question
Which of the following is least price elastic?
answer
shrimp
question
Complements are defined as having a(n):
answer
negative cross price elasticity of demand
question
Which of the following values of Ed represents the largest price elasticity of deamd?
answer
7
question
A firm will maximize total revenue if it sells its product at a price that corresponds to:
answer
the midpoint of the demand curve
question
Which of the following is most price inelastic?
answer
cigarettes
question
Substitutes have a(n):
answer
positive cross elasticity of demand
question
Which of the following is least price inelastic?
answer
taxi service
question
If Susan's income increases by 20% and, as a result, she buys 40% more lattes, then:
answer
income elasticity of demand for lattes is 2
question
Which of the following is most price elastic?
answer
air travel
question
Assume that a firm is selling its product at the price that corresponds to the midpoint of its demand curve. If the firm decreases the price of its product, what will happen to total revenue?
answer
it will decrease
question
Which of the following products has (approximately) the smallest price elasticity of demand?
answer
medical care
question
What happens to total revenue when the price drops below the unitary elasticity point on a linear demand curve?
answer
total revenue decreases
question
Which of the following is the correct expression for the price elasticity of demand?
answer
percent change in quantity demanded/percentage change in price
question
What will happen to the quantity demanded of a unitary elastic product when its price increases by 5%?
answer
quantity demanded will decrease by 5%
question
When the price of product A rises, the quantity of product B that is purchased increases. Products A and B are:
answer
substitutes
question
If a 30% decrease in the price of paper leads to a 15% increase in quantity demanded, price elasticity of demand for paper is considered:
answer
inelastic
question
If the price of copy paper increases from $2.00 to $3.00, what is the percentage change in price?
answer
50%
question
If grapefruits have a price elasticity of 4, that means that for every 1% decrease in price, the quantity demanded will:
answer
increase by 4%
question
If a 30% increase in the price of a prescription medicine leads to no change in quantity demanded, price elasticity of demand is considered:
answer
perfectly inelastic
question
Which product is likely to have a lower elasticity of demand?
answer
a pack of gum
question
Suppose grapefruits have a price elasticity of 4. This means that for every 4% increase in quantity demanded, the price must have decreased by:
answer
1%
question
If a product's price rises by 6% & its equity demanded falls by 8%, then its elasticity is equal to:
answer
1.33
question
If price increases by 100% & quantity demanded decreases by 50%, then the price elasticity of demand will equal ___.
answer
0.5
question
The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?
answer
gold sales will decrease by 80%
question
Home heating gas tends to have ____ demand because _____.
answer
inelastic; people do NOT have time to adjust their consumption patterns
question
A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If based on that assumption, he increases the price of gas at his station:
answer
total revenue will increase
question
If a firm sells a product that has a perfectly inelastic demand curve, then, if price doubles, it can be expected that:
answer
total revenue will double
question
If a store sells a good that has a unitary elastic demand, what would be the net result on their total revenue from an increase in price?
answer
there would be no change in total revenue
question
When moving down along a straight-line demand curve:
answer
the elasticity of demand changes from elastic to inelastic
question
If the cross elasticity of demand for good A w/ respect to good B is 2.3, then good A is a(n):
answer
substitute for good B
question
If the price of a product falls by 15% & the quantity supplied falls by 25%, we can say that the elasticity of supply is:
answer
elastic
question
The primary determinant of the elasticity of supply is:
answer
time
question
In general, the flatter the supply curve is, the:
answer
more elastic is supply
question
Figure: Interpreting Elasticity of Supply) How would you describe supply as shown in the graph? (horizontal line)
answer
perfectly elastic
question
In which period can firms decide to leave an industry?
answer
long run
question
A tax in which the percentage of income tax rises as income falls is known as a:
answer
regressive tax
question
Alvaro pays $40 in tax on a $120 item. Nurul pays $80 on a $240 item. We can conclude that this tax is a:
answer
flat tax
question
If demand is inelastic, the tax burden falls primarily on the ___ & deadweight loss is ___.
answer
buyer; small
question
Suppose the demand for toxic waste disposal is very elastic. The gov imposes an excise tax on waste disposal. The deadweight loss associated w/ the production of toxic waste disposal will be:
answer
relatively large
question
The current equilibrium price and quantity in the market for walnuts are $5 per pound w/ 10,000 pounds supplied. Supermarkets are expecting to see the price fall to $4 per pound due to an unusually large crop of walnuts. If the price elasticity of demand is 1.8, what is the new quantity demand for walnuts?
answer
QD - 15,000
question
(Figure: Impact of Tax on Market Equilibrium) Based on the graph, implementing a tax:
answer
raises equilibrium price from $6 to $10 & lowers equilibrium quantity from 120 units to 100 units
question
What are all of the attainable combinations of goods given a consumer's budget line?
answer
those on / to the left of the budget line
question
The utility-maximizing rule states that total utility is maximized when ___ per dollar is equal for all products.
answer
marginal utility
question
Jeremy Bentham believed that the purpose of government was to maximize:
answer
utility
question
Suppose that a consumer has $8 to spend. A candy bar costs $2 & a bag of peanuts costs $1.50. Which combination of candy bars & peanuts would NOT be attainable for this consumer?
answer
no candy bars & six bags of peanuts
question
If the price of one good rises, marginal utility analysis concludes that:
answer
consumers will maximize their utility by purchasing less of the product
question
Yolen buys coffee & doughnuts each week. The price of coffee decreases from $2.39 per cup to $2 per cup. What happens to Yolen's budget line?
answer
It pivots outward along the axis measuring coffee, while remaining constant on the axis measuring doughnuts
question
If the prices of the two goods the consumer buys increase:
answer
the budget line shifts closer to the origin
question
If the United States experiences an inflationary episode in which prices of goods & services go up faster than incomes, budget lines for U.S. consumers will:
answer
shift inward
question
Total utility:
answer
is the total satisfaction derived from the consumption of given quantity of a good
question
Jeremy's level of satisfaction from consuming the first cookie was 25 utils. The second cookie increased the level of satisfaction by 20 utils. Jeremy's total level of satisfaction after three cookies was 60. Thus, the marginal utility for the third cookie is:
answer
15
question
At an all-you-can eat buffet, a person will stop eating when:
answer
marginal utility is equal to zero
question
(Table) Referring to the table, which shows the total utility & marginal utility for ice cream consumption, the value for C will be:
answer
23
question
A utility-maximizing consumer will always choose to:
answer
maximize total utility
question
A consumer is in equilibrium when:
answer
the addition to total utility per dollar is the same for every commodity
question
The local school district wants to close down a neighborhood high school because its outdated heating & cooling systems make it too expensive to operate compared to the new high school being built nearby. Parents who are against closing the neighborhood school argue that the $2 million dollars spent refurbishing the school over the last few years will be wasted if the school is shut down. This argument is an example of:
answer
a sunk cost fallacy
question
After Rachene bought a magazine subscription, she does not enjoy the articles in the magazine. However, she dutifully reads the entire magazine every month because she had already paid for the subscription, & she feels the money will be wasted if she does not read it. What psychological factor associated with behavioral economics explains Rachene's behavior?
answer
the sunk cost fallacy
question
Bayram had the opportunity to choose between two investments. The first investment was described as having a 30% chance of succeeding, while the second investment was described as having a 70% chance of failing. Bayram opted for the first investment, because he thought it sounded less risky than the second investment. The chances of succeeding and failing are the same for the two investments, however, which implies that Bayram is subject to:
answer
a framing bias
question
Because they are so sure of their ability to pick winners, some people hang on to a stock even in the face of overwhelming evidence that its price is going to drop. These people are subject to:
answer
overconfidence
question
Ryan stayed out late last night and is very tired. He plans to skip his 8 A.M. economics class, even though he knows his professor will cover material that will be on the final exam. Ryan is subject to
answer
overvaluing the present relative to the future
question
Parami volunteers at a homeless shelter. It takes a lot of her time, & thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by:
answer
altruism
question
Hannah has $60 to spend on breadsticks & salad. If the price of salad decreases while the price of breadsticks stays the same, the budget line will:
answer
pivot outward
question
The prices per pound of apples, pears, and grapes are $1.50, $2, and $2.50, respectively. Clara's marginal utils for the last pound bought of each is: 30 MU for apples, 35 MU for pears, and 60 MU for grapes. If Clara wants to maximize utility out of her limited budget for fruit, she should:
answer
buy more grapes & fewer pears
question
Guilia says "I know I shouldn't eat this piece of cake, but I am going to eat it anyway." Guila's behavior is an example of being influenced by:
answer
overvaluing the present relative to the future
question
Jiro and his wife Mariko are both employed. They strive to maximize utility when spending their household income. When Jiro loses his job, which of the following statements will be true?
answer
their marginal utility schedule will remain unchanged
question
When the economy slides into a recession, budget lines:
answer
shift inward
question
(Table: Marginal Utility Schedule for Joachim) has $72 available to spend on movie tickets, hamburgers, socks, & tissues. Given his marginal utility schedules for these items, what
answer
4 movie tickets, 4 hamburgers, 2 pairs of socks, and 1 box of tissues for a total of $71
question
What is a disadvantage of a sole proprietorship?
answer
...
question
___ are expenses paid directly to some other economic entity.
answer
explicit costs
question
Marginal product is:
answer
the change in output that results from a change in labor
question
What illustrates the lowest unit cost as which any particular output can be produced in the long run?
answer
long-run average total cost
question
a corporation:
answer
is a business that has most of the legal rights of individuals & can issue stock to raise capital; stockholders' liability is limited to the value of their stock
question
The total output divided by the number of workers is:
answer
average product
question
What is an implicit cost?
answer
interest that could have been earned w/ start-up capital
question
Average product is:
answer
calculated by dividing the total output by the number of workers
question
What is a fixed cost?
answer
liability insurance for a lawn care company
question
Implicit costs care:
answer
all of the opportunity costs of using resources that belong to the firm
question
In the short run, total product for a firm will typically vary w/ the amt of:
answer
labor
question
Willco Manufacturing hired another production employee. After this employee started working, the company;s production increased from 200 units to 210 units. What is the marginal product in this case?
answer
10 units
question
Ted's Lawn Care has made the decision to increase output. Which of the following will decrease as the output increases?
answer
avg fixed cost
question
Which of the following is considered an explicit cost?
answer
payment of the electric bill
question
Martha has a 1-year lease on the facility where she produces confections. If she shuts down her business before the year is up, she still has to pay for the entire lease. Because of this, her lease is characterized as a(n):
answer
sunk cost
question
Ted's Lawn Care has total fixed costs of $200,000, total variable costs of $150,000, and an output of 25,000 units. What is Ted's Lawn Care's average fixed cost?
answer
$8
question
Willco Manufacturing hired a new employee, after which it saw increasing marginal returns. In this case, average product ___ & marginal product ___.
answer
increases; increases
question
If LMS Manufacturing sold 250,000 units & its total revenue was $1 million, what was the price per unit
answer
$4
question
Ted's Lawn Care hired a new employee, then saw diminishing marginal returns. In this case, total output ___ at a(n) ___ rate.
answer
increases; diminishing
question
___ are more numerous, but ___ sell more goods & services
answer
sole proprietorships; corporations
question
Jim Delaney sold his pizza firm to an investor who then sold stock to the public. Jim now earns a salary of $5,000 a month, and all the profits are distributed to the stockholders. This firm is an example of a:
answer
corporation
question
The price of a mango is $2 & a farmer sells 2,000 mangos. However, the costs to the farmer are $400 for labor, $1,600 for rent, & $2,000 for advertising. Based on the above information, the farmer:
answer
makes $4,000 in total revenue
question
Which of the following is an implicit cost?
answer
opportunity cost
question
The cost incurred by a firm through the foregone earnings on capital invested is a(n):
answer
implicit cost
question
Which of the following examples represents the short run?
answer
Ford asks its workers to work overtime
question
Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with three employees. Staci hires an additional worker and total output per week rises to 328. The marginal product of the last worker is ___________ signs.
answer
118
question
As long as marginal product is greater than avg product:
answer
...
question
When hiring additional workers reduces total output, the firm faces:
answer
negative marginal returns
question
Which of the following is equivalent to avg variable cost (AVC)?
answer
ATC - AFC
question
Regarding the short-run cost model, the vertical distance between the ATC curve and the AVC curve is:
answer
marginal cost (MC)
question
When the Keep On Calling Cell Phone Company is at full capacity, it incurs costs of $230,000. During the December shutdown period, when no cell phones are produced, it incurs costs of $76,000. One can conclude that:
answer
at full capacity, variable costs are $154,000
question
Which curve is NOT bowl-shaped?
answer
the avg fixed cost curve
question
If a firm increases its inputs by 80% & its output increases by 60%, then this would be an example of:
answer
diseconomies of scale
question
A bicycle factory finds that it can lower costs if it also produces tricycles & unicycles. This is an example of:
answer
economies of scope
question
Ian owned his own dry cleaning shop, but he later sold it to his cousin Norman. Norman incorporated the business & is the only stockholder. Which of these is the MOST likely reason for the incorporation?
answer
Normal wanted to
question
Hannah owns an auto repair shop. She has incurred over $100,000 in startup costs & currently faces fixed costs of $5,000 per month. She also has labor costs equal to $3,000 per month/ Hannah earns revenue of $10,000 per month. Given this information, Hannah should:
answer
continue to run her business since she is making a profit of $2,000
question
a firm that operates in a market w/ many buyers & sellers is operating under which market structure?
answer
perfect competition
question
When price is below the minimum point of the avg total cost curve, but above the minimum point of the ___ curve, the firm continues to operate but suffers an economic loss.
answer
avg variable cost
question
In perfect competition, individual firms are price takers; & each firm charges the same price. The price is determined by the:
answer
market
question
Marginal cost is the:
answer
change in total cost when one more unit of output is produced
question
In the market for many construction products (e.g., wallboard, lumber) production by all firms is based on gov standards. This would be an example of:
answer
homogeneous products
question
A firm that operates in a market w/ potential long-run profits is NOT operating under which market srtructure?
answer
pure competition & monopolistic competition
question
Foods sold on the street in developing countries are an example of perfectly competitive markets. If a vendor sells an item for the equivalent of $4 each & sells a total of 20 units, what is his/her marginal revenue?
answer
$4
question
Which of the following is NOT a factor that helps define the intensity of competition in an industry?
answer
number of immediate goods used in production
question
Ocean Magic is a surfboard company that sells surfboards in a perfectly competitive market. If it sells surfboards for $400 each & the marginal cost for each surfboard is $300, the company should:
answer
increase production
question
Many agricultural markets are characterized by standardized products. This is an example of which type of market structure?
answer
perfect competition
question
What should Dave do if the price for selling tortillas to supermarkets is below average total cost, but above avg variable cost?
answer
Dave should continue to sell tortillas in the short run to minimize losses
question
The cable TV company in Taryn's neighborhood is the only firm from which Taryn can get cable TV for her home. This is an example of which type of market structure?
answer
monopoly
question
For more than two decades, the global commercial airliner manufacturing industry was dominated by Boeing (an American company) & Airbus (a European company). More recently, Embraer (from Brazil) & Bombardier (from Canada) have been gaining market share. With these new entrants the commercial airliner manufacturing industry is an example of which type of market structure?
answer
oligopoly
question
Able Pads, Inc, sells plain white printer paper in a perfectly competitive market. What does its individual demand curve look like?
answer
horizontal line
question
Individual firms are price takers, which means that in a perfectly competitive market they get their priced from the ___ since they are so small they cannot influence market price.
answer
market
question
The commercial airliner manufacturing industry is dominated by two firms that supply products to the entire world. There are few other firms bc of the industry's expensive start-up costs. This industry is an example of which type of market structure?
answer
oligopoly
question
a market structure describes the nature of an industry based on the:
answer
number & size of firms in the industry
question
a perfectly competitive industry is characterized by:
answer
many small firms each producing identical products & no barriers to entry
question
A firm is a ___ if its actions have no impact on the market price of a good.
answer
price taker
question
Firms in perfectly competitive industries earn ___ economic profits.
answer
zero
question
In a perfectly competitive market, each firm's demand curve is:
answer
horizontal
question
The price charged by a firm in a perfectly competitive market always equals its:
answer
marginal revenue
question
The profit-maximizing level of output for a firm in a perfectly competitive market occurs where:
answer
marginal revenue equals marginal cost
question
If firms in a perfectly competitive market are earning positive economic profits in short run, one would expect that in the long run:
answer
new firms would enter the market & market prices would decrease
question
a firm earning a zero economic profit is ___ that financial expectations of its investors
answer
meeting
question
the firms in a perfectly competitive market produce ___ products
answer
identical
question
In a perfectly competitive industry, one would expect that a natural disaster that decreases the production of a significant number of firms in the industry would cause market prices to rise
answer
true
question
a perfectly competitive industry market demand curve is a horizontal line
answer
false
question
a firm in a perfectly competitive market maximizes its profits when its marginal cost equals its total revenue
answer
false
question
What circumstance might lead a firm in a perfectly competitive market to realize a positive, short-run, economic profit?
answer
Once a firm has selected its profit-maximizing output level (where marginal revenue equals marginal cost), the optimal output level for the firm is known. At this output level, the firm can determine its avg total cost per unit. If the market price per unit is above the avg total cost per unit, the firm is earning a positive short-run economic profit
question
Why is the marginal revenue of a firm in perfect competition equal to the market price?
answer
Since there are many small firms in a perfectly competitive market, the quantity produced by any one firm is a very small percent of the market's overall output. This means the individual firm's output decisions have no meaningful effect on the market's overall output level/market price. Consequently, the additional revenue (marginal revenue) gained by the firm as it increases output is equal to the market price
question
Explain the importance of the absence of barriers to entry in perfectly competitive markets to long-run pricing in these markets
answer
Bc perfectly competitive markets have no barriers to entry, when existing firms in the market realize positive economic profits in the short run, firms outside the industry are attracted to the profit opportunity & choose to enter the market in the long run. This entry causes an increase in the market's supply; the increase in supply reduces the market equilibrium price, eliminating the short-run profits.
question
Which of the answer choices lists market structures in order from the highest number of sellers to the lowest?
answer
perfect competition, monopolistic competition, oligopoly, monopoly
question
Firms in all market structures experience some type of control over price, EXCEPT firms whose market structure is a(n):
answer
perfect competition
question
Which firm is MOST likely to operate in a perfectly competitive market?
answer
a maple syrup company
question
Corn is a perfectly competitive commodity. In the market place, the demand curve for corn is:
answer
downward sloping
question
A price taker is a firm that:
answer
has no control over the market price
question
In the short run:
answer
the number of firms is fixed
question
A perfectly competitive firm has total revenues equal to $360 when it produces forty units. What is the marginal revenue for the forty-first unit?
answer
$9
question
When perfectly competitive firm X sells three units of product Z, its marginal revenue is $4.67. When it sells one hundred units, marginal revenue is $4.67. We can conclue that the price is:
answer
$4.67
question
Among perfectly competitive firms, profit maximizing will always operate where:
answer
MC = MR
question
Normal profits are equal to:
answer
zero economic profits
question
Farmer Ted sells winter wheat in a perfectly competitive market. The market price for a bushel of winter wheat is $9. Ted has 270 bushels of wheat to sell. If his total variable cost is $2000 and his total fixed cost is $500, then
answer
is minimizing his losses
question
(Table) If the toy-making firm in the table faces a market price of $20 in the short run, it should:
answer
shut down
question
(Figure: Determining Long-Run Adjustments) If the current price is $36 in this perfectly competitive industry:
answer
losses in the short run will persuade some firms to leave the industry
question
(Figure: Determining Long-Run Adjustments) The figure depicts the cost curves for a firm in a perfectly competitive industry. In the long run, the market price of this product will be:
answer
$40
question
Which sequence describes the long-run adjustment process in a competitive market when firms are experiencing short-run economic losses?
answer
some firms exit, industry supply decreases, market price rises
question
A perfectly competitive market helps ensure that the products produced are the goods that consumers want. This demonstrates the concept of:
answer
allocative efficiency
question
Consider that the corn industry is a perfectly competitive industry w/ constant returns to scale. The price per bushel is $2. If the long-run, minimum ATC is $1.50 per bushel, it should follow that (ceteris paribus):
answer
the long-run price will be $1.50 per bushel
question
(Figure: Determining Industry Cost Characteristics) Short-run & long-run supply curves w/ short-run market equilibrium at points A & B are shown in the graph. We can conclude that the industry in the graph is a(n):
answer
constant cost industry
question
Suppose a perfectly competitive firm faces the following situation: P = $6, output = 2,000, ATC = $7, MC = $6, & AVC = $6.50. Which statement is an accurate description of the firm's situation?
answer
The firm incurs losses, but is NOT minimizing its losses
question
Suppose a perfectly competitive firm faces this situation: P = $15, output = 700, MC = $14, & AVC = $10, & ATC = $14.. Which statement is correct?
answer
The firm is productively but NOT allocatively efficient
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