ch. 6-11 - Assignment Essays

question

lower tax revenue in the short run but raise tax revenue in the long run.

answer

1. Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

question

a. You would pay more for your first slice of pizza than your second. [correct; the marginal value of the second pizza slice is less than the first]

answer

2. It's lunch time, you are hungry and you would like to have some pizza. By the law of diminishing marginal value,

question

a. houses are normal goods for Jim [correct; for normal goods, demand increases as income increases]

answer

3. Jim recently graduated from college. His income increased tremendously from $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that

question

b. Items from Dollar stores

answer

4. Which of the following goods has a negative income elasticity of demand?

question

d. substitutes.

answer

5. An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are

question

b. the marginal benefit of the sixth banana exceeds its price.

answer

6. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if

question

b. Demand would fall, and Budweiser would reduce price.

answer

7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?

question

d. Some consumers are willing to pay more than the price.

answer

8. Which of the following is the reason for the existence of consumer surplus?

question

c. 66.6%

answer

9. A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is $8/dozen. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price increase is profitable?

question

a. 5% lower. [correct; %ΔQ= e(%ΔP). Therefore, an 15% increase in Q = -3(%ΔP), hence %ΔP = -5%]

answer

10. Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is -3, how should you adjust price if you want to sell all of your output?

question

c. economies of scope

answer

1. Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is taking advantage of

question

c. there are scale economies.

answer

2. As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because:

question

a. due to declining average fixed costs

answer

3. Average costs curves initially fall

question

d. A small number of firms

answer

4. What might you reasonably expect of an industry in which firms tend to have economies of scale?

question

c. There are diseconomies of scale

answer

5. A security system company's total production costs depend on the number of systems produced according to the following equation: Total Costs = $20,000,000 + $4000*quantity produced. Given these data, which of the following is a false statement?

question

a. 100, 150, 240 [correct; the cost of producing both products together (240) is less than the sum of the cost of producing them separately (250)]

answer

6. Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope?

question

will diminish eventually

answer

7. According to the law of diminishing marginal returns, marginal returns:

question

d. diseconomies of scope

answer

8. It costs a firm $90 per unit to produce product A and $70 per unit to produce product B individually. If the firm can produce both products together at $175 per unit of product A and B, this exhibits signs of

question

increasing

answer

9. A company faces the following costs at the respective production level in addition to its fixed costs of $50,000:

Quantity Marginal Cost Sale Price Marginal Return
1 $10,000 $20,000 $10,000
2 $11,000 $20,000 $9,000
3 $12,000 $20,000 $8,000
4 $13,000 $20,000 $7,000
5 $14,000 $20,000 $6,000

How would you describe the returns to scale for this company?

question

a. Average costs will increase

answer

10. Once marginal cost rises above average cost,

question

a. movement along the demand curve [yes but this is not the only effect]
b. movement along the supply curve [yes but this is not the only effect]
c. no movement along either curve [changes in prices will result in movement along one or more of these curves
d. Both a and b CORRECT

answer

1. Changes in prices of a good causes

question

c. The equilibrium price would fall, and the equilibrium quantity could rise or fall.

answer

2. If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?

question

c. A decrease in the supply of the product.

answer

3. When demand for a product falls, which of the following events would you NOT necessarily expect to occur?

question

c. fall, rise

answer

4. Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will _________ and the quantity will _________.

question

answer

5. Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no transactions costs, what is the equilibrium price in this market?

question

two

answer

6. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded?

question

170,000

answer

7. Say the average price of a new home in Lampard City is $160,000. The local government has just passed new licensing requirements for housing contractors. Based on possible shifts in demand or supply and assuming that the licensing changes do not affect the quality of new houses, which of the following is a reasonable prediction for the average price of a new home in the future?

question

d. Not enough information

answer

8. Suppose a new employer is also re-locating to Lampard City and will be attracting many new people who will want to buy new houses. Assume that the change in licensing requirements mentioned above occurs at the same time. What do you think will happen to the equilibrium quantity of new homes bought and sold in Lampard City?

question

a. The demand curve will shift to the left; the supply curve will shift to the left

answer

9. The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed with peanut butter) rise. How does this affect the market for peanut butter?

question

d. the supply curve to shift to the right, causing the prices of coffee to fall

answer

10. Holding other factors constant, a decrease in the tax for producing coffee causes

question

d. Zero economic profits but positive accounting profits

answer

1. In the long-run, which of the following outcomes is most likely for a firm?

question

d. A monopoly firm but not a perfectly competitive firm

answer

2. At the individual firm level, which of the following types of firms faces a downward-sloping demand curve?

question

b. Neither a perfectly competitive firm nor a monopoly

answer

3. Which of the following types of firms are guaranteed to make positive economic profit?

question

c. Monopoly firms can generally earn positive profits over a longer period of time

answer

4. What is the main difference between a competitive firm and a monopoly firm?

question

cotton

answer

5. Which of the products below is closest to operating in a perfectly competitive industry?

question

c. Perfectly elastic

answer

6. A firm in a perfectly competitive market (a price taker) faces what type of demand curve?

question

$300 in the short-run and zero in the long run

answer

7. A competitive firm's profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm's profits are

question

d. They would fall to zero

answer

8. What would happen to revenues if a firm in a perfectly competitive industry raised prices?

question

d. some firms will enter the industry and price will fall

answer

9. If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run

question

a. losses in the short-run and average profits in the long-run

answer

10. A sudden decrease in the market demand in a competitive industry leads to

question

d. a group of firms producing products that are close substitutes.

answer

1. An industry is defined as

question

a. high supplier power

answer

2. Attractive industries have all the following, except

question

c. Low capital requirements for entry

answer

3. Which of the following is NOT an example of an entry barrier?

question

c. switching costs are low.

answer

4. Buyers have higher power when

question

c. Fast industry growth.

answer

5. Which of the following is NOT a factor that contributes to higher rivalry in an industry?

question

a. resource heterogeneity

answer

6. The concept that describes firms possessing different bundles of resources is

question

decrease

answer

7. If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should

question

d. temporary competitive advantage.

answer

8. When a resource or capability is valuable and rare, a firm may gain a

question

d. The methods of achieving cost reductions are difficult to imitate.

answer

9. Which of the following is critical for a firm adopting a long-term cost-reduction strategy?

question

d. a sustainable competitive advantage

answer

10. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain

question

b. Exchange rate

answer

1. The intersection between demand for dollars and the supply of dollars is known as the

question

b. $5,376

answer

2. An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms?

question

d. US producers will be hurt; Chinese consumers will be

answer

3. If the Chinese yuan devalues relative to the US dollar, then

question

b. Prices in the United States would rise, and prices in Mexico would fall.

answer

4. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

question

d. U.S. consumers would be hurt, and Mexican producers would be hurt.

answer

5. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

question

d. The dollar would depreciate relative to the peso, and Mexican prices would decrease.

answer

6. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused Mexican investors to borrow abroad to invest domestically, which of the following is expected to occur?

question

d. The exchange rate would not be affected, and neither would Mexican prices.

answer

7. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US investors to invest in Mexican Bonds. Which of the following would occur?

question

a. The Big Mac Index would indicate that the Chinese currency is less under-valued.

answer

8. In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at that time. How would domestic inflation in China affect the Big Mac Index?

question

c. The dollar will depreciate relative to the yuan, and U.S. prices will increase

answer

9. If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services. How will this affect exchange rates?

question

b. Accelerate; delay

answer

10. If buyers expect future price increases, they will ___________ their purchases to avoid it. Similarly, sellers will __________ selling to take advantage of it.

1 of 60

question

lower tax revenue in the short run but raise tax revenue in the long run.

answer

1. Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

question

a. You would pay more for your first slice of pizza than your second. [correct; the marginal value of the second pizza slice is less than the first]

answer

2. It's lunch time, you are hungry and you would like to have some pizza. By the law of diminishing marginal value,

question

a. houses are normal goods for Jim [correct; for normal goods, demand increases as income increases]

answer

3. Jim recently graduated from college. His income increased tremendously from $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that

question

b. Items from Dollar stores

answer

4. Which of the following goods has a negative income elasticity of demand?

question

d. substitutes.

answer

5. An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are

question

b. the marginal benefit of the sixth banana exceeds its price.

answer

6. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if

question

b. Demand would fall, and Budweiser would reduce price.

answer

7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?

question

d. Some consumers are willing to pay more than the price.

answer

8. Which of the following is the reason for the existence of consumer surplus?

question

c. 66.6%

answer

question

a. 5% lower. [correct; %ΔQ= e(%ΔP). Therefore, an 15% increase in Q = -3(%ΔP), hence %ΔP = -5%]

answer

10. Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is -3, how should you adjust price if you want to sell all of your output?

question

c. economies of scope

answer

question

c. there are scale economies.

answer

2. As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because:

question

a. due to declining average fixed costs

answer

3. Average costs curves initially fall

question

d. A small number of firms

answer

4. What might you reasonably expect of an industry in which firms tend to have economies of scale?

question

c. There are diseconomies of scale

answer

question

a. 100, 150, 240 [correct; the cost of producing both products together (240) is less than the sum of the cost of producing them separately (250)]

answer

6. Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope?

question

will diminish eventually

answer

7. According to the law of diminishing marginal returns, marginal returns:

question

d. diseconomies of scope

answer

question

increasing

answer

question

a. Average costs will increase

answer

10. Once marginal cost rises above average cost,

question

answer

1. Changes in prices of a good causes

question

c. The equilibrium price would fall, and the equilibrium quantity could rise or fall.

answer

2. If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?

question

c. A decrease in the supply of the product.

answer

3. When demand for a product falls, which of the following events would you NOT necessarily expect to occur?

question

c. fall, rise

answer

question

answer

question

two

answer

6. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded?

question

170,000

answer

question

d. Not enough information

answer

question

a. The demand curve will shift to the left; the supply curve will shift to the left

answer

9. The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed with peanut butter) rise. How does this affect the market for peanut butter?

question

d. the supply curve to shift to the right, causing the prices of coffee to fall

answer

10. Holding other factors constant, a decrease in the tax for producing coffee causes

question

d. Zero economic profits but positive accounting profits

answer

1. In the long-run, which of the following outcomes is most likely for a firm?

question

d. A monopoly firm but not a perfectly competitive firm

answer

2. At the individual firm level, which of the following types of firms faces a downward-sloping demand curve?

question

b. Neither a perfectly competitive firm nor a monopoly

answer

3. Which of the following types of firms are guaranteed to make positive economic profit?

question

c. Monopoly firms can generally earn positive profits over a longer period of time

answer

4. What is the main difference between a competitive firm and a monopoly firm?

question

cotton

answer

5. Which of the products below is closest to operating in a perfectly competitive industry?

question

c. Perfectly elastic

answer

6. A firm in a perfectly competitive market (a price taker) faces what type of demand curve?

question

$300 in the short-run and zero in the long run

answer

7. A competitive firm's profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm's profits are

question

d. They would fall to zero

answer

8. What would happen to revenues if a firm in a perfectly competitive industry raised prices?

question

d. some firms will enter the industry and price will fall

answer

9. If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run

question

a. losses in the short-run and average profits in the long-run

answer

10. A sudden decrease in the market demand in a competitive industry leads to

question

d. a group of firms producing products that are close substitutes.

answer

1. An industry is defined as

question

a. high supplier power

answer

2. Attractive industries have all the following, except

question

c. Low capital requirements for entry

answer

3. Which of the following is NOT an example of an entry barrier?

question

c. switching costs are low.

answer

4. Buyers have higher power when

question

c. Fast industry growth.

answer

5. Which of the following is NOT a factor that contributes to higher rivalry in an industry?

question

a. resource heterogeneity

answer

6. The concept that describes firms possessing different bundles of resources is

question

decrease

answer

7. If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should

question

d. temporary competitive advantage.

answer

8. When a resource or capability is valuable and rare, a firm may gain a

question

d. The methods of achieving cost reductions are difficult to imitate.

answer

9. Which of the following is critical for a firm adopting a long-term cost-reduction strategy?

question

d. a sustainable competitive advantage

answer

10. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain

question

b. Exchange rate

answer

1. The intersection between demand for dollars and the supply of dollars is known as the

question

b. $5,376

answer

2. An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms?

question

d. US producers will be hurt; Chinese consumers will be

answer

3. If the Chinese yuan devalues relative to the US dollar, then

question

b. Prices in the United States would rise, and prices in Mexico would fall.

answer

4. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

question

d. U.S. consumers would be hurt, and Mexican producers would be hurt.

answer

5. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

question

d. The dollar would depreciate relative to the peso, and Mexican prices would decrease.

answer

question

d. The exchange rate would not be affected, and neither would Mexican prices.

answer

7. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US investors to invest in Mexican Bonds. Which of the following would occur?

question

a. The Big Mac Index would indicate that the Chinese currency is less under-valued.

answer

question

c. The dollar will depreciate relative to the yuan, and U.S. prices will increase

answer

9. If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services. How will this affect exchange rates?

question

b. Accelerate; delay

answer

10. If buyers expect future price increases, they will ___________ their purchases to avoid it. Similarly, sellers will __________ selling to take advantage of it.

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