cfa level 1 Economics 1 Questions and Answer

The correct answer was C The downward sloping segment of the LRATC cost curve covers the output range where economies of scale exist because per unit costs decrease as output increases..

Trang 1

Schweser Printable Answers - Econ 1

Test ID#: 7

Question 1 - #96669

Antonio Conti consumes 2 pounds of beef per week when beef is $4.50 per pound and 3 pounds of chicken when chicken sells for $3.50 per pound If the price of chicken increases to $4.00 per pound, Conti’s consumption of

beef increases to 2.5 pounds per week Which of the following most accurately describes Conti’s cross elasticity

of demand for beef versus chicken? The cross elasticity of demand for:

Your answer: A was incorrect The correct answer was C) beef relative to chicken is +1.67 and beef and chicken are substitutes

The average quantity of beef demanded is (2.0 + 2.5) / 2 = 2.25 pounds, so the percentage change in the quantity

of beef demanded is (2.5 – 2.0) / 2.25 = +22.22% The average price of chicken is ($3.50 + $4.00) / 2 = $3.75 per pound, so the percentage change in the price of chicken ($4.00 – $3.50) / $3.75 = +13.33% The cross elasticity

of demand for beef relative to the price of chicken is 22.2 / 13.3 = 1.67 Since the cross elasticity is positive, chicken and beef are substitutes for Conti

This question tested from Session 4, Reading 13, LOS a, (Part 1)

Question 2 - #96658

Suppose the price of computers increases from $1,000 to $1,200 Assuming the original quantity demanded for computers was 50 million units, and the new quantity demanded is 45 million computers, what is the price

elasticity of demand, and is the demand for computers elastic or inelastic?

Your answer: A was correct!

Price elasticity of demand is calculated by dividing the percent change in quantity demanded by the percent change in price, using the average value of the variable in the computations The percent change in quantity demanded is (45 − 50) / [(50 + 45) / 2] = −5 / 47.5 = -0.105 or -10.5% The percent change in price is = (1,200 − 1,000) / [(1,000 + 1,200) / 2] = 200 / 1,100 = 0.1818 or 18.2% The price elasticity of demand is -10.5 / 18.2 = -0.58

Question 3 - #96650

A) beef relative to chicken is +1.67 and beef and chicken are complimentary goods

B) chicken relative to beef is +1.75 and beef and chicken are substitutes

C) beef relative to chicken is +1.67 and beef and chicken are substitutes

A) -0.58, inelastic

B) 0.58, inelastic

C) -1.73, elastic

Trang 2

Which of the following statements least accurately describes why firms can coordinate economic activity more

efficiently than markets? Firms can achieve:

Your answer: A was incorrect The correct answer was B) diversification benefits

Firms can often coordinate economic activity more efficiently than markets because firms can reduce the costs of market transactions, and they can achieve economies of scale, scope, and team production

This question tested from Session 4, Reading 16, LOS g

Question 4 - #96706

When household incomes go down and the quantity of a product demanded goes up, the product is:

Your answer: A was incorrect The correct answer was C) an inferior good

When household incomes go down and the quantity demanded of a product goes up, the product is an inferior good Inferior goods include things like bus travel and margarine

Question 5 - #96893

Suppose that the demand curve for honey shifts such that the equilibrium price for a pound of honey increases from $7 to $9 per pound At the new equilibrium, the quantity supplied increases from 500 pounds per month to

600 pounds per month, although the supply curve has not shifted The elasticity of supply for honey is closest to:

Your answer: A was incorrect The correct answer was B) +0.73

The average quantity of honey supplied is (500 + 600) / 2 = 550 pounds, and the average price of honey ($7 +

$9) / 2 = $8 per pound So, the percentage change in quantity is (600 – 500) / 550 = 18.18% and the percentage change in price is (9 - 7) / 8 = 25.00% Thus, the elasticity of supply is 18.18 / 25.00 = +0.73

A) economies of team production

Trang 3

Question 6 - #96656

Which of the following statements about a tax imposed on buyers or suppliers is most accurate?

Your answer: A was incorrect The correct answer was B) If demand is less elastic than supply, consumers will bear a higher proportion of the tax than suppliers

If demand is less elastic than supply, consumers will bear a higher proportion of the tax than suppliers If supply is less elastic than demand, suppliers will bear a higher proportion of the tax than consumers

This question tested from Session 4, Reading 15, LOS c

Question 7 - #96901

Which of the following constraints to profit maximization most appropriately considers the prices and availability of

the resources that a firm uses and the willingness of people to invest in the firm?

Markets present constraints on the firm’s growth Market constraints include the prices and availability of the resources that a firm uses and the willingness of people to invest in the firm

This question tested from Session 4, Reading 16, LOS b

Question 8 - #96896

Which of the following types of business firms exposes its owners to the greatest legal liability in the U.S and

which type of firm is most likely to face a principal-agent conflict, respectively?

Your answer: A was incorrect The correct answer was C) Proprietorship; corporation

The owner of a proprietorship is subject to unlimited liability Shareholders of corporations have limited liability, only up to the amount invested

In many corporations, the agent (management) may be working for different objectives than those of the principal (shareholders)

This question tested from Session 4, Reading 16, LOS e, (Part 2)

A) If demand is less elastic than supply, consumers will bear a lower proportion of the tax than suppliers.B) If demand is less elastic than supply, consumers will bear a higher proportion of the tax than suppliers.C)The proportion of the tax is borne equally by consumers and suppliers, regardless of supply and demand elasticity

Trang 4

Question 9 - #96682

Assume that for the average consumer, the quantity demanded for jeans increases from 5 to 7 pairs per year in response to a price decrease from $29 to $24 per pair The respective price elasticity and relative elasticity of

demand for jeans is best described by which of the following?

The percentage change in quantity demanded is (7 − 5) / [(7 + 5) / 2] = 33.33% and the percentage change in price is (24 − 29) / [(24 + 29) / 2] = -18.87% Thus, price elasticity = 33.33% / -18.87% = -1.77

A good is considered to be elastic if the absolute value of price elasticity is greater than 1 In this case, the absolute value of the price elasticity of demand for jeans is 1.77, so the price elasticity for jeans is relatively elastic

Question 10 - #96760

Which of the following most accurately describes the shape of the average fixed cost (AFC) curve? The AFC

curve:

Your answer: A was incorrect The correct answer was B) becomes flatter as output increases

The AFC curve declines initially, but as output increases it flattens because a fixed cost is being averaged over more and more units of output

Which of the following most accurately describes the relationship between the slope of a firm’s long-run average

total cost (LRATC) curve and scale economies?

A) −1.77; relatively elastic

B) −1.77; relatively inelastic

C) −2.32; relatively elastic

A) is always below the average variable cost curve

B) becomes flatter as output increases

C) intersects the marginal cost curve at the marginal cost curve’s minimum

Downward sloping

segment of LRATC

Upward sloping segment of LRATC

Trang 5

Your answer: A was incorrect The correct answer was C)

The downward sloping segment of the LRATC cost curve covers the output range where economies of scale exist because per unit costs decrease as output increases The upward sloping segment of the LRATC curve is where diseconomies of scale are present because costs rise as output increases

This question tested from Session 4, Reading 17, LOS d

Which of the following is the most likely effect of a quota on wheat?

Your answer: A was incorrect The correct answer was B) Nothing if the quota is set above the equilibrium

Statement 1: The impact of a tax on the equilibrium price and quantity of a good or service will be

the same whether the tax is legally imposed on the buyers or sellers

Statement 2: The impact on the equilibrium price and quantity of a good or service of making trade

in it illegal will be the same whether the penalty is imposed on the buyers or sellers

With respect to these statements:

Hampton should agree with Statement 1 but disagree with Statement 2 In the trade of illegal goods, the effects of the prohibition depend on whether the penalties are imposed on the buyers or sellers A penalty imposed on the buyers will shift the demand curve down by the value of the penalty buyers expect to bear A penalty imposed on

Economies of scale Diseconomies of scale

A) The supply curve will shift downward

B) Nothing if the quota is set above the equilibrium quantity

C) Marginal costs will be greater than marginal benefit

A) only statement 1 is correct

B) both are correct

C) only statement 2 is correct

Trang 6

the sellers will shift the supply curve up by the value of the penalty sellers expect to bear Other things equal, a penalty on buyers will result in a lower equilibrium price and a penalty on sellers will result in a higher equilibrium price In either case the equilibrium quantity decreases

New legislation setting a price ceiling will most likely cause:

Your answer: A was incorrect The correct answer was B)

a market shortage

Price ceilings restrict the producer from increasing the selling price The lower price will stimulate demand by consumers at this lower price However, since producers will not be able to increase price there is little incentive for them to increase supply Hence, production and supply will be limited at the price ceiling leading to a market shortage

This question tested from Session 4, Reading 15, LOS a

Consider two companies, Company A and Company B Company A is primarily a manufacturing firm with a large number of employees who are paid an hourly wage Company B is primarily a sales and service organization with most of its employees performing their duties independently of any direct supervision Which of the following

systems for organization production are most likely to be used for Company A and Company B, respectively?

Your answer: A was incorrect The correct answer was C) Command system; incentive system

Command systems are used when it is easy to monitor the performance of employees, as is usually the situation with hourly production workers Incentive systems are usually most effective for organizing the production of employees whose activities are difficult to supervise, like those of independent sales people

A) Incentive system; incentive system

B) Command system; command system

C) Command system; incentive system

A) bring the total price of a good (including the bribe) lower and closer to the equilibrium price

B) allocate a good to the richest individuals in the market

Trang 7

Your answer: A was incorrect The correct answer was C) bring the total price of a good (including the bribe) higher and closer to the equilibrium price

A price ceiling is an upper limit on the price a supplier can charge If the ceiling is below the equilibrium price, it can result in bribes as a rationing mechanism, whereas the total price of a good (including the bribe) is brought closer to the equilibrium price

A firm realizes that it is producing more than the profit maximizing level of output and makes a short-run decision

to decrease its output Which of the firm’s cost measures is least likely to decrease as a result?

Your answer: A was incorrect The correct answer was B) Average fixed cost

A short-run decrease in output will cause a firm’s average fixed costs to increase because its fixed costs are spread over a smaller number of units In terms of cost curves, average fixed cost never slopes upward, so a decrease in output never reduces average fixed costs The average variable cost, average total cost, and

marginal cost curves all have upward sloping components along which a lower level of output would result in a lower cost

Consider two markets; one has a Herfindahl-Hirschman Index (HHI) of 50, while the other has a four-firm

concentration ratio equal to 2% Which of the following statements most accurately describes these two markets?

Your answer: A was incorrect The correct answer was B) Both markets are highly competitive

An HHI concentration measure of 50 is very low, indicating a high degree of competition A four firm concentration ratio of 2% indicates a high level of competition For both the four-firm ratio and the HHI, the higher (lower) the concentration measure, the lower (greater) the degree of competition

This question tested from Session 4, Reading 16, LOS f

Which of the following two factors are most likely to be considered variable during the short run?

C) bring the total price of a good (including the bribe) higher and closer to the equilibrium price

A) Average variable cost

B) Average fixed cost

Trang 8

Your answer: A was incorrect The correct answer was B) Labor and raw materials

Of the sets of factors listed, the two that are typically considered variable in the short run are labor and raw materials

If the price elasticity of demand is -1.5 and you increase the price of the product 2%, the quantity demanded will (closest to):

Your answer: A was incorrect The correct answer was C) decrease 3%

If the price elasticity of demand is -1.5, and you increase the price of the product 2%, the quantity demanded will decrease approximately 3% When the price elasticity is negative, it means that price and demand move in opposite directions Given a price decrease, demand will increase and vice versa The absolute value, 1.5, indicates that demand will move one-and-a-half times as much as price

Marginal benefit is most accurately described as the:

Marginal benefit is the benefit a consumer receives from consuming an additional unit of a good or service It is quantified as the maximum price that a consumer is willing to pay for one additional unit of a good or service This question tested from Session 4, Reading 14, LOS a

When a tax is imposed on the consumption of a good, which of the following terms refers to who bears the burden

of the tax?

A) Labor and technology

B) Labor and raw materials

C) Raw materials and technology

A) decrease 1.5%

B) decrease 0.75%

C) decrease 3%

A) benefit an individual gets from consuming an additional unit of a good or service

B) benefit from producing one more unit of a good or service

C) benefit that must be forgone in order to consume an additional unit of a good or service

A) The incidence of a tax

Trang 9

The incidence of a tax refers to how the burden of a tax is actually shared between buyers and sellers The deadweight loss is the loss of the gains from trade from the lower equilibrium quantity that results from the tax Consumer surplus is the gains from trade that consumers accrue from the existence of the market

A firm is trying to determine the optimal amount of labor to employ in its production process Each unit of labor for this process costs the firm $35 A partial table of the firm’s short-run output estimates appears below:

Which of the following is least likely to be accurate? This firm:

A profit maximizing firm will employ additional units of labor as long as the MRP of labor is greater than the cost of

an additional unit of labor At 7 units of labor input, MRP = $32, which is less than the $35 cost of one unit of labor Therefore the firm will not employ the 7th unit of labor and will produce 35 units of output Marginal product

is decreasing as labor input increases, so the firm is experiencing diminishing marginal returns from labor

If the marginal benefit of the last unit of a good or service consumed was $25, the marginal benefit of the next unit

consumed is most likely to be:

B) The deadweight loss

C) Consumer surplus

Labor input,

units

Marginal product Total product

Marginal revenue

Marginal revenue product

A) will employ the 7th unit of labor

B) experiences diminishing marginal returns from labor over the entire range shown

C) will produce 35 units of the product

A) $24

B) $25

C) $26

Trang 10

In most cases, the marginal benefit of a good or service decreases as the quantity consumed increases So, $24

is the most likely answer This principle is called decreasing marginal benefit

The price of product Z decreased from $2.50 per unit to $2.00 per unit Since the price decreased, demand has gone up from 3 million units to 4 million units Calculate the respective price elasticity of demand and determine the elasticity of demand

percentage change in quantity = [(4 − 3)] / [(4 + 3) / 2] = 1 / 3.5 = 0.286 = 28.6%

percentage change in price = [(2 − 2.5)] / [(2 + 2.5) / 2] = -0.5 / 2.25 = -0.222 = -22.2%

28.6 % / -22.2% = -1.29

Since the price elasticity of demand is greater than 1 (ignore the sign), product Z is elastic

Consumer surplus is most accurately defined as the difference between the:

Your answer: A was incorrect The correct answer was C) total value consumers place on the quantity of a good purchased, and the total amount they must pay for that quantity

For an individual, consumer surplus is defined as the sum of the differences between what that individual is willing

to pay for each individual unit of a good or service that he or she purchases (marginal benefit) and the amount that he or she actually pays for each of these individual units

Which of the following most accurately describes the relationship between the average total cost (ATC) curve and

the average variable cost (AVC) curve? The vertical distance between the ATC and AVC curves:

Trang 11

The vertical distance between the ATC curve and AVC cost curve is average fixed cost, which decreases as output increases because more output is averaged over the same cost

Which of the following describes a market for goods or services that operates outside the legal system, trading at prices that exceed legally imposed price ceilings?

A black market is a market where trading takes place for legally prohibited goods or at prices that exceed legally imposed ceiling prices

Consider the following two final consumer goods:

Good W requires the inputs of raw material R and intermediate goods S and T

Good X requires the inputs of raw material R and intermediate goods U and V

If demand for Good W increases and demand for Good X decreases, which of the following outcomes is least

This question tested from Session 4, Reading 14, LOS e

A) decreases as output increases

B) increases as output increases

C) increases and then decreases as output increases

A) A black market

B) An asymmetrical market

C) An incidental market

A) Some of raw material R will be diverted away from the producers of Good X

B) More resources will be devoted to producing Good W and less to producing Good T

C) The price of Good U will decrease and the price of Good S will increase

Trang 12

Equilibrium in a perfectly competitive market results in a quantity for which the:

Your answer: A was incorrect The correct answer was B) sum of consumer and producer surpluses is

Price controls and taxes are obstacles to allocative efficiency Rent controls and minimum wages are examples of price controls As opposed to being obstacles to the efficient allocation of resources, changes in consumer tastes lead to the reallocation of society’s resources, producing a different mix of goods or services that provide

*Assume that 1998 is the base rate

Based on the above data, Tskitishvili would conclude that a computer is a:

A) producer surplus equals zero

B) sum of consumer and producer surpluses is maximized

C) consumer and producer surpluses are equal

A) Changes in consumer tastes

B) Rent controls

C) Taxes

Avg Computers Purchased per

A) luxury good with income elasticity of 1.01

Trang 13

Your answer: A was incorrect The correct answer was B) luxury good with income elasticity of 1.18

% change in computers demanded = ( 0.57- 0.42) / 0.495 = 30.30%

% change in income = ($53,000 - $41,000) / $47,000 = 25.53%

30.30% / 25.53% = 1.18

1.18 > 1 so Tskitishvili would conclude that computers are a luxury good

The upward sloping segment of a long-run average total cost curve represents the existence of:

Your answer: A was incorrect The correct answer was B) diseconomies of scale

Diseconomies of scale occur along the upward sloping segment of the long-run average total cost curve where costs rise as output increases The flat portion at the bottom of the long-run average total costs curve represents constant returns to scale

Which of the following statements about price floors and the labor market is least accurate?

If a price floor is set below the equilibrium price, it will have no effect on the quantity demanded or supplied However, a price floor (minimum wage in the labor market) above the equilibrium price (wage rate in the labor market) will cause a surplus at the floor price Inefficiencies result from a price floor because producers will divert resources to supply a larger quantity of the good, but consumers will demand a smaller quantity at the floor price This question tested from Session 4, Reading 15, LOS b

Which of the following organizational structures is (are) subject to double taxation?

B) luxury good with income elasticity of 1.18

C) normal good with income elasticity of 0.84

B) In the long run, effective price floors lead to inefficiencies in production

C) Setting a minimum wage above the equilibrium wage rate will lead to an excess supply of labor

Trang 14

Corporations must pay taxes on the firm’s profits and the shareholders must pay on profits distributed as

dividends

This question tested from Session 4, Reading 16, LOS e, (Part 2)

Which of the following most accurately describes elasticity of supply? Elasticity of supply is the percentage

change in the quantity supplied divided by the percentage change in:

Your answer: A was incorrect The correct answer was B) price and it equals zero when supply is perfectly inelastic

Elasticity of supply equals zero when the supply curve is vertical, indicating perfectly inelastic supply

If quantity demanded increases 15% when the price drops 1%, demand for this good:

Your answer: A was incorrect The correct answer was C) elastic, but not perfectly elastic

Whenever quantity demanded for a good changes by a greater percentage than price, the price elasticity of demand will be greater than 1.0 and demand for the product is considered to be elastic

Ken Brobeck and Alice Magnuson are discussing the use of technology in production They state the following:

A) Corporations

B) Proprietorships

C) Partnerships and proprietorships

A) price and it equals zero when supply is perfectly elastic

B) price and it equals zero when supply is perfectly inelastic

C) quantity demanded and it equals infinity when supply is perfectly inelastic

A) perfectly elastic

B) inelastic, but not perfectly inelastic

C) elastic, but not perfectly elastic

Trang 15

Brobeck: If a firm has an opportunity to increase both its output and revenue by adopting new

technology, it should do so

Magnuson: If a production process is economically efficient, it must also be technologically efficient With respect to these statements:

Your answer: A was incorrect The correct answer was B) only Brobeck is incorrect

Brobeck is incorrect A firm must incur costs to employ new technology The firm should do so only if the

additional revenue from adopting the technology is greater than the increase in costs

Magnuson is correct A production process is technologically efficient if there is no process that uses less of one input without using more of another input to produce a particular level of output A process is economically efficient if it produces a given output at the lowest possible cost A process cannot be economically efficient unless it is technologically efficient

Which of the following best describes the relationship between the indicated type of market and the

Herfindahl-Hirschman Index, respectively?

The Herfindahl-Hirschman Index (HHI) has a theoretical range of near zero to 10,000 The HHI is very low in a highly competitive and increases to 10,000 (=100%2) for an industry with only one firm, e.g., a monopoly An HHI between 1,000 and 1,800 is considered moderately competitive (monopolistic competition), while an HHI greater than 1,800 indicates a market that is not competitive (oligopoly)

This question tested from Session 4, Reading 16, LOS f

Two ways in which economic activity may be coordinated include:

A) both are incorrect

B) only Brobeck is incorrect

C) only Magnuson is incorrect

A) Monopoly; 10,000

B) Monopolistic competition; 100

C) Perfect competition; 1,800

A) market coordination and firm coordination

B) market coordination and systemic coordination

C) market coordination and structural coordination

Trang 16

Firm coordination occurs when a firm produces its product using resources within the firm Market coordination occurs when resources outside the firm are used for example a firm may have other companies produce the components of their product (outsourcing) and the firm then assembles these outsourced components in-house This question tested from Session 4, Reading 16, LOS g

Which of the following is a characteristic of perfect competition?

Your answer: A was incorrect The correct answer was B) There are no barriers to entry into the market

The only true statement listed in the question is that, under perfect competition there are no barriers to entry into the market Each of the other possible answers is not a characteristic of perfect competition While the

competitors can earn positive economic profits in the short-run, they cannot earn long term economic profits due

to ease of entry and exit

Which of the following most accurately describes a market structure that has one seller of a specific, well-defined

product that has no good substitutes?

A monopoly is characterized by one seller, a specific and well-defined product for which there is no good

substitutes, and high barriers to entry

When smaller amounts of additional labor are supplied in response to increases in the wages offered, this is known as the:

A) The products of different firms are sold at different prices

B) There are no barriers to entry into the market

C) There are a few sellers

Trang 17

The income effect results in smaller additions to the labor supply as wages increase Like any good, income received in the form of wages has a decreasing marginal utility When the point is reached at which the utility received is equal to the marginal cost of leisure foregone, the maximum amount of labor that will be offered is reached

Monetarists believe that:

Monetarists believe that monetary policy has a significant impact on aggregate demand Because of timing problems, most monetarists believe that discretionary monetary policy should not be used to stabilize the

economy Keynesian economists believe shifts in aggregate demand arise primarily from changes in

expectations Classical economists believe money wages tend to adjust quickly; both monetarists and Keynesians believe wages are “downward sticky.”

Which of the following factors is least likely to affect the supply of labor?

Wages, the size of the adult population (i.e., the available labor force), and the accumulation of capital are all factors that affect the supply of labor The aggregate requirement for labor is a demand issue that will ultimately help to determine the equilibrium level of wages and quantities offered

A) monetary policy has a significant impact on aggregate demand

B) shifts in aggregate demand arise from changes in expectations

C) discretionary monetary policy should be used to stabilize the economy

A) The aggregate requirement for labor

B) The accumulation of capital

C) Wages offered

Not a source of bias CPI bias direction

Trang 18

The four sources of bias associated with CPI data are: new goods, quality changes, commodity substitution, and outlet substitution As a result, in 1996 a Congressional Advisory Commission concluded that the CPI tends to overstate the true rate of inflation by 1.1% per year

This question tested from Session 5, Reading 22, LOS d, (Part 2)

Assume that a firm in an oligopoly market believes the demand curve for its product is more elastic above a

specific price than below this price This belief is most closely associated with which of the following models?

The kinked demand model assumes that each firm in a market believes that at some price, demand is more elastic in respect to price increases than it is to price decreases

In the dominant firm model of oligopoly, it is least likely that one firm:

Your answer: A was incorrect The correct answer was B) is the innovation leader in product development

The dominant firm model of oligopoly is based on the assumption that one firm has a significant cost advantage which allows it to set the price in the market and control a relatively large share of the industry’s production and sales It does not assume that the firm will be the innovation leader in product development In fact, being more innovative is one of the factors that allow smaller competitors that work at a cost disadvantage to survive

A labor market analyst makes the following assertions about trends in labor income:

B) Outlet substitution Overstate

C) Consumer preferences Overstate

Consumer preferences Overstate

A) Kinked demand model

B) Dominant firm model

C) Variable elasticity model

A) effectively sets the price in the market

B) is the innovation leader in product development

C) has a significant cost advantage over its competitors

Trang 19

Statement 1: The net effect of technological improvements has been to increase the demand for

labor This can be seen in the long-run increase in real wage rates

Statement 2: The broadest measure of labor income is total wages, salaries, and tips received

Your answer: A was incorrect The correct answer was C) only statement 2 is incorrect

Statement 1 is correct Technological improvements increase demand for some types of labor and decrease demand for other types, but the net long-run effect has been to increase demand for labor as a whole The long-run increase in real wage rates is evidence that supports this assertion Statement 2 is incorrect A more complete measure of labor income is total labor compensation, which includes employer-provided benefits as well as wage and salary income

Bradley works a 14-hour-per-week job as a bartender at McQuigley’s Pub Maddeline left her position at a

commercial bank to raise her two-year old daughter How would these individuals be classified from the viewpoint

of employment statistics?

The labor force includes all people who are either employed or actively seeking employment As such, Bradley is considered employed from the viewpoint of employment statistics whereas Maddeline is not counted in the labor force

The natural rate of unemployment exists when:

A) both are incorrect

B) only statement 1 is incorrect

C) only statement 2 is incorrect

C) Not in labor force Not in labor force

A) the economy operates below full employment

B) structural unemployment is zero

C) the economy operates at full employment

Trang 20

Your answer: A was incorrect The correct answer was C) the economy operates at full employment

The natural rate of unemployment exists when the economy operates at full employment At full employment, cyclical unemployment is zero

When workers agree to forego leisure to undertake labor and receive wages, the term that is applied in labor supply economics is the:

Your answer: A was incorrect The correct answer was B) substitution effect

In labor supply economics, the term applied to the decision by workers to forego leisure and undertake labor for wages is the substitution effect

Which of the following is least likely a barrier to entry?

Price controls

Often barriers to entry are government licensing and legal barriers

A) Two different costs of production

B) The ability to prevent trading between customers in different price groups

C) A product for which the demand curve is downward sloping

Trang 21

Price discrimination works when the seller (discriminator) faces a downward-sloping demand curve and has at least two customer groups each having different price elasticities for the product It is also necessary that trading does not occur between customer groups so that the customers paying a lower price cannot resell the product to the customers paying a higher price

Suppose a price-taker firm produces baseball bats that sell at a price of $100 each This firm’s average total cost

at the current level of production is $150 per bat, and the average fixed cost is $40 per bat Which of the following

statements is most accurate regarding this firm? They should:

shut down in the short run because their average variable cost is greater than their price

Variable costs = $150 (ATC) − $40 (AFC) = $110 (AVC) At a selling price of $100 the firm is not covering its variable costs and will have losses greater than its fixed costs if it stays in business

Which of the following is least likely to be considered a reason for the existence of a natural monopoly? Firms:

Your answer: A was incorrect The correct answer was C) that can maximize profit when price equals marginal cost

Profit maximization occurs when price equals marginal cost in a perfectly competitive industry, not a monopoly A natural monopoly exists when economies of scale or scope are so significant that total industry production should

be produced by only one firm In this case, average total cost declines over the entire range of demand

This question tested from Session 5, Reading 19, LOS e

Unemployment due to the time it takes for qualified workers to be matched with existing job openings describes:

A) continue producing baseball bats because they are covering their fixed costs

B) shut down in the short run because their average total cost is greater than their price

C) shut down in the short run because their average variable cost is greater than their price

A) that have significant economies of scope

B) for which average total cost decreases over the entire range of industry demand

C) that can maximize profit when price equals marginal cost

A) structural unemployment

B) frictional unemployment

C) cyclical unemployment

Trang 22

frictional unemployment

Structural unemployment is due to structural changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified Cyclical unemployment results from short-term deviations from "full employment."

Statement 1: “The kinked demand curve model of oligopoly assumes that a decrease in price will not be followed

by other firms in the industry, but a price increase will.”

Statement 2: “Firms in monopolistic competition have high advertising expenses because they want to create the perception that their product is different from their competitors’ products when the competing products are actually quite similar.”

Your answer: A was incorrect The correct answer was C) only one is correct

Statement 1 is incorrect because the kinked demand curve model contends that each firm in oligopoly competition believes that an increase (not decrease) in its price will not be followed by the competition, but a decrease (not increase) in price will Each firm believes that it faces a demand curve that is more elastic (flatter) above a given price, i.e., the kink, than it is below the given price

A perfect competition has all of the following characteristics EXCEPT:

a differentiated product

In a perfectly competitive market all the firms produce a homogeneous product

A) both are correct

B) both are incorrect

C) only one is correct

A) barriers to entry don't exist

B) a large number of independent firms

C) a differentiated product

Định dạng
Số trang	44
Dung lượng	238,19 KB