public good. 
 
17) 

Compared to perfect competition, under monopoly: 

17) 

______ 
A) 

consumer surplus is increased because price is higher and output is the same. 
B) 

consumer surplus is decreased because price is higher and output is lower. 
C) 

consumer surplus is unchanged because price and output is the same. 
D) 

consumer surplus is eliminated. 
 
18) 

The size of a deadweight loss in a market is reduced by: 

18) 

______ 
A) 

government legislating a ceiling price. 
B) 

market price being close to marginal cost. 
C) 

government legislating a price floor. 
D) 

all of the above. 
 
19) 

Marginal revenue product (MRP): 

19) 

______ 
A) 

tells workers how much to work at each wage rate. 
B) 

tells a firm how many workers to hire at each wage rate. 
C) 

tells workers how much to produce at each wage rate.  
D) 

tells a firm how much to produce at each price. 
 
20) 

An increase in a competitive firm's demand for labor could be caused by: 

20) 

______ 
A) 

an increase in the market demand for the firm's product. 
B) 

a decrease in the market wage rate. 
C) 

a decrease in the marginal product of workers. 
D) 

an increase in the price of capital that is used by labor in production. 

1) 

B 
2) 

B 
3) 

B 
4) 

B 
5) 

D 
6) 

C 
7) 

A 
8) 

C 
9) 

B 
10) 

D 
11) 

B 
12) 

D 
13) 

D 
14) 

B 
15) 

B 
16) 

D 
17) 

B 
18) 

B 
19) 

B 
20) 

A