- C.ICP is the consumer surplus. Is the difference between the maximum amount the consumer is willing to pay
for the quantity demanded and the actual payment of the purchase? PCJ is the producer surplus. Is the difference
between the actual amount a seller receives and the minimum that a seller is willing to accept for the quantity
supplied? - A.If a price ceiling is set at P1, the quantity supplied will be lower than the quantity demanded; this
disequilibrium will cause an excess demand. - D. If the demand is price inelastic, then the demand curve is a vertical line, meaning that the quantity demanded
is constant at any price (so I is true). Because the quantity purchased is constant, an increase in price will raise a
producer’s revenue (so III is true). II is not true because the demand would have to be a horizontal line, which it
isn’t. Since I and III are true, the correct answer is D. - B.The fall in the demand for apple juice will lower the market price, thus lowering the quantity of apples
supplied. This would affect the labor market for apple pickers by decreasing the demand for apple pickers, thus
decreasing the quantity of apple pickers hired. - B.When the market price goes below the AVC and does not even cover part of the fixed cost, and if subsequently
the market price falls below the intersection of AVC and MC, then production should be shut down. If it is still
above the intersection of the AVC and MC, it is still paying for some of the fixed cost. - A.The correct answer is A because a price taking firm charges the same price at all quantities. The price they
charge is determined by the market, so choice D is incorrect. Choices C and E are false statements. Choice B is
irrelevant. - D.Choice D is the correct answer because it would be better for the economy if monopolies produced more of a
good at a lower cost. Choices C and E are both true of monopolies, but they aren’t necessarily bad for the economy.
Choices A and B are both irrelevant. - E.Although Tom is slower at both tasks, he has a comparative advantage. Tom’s opportunity cost of making
paper airplanes is less than Michelle’s. Therefore gains from trade can occur if Michelle specializes in swans and
Tom specializes in planes. - C.Choice C is the correct answer because at $300 the difference between the quantity demanded and the
quantity supplied is 600 apartments. Therefore there is a shortage of 600 apartments. - D. Since we are dealing with the short run effects and a fall in the cost of production, only the supply curve will
be affected. A fall in the cost would enable firms to produce more at the same cost; therefore, the supply curve
would shift to the right. - D. A profit maximizing firm will produce where marginal revenue is equal to marginal cost. In this example, the
marginal cost of unit 575 is $30 ($1,782 - $1,752), and the marginal revenue is $30. Therefore, the firm should
produce 575 units. - C.A monopoly produces where marginal cost is equal to marginal revenue, and it charges a price where that
quantity meets the demand. The total profit is the difference between the price charged and the average total cost,
multiplied by the quantity produced. This is represented on the graph as ($20 - $10)*100units = $1,000 profit.
The correct answer is C. - D. Using demand and supply analysis for the labor market, we can see that when the supply of labor decreases,
the price of labor increases and quantity of labor demanded decreases. Choice A is incorrect because an increase
in the number of hotels will cause an increase in the number of workers demanded. With Choice B, a minimum
wage would likely cause more unemployment. With Choice C, if the demand for hotel workers falls, the wages
paid to workers will also fall. With Choice E, if the demand for hotel workers shifts, there will be a new
equilibrium in the labor market and a new wage. - C.The United States reallocates wealth by taxing different income levels at different rates.
- E.A perfectly competitive firm’s marginal cost curve intersects both, average variable cost and average total
cost, at their minimum (Choices A and B). Also, for a profit maximizing firm, price is equal to marginal revenue,
and in this figure P(2) is the profit maximizing price (Choices C and D). The only statement that is not true for a
perfectly competitive firm is E.
Microeconomics Full-Length Practice Test 2Microeconomics Full-Length
Practice Test 2