2000 Economics Challenge Play-off
MICROECONOMICS
Round II

1. Which of the following industries comes closest to the economist's definition of perfect competition?
   1. airline industry
   2. soft drink industry
   3. fishing industry
   4. fast food restaurants

    

2. If you were to list market structures from few firms to very many firms, your ordering would be
   1. monopoly, oligopoly, perfect competition, monopolistic competition
   2. monopoly, oligopoly, monopolistic competition, perfect competition
   3. oligopoly, monopoly, monopolistic competition, perfect competition
   4. oliopoly, monopolistic competition, perfect competition, monopoly

   

   FIGURE 1  

3. Americans choose cola over other flavors 70 percent of the time. Analysts say this is because cola's flavor is more robust and durable. Orange soda, for example, suffers from flavor fatigue faster than cola. Also, because cola contains caffeine, people may be addicted to the stimulant. Which of the panels in Figure 1 best illustrates this situation?
   1. 1
   2. 2
   3. 3
   4. 4

   

   FIGURE 2  

4. Libya sold more crude oil in 1985 than it sold five years earlier, but revenues were 17 percent less. Which graph is Figure 2 is consistent with this set of facts?
   1. 1
   2. 2
   3. 3
   4. 4

    

5. The Internet is often talked about as if it were a sort of electronic Utopia. So sooner or later there was bound to be an Internet start-up called Perfect.com. Sure enough, a company called exactly that was unveiled on February 7th. For its creators, it will doubtless have lived up to its name if it goes on to earn them a fortune in a public offering of its shares. But will it deliver its customers what it promises - that Holy Grail of economics, a perfect market?
   - The Economist, February 12, 2000

   In the pre-Internet dark ages, most economists accepted that, outside their textbooks, they were unlikely to encounter a perfect market. But they did at least know what it would look like. Which of the following characteristics does not describe a perfect market?

   1. It allows buyers and sellers to meet together, with full information about supply and demand.
   2. There are no barriers to entering or leaving the market.
   3. Every buyer is matched with the supplier that can best meet his or her needs.
   4. Prices are at exactly the level that would keep supply and demand in equilibrium.
   5. Buyers and sellers incur transaction costs.

    

6. The optimal amount of information is acquired when
   1. marginal benefits are greater than marginal costs.
   2. the marginal utility of additional information per dollar of expenditure is less than the marginal utility of devoting one dollar of expenditure to any other good or activity.
   3. the marginal utility of additional information per dollar of expenditure is equal to the marginal utility of devoting one dollar of expenditure to any other good or activity.
   4. marginal costs are greater than marginal benefits.
   5. everyone has perfect information.

    

7. The demand for a resource will become more elastic
   1. the more difficult it is for the resource to be replaced.
   2. if the demand for the final product becomes more elastic.
   3. if the demand for the final product becomes less elastic.
   4. if the competition in the industry decreases.

    

8. Which of the following can serve as an entry barrier?
   1. legal restrictions.
   2. patents.
   3. control of scarce resources or inputs.
   4. economies of scale.
   5. all of the above.

    

9. There will be a surplus of a product when
   1. price is below the equilibrium level.
   2. the government sets a price ceiling for the product.
   3. the demand and supply curves fail to intersect.
   4. consumers want to buy less than producers offer for sale.

    

10. Assuming that Americans change their buying patterns in response to warnings issued by the government, if the government releases a study that links red meat consumption to poor health, everything else remaining the same, the price of chicken, a healthy substitute for red meat, will likely?
    1. increase.
    2. decrease.
    3. stay the same.
    4. not enough information to answer the question.
       
       

    

    FIGURE 3 

11. A budget line shows the total amount of goods Y and X that one consumer can purchase with a given level of income. The movement of BB to bb in Figure 3 suggests that income has
    1. increased and the price of X has decreased.
    2. fallen and the price of Y has increased.
    3. fallen and the price of X has increased.
    4. decreased, but there have been no price changes.

    Number of Workers	Units
    0	0
    1	40
    2	90
    3	126
    4	150
    5	165
    6	180

     

12. Diminishing returns become evident with the addition of the
    1. first worker.
    2. second worker.
    3. third worker.
    4. fourth worker.
    5. sixth worker.

     

13. Firms in perfect competition are
    1. price takers.
    2. price makers.
    3. price leaders.
    4. price subtractors.

     

14. If the demand for farm products is price inelastic, an increase in the harvest will cause total farm revenue to
    1. increase.
    2. decrease.
    3. be unchanged.
    4. either increase or decrease, depending upon what happens to supply.

     

15. In a perfectly competitive market the price of good A is $2.00. If a firm decides to raise its price to $2.50, it will
    1. realize an increase in profits of $.50 per unit.
    2. be able to increase the quantity sold.
    3. be unable to sell any quantity of good A that is produced.
    4. be unable to sell 25 percent of good A that is produced.
    5. experience a decrease in profits of $.50 per unit.

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