question
The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing.
Which of the following statements is true according to the chart above?
Which of the following statements is true according to the chart above?
answer
Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
question
The supply curve for automobiles will shift to the left in response to
answer
an increse in wages in the automobile industry
question
If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?
answer
An increase in the average income of consumers and an increase in the price of a variable input
question
If this were a perfectly competitive industry with the same costs as shown on the graph, the equilibrium price and output would be which of the following?
answer
Price = 0T, Output Q3
question
The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm.
The vertical distance CF represents the
The vertical distance CF represents the
answer
average fixed cost of producing Q1 units of output
question
The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm.
If marginal revenue is equal to P1, all of the following statements are true EXCEPT:
If marginal revenue is equal to P1, all of the following statements are true EXCEPT:
answer
The firm will increase production in the long run.
question
The following questions refer to the graph below, which shows the cost curves of a firm.
Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?
Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?
answer
In the long run, existing firms in the industry will produce an output level greater than Q1.
question
The following questions refer to the graph below, which shows the cost curves of a firm.
If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?
If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?
answer
Short run = Diminishing Marginal Returns, Long Run = Economies of scale
question
At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?
answer
Increasing the production of good X
question
The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P1 to P2 if
answer
consumers' incomes increased
question
An outward shift in the production possibilities curve of an economy can be caused be an increase in
answer
the labor force
question
Which of the following will decrease the demand for beef?
answer
An increase in the price of potatoes, if potatoes and beef are complementary goods
question
Which of the following factors can cause a firm's cost curves to shift upward?
answer
An increase in wages
question
To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is
answer
inelastic
question
Which of the following would cause the equilibrium price of good X to increase?
answer
The price of an essential input in the production of good X increases.
question
The following chart shows the total utility that Juan receives from consuming various amounts of chocolate candy bars each day.
Which of the following statements about Juan's marginal utility is correct?
Which of the following statements about Juan's marginal utility is correct?
answer
His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
question
A market is clearly NOT perfectly competitive if which of the following is true in equilibrium?
answer
Price exceeds marginal cost.
question
Which of the following occurs if the price of oranges is below the equilibrium price?
answer
The quantity demanded of oranges is greater than the quantity supplied.
question
A merger of two firms may increase economic efficiency by
answer
decreasing average total cost through an increase in economies of scale
question
A monopolist produces two unrelated goods, X and Y. The demand for X is currently price elastic and the demand for Y is currently price inelastic. To increase its total revenue, the firm should change the price of X and Y in which of the following ways?
answer
Price of x = decreases, Price of y = increase
question
At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?
answer
MR > MC
question
In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should
answer
decrease output but keep producing
question
Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?
answer
Marginal revenue is equal to marginal cost.
question
If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?
answer
Firms are earning a return on investment that is equal to their opportunity costs.
question
Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is
answer
0.5
question
As its output increases, a firm's short-run marginal cost will eventually increase because of
answer
diminishing returns
question
The following question refers to the diagram below, which shows the demand and cost curves for a profit-maximizing firm.
Which of the following statements best describes the graph?
Which of the following statements best describes the graph?
answer
Economic losses are incurred, and exit of firms from the market will cause prices to increase in the long run.
question
Which of the following events will cause the demand curve for hamburgers to shift to the right?
answer
An increase in the price of pizza, a substitute for hamburgers
question
Economic growth can be depicted using a production possibilities curve by which of the following?
answer
A rightward shift of the curve
question
If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is
answer
producing too little output
question
Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?
answer
The consumer's demand for compact discs is unit price elastic.
question
An increase in which of the following will most likely result in a long-run surplus of a product?
answer
A price is set by law above the equilibrium price
question
Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?
answer
There is a price floor on the product.
question
Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increase?
answer
The demand for wheat is price inelastic.
question
Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs?
answer
The release of three summer movies sets records for movie attendance
question
If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be
answer
decreasing as the firm's output increases
question
If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the supply curve for the vase?
answer
vertical line
question
Total economic surplus will be maximized at which of the following price and quantity combinations?
answer
P2 and Q2
question
Suppose the government sets a price floor at $9 in the market. The resulting consumer surplus, producer surplus, and deadweight loss will be which of the following?
answer
Consumer surplus = A, Producer surplus = B+C+D, Deadweight loss = E+F
question
The following questions refer to the diagram below.The letters on the graph represent enclosed areas.
When the market is in equilibrium, the total economic surplus is equal to area
When the market is in equilibrium, the total economic surplus is equal to area
answer
f + g + h + i + j + k
question
The following questions refer to the diagram below. The letters on the graph represent enclosed areas.
If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?
If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?
answer
Consumer Surplus = f + g + i, Producer surplus = k, deadweight loss = h + j
question
A perfectly competitive firm is currently in long-run equilibrium. Its total revenue is $100,000, and the average total cost of production is $100. Which of the following can be concluded from this information?
answer
The firm's output is 1,000 units, and its profit is zero.
question
A country can consume beyond its present production possibilities curve when it
answer
trades with other countries, thus taking advantages of different opportunity costs
question
For an economy with a straight-line production possibilities curve, which of the following must be true?
The opportunity cost of producing another unit is constant.
Resources are completely adaptable to alternative uses.
Resources are used efficiently.
The opportunity cost of producing another unit is constant.
Resources are completely adaptable to alternative uses.
Resources are used efficiently.
answer
I and II
question
Which of the following situations would necessarily lead to an increase in the price of peaches?
answer
The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches reduces the chances of a person's developing cancer.
question
An increase in which of the following will cause a firm's marginal cost curve to shift upward?
answer
The price of a variable input
question
Assume that apple juice and grape juice are substitutes. Which of the following will cause an increase in the quantity of apple juice supplied?
answer
An increase in the price of apple juice
question
When marginal product exceeds average product, which of the following must be true?
answer
Average product is increasing.
question
In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both equilibrium price and quantity to decrease?
answer
Supply curve = no shift, Demand Curve = Shifts to the left
question
The graph above shows the supply and demand curves for a particular brand of computers. In 1988, 10,000 computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the following changes in the supply and demand curves could most likely have caused this change?
answer
Demand curve = shifts left, supply curve = shifts left
question
Which of the following best explains why the short-run average total cost curve is U-shaped?
answer
Spreading total fixed costs over a larger output, and eventually diminishing returns
question
A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?
answer
The firm's marginal costs will increase at each level of output.
question
A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?
answer
Price = decrease, quantity = increase
question
In the short run, a decrease in production costs of a product will shift
answer
only the supply curve to the right
question
If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?
answer
Consumers will bear most of the burden of the tax.
question
For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?
answer
Marginal cost begins to increase.
question
When a perfectly competitive firm sells additional units of output, its total revenue will
answer
increasing at a constant rate
question
The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will
answer
increase output to 18 units because this is the output at which price equals marginal cost
question
If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?
answer
wage = increase, employment = decrease
question
The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus, producer surplus, and deadweight loss after the imposition of the tax?
answer
Consumer Surplus: A
Producer Surplus: G
Deadweight Loss: D+E
Producer Surplus: G
Deadweight Loss: D+E
question
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.
The deadweight loss created by the tax is equal to
The deadweight loss created by the tax is equal to
answer
GKI
question
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.
Which of the following bears the total tax burden?
Which of the following bears the total tax burden?
answer
The consumers and the producers each bear a part of it.
question
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.
The total amount of tax collected by the government is equal to
The total amount of tax collected by the government is equal to
answer
P1GIP2
question
The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment?
answer
Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.
question
The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one's likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?
answer
The price of artichokes will increase.
question
At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
answer
ATC = Increase, AVC = Increase, AFC = Decrease
question
Assume that a consumer spends all her income on the purchase of two goods. If the consumer's income doubles and the prices of the two goods also double, the quantity of the two goods purchased will
answer
not change
question
Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?
answer
Short run price = decrease, short-run industry output = decrease, movement firms = exit
question
Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?
answer
A decrease in the supply and an increase in the equilibrium price
question
A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should
answer
continue to produce only if the new price covers average variable costs
question
Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause
answer
a decrease in the price of beef
question
A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?
answer
The price will remain unchanged.
question
Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?
answer
Both total revenue and profits will decrease.
question
Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in
answer
an increase in his opportunity cost of producing tables
question
A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price increase will motivate consumers to
answer
increase the quantity of other fruits demanded and decrease the quantity of oranges demanded
question
If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?
answer
It will not be able to sell any output.
question
Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?
answer
Price = increase, Quantity = decrease
question
Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers' incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?
answer
Potatoes = price + Quantity = decrease
Rice = price + quantity = increase
Rice = price + quantity = increase
question
The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon?
answer
Neither a surplus nor a shortage
question
Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
answer
There will be a shortage in the market.
question
Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would
answer
experience a decline in profits
question
For a perfectly competitive firm, assume the price equals a rising marginal cost at 200 units of output. At this output, average total cost is $8 and average variable cost is $5. If the price is $4, by how much can this firm reduce its losses by shutting down?
answer
$200
question
On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?
answer
If the demand increases while the supply decreases, the price of tomatoes will definitely increase.
question
If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?
answer
The supply curve will shift to the left.
question
Technological advances will lead to
answer
a decrease in average total costs
question
If the price of a firm's variable input increases, which of the following will occur?
answer
The firm will decrease its level of production.
question
The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur as a result?
answer
The demand curve will shift to the left, decreasing the price of beef.
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