question
For a competitive labor market, an increase in which of the following will lead to an increase in the demand for labor?
answer
The demand for the good that labor produces
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A firm's demand for labor is known as a derived demand because
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the amount of labor demanded depends on the demand for the firm's product
question
Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrium. If the government establishes an effective minimum wage, which of the following will occur?
answer
Employment of low-wage workers will decrease and unemployment will increase
question
Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and the total hours they work?
answer
Wage rate decreases and total hours worked decreases
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An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is
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Relatively inelastic
question
If the price of a good produced by a competitive firm increases, then
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the marginal revenue product of labor will increase.
question
Firm XYZ produces and sells corn in a perfectly competitive market and hires its workers in a perfectly competitive labor market. Which of the following best describes the demand curve for XYZ's corn and XYZ's demand curve for labor?
answer
Demand for corn is horizontal and the demand for labor is downward sloping
question
A firm produces truffles by using labor and capital. The price of labor is $10 per unit, and the price of capital is $20 per unit. At current output level, the marginal product of labor is 40 truffles and the marginal product of capital is 60 truffles. To reduce the total cost of producing the current quantity of truffles, how should the firm change its spending on labor and capital?
answer
Increase labor spending and decrease capital spending
question
Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to
answer
rise initially, but eventually fall
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If a firm employs only labor and capital in its production process, which of the following best describes the optimal combination of inputs for the firm in the long run?
answer
The marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital.
question
Which of the following is a source of monopoly power?
answer
Barriers to entry
question
Which of the following statements is true for a monopolist at the profit-maximizing output level?
answer
Price exceeds marginal revenue
question
Which of the following statements is true for a perfectly competitive firm but not true for a monopoly?
answer
The firm cannot affect the market price for its good.
question
If a perfectly competitive industry were monopolized without any changes in cost conditions, the price and quantity produced would change in which of the following ways?
answer
The price would increase and the quantity would decrease
question
Most economists argue that a monopoly is inefficient because it
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produces too little output and sets a price above marginal cost
question
Within the range of market demand, which of the following is consistent with the conditions of a natural monopoly?
answer
Long-run average total cost decreases as output increases
question
A profit-maximizing monopolist selects its output level in the
answer
elastic region of its demand curve.
question
If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist's price and output?
answer
Price increases and output decreases
question
From the point of view of economic efficiency, a monopolist produces
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too little of a good and charges too high a price.
question
Assume there is a monopolistically competitive firm in long-run equilibrium. If this firm were to realize productive efficiency, it would
answer
have a loss
question
Which of the following statements about a monopolistically competitive firm in long-run equilibrium is true?
answer
It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is 0.
question
When total utility is at its maximum, marginal utility is
answer
Equal to zero
question
Which of the following describes the relationship between the average total cost curve and the marginal cost curve in the short run?
answer
If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
question
If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be
answer
less than the average total cost.
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 - increases, AVC - increases, AFC - decreases
question
As its output increases, a firm's short-run marginal cost will eventually increase because of
answer
diminishing returns
question
Which of the following is always true of the relationship between average and marginal costs?
answer
Average variable costs are increasing when marginal costs are higher than average variable costs.
question
In the short-run, which of the following is true of a firm's average total cost of production?
answer
It is equal to average fixed cost plus average variable cost
question
In microeconomics, the short-run is defined as which of the following?
answer
A period during which some inputs in a firm's production process cannot be changed.
question
F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing
answer
Increasing returns to scale
question
Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building she owns to someone else for $10,000, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is
answer
-$5,000
question
One characteristic of perfectly competitive markets is that individual firms
answer
are free to enter or exit an industry in the long-run
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
The short-run supply curve for a firm in a perfectly competitive industry is
answer
its marginal cost curve above the minimum point of its average variable cost curve
question
A constant-cost, perfectly competitive gadget industry is in long-run equilibrium. An increase in the number of consumers of gadgets will most likely result in
answer
a higher short-run price for gadgets, followed by an increase in the quantity produced
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
Which of the following statements is true about a firm that sells its output in a perfectly competitive market
answer
The firm will earn zero economic profits in the long-run equilibrium
question
Assume that a firm that produces a good in a constant-cost perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, the profit-maximizing output by the firm will change in which of the following ways in the short run and long run?
answer
Short run - increase, long run - return to original level
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
Which of the following is true for a perfectly competitive firm in long-run equilibrium?
answer
It is allocatively efficient
question
Which of the following will cause the demand for milk to decrease?
answer
A decrease in income assuming that milk is a normal good
question
Which of the following will cause the quantity demanded of milk to decrease?
answer
An increase in the price of milk
question
The supply curve for automobiles will shift to the left in response to
answer
an increase in wages in the automobile industry
question
In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both the equilibrium price and quantity to decrease?
answer
Supply - no shift, demand - shift to the left
question
If 1/4 of a nation's wheat crop is destroyed by a flood in a given season, then the price of wheat and the quantity sold will change in the short run in which of the following ways?
answer
Price - increase, Quantity - decrease
question
Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?
answer
Price will increase to eliminate the shortage and restore equilibrium
question
Suppose the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the total surplus?
answer
All will decrease
question
Which of the following will occur if a legal price floor is placed on a good below its free market equilibrium?
answer
The equilibrium price and quantity remain the same
question
Which of the following statements about price control is true?
answer
Price ceilings and price floors result in a misallocation of resources.
question
Following a prolonged power-outage, the price of flashlights normally increases significantly. If cities had passed laws prohibiting price increases for flashlights, during power outages such laws would most likely
answer
create a shortage of flashlights.
question
Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X increases from 25 to 30 units. In this price range, demand for good X is
answer
elastic
question
Which of the following must be true for original Michelangelo sculptures?
answer
The supply is perfectly inelastic
question
If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X?
answer
It is an inferior good and a complement to Y
question
If the cross price elasticity coefficient of goods A and B is -5 and the income elasticity of good A is 2, which of the following is true?
answer
An increase in the price of A will decrease the demand for good B
question
To maximize utility, a consumer with a fixed budget will purchase quantities of goods so that the ratios of the marginal utility of each good to its price
answer
are equal
question
Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of x is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Pym which of the following expressions defines consumer equilibrium?
answer
MUx/Px = MUy/Py
question
The concept of opportunity cost would no longer be relevant if
answer
the supply of all resources were unlimited
question
An increase in which of the following would least likely increase labor productivity?
answer
the labor force
question
Unlike a market economy, a command economy uses
answer
more centralized planning in economic decision making
question
Which of the following explains why a production possibilities curve is often represented as concave from the origin?
answer
Increasing opportunity cost
question
If all resources were perfectly adaptable for alternative uses, the production possibilities curve would
answer
be a straight line
question
A country can consume beyond its present production possibilities curve when it
answer
trades with other countries, thus taking advantage of different opportunity costs
question
If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?
answer
Each nation would increase its consumption possibilities
question
For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?
answer
Houses are suppliers of resources and consumers of goods and services
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