question
Which of the following is held constant along a given demand curve?
answer
Consumer's income
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When quantity demanded decreases at every possible price, the demand curve has
answer
Shifted to the left
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Pizza is a normal good if the demand
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for pizza rises when income rises
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The law of demand states that, other things equal, when the price of a good
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falls, the quantity demanded of the good rises
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In this analogy, what is the baton that the invisible hand uses to conduct the economic orchestra?
answer
Price
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In a competitive market, the actions of any single buyer or seller will
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have a negligible impact on the market price.
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Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the
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The supply of flour to increase
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Which of the following events must cause equilibrium price to fall?
answer
Demand decreases and supply increases
question
Years ago, thousands of country music fans risked their lives by rushing to buy tickets for a Willie Nelson concert at Carnegie Hall. This behavior indicates
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The ticket was below equilibrium price
question
The supply curve of a perfectly-competitive firm in the short-run is:
answer
the marginal cost curve above the minimum of average variable cost.
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Consider two goods, X and Y. If the price of Y increases and, as a consequence, the demand curve for X shifts to the left, then:
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X and Y are compliments
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Normative statements are
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prescriptive, whereas positive statements are descriptive
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A price ceiling is
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a legal maximum on the price at which a good can be sold
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The imposition of a binding price floor on a market
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causes quantity demanded to be less than quantity supplied
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A binding price ceiling
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causes a shortage; is set below equilibrium price
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In a market economy
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- A central planner makes decisions about production and consumption
- Households decide which firms to work for and what to but with their income
- Households decide which firms to work for and what to but with their income
question
In a free, competitive market, what is the rationing mechanism?
answer
Price
question
Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?
answer
Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling
question
Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?
answer
The number of firms selling laptop computers decreases
question
When government imposes a price ceiling or a price floor on a market,
answer
price no longer serves as a rationing device
question
Which of the following changes would increase the supply of widgets?
answer
technological innovation
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Scotch whisky is matured in oak casks for three or more years. This suggests that, other things equal, an increase in interest rates will:
answer
increase the cost of producing Scotch
question
The term that means "equal balance" is:
answer
equilibrium
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Suppose, thanks to technological advances in the oil drilling industry, gasoline prices fall to $1.00 per gallon. How will this affect the market for automobiles?
answer
gas and autos are complements, so car prices will increase but more cars will be sold
question
If the government imposes (and enforces) a binding price ceiling on the market for apples, but doesn't provide a formal rationing mechanism:
answer
resources will be wasted as buyers jockey (compete with one another) to obtain the good
question
Suppose a city facing a shortage of rental apartments eliminates rent controls. Which of the following is most likely to occur?
answer
an increase in rents and an increase in the number of apartment units supplied
question
Which of the following is true of learning by doing?
answer
It results from a firm's cumulative output experience
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In the long run:
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All firm's costs are variable
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Tony is the owner of Tony's Taqueria. Tony is a profit-maximizing owner whose firm operates in a competitive market. Hiring one more worker costs Tony $200 and has a marginal product of 40 tacos. Assuming Tony has no other variable costs, and fixed costs of $120, what is the marginal cost of a taco?
answer
$5
question
Acme Widget Company is producing 100 widgets per month and selling them for $10 each. Acme's CEO observes that it could produce 1 more widget for only $7 more, without affecting the price, and suggests that it increase its output. The CFO objects, because the average total cost of producing 101 widgets is $12, which is more than the selling price. Who is right?
answer
The CEO is correct, because producing one more widget will increase the firm's profit.
question
Monopolies use their market power to:
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charge a price that is higher than marginal cost
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The marginal revenue curve of a monopolist lies below the demand curve because:
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the monopolist must lower price on all units sold in order to sell additional units.
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If price remains above the average total cost for firms in a competitive industry:
answer
new firms will enter that industry.
question
A perfectly competitive firm faces a horizontal demand curve, which implies that:
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the firm cannot affect price by any action it takes.
question
Which of the following is a condition for long-run equilibrium in a competitive industry?
answer
Each firm in the industry is earning zero economic profit.
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The supply curve of a perfectly-competitive firm in the short-run is:
answer
the marginal cost curve above the minimum of average variable cost.
question
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
answer
a small increase in output will increase the firm's profit
question
The CEO of Acme Widgets is considering shutting down this month to avoid large losses, but the CFO points out that as a large employer Acme is required to give its workers 60 days notice of a plant closing or layoff. If they close the plant, Acme will still have to pay its workers this month. The CEO should
answer
Close the plant anyway, if there's no way to earn at least enough revenue to cover variable costs.
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