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Refer to the graphs above. A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units. Which graph best illustrates the demand for this good?
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graph B TL BR
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If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as
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elastic.
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Chuck has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10 percent. What will happen to the total amount Chuck spends on beer?
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It will decrease.
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You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should
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increase the price of the software.
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Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be
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unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.
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Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an
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elastic demand to see movies in the afternoon.
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Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that
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the price elasticity of demand for farm products is less than 1.
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The law of supply suggests that the price-elasticity of supply is
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positive.
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Refer to the diagram and assume that price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about
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0.25, and supply is inelastic.
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Refer to the above table. Which product is a normal good but least responsive to a change in income?
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Product X
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Refer to the diagram. Total utility
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increases at a diminishing rate, reaches a maximum, and then declines.
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Marginal utility is the
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change in total utility obtained by consuming one more unit of a good.
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Which of the following is not an assumption of the theory of consumer behavior described in this chapter?
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The consumer's tastes and preferences continually change within the period studied.
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Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth
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has a higher "marginal utility-to-price ratio" for the hockey game than for the play.
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If the price of X decreases from $3 to $2, while the price of Y and the consumer's income stay the same, then the utility-maximizing combination is such that the quantity of X
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increases from 2 to 3.
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How did Apple overcome consumers' diminishing marginal utility for iPads?
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Apple introduced new features to entice previous buyers to purchase new models.
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In moving along a given budget line,
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the prices of both products and money income are assumed to be constant.
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The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the
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slope of the budget line.
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Refer to the graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is $2.00 per pitcher and pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph represents the set of possible combinations of beer and pizza that he can buy?
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graph A
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Implicit costs are
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opportunity costs of self-employed resources.
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Normal profits are
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considered an implicit cost by economists.
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When the total product curve is falling, the
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marginal product of labor is negative.
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The question is based on the following table, which provides information on the production of a product that requires one variable input.
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second unit of variable input.
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Which of the following holds true?
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When AP is rising, AVC is falling, and when AP is falling, AVC is rising.
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Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes.
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10 to 30 units of output.
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When diseconomies of scale occur,
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the long-run average total cost curve rises.
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The mass affordability of the iPhone is the result of the following, except
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the law of diminishing returns in manufacturing.
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In which market model are the conditions of entry into the market easiest?
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pure competition
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Which of the following industries most closely approximates pure competition?
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agriculture
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Which characteristic would best be associated with pure competition?
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price takers
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Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the
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unit price.
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For a purely competitive seller, price equals
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all of these.
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In pure competition, the demand for the product of a single firm is perfectly
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elastic because many other firms produce the same product.
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Refer to the provided graph for a purely competitive firm in the short run. If the firm increases its output level from B to C, then its total profits will be
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positive and decreasing.
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Refer to the provided graph for a purely competitive firm in the short run. The firm would suffer losses if it operated at which of the following ranges of output?
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0A
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Curve (3) in the diagram is a purely competitive firm's
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total revenue curve.
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If a purely competitive firm is producing at some output level less than the profit-maximizing output, then
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marginal revenue exceeds marginal cost.
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DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should
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add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
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A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
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produce because the resulting loss is less than its TFC.
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The fallacy of composition states that
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what is true for the individual must necessarily be true for the group.
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A perfectly inelastic demand schedule
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can be represented by a line parallel to the vertical axis.
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Refer to the data. Suppose quantity supplied declined by 23 units at each price, changing the equilibrium price in a direction and amount for you to determine. Over that price range, demand is
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inelastic.
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For a linear demand curve,
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demand is elastic at relatively high prices.
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A perfectly inelastic demand curve
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graphs as a line parallel to the vertical axis.
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If the demand for a product is elastic, then
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a higher tax on the product will generate less tax revenue.
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Consider the demand curve above. If area 0ABC is smaller than area 0DEF, we may conclude that demand in this range is
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price-elastic.
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Refer to the diagram, which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. In comparing the price elasticity and the slope of this demand curve, we can conclude that the
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slope of the curve varies, but its elasticity is constant.
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The price elasticity of demand increases with the length of the period considered because
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consumers will be better able to find substitutes.
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(Last Word) Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be
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more elastic than the demand for the original software.
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A supply curve that is parallel to the horizontal axis suggests that
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a change in demand will change the equilibrium quantity but not price.
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The diagram shows two product supply curves. It indicates that
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over range Q1Q2, price elasticity of supply is greater for S1 than for S2.
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Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price
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will increase, but equilibrium quantity will be unchanged.
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We would expect the cross elasticity of demand between dress shirts and ties to be
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negative, indicating complementary goods.
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We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because
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there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.
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When total utility reaches a maximum, then marginal utility is
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equal to zero.
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The ability of a good or service to satisfy wants is called
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utility
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Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18.
What level of total utility will the utility-maximizing consumer realize?
What level of total utility will the utility-maximizing consumer realize?
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96 utils
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Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?
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$1.60
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If the price of A decreases, while the price of B and the consumer's income stay the same, we would expect
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MU/P of A to increase, and the consumer will thus buy less of B.
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What do the income effect, the substitution effect, and diminishing marginal utility have in common?
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They all help explain the downsloping demand curve.
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Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
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Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.
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Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils, respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You
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should consume less of X and more of Y.
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Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward). This might be the result of
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her money income increasing more than increases in the prices of X and Y.
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In the diagram, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than 5/4. That is, MUA/MU0>5/4. To maximize utility, the consumer should move from point
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a to e.
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As a consumer moves from one point to another along an indifference curve, which of the following is assumed to stay constant?
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total satisfaction from the two goods
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Economic profits are
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equal to the difference between accounting profits and implicit costs.
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To the economist, total cost includes
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explicit and implicit costs.
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Which of the following best expresses the law of diminishing returns?
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As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
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Marginal product is largest for the
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second unit of variable input.
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Refer to the diagram. At output level Q, total variable cost is
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0BEQ.
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Refer to the provided graph. At which point is average product (AP) at its maximum?
answer
point B
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Other things equal, if the prices of a firm's variable inputs were to fall,
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marginal cost, average variable cost, and average total cost would all fall.
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The firm's minimum efficient scale is at what output level?
answer
3,500
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Economies and diseconomies of scale explain
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why the firm's long-run average total cost curve is U-shaped.
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Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced
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an upward shift in their MC, AVC, and ATC curves.
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An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of
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oligopoly
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Local electric or gas utility companies mostly operate in which market structure?
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pure monopoly
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Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?
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Firms produce a homogeneous product.
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For a purely competitive firm, total revenue
answer
has all of these characteristics.
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Average revenue and marginal revenue are equal at each output level in
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pure competition.
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A perfectly elastic demand curve implies that the firm
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can sell as much output as it chooses at the existing price.
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A competitive firm will maximize profits at that output at which
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total revenue exceeds total cost by the greatest amount.
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Curve (2) in the diagram is a purely competitive firm's
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marginal revenue curve.
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In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below
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average variable cost.
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The data in the accompanying table indicates that this firm is selling its output in a(n)
answer
purely competitive market.
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A purely competitive seller should produce (rather than shut down) in the short run
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if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.
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The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $45, the firm will
answer
produce 5 units and realize a $15 economic profit.
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Refer to the diagram for a purely competitive producer. If product price is P3,
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economic profits will be zero.
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At what price will the firm shown in the accompanying graph make just a normal profit?
answer
$7
question
The provided graph gives short-run data for a firm. Which of the following statements is correct?
answer
At price P1, the firm will not supply any quantity.
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