question
Decrease in Price: XXX is higher->More of good purchased
answer
MU/P
question
Economics: Study of XXX
answer
Scarce resources
question
Scarce Resources of Individuals: Amount of XXX and XXX spends on goods and services
answer
time, money
question
Scarce Resources of Firms: Production factors such as XXX, XXX, and XXX
answer
land, labor, capital
question
Sara decides to spend five hours working overtime rather than going to the movies with her friends. She earns $15 per hour for overtime work. Her opportunity cost of working is:
A. the $75 she earns working.
B. the $75 minus the enjoyment she would have received from going to the movies.
C. the enjoyment she would have received had she gone to the movies.
D. nothing since she would have received less than $75 worth of enjoyment from going to the movies.
A. the $75 she earns working.
B. the $75 minus the enjoyment she would have received from going to the movies.
C. the enjoyment she would have received had she gone to the movies.
D. nothing since she would have received less than $75 worth of enjoyment from going to the movies.
answer
C
question
XXX: Represents the opportunity costs an economy faces in the production of two goods
answer
Production Possibilities Frontier
question
PPF Assumptions: X Goods, Snapshot in time of production, limited resources can be used in the production of XXX goods
answer
2, both
question
Points along PPF Curve: XXX point of production (shows that all XXX are in use)
answer
Efficient, resources
question
Opportunity Cost XXX as we give up more of the good that is scarce
answer
Rises
question
Opportunity cost is XXX when the good is in relative abundance
answer
lower
question
XXX XXX of the PPF: When one input factors availability disproportionately impacts the PPF Curve
answer
Bias Shift
question
It is possible for an economy to increase its production of both goods if the economy
A. moves along its production possibilities frontier and the frontier is bowed outward.
B. moves along its production possibilities frontier and the frontier is bowed inward.
C. moves in either direction along its production possibilities frontier and the frontier is a straight line.
D. moves from a situation of inefficient production to a situation of efficient production.
A. moves along its production possibilities frontier and the frontier is bowed outward.
B. moves along its production possibilities frontier and the frontier is bowed inward.
C. moves in either direction along its production possibilities frontier and the frontier is a straight line.
D. moves from a situation of inefficient production to a situation of efficient production.
answer
D
question
Which of the following is true if a country currently produces a combination of two goods inside its production possibilities curve?
A. The country can increase the production of one good only by decreasing the production of the other good.
B. The country is producing the efficient combination using all its available resources.
C. The country can produce more of both goods with its existing resources.
D. The country cannot increase the production of either good.
E. The country must be importing more of both goods from other countries.
A. The country can increase the production of one good only by decreasing the production of the other good.
B. The country is producing the efficient combination using all its available resources.
C. The country can produce more of both goods with its existing resources.
D. The country cannot increase the production of either good.
E. The country must be importing more of both goods from other countries.
answer
C
question
A production possibilities curve can be used to show which of the following?
A. Absence of trade-offs in the production of goods
B. The limits on production due to scarcity of resources
C. The amount of investment spending necessary to reach full employment
D. The labor force participation rate
A. Absence of trade-offs in the production of goods
B. The limits on production due to scarcity of resources
C. The amount of investment spending necessary to reach full employment
D. The labor force participation rate
answer
B
question
Agent produces all the goods and services that they need and want to consume
answer
Economic Self-Sufficiency
question
Produce one good that they have a comparative advantage in and trade with others for what they need
answer
Economic Specialization
question
We can consume more while working the same amount
answer
Gains from trade
question
Produce more in the same amount of time with the same amount of resources
answer
Absolute advantage
question
It is possible for economic agents to have XXX in both goods, but not to have XXX in both.
answer
Absolute advantages, comparative advantages
question
Lowest opportunity cost of producing that good
answer
Comparative advantage
question
Lilly bakes cookies and James grows tomatoes. In which of the following cases is it impossible for both Lilly and James to benefit from trade?
· A. Lilly does not like tomatoes and James does not like cookies.
· B. Lilly is better than James at baking cookies and Liam is better than Abby at growing tomatoes.
· C. James is better than Lilly at baking cookies and at growing tomatoes.
· D. Both Lilly and James can benefit from trade in all of the above cases.
· A. Lilly does not like tomatoes and James does not like cookies.
· B. Lilly is better than James at baking cookies and Liam is better than Abby at growing tomatoes.
· C. James is better than Lilly at baking cookies and at growing tomatoes.
· D. Both Lilly and James can benefit from trade in all of the above cases.
answer
A
question
Which of the following best states the law of comparative advantage?
· A. Difference in relative costs of production are key to determining patterns of trade
· B. Differences in absolute costs of production determine which goods should be traded
· C. Tariffs and quotas are beneficial in increasing international competitiveness
· D. Nations should not specialization in the production of goods and services
· A. Difference in relative costs of production are key to determining patterns of trade
· B. Differences in absolute costs of production determine which goods should be traded
· C. Tariffs and quotas are beneficial in increasing international competitiveness
· D. Nations should not specialization in the production of goods and services
answer
A
question
Using equal amounts of resources, Country A can produce either 30 tons of mangoes or 10 tons of bananas, and Country B can produce either 10 tons of mangoes or 6 tons of bananas. Which of the following is consistent with the information above? Country A; Country B
· A. Comparative advantage in mango production; Comparative advantage in banana production
· B. Comparative advantage in banana production; Comparative advantage in mango production
· C. Absolute advantage in mango production; Absolute advantage in banana production
· D. Absolute advantage in banana production; Absolute advantage in mango production
· E. Comparative advantage in banana production; Absolute advantage in mango production
· A. Comparative advantage in mango production; Comparative advantage in banana production
· B. Comparative advantage in banana production; Comparative advantage in mango production
· C. Absolute advantage in mango production; Absolute advantage in banana production
· D. Absolute advantage in banana production; Absolute advantage in mango production
· E. Comparative advantage in banana production; Absolute advantage in mango production
answer
A
question
Tara bakes brownies and James grows tomatoes. In which of the following cases is it impossible for both Tara and James to benefit from trade?
· A. Tara does not like tomatoes and James does not like brownies.
· B. Tara is better than James at baking brownies and James is better than Tara at growing tomatoes.
· C. James is better than Tara at baking brownies and at growing tomatoes.
· D. Both Tara and James can benefit from trade in all of the above cases.
· E. Tara does not have the resources to grow tomatoes, but James has the resources to bake brownies.
· A. Tara does not like tomatoes and James does not like brownies.
· B. Tara is better than James at baking brownies and James is better than Tara at growing tomatoes.
· C. James is better than Tara at baking brownies and at growing tomatoes.
· D. Both Tara and James can benefit from trade in all of the above cases.
· E. Tara does not have the resources to grow tomatoes, but James has the resources to bake brownies.
answer
A
question
Suppose that a worker in Tunsia can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Orlandia can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Tunsia and 20 workers in Orlandia. Which of the following statements is true?
· A. Both countries could gain from trade with each other.
· B. Neither country could gain from trade with each other because Tunsia has an absolute advantage in both goods.
· C. Neither country could gain from trade with each other because neither one has a comparative advantage.
· D. Orlandia could gain from trade between the two countries, but Tunsia definitively would lose.
· E. None of the above
· A. Both countries could gain from trade with each other.
· B. Neither country could gain from trade with each other because Tunsia has an absolute advantage in both goods.
· C. Neither country could gain from trade with each other because neither one has a comparative advantage.
· D. Orlandia could gain from trade between the two countries, but Tunsia definitively would lose.
· E. None of the above
answer
C
question
Suppose Jan and Tom want to trade sweaters for potatoes. Both have the resources to produce each of the goods. Under which scenarios can they gain from trade?
· A. Jan can produce 5 sweaters or 10 potatoes in one hour, Tom can produce 2 sweaters or 4 potatoes in one hour
· B. Jan can produce 6 sweaters or 12 potatoes in one hour, Tom can produce 12 sweaters of 6 potatoes in one hour
· C. Jan can produce 4 sweaters or 8 potatoes in one hour, Tom can produce 3 sweaters or 9 potatoes in one hour
· D. Both A and B
· E. Both B and C
· A. Jan can produce 5 sweaters or 10 potatoes in one hour, Tom can produce 2 sweaters or 4 potatoes in one hour
· B. Jan can produce 6 sweaters or 12 potatoes in one hour, Tom can produce 12 sweaters of 6 potatoes in one hour
· C. Jan can produce 4 sweaters or 8 potatoes in one hour, Tom can produce 3 sweaters or 9 potatoes in one hour
· D. Both A and B
· E. Both B and C
answer
E
question
If Jan produce can produce 4 sweaters or 8 potatoes in one hour, and Tom can produce 3 sweaters or 9 potatoes in one hour:
· A. Jan has an absolute advantage in sweaters and a comparative advantage in potatoes
· B. Jan has an absolute advantage in sweaters and a comparative advantage in sweaters
· C. Tom has a comparative advantage in potatoes and no absolute advantage in either good
· D. Tom has a comparative advantage in sweaters and an absolute advantage in potatoes
· E. None of the above
· A. Jan has an absolute advantage in sweaters and a comparative advantage in potatoes
· B. Jan has an absolute advantage in sweaters and a comparative advantage in sweaters
· C. Tom has a comparative advantage in potatoes and no absolute advantage in either good
· D. Tom has a comparative advantage in sweaters and an absolute advantage in potatoes
· E. None of the above
answer
B
question
The most obvious benefit of specialization and trade is that they allow us to
· A. work more hours per week than we otherwise would be able to work.
· B. consume more goods than we otherwise would be able to consume.
· C. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society.
· D. consume more goods by forcing people in other countries to consume fewer goods.
· A. work more hours per week than we otherwise would be able to work.
· B. consume more goods than we otherwise would be able to consume.
· C. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society.
· D. consume more goods by forcing people in other countries to consume fewer goods.
answer
B
question
System of production, resource allocation, exchange, and distribution of goods and services
answer
Economic systems
question
Determine who owns a resource and who determines the allocation of the resource
answer
Property rights
question
4 Staples of Property Rights
answer
Right to use, earn income from, transfer, and enforce property right with a good
question
Private ownership and allocation of resources and goods
answer
Capitalist economy
question
Government ownership and allocation of resources and goods
answer
Socially Planned/Socialist Economy
question
Private ownership but planned or public allocation
answer
Command Capitalist Economy
question
Planned ownership, private allocation
answer
Market Socialism
question
Flow of goods and services from households to firms
answer
Market-Based Economy
question
Examines how cost per unit or benefits per unit change when a firm decides to change its business activities
answer
Marginal Analysis
question
More beneficial to make a choice
answer
Incentives
question
More costly to make a choice
answer
Disincentives
question
Which of the following is an important attribute of a market economy?
· A. Equal distribution of income
· B. Collective ownership of resources
· C. Centralized economic decision making
· D. Protection of property rights
· A. Equal distribution of income
· B. Collective ownership of resources
· C. Centralized economic decision making
· D. Protection of property rights
answer
D
question
Rational people make decisions at the margin by
· A. following marginal propensity to consume.
· B. making decisions based on random expectations.
· C. thinking only about future income.
· D. comparing marginal costs and marginal benefits.
· A. following marginal propensity to consume.
· B. making decisions based on random expectations.
· C. thinking only about future income.
· D. comparing marginal costs and marginal benefits.
answer
D
question
The benefits for buyers of paying less than their maximum willingness to buy
answer
Consumer surplus
question
Difference between willingness to pay and price paid
answer
Consumer Surplus
question
Benefit of a firm for receiving a price higher than the cost of production
answer
Producer Surplus
question
Consumer Surplus: Area below XXX curve or XXX price
answer
demand, above
question
Producer Surplus: Area below XXX and above the XXX
answer
price, supply
question
Total Economic Surplus = XXX Surplus + XXX Surplus
answer
Consumer, Producer
question
Total Value Surplus = XXX - XXX
answer
Value to Buyers, Cost to Sellers
question
(Surplus) Maximized consumer surplus and producer surplus
answer
Point of Equilibrium
question
Kelly is willing to pay $3.10 for a gallon of gasoline. The price of gasoline at her local gas station is $2.90. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is
· A. $6.00
· B. $2.00
· C. $20.00
· D. $60.00
· A. $6.00
· B. $2.00
· C. $20.00
· D. $60.00
answer
B
question
Bring together the decentralized decisions of buyers and sellers
answer
Competitive Markets
question
Competitive markets yield: XXX possible price for product, produced at the XXX possible cost, and the most XXX allocation of resources
answer
best, lowest, efficient
question
Assumptions of Competitive Markets (3)
answer
Operating under perfect conditions, equal access to information, and no externalities in the market
question
Comes from the buyer of a good/service
answer
Demand
question
Amount of the good buyers want to buy at each price point
answer
Quantity Demanded
question
Gives the quantity demanded at each price
answer
Demand Schedule
question
Movement along the XXX curve: Price has changed but there is no change in the XXX of buyers to buy the good
answer
demand, willingness
question
At each price point there is now a new quantity demanded
answer
Demand curve shifts
question
Factors that shift Demand (5)
answer
Change in income, price of related goods, changes in tastes and preferences, change in number of buyers, and change in future expectations
question
Goods: Income + ->Demand +
answer
Normal Goods
question
Goods: Income + -> Demand -
answer
Inferior Goods
question
Goods consumed together
answer
Compliments
question
Goods that can be consumed in the place of another good
answer
Substitutes
question
Come from the seller of a good/service
answer
Supply
question
Amount of the good sellers are willing to sell at each price point
answer
Quantity supplied
question
Quantity supplied at each price point
answer
Supply schedule
question
Relationship between price of the good and amount firms are willing to sell of the good
answer
Supply curve
question
Law of Supply: As the price of a good XXX, the quantity supplied XXX (XXX Relationship).
answer
increases, increases, Direct
question
Factors that Shift Supply (4)
answer
Changes in price of inputs, production technology, number of sellers, and future expectations
question
At equilibrium price (XX), XXX=XXX.
answer
P*, Quantity Supplied, Quantity Demanded
question
Supply and Demand Increases (2)
answer
Ambiguous effect on price, quantity increases
question
Supply and demand decreases (2)
answer
Ambiguous effect on price, quantity decreases
question
Supply decreases and demand increases (2)
answer
Price increases, ambiguous effect on quantity
question
Supply increases and demand decreases (2)
answer
Price decreases, ambiguous effect on quantity
question
Government set limit
answer
Price Control
question
Maximum price a good can be sold for
answer
price ceiling
question
Minimum price in the market for goods and services
answer
Price Floor
question
Suppose that oranges and apples are close substitutes. If the price of apples decreases, the equilibrium price and quantity of oranges are expected to change in which of the following ways?
A. Price of oranges increases; quantity of oranges increases
B. Price of oranges increases; quantity of oranges decreases
C. No change in price of oranges; quantity of oranges decreases
D. Price of oranges decreases; quantity of oranges increases
E. Price of oranges decreases; quantity of oranges decreases
A. Price of oranges increases; quantity of oranges increases
B. Price of oranges increases; quantity of oranges decreases
C. No change in price of oranges; quantity of oranges decreases
D. Price of oranges decreases; quantity of oranges increases
E. Price of oranges decreases; quantity of oranges decreases
answer
E
question
Which of the following best explains the reason for a downward sloping demand curve for a good?
A. The income substitution effects are equal
B. Total utility eventually falls below marginal utility as additional units of the good are consumed
C. The average utility falls below the marginal utility as additional units of the good are consumed
D. The marginal utility decreases as additional units of the good are consumed
A. The income substitution effects are equal
B. Total utility eventually falls below marginal utility as additional units of the good are consumed
C. The average utility falls below the marginal utility as additional units of the good are consumed
D. The marginal utility decreases as additional units of the good are consumed
answer
D
question
Which of the following will cause supply of chocolate to increase?
A. An increase in the price of cocoa butter, a by-product of the production of chocolate
B. An increase in the price of chocolate
C. An increase in the price of cocoa beans, a major input in the production of chocolate
D. A decrease in the price of butterscotch, a substitute for chocolate
A. An increase in the price of cocoa butter, a by-product of the production of chocolate
B. An increase in the price of chocolate
C. An increase in the price of cocoa beans, a major input in the production of chocolate
D. A decrease in the price of butterscotch, a substitute for chocolate
answer
A
question
If an increase in the price of good X causes a decrease in demand for good Y, good Y is
A. an inferior good.
B. a luxury good.
C. a complement for good X.
D. a subsitute good for X.
A. an inferior good.
B. a luxury good.
C. a complement for good X.
D. a subsitute good for X.
answer
C
question
An effective price floor will most likely result in
A) shortages of products if the price floor is above the equilibrium price.
B) shortages of products if the price floor is at the equilibrium price.
C) surpluses of products if the price floor is above the equilibrium price.
D) surpluses of products if the price floor is below the equilibrium price.
A) shortages of products if the price floor is above the equilibrium price.
B) shortages of products if the price floor is at the equilibrium price.
C) surpluses of products if the price floor is above the equilibrium price.
D) surpluses of products if the price floor is below the equilibrium price.
answer
C
question
Last year, Gina bought 6 hand bags when her income was $50,000. This year, her income is $55,000, and she purchased 10 hand bags. Holding other factors constant, it follows that Gina
A) considers hand bags to be a necessity.
B) considers hand bags to be an inferior good.
C) considers hand bags to be a normal good.
D) has a low price elasticity of demand for bags.
A) considers hand bags to be a necessity.
B) considers hand bags to be an inferior good.
C) considers hand bags to be a normal good.
D) has a low price elasticity of demand for bags.
answer
C
question
The supply curve for stand up paddle boards
A. shifts when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph.
B. shifts when the price of stand up paddle boards changes because the quantity supplied of stand up paddle boards is measured on the horizontal axis of the graph.
C. does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph.
D. does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the horizontal axis of the graph.
A. shifts when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph.
B. shifts when the price of stand up paddle boards changes because the quantity supplied of stand up paddle boards is measured on the horizontal axis of the graph.
C. does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph.
D. does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the horizontal axis of the graph.
answer
C
question
What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce them?
A. Both the equilibrium price and quantity would increase.
B. Both the equilibrium price and quantity would decrease.
C. The equilibrium price would increase, and the equilibrium quantity would decrease.
D. The equilibrium price would decrease, and the equilibrium quantity would increase.
A. Both the equilibrium price and quantity would increase.
B. Both the equilibrium price and quantity would decrease.
C. The equilibrium price would increase, and the equilibrium quantity would decrease.
D. The equilibrium price would decrease, and the equilibrium quantity would increase.
answer
D
question
Which of the following would necessarily cause a decrease in the price of a product?
A. An increase in the number of buyers and a decrease in the price of an input
B. An increase in the number of buyers and a decrease in the number of firms producing the product
C. An increase in average income and an improvement in production technology
D. A decrease in the price of a substitute product and an improvement in production technology
E. A decrease in the price of a substitute product and an increase in the price of an input
A. An increase in the number of buyers and a decrease in the price of an input
B. An increase in the number of buyers and a decrease in the number of firms producing the product
C. An increase in average income and an improvement in production technology
D. A decrease in the price of a substitute product and an improvement in production technology
E. A decrease in the price of a substitute product and an increase in the price of an input
answer
D
question
If an increase in the price of good X causes a decrease in the demand for good Y, good Y is?
A. an inferior good
B. a luxury good
C. a necessary good
D. a substitute for good X
E. a complement to good X
A. an inferior good
B. a luxury good
C. a necessary good
D. a substitute for good X
E. a complement to good X
answer
E
question
Which of the following shifts in the curves would cause an increase the price of a good, but an ambiguous change in the quantity sold?
A. Decrease in demand, and increase in supply
B. Decrease in demand, and decrease in supply
C. Increase in demand, and increase in supply
D. Increase in demand, and decrease in supply
E. Decrease in supply, no change in demand
A. Decrease in demand, and increase in supply
B. Decrease in demand, and decrease in supply
C. Increase in demand, and increase in supply
D. Increase in demand, and decrease in supply
E. Decrease in supply, no change in demand
answer
D
question
Consider the market for microchips that is currently in equilibrium. What would be the impact on the market if there was an invention of a new robotics tool that could produce microchips faster and with less resources than currently is possible?
A. Increase in price of microchips, supply would shift>
B. Decrease in the price of microchips, supply would shift
C. Increase in the price of microchips, demand would shift
D. Decrease in the price of microchips, demand would shift
E. No change in the price of microchips, demand and supply both shift
A. Increase in price of microchips, supply would shift>
B. Decrease in the price of microchips, supply would shift
C. Increase in the price of microchips, demand would shift
D. Decrease in the price of microchips, demand would shift
E. No change in the price of microchips, demand and supply both shift
answer
B
question
Which of the following events would cause a movement upward and to the left along the demand curve for olives?
A. The number of people who purchase olives decreases.
B. The number of farms producing olives increases
C. Consumer income decreases, and olives are a normal good.
D. The price of pickles decreases, and pickles are a substitute for olives.
E. The price of olives rises.
A. The number of people who purchase olives decreases.
B. The number of farms producing olives increases
C. Consumer income decreases, and olives are a normal good.
D. The price of pickles decreases, and pickles are a substitute for olives.
E. The price of olives rises.
answer
E
question
Consider the market for raspberry jam. Many people consume raspberry jam with biscuits. What would be the impact on the raspberry jam market if the price of flour increased?
A. Price of biscuits would rise, so people will demand less jam
B. Price of biscuits would rise, so people demand more jam
C. Price of biscuits would fall, so people demand less jam
D. Price of biscuits would fall, so people demand more jam
E. The supply of jam increases
A. Price of biscuits would rise, so people will demand less jam
B. Price of biscuits would rise, so people demand more jam
C. Price of biscuits would fall, so people demand less jam
D. Price of biscuits would fall, so people demand more jam
E. The supply of jam increases
answer
A
question
The demand curve is downward sloping because
A. As the price of a good rises, people will want to buy more of it
B. As the price of the good falls, people will want to buy more of it
C. As the price of a good rises, firms want to supply more of it to the market
D. As the price of the good falls, firms want to supply more of it to the market
E. Supply dictates the quantity demanded and price
A. As the price of a good rises, people will want to buy more of it
B. As the price of the good falls, people will want to buy more of it
C. As the price of a good rises, firms want to supply more of it to the market
D. As the price of the good falls, firms want to supply more of it to the market
E. Supply dictates the quantity demanded and price
answer
B
question
Consider the demand for waffles. Which of the following scenarios would cause a shift in demand in or to the left?
A. Eggs become more expensive, and people view eggs and waffles as substitute goods.
B. Coffee becomes more expensive, and people view coffee and waffles as complementary goods.
C. Eggs become more expensive, and eggs are an input in the production of waffles
D. Coffee becomes cheaper, and people view coffee and waffles as complementary goods
A. Eggs become more expensive, and people view eggs and waffles as substitute goods.
B. Coffee becomes more expensive, and people view coffee and waffles as complementary goods.
C. Eggs become more expensive, and eggs are an input in the production of waffles
D. Coffee becomes cheaper, and people view coffee and waffles as complementary goods
answer
B
question
If a decrease in the price of good X causes a decrease in demand for good Y, good Y is
A. A substitute for good X
B. A complement for good X
C. An inferior good
D. A normal good
A. A substitute for good X
B. A complement for good X
C. An inferior good
D. A normal good
answer
A
question
Taxes: Impose a XXX on the supply-demand model. Creates a wedge XXX by the buyer and the price received by the XXX
answer
wedge, paid, seller
question
Tax Formula
answer
price paid by buyers - price received by sellers
question
P*=
answer
Pb=Ps
question
Net Govt Revenue from Sales Tax Formula
answer
Tax*Qtaxed
question
Loss in surplus that society experiences when the market cannot reach equilibrum
answer
Deadweight loss
question
· If the government levies a $500 tax per car on sellers of cars, then the price paid by buyers of cars would do what?
· A. Increase by more than $500
· B. Increase by exactly $500
· C. Increase by less than $500
· D. Decrease by an indeterminate amount
· A. Increase by more than $500
· B. Increase by exactly $500
· C. Increase by less than $500
· D. Decrease by an indeterminate amount
answer
C
question
How much does Qd respond to a price change?
answer
Price Elasticity of Demand
question
By how much does Qs respond to a price change?
answer
Price Elasticity of Supply
question
Midpoint Method for Price Elasticity (Formula)
answer
[(Qb-Qa)/((Qb+Qa)/2)]/[(Pb-Pa)/((Pb+Pa)/2)]
question
Deffinition: Any change in price yields a large response/adjustment in quantity demanded
answer
Elastic Demand
question
Curve Definition: Responsiveness of quantity is relatively small
answer
Inelastic curves
question
Definition: Change in price yields a small response/adjustment in quantity demanded
answer
Inelastic Demand
question
Examples of inelastic demand products
answer
Medicine, Food, Peak railroad tickets
question
When Price of Elastic Demand is >1
answer
Elastic
question
Increase in price of good-->Decrease in Revenue
answer
Elastic
question
Increase in price of good-->Increase in Revenue
answer
Inelastic
question
If a good is XXX, then there is a direct positive relationship between income and consumption
answer
normal
question
When Income of Elastic Demand>0
answer
Normal
question
Income Elasticity of Demand Formula
answer
[(Q2-Q1)/((Q2+Q1)/2)]/[(I2-I1)/((I2+I1)/2)]
question
Cross Price Elasticity of Demand
answer
[(Q2A-Q1A)/((Q2A+Q2A)/2)]/[(P2B-P1B)/((P2B+P1B)/2)
question
When XPed<0
answer
Complementary
question
XPed>0
answer
Substitutes
question
For a particular good, a 5 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
A. The relevant time horizon is short, and therefore it is inelastic.
B. The good is a necessity, and therefore it is inelastic.
C. The market for the good is broadly defined and therefore it is elastic.
D. There are many close substitutes for this good, and therefore it is elastic.
A. The relevant time horizon is short, and therefore it is inelastic.
B. The good is a necessity, and therefore it is inelastic.
C. The market for the good is broadly defined and therefore it is elastic.
D. There are many close substitutes for this good, and therefore it is elastic.
answer
D
question
Suppose that when the price of good X increases from $700 to $750, the quantity demanded of good Y increases from 400 to 430. Using the midpoint method, the cross price elasticity of demand is about
A. -1.06, and X and Y are complements.
B. -0.16, and X and Y are complements.
C. 0.16, and X and Y are substitutes.
D. 1.06, and X and Y are substitutes.
A. -1.06, and X and Y are complements.
B. -0.16, and X and Y are complements.
C. 0.16, and X and Y are substitutes.
D. 1.06, and X and Y are substitutes.
answer
D
question
Assume that a consumer finds that her total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this consumer over the price range?
A. Compact discs are inferior goods.
B. The consumer's demand for compact discs increased.
C. The consumer's demand for compact discs is perfectly price elastic.
D. The consumer's demand for compact discs is perfectly price inelastic.
E. The consumer's demand for compact discs is unit price elastic.
A. Compact discs are inferior goods.
B. The consumer's demand for compact discs increased.
C. The consumer's demand for compact discs is perfectly price elastic.
D. The consumer's demand for compact discs is perfectly price inelastic.
E. The consumer's demand for compact discs is unit price elastic.
answer
E
question
If the demand for a product is price elastic, which of the following is true?
A. An increase in the product price will have no effect on the firm's total revenue.
B. An increase in the product price will increase the firm's total revenue.
C. A decrease in the product price will increase the firm's total revenue.
D. A decrease in the product price will decrease the firm's rate of inventory turnover.
E. A decrease in the product price will decrease the total cost of goods sold.
A. An increase in the product price will have no effect on the firm's total revenue.
B. An increase in the product price will increase the firm's total revenue.
C. A decrease in the product price will increase the firm's total revenue.
D. A decrease in the product price will decrease the firm's rate of inventory turnover.
E. A decrease in the product price will decrease the total cost of goods sold.
answer
C
question
Suppose that the price elasticity of demand for gasoline is -0.1 in the short run and -0.6 in the long run. If the price of gasoline increases by 60 percent, which of the following shows the percentage change in the quantity demanded of gasoline in the short run and in the long run? In the Short Run; In the Long Run
A. Increases by 10%; Increases by 60%
B. Increases by 6%; Decreases by 36%
C. Decreases by 6%; Decreases by 6%
D. Decreases by 6%; Decreases by 36%
E. Decreases by 10%; Decreases by 60%
A. Increases by 10%; Increases by 60%
B. Increases by 6%; Decreases by 36%
C. Decreases by 6%; Decreases by 6%
D. Decreases by 6%; Decreases by 36%
E. Decreases by 10%; Decreases by 60%
answer
D
question
Suppose that when the price of apples increases from $2 to $2.50, the quantity demanded of apples falls from 430 to 400. Using the midpoint method, the price elasticity of demand is about
A. -3.07, the good is inelastic
B. -0.567, the good is elastic
C. -0.325, the good is inelastic
D. 0.325, the good is elastic
D. 3.07, the good is elastic
A. -3.07, the good is inelastic
B. -0.567, the good is elastic
C. -0.325, the good is inelastic
D. 0.325, the good is elastic
D. 3.07, the good is elastic
answer
C
question
Suppose when John's income rises from $25,000 to $28,000, his consumption of Lean Cuisine falls from 10 to 3, what is his income elasticity of demand?
A. -9.51, the good is inferior
B. -0.105, the good is inferior
C. -0.105, the good is elastic
D. -9.51, the good is inelastic
E. 5.46, the good is normal
A. -9.51, the good is inferior
B. -0.105, the good is inferior
C. -0.105, the good is elastic
D. -9.51, the good is inelastic
E. 5.46, the good is normal
answer
A
question
Which of the following goods could be considered price inelastic when using the midpoint method to calculate price elasticity of demand?
A. Food, Medicine, Shelter
B. Ice cream, Designer Jeans, Vacations
C. Food, Designer Jeans, Roller Blades
D. Medicine, Roller Blades, Ice Cream
A. Food, Medicine, Shelter
B. Ice cream, Designer Jeans, Vacations
C. Food, Designer Jeans, Roller Blades
D. Medicine, Roller Blades, Ice Cream
answer
A
question
Suppose that when the price of good X increases from $800 to $1000, the quantity demanded of good Y decreases from 500 to 400. Using the midpoint method, the cross price elasticity of demand is about
A. -0.22, and X and Y are complements.
B. 0.22, and X and Y are substitutes.
C. 1.00, and X and Y are substitutes.
D. -1.00 and X and Y are complement.
A. -0.22, and X and Y are complements.
B. 0.22, and X and Y are substitutes.
C. 1.00, and X and Y are substitutes.
D. -1.00 and X and Y are complement.
answer
D
question
Suppose that when a consumer's income increases from $25,000 to $35,000, the quantity demanded of good Y increases from 10 to 30. Using the midpoint method, the income elasticity of demand is about
A. -3, and Y is a inferior good.
B. -0.33, and Y is an inferior good.
C. 3, and Y is a normal good.
D. 0.33, and Y is an normal good.
A. -3, and Y is a inferior good.
B. -0.33, and Y is an inferior good.
C. 3, and Y is a normal good.
D. 0.33, and Y is an normal good.
answer
C
question
Consumers derive satisfaction from the goods and services they consume
answer
Utility
question
Total level of satisfaction from the goods and services they consume
answer
Total Utility
question
Additional satisfaction derived from consuming one more unit of the good
answer
Marginal Utility
question
Occurs when marginal utility declines as consumption increases
answer
Diminishing Marginal Utility
question
Unit of Utility
answer
Util
question
Total utility maximized
answer
Optimal Choice
question
If the price of one good changes, it will change the XXX per dollar spent on the good - there the optimal consumption XXX will change
answer
Marginal Utility, Bundle
question
Increase in Price: XXX is lower->Less of Good Purchased
answer
MU/P
question
Increase in Price: MU/P is lower->Less of XXX
answer
Good Purchased
question
Good Y has become more expensive in terms of Good X
answer
Substitution Effect
question
Consume more of Good X and less of Good Y
answer
Substitution Effect
question
The slope of the budget constraint is determined by the
A) relative price of Good X in terms of Good Y.
B) relative price of the goods measured on the axes and the consumer's income.
C) availability of resources.
D) consumer preferences for Good X.
A) relative price of Good X in terms of Good Y.
B) relative price of the goods measured on the axes and the consumer's income.
C) availability of resources.
D) consumer preferences for Good X.
answer
A
question
An increase in the price of a good decreases purchasing power, causing a decrease in the quantity of the good demanded. The decrease in quantity demanded is due to
A. The income effect
B. The substitution effect
C. A decrease in consumer surplus
D. A decrease in supply
A. The income effect
B. The substitution effect
C. A decrease in consumer surplus
D. A decrease in supply
answer
A
question
When the price of a product increases, a consumer's real income decreases, causing the consumer to decrease the quantity of the product demanded. This is known as
A) the substitution effect.
B) the income effect.
C) income elasticity.
D) cross-price elasticity.
E) diminishing marginal utility.
A) the substitution effect.
B) the income effect.
C) income elasticity.
D) cross-price elasticity.
E) diminishing marginal utility.
answer
B
question
Jenna spends all of her weekly income on food and entertainment. If the marginal utility of the last dollar Jenna spends on food is greater than the marginal utility of the last dollar she spends on entertainment, what should Jenna do to maximize utility?
A. She should do nothing; utility is already maximized.
B. She should purchase more food and less entertainment.
C. She should purchase less food and more entertainment.
D. She should purchase more of both food and entertainment.
E. She should purchase less of both food and entertainment.
A. She should do nothing; utility is already maximized.
B. She should purchase more food and less entertainment.
C. She should purchase less food and more entertainment.
D. She should purchase more of both food and entertainment.
E. She should purchase less of both food and entertainment.
answer
B
question
Which of the following is true if total utility is maximized?
A. Marginal utility is equal to zero.
B. Marginal utility is positive.
C. Marginal utility is negative.
D. Average utility is maximized.
A. Marginal utility is equal to zero.
B. Marginal utility is positive.
C. Marginal utility is negative.
D. Average utility is maximized.
answer
A
question
Which of the following best explains the reason for a downward-sloping demand curve for a product?
A. The income and substitution effects are equal and opposite.
B. Total utility eventually falls below marginal utility as additional units of the product are consumed.
C. The average utility falls below the marginal utility as additional units of the product are consumed.
D. The marginal utility decreases as additional units of the product are consumed.
E. Average utility is always decreasing.
A. The income and substitution effects are equal and opposite.
B. Total utility eventually falls below marginal utility as additional units of the product are consumed.
C. The average utility falls below the marginal utility as additional units of the product are consumed.
D. The marginal utility decreases as additional units of the product are consumed.
E. Average utility is always decreasing.
answer
D
question
A consumer will consume more of good X and less of good Y
A. If the price of good X falls and the substitution effect is strong
B. If the price of good X rises and then income effect is strong
C. If the price of good Y rises and the inferior goods effect is strong
D. If the price of good Y rises and the income effect is strong
E. If the price of good Z changes and neither is income or substitution effect are present
A. If the price of good X falls and the substitution effect is strong
B. If the price of good X rises and then income effect is strong
C. If the price of good Y rises and the inferior goods effect is strong
D. If the price of good Y rises and the income effect is strong
E. If the price of good Z changes and neither is income or substitution effect are present
answer
A
question
A consumer will decide how much of a particular good to consume
A. When the income effect is maximized
B. When the substitution effect is maximized
C. Depending on the quantity that yields the highest marginal utility per dollar spent
D. Depending on the quantity that yields the highest total utility per dollar spent
E. When they spend their entire budget on the one good
A. When the income effect is maximized
B. When the substitution effect is maximized
C. Depending on the quantity that yields the highest marginal utility per dollar spent
D. Depending on the quantity that yields the highest total utility per dollar spent
E. When they spend their entire budget on the one good
answer
C
question
Time horizon over which at least one of the firm's inputs cannot be varied
answer
Short Run Decisions
question
Machines, Locations, Number of Factories, etc
answer
Fixed Inputs
question
Labor, energy, fuel
answer
Variable Inputs
question
Time horizon long enough for a firm to vary all its inputs
answer
Long-run
question
All inputs are XXX in long-run horizons.
answer
Variable
question
Maximum quantity of output that can be produced from a given combination of inputs
answer
Total Product
question
Assumes one variable input, for a given quantity of the fixed input
answer
Total Product Curve
question
Change in output associated with adding one more input for production
answer
Marginal Product
question
Marginal Product of Labor Formula
answer
(Q2-Q1)/(L2-L1)
question
Total Revenue=
answer
Price*Quantity
question
Total Cost=
answer
Fixed Costs+Variable Costs
question
Costs that stay the same regardless of how much a firm produces
answer
Fixed Costs
question
Costs that change based on how much a firm produces
answer
Variable Costs
question
Cost on a per unit basis, with the benefits/added revenue generated by producing one additional unit of the good
answer
Marginal Analysis
question
Average Variable Cost (AVC)=
answer
Variable Cost/Quantity
question
Average Fixed Cost (AFC)=
answer
Fixed Cost/Quantity Produced
question
Average Total Cost (ATC)=
answer
Total Cost/Quantity Produced
question
Additional Total Cost associated with producing one more unit of good
answer
Marginal Cost
question
Marginal Cost=
answer
(TC2-TC1)/(Q2-Q1)
question
Intersection of Marginal Cost and Average Total Cost
answer
Efficiency Scale
question
Economies of Scale (2)
answer
Gains from specialization, minimum size requirements for certain types of equipment
question
Constant Returns to Scale (2)
answer
Output range with constant LRATC; Size may not matter, and firms of the same size will be equally cost-effective
question
Decreasing Returns to Scale (Diseconomies of Scale) 2
answer
Firms reach a point where size causes problems, more likely to occur at higher output levels
question
The primary distinction between the short run and the long run is that in the short run
A) firms make profits but in the long run no firm makes economic profits.
B) profits are maximized but in the long run all costs are maximized.
C) some costs of production are fixed but in the long run all costs are fixed.
D) some costs of production are fixed but in the long run all costs are variable.
A) firms make profits but in the long run no firm makes economic profits.
B) profits are maximized but in the long run all costs are maximized.
C) some costs of production are fixed but in the long run all costs are fixed.
D) some costs of production are fixed but in the long run all costs are variable.
answer
D
question
At Sara's Bakery, the total cost of producing 100 pies is $670. The marginal cost of producing the 101 pie $5.30. We can conclude that the
A) average variable cost of 101 pies is $6.70.
B) average total cost of 101 pies is $6.68.
C) average total cost of 101 pies is $7.00.
D) marginal cost of the 100th pie is $5.30.
A) average variable cost of 101 pies is $6.70.
B) average total cost of 101 pies is $6.68.
C) average total cost of 101 pies is $7.00.
D) marginal cost of the 100th pie is $5.30.
answer
B
question
Suppose that each business needs a license to operate in a city. The license fee increases from $400 per year to $500 per year. What effect will this increase have on a firm's short-run costs? Marginal Cost; Average Total Cost; Average Variable Cost
A. Increase; Increase; Increase
B. Increase; Increase; No effect
C. No effect; No effect; No effect
D. No effect; Increase; Increase
E. No effect; Increase; No effect
A. Increase; Increase; Increase
B. Increase; Increase; No effect
C. No effect; No effect; No effect
D. No effect; Increase; Increase
E. No effect; Increase; No effect
answer
E
question
Average total cost is equal to the sum of
A. total fixed cost and total variable cost
B. marginal cost and average fixed cost
C. average fixed cost and average variable cost
D. marginal cost and average variable cost
E. marginal cost, average fixed cost, and average variable cost
A. total fixed cost and total variable cost
B. marginal cost and average fixed cost
C. average fixed cost and average variable cost
D. marginal cost and average variable cost
E. marginal cost, average fixed cost, and average variable cost
answer
C
question
If a firm experiences economies of scale in production, its long-run average total cost curve
A. rises as output increases
B. falls as output increases
C. is horizontal
D. is the same as its marginal cost curve
E. lies above the short-run average total cost curve
A. rises as output increases
B. falls as output increases
C. is horizontal
D. is the same as its marginal cost curve
E. lies above the short-run average total cost curve
answer
B
question
Which of the following costs continuously decrease as a firm's output increases?
A. Short-run average total cost
B. Long-run average total cost
C. Average variable cost
D. Average fixed cost
E. Marginal cost
A. Short-run average total cost
B. Long-run average total cost
C. Average variable cost
D. Average fixed cost
E. Marginal cost
answer
D
question
Profit=
answer
total revenue - total cost
question
Explicit Costs
answer
Financial Costs
question
Implicit Costs
answer
Opportunity Costs
question
Total Economic Cost=
answer
Explicit Cost + Implicit Costs
question
Accounting Cost=
answer
explicit cost
question
Profit Maximizing Point of Production is the point where XXX = XXX
answer
Marginal Revenue, Marginal Cost
question
If MR>MC, then...
answer
increase Q to raise profit
question
If MR<MC, then...
answer
reduce Q to raise profit
question
· Last year Firm A sold 3 million computer chips at a price of $11 per chip. For last year, the firm's
·
A) accounting profit was $33 million.
· B) economic profit was $33 million.
· C) total revenue was $33 million.
· D) explicit costs were $33 million.
·
Submit
·
A) accounting profit was $33 million.
· B) economic profit was $33 million.
· C) total revenue was $33 million.
· D) explicit costs were $33 million.
·
Submit
answer
C
question
· Which of the following is true about accounting and economic profits?
· A) A firm that earns an accounting profit necessarily earns an economic profit.
· B) A firm that earns an economic profit necessarily earns an accounting profit.
· C) Economic profits and accounting profits are equal in the short run.
· D) Accounting profits count only variable costs but economic costs count both fixed and variable costs.
· A) A firm that earns an accounting profit necessarily earns an economic profit.
· B) A firm that earns an economic profit necessarily earns an accounting profit.
· C) Economic profits and accounting profits are equal in the short run.
· D) Accounting profits count only variable costs but economic costs count both fixed and variable costs.
answer
B
question
· Marginal revenue is the change in revenue that results from a one-unit increase in the
· A) variable input
· B) variable input price
· C) output level
· D) output price
· A) variable input
· B) variable input price
· C) output level
· D) output price
answer
C
question
Characteristics of Competitive Markets
answer
-Many buyers/sellers
-standardized product
-mobile resources
-perfect information
-firms are "price takers"
-low cost entry/exit
-standardized product
-mobile resources
-perfect information
-firms are "price takers"
-low cost entry/exit
question
Firms base decisions in the short-run based on XXX
answer
variable costs
question
Production ceases when a point is below XXX
answer
Average Variable Cost
question
Firms will enter if XXX>XXX
answer
TR, TC
question
Firms will exit if XXX<XXX
answer
TR,TC
question
When exiting a market, TR=X; TC=X
answer
0,0
question
Suppose a firm in a perfectly competitive market produces 500 units of output and earns $60,000 in total revenue from sales. If the firm increase its output to 550 units, the average revenue of the 550th unit will be
A) less than $120.
B) more than $120.
C) exactly $120.
D) Any of the above may be correct depending on the price elasticity of demand for the product.
A) less than $120.
B) more than $120.
C) exactly $120.
D) Any of the above may be correct depending on the price elasticity of demand for the product.
answer
C
question
In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable costs, the firm will
A) raise its profits.
B) increase its output.
C) decrease its output slightly but increase its profit margin.
D) incur larger losses by continuing to produce than by shutting down.
A) raise its profits.
B) increase its output.
C) decrease its output slightly but increase its profit margin.
D) incur larger losses by continuing to produce than by shutting down.
answer
D
question
Assume that a firm in a certain industry hires its workers in a perfectly competitive labor market. As the firms hires additional workers, the marginal factor cost is
A) decreasing steadily.
B) increasing steadily.
C) constant.
D) increasing then decreasing.
A) decreasing steadily.
B) increasing steadily.
C) constant.
D) increasing then decreasing.
answer
C
question
A profit-maximizing firm will shut down in the short run if
A) marginal cost is greater than average total cost.
B) marginal cost is equal to average total cost.
C) price is less than average total cost.
D) price is less than average variable cost.
E) average variable cost is greater than average fixed cost.
A) marginal cost is greater than average total cost.
B) marginal cost is equal to average total cost.
C) price is less than average total cost.
D) price is less than average variable cost.
E) average variable cost is greater than average fixed cost.
answer
D
question
If a firm experiences economies of scale in production, its long run average total cost curve
A) rises as output increases.
B) falls as output increases.
C) is horizontal.
D) is the same as its marginal costs curve.
A) rises as output increases.
B) falls as output increases.
C) is horizontal.
D) is the same as its marginal costs curve.
answer
B
question
Causes of Monopolies (3)
answer
Resource restrictions, Government Created Monopolies, Natural monopolies
question
When Demand = X, it leads to the Socially efficient outcome
answer
Marginal Cost
question
One firm can provide the good at a lower cost than two or more firms
answer
Natural Monopolies
question
Exclusive rights to produce or sell a good
answer
Government created monopolies
question
Ways to Regulate Monopoly Power (4)
answer
Increase competition with antitrust laws, regulate natural monopolies to bring price as close to socially efficient point as possible, public ownership->government takes over, do nothing
question
- Suppose a monopolist charges a price of $50 for its product and sells 100 units at that price. At 100 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $25. How much total profit is the firm earning at this price?
- A) $5
- B) $10
- C) $15
- D) $25
- A) $5
- B) $10
- C) $15
- D) $25
answer
C
question
Control of the market by a small group
answer
Oligopoly
question
Agents that interact with one another will choose their optimal strategy given the strategies that all other agents have chosen
answer
Nash Equilibrium
question
Nash Equilibrium Formula: Oligopoly Outcome =
answer
N/(N+1)*Competitive Outcome
question
Which of the following examples illustrates an oligopoly market?
A) a local farmers' market with many farmers selling vegetables
B) a town with one firm that plows the roads when it snows
C) a town with two firms that supply school lunches
D) a town with many independently-owned cafes
A) a local farmers' market with many farmers selling vegetables
B) a town with one firm that plows the roads when it snows
C) a town with two firms that supply school lunches
D) a town with many independently-owned cafes
answer
C
question
Which of the following statements is not correct?
A) Soap is likely to be produced in a monopolistically competitive industry.
B) Cable television is likely to be produced in a monopoly industry.
C) Eggs are likely to be produced in a monopolistically competitive industry.
D) Cigarettes are likely to be produced in an oligopoly industry.
A) Soap is likely to be produced in a monopolistically competitive industry.
B) Cable television is likely to be produced in a monopoly industry.
C) Eggs are likely to be produced in a monopolistically competitive industry.
D) Cigarettes are likely to be produced in an oligopoly industry.
answer
C
question
The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because
A) advertising costs make monopolistic competition a high-cost market structure rather than a low-cost market structure.
B) there are no close substitutions for each firm's product.
C) there are no significant restrictions or barriers on entering or existing the industry.
D) the firms in the industry are unable to engage in product differentiation.
A) advertising costs make monopolistic competition a high-cost market structure rather than a low-cost market structure.
B) there are no close substitutions for each firm's product.
C) there are no significant restrictions or barriers on entering or existing the industry.
D) the firms in the industry are unable to engage in product differentiation.
answer
C
question
Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
A) average cost is at a minimum.
B) marginal revenue is greater than marginal cost.
C) price equals marginal revenue.
D) price is greater than marginal cost.
A) average cost is at a minimum.
B) marginal revenue is greater than marginal cost.
C) price equals marginal revenue.
D) price is greater than marginal cost.
answer
D
question
Inputs used to produce goods and services
answer
factors of production
question
Relationship between quantity of inputs and total output
answer
Production Function
question
Production Function:
answer
Q=f(Land,Labor,Capital)
question
Linked directly to demand by customers for the good or service produced
answer
Derived Demand
question
Shows changes in quantity produced based on additional workers. Explains why some people earn more than others
answer
Marginal Physical Product of Labor
question
Change in output associated with adding one more worker into production
answer
Marginal Physical Product of Labor
question
The value of the last unit produced by the additional worker
answer
Value of Marginal Product of Labor
question
Marginal Product of Labor = XXX = XXX
answer
Marginal Revenue Product, Marginal Value Product
question
In competitive markets, Marginal Revenue Product = X * X because firms are price takers, and the price also reflects marginal revenue.
answer
Price, Marginal Product of Labor
question
Firms' willingness to pay for laborers
answer
Value of Marginal Product of Labor
question
Causes for shifts in the demand for labor (3)
answer
Change in output price, technological change, and supply/cost of other factors
question
Supply of factors of production come from the XXX
answer
household
question
The additional cost the firm incurs by employing one more input
answer
Marginal Factor Cost
question
Marginal Factor Cost =
answer
(Cost2 - Cost1) / (L2-L1)
question
Supply by households reflects the paint where Marginal Factor Cost = XXX
answer
Marginal Wage Rate
question
Shifts in Supply of Labor (4)
answer
Change in number of workers/population, changes in preference or income, change in price of related services and goods, and change in expectations
question
The factors of production are best defined as the
A) goods produced from raw materials.
B) inputs used to produce goods and services.
C) goods and services sold in the market.
D) rent paid on machines.
A) goods produced from raw materials.
B) inputs used to produce goods and services.
C) goods and services sold in the market.
D) rent paid on machines.
answer
B
question
Economists call a firm's demand for labor a derived demand because
A) the number of workers hired depends mainly on the demand for the product the workers produce.
B) workers must be sixteen years old before they are considered part of the work force.
C) workers need the salaries they receive from firms to demand goods and services.
D) The firm needs skilled workers to operate its equipment.
A) the number of workers hired depends mainly on the demand for the product the workers produce.
B) workers must be sixteen years old before they are considered part of the work force.
C) workers need the salaries they receive from firms to demand goods and services.
D) The firm needs skilled workers to operate its equipment.
answer
A
question
Which of the following is true of the marginal factor cost for a firm hiring labor in a perfectly competitive labor market?
A) It is constant and equal to the market wage rate.
B) It is greater than the market wage rate.
C) It is less than the market wage rate.
D) It increases as the number of workers hired increases.
E) It decreases as the number of workers hired increases.
A) It is constant and equal to the market wage rate.
B) It is greater than the market wage rate.
C) It is less than the market wage rate.
D) It increases as the number of workers hired increases.
E) It decreases as the number of workers hired increases.
answer
A
question
Differences in which of the following are NOT used to explain wage differentials among workers?
A. Talent
B. Experience
C. Human capital
D. Consumer spending
E. Discrimination in the job market
A. Talent
B. Experience
C. Human capital
D. Consumer spending
E. Discrimination in the job market
answer
D
question
Assume that both input and product markets are competitive. If capital is fixed and the product price increases, in the short run firms will increase production by increasing
A. capital until marginal revenue equals the product price
B. capital until the average product of capital equals the price of capital
C. labor until the value of the marginal product of labor equals the wage rate
D. labor until the marginal product of labor equals the wage rate
E. labor until the ratio of product price to the marginal product of labor equals the wage rate
A. capital until marginal revenue equals the product price
B. capital until the average product of capital equals the price of capital
C. labor until the value of the marginal product of labor equals the wage rate
D. labor until the marginal product of labor equals the wage rate
E. labor until the ratio of product price to the marginal product of labor equals the wage rate
answer
C
question
If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm should
A. not hire that worker
B. hire that worker
C. hire that worker only if another worker leaves or is fired
D. hire that worker only if the worker can raise the firm's productivity
E. reduce the number of workers employed by that firm
A. not hire that worker
B. hire that worker
C. hire that worker only if another worker leaves or is fired
D. hire that worker only if the worker can raise the firm's productivity
E. reduce the number of workers employed by that firm
answer
B
question
Which of the following causes an increase in the demand for labor?
A. An increase in the wage rate
B. An increase in the price of the good that labor is producing
C. A decrease in the marginal product of labor
D. A decrease in the demand for the good that labor is producing
E. A decrease in the price of capital, a substitute for labor
A. An increase in the wage rate
B. An increase in the price of the good that labor is producing
C. A decrease in the marginal product of labor
D. A decrease in the demand for the good that labor is producing
E. A decrease in the price of capital, a substitute for labor
answer
B
question
The uncompensated impact of one person's actions on the well-being of a bystander (either negative or positive)
answer
Externalities
question
Government adds to private costs of firm (taxes, quotas)
answer
Negative Externalities
question
Subsidies, Laws
answer
Positive Externalities
question
Altering incentives so that people take account of the external effects of their actions
answer
Internalizing an externality
question
Government imposes laws to force socially optimal outcome
answer
Command-and-control
question
Use of taxes and subsidiaries (Ch7)
answer
Market-based Policies
question
A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
answer
Corrective Tax
question
Which of the following is an example of an externality?
A) Jenna purchases new shoes.
B) John's dog digs holes in the grass in the playground near John's home.
C) Gina sells a book to Sara, who reads the book and then gives it to James as a gift.
D) Gloria runs in the park with lots of other runners.
A) Jenna purchases new shoes.
B) John's dog digs holes in the grass in the playground near John's home.
C) Gina sells a book to Sara, who reads the book and then gives it to James as a gift.
D) Gloria runs in the park with lots of other runners.
answer
B
question
To reduce the amount of negative externality arising from the production of some goods, the government can
A) impose a tariff on imports.
B) impose a price floor below the equilibrium price.
C) impose a price ceiling above the equilibrium price.
D) impose a corrective tax on producers to decrease production.
A) impose a tariff on imports.
B) impose a price floor below the equilibrium price.
C) impose a price ceiling above the equilibrium price.
D) impose a corrective tax on producers to decrease production.
answer
D
question
In a competitive market, when a negative externality exists, the private market produces
A) more than the socially optimum level because the marginal social cost is less than the marginal private cost.
B) more than the socially optimum level because the marginal social cost is greater than the marginal private cost.
C) less than the socially optimum level because the marginal social benefit is less than the marginal private benefit.
D) less than the socially optimum level because the marginal private benefit is greater than the marginal external cost.
A) more than the socially optimum level because the marginal social cost is less than the marginal private cost.
B) more than the socially optimum level because the marginal social cost is greater than the marginal private cost.
C) less than the socially optimum level because the marginal social benefit is less than the marginal private benefit.
D) less than the socially optimum level because the marginal private benefit is greater than the marginal external cost.
answer
B
question
A person can be prevented from using the good
answer
Excludable
question
One person's use of the good diminishes other people's use of the good
answer
Rival in consumption
question
Rival in Consumption AND Excludable
answer
Private Goods
question
Rival in Consumption AND NOT Excludable
answer
Common Resources
question
NOT Rival in Consumption AND Excludable
answer
Club Goods
question
NOT Rival in Consumption NOR Excludable
answer
Public Goods
question
A person who receives the benefits of a good but avoids paying for it. Due to this market failure, the government steps in to provide public goods
answer
Free Rider Problem
question
Non excludable but rival in consumption (fishing in a local pond)
answer
Common resources
question
· At the local park there is a pool for children to use. While anyone is allowed to use the pool, it is often very busy, reducing the enjoyment of many of the people who use it. The pool is a
· A) private good.
· B) club good.
· C) common resource.
· D) public good.
· A) private good.
· B) club good.
· C) common resource.
· D) public good.
answer
C
question
· The US government uses antitrust laws to regulate private markets to
· A) promote a competitive market environment.
· B) limit business profits.
· C) decrease the tax burden on consumers.
· D) increase government revenue from penalty payments.
· A) promote a competitive market environment.
· B) limit business profits.
· C) decrease the tax burden on consumers.
· D) increase government revenue from penalty payments.
answer
A
question
· Which of the following is true about a pure public good?
· A) The government provides it at zero cost.
· B) Nonpaying users can be excluded from consuming it.
· C) People willingly reveal their true preferences for it.
· D) It is difficult to determine a person's marginal valuation of it.
· A) The government provides it at zero cost.
· B) Nonpaying users can be excluded from consuming it.
· C) People willingly reveal their true preferences for it.
· D) It is difficult to determine a person's marginal valuation of it.
answer
D
question
Uneven distribution of income in a population
answer
Income Inequality
question
The allocation of resources through decentralized decisions of buyers and seller is
· A) efficient but not equal.
· B) both equal and efficient.
· C) equal but not in the best interest of producers.
· D) neither equal nor efficient.
· A) efficient but not equal.
· B) both equal and efficient.
· C) equal but not in the best interest of producers.
· D) neither equal nor efficient.
answer
A
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