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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
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the enjoyment she would have received had she gone to the movies.
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It is possible for an economy to increase its production of both goods if the economy
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moves from a situation of inefficient production to a situation of efficient production
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Which of the following is true if a country currently produces a combination of two goods inside its production possibilities curve?
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The country can produce more of both goods with its existing resources.
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A production possibilities curve can be used to show which of the following?
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The limits on production due to scarcity of resources
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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?
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Lilly does not like tomatoes and James does not like cookies.
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Which of the following best states the law of comparative advantage?
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Difference in relative costs of production are key to determining patterns of trade correct
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Which of the following is an important attribute of a market economy?
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Protection of property rights
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Rational people make decisions at the margin by
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comparing marginal costs and marginal benefits.
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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?
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Price of oranges decreases; quantity of oranges decreases
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Which of the following best explains the reason for a downward sloping demand curve for a good?
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The marginal utility decreases as additional units of the good are consumed
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Which of the following will cause supply of chocolate to increase?
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An increase in the price of cocoa butter, a by-product of the production of chocolate
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If an increase in the price of good X causes a decrease in demand for good Y, good Y is
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a complement for good X
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An effective price floor will most likely result in
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surpluses of products if the price floor is above the equilibrium price
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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
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considers hand bags to be a normal good
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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?
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There are many close substitutes for this good, and therefore it is elastic
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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
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1.06, and X and Y are substitutes
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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
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$2.00
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If the government levies a $500 tax per car on sellers of cars, then the price paid by buyers of cars would do what?
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Increase by less than $500
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The slope of the budget constraint is determined by the
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relative price of Good X in terms of Good Y
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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
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The income effect
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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
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the income effect.
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The primary distinction between the short run and the long run is that in the short run
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some costs of production are fixed but in the long run all costs are variable
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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
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average total cost of 101 pies is $6.68
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GRAPH The long run average total cost curve above shows
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constant returns to scale from point B to point C.
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Last year Firm A sold 3 million computer chips at a price of $11 per chip. For last year, the firm's
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total revenue was $33 million.
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Which of the following is true about accounting and economic profits?
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A firm that earns an economic profit necessarily earns an accounting profit.
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Marginal revenue is the change in revenue that results from a one-unit increase in the
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output level
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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
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exactly $120
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In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable costs, the firm will
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incur larger losses by continuing to produce than by shutting down.
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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
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constant
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A profit-maximizing firm will shut down in the short run if
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price is less than average variable cost.
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TABLE The table above shows ABC Farming's total cost of producing various quantities of corn. The market for corn is perfectly competitive, and the market price for corn is $10 per bushel. What is ABC Farming's profit-maximizing quantity?
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3 bushels
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If a firm experiences economies of scale in production, its long run average total cost curve
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falls as output increases.
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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?
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$15
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Which of the following examples illustrates an oligopoly market?
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a town with two firms that supply school lunches
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Which of the following statements is not correct?
Soap is likely to be produced in a monopolistically competitive industry.
Cable television is likely to be produced in a monopoly industry.
Cigarettes are likely to be produced in an oligopoly industry.
Eggs are likely to be produced in a monopolistically competitive industry.
Soap is likely to be produced in a monopolistically competitive industry.
Cable television is likely to be produced in a monopoly industry.
Cigarettes are likely to be produced in an oligopoly industry.
Eggs are likely to be produced in a monopolistically competitive industry.
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Eggs are likely to be produced in a monopolistically competitive industry.
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The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because
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there are no significant restrictions or barriers on entering or existing the industry
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Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
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price is greater than marginal cost.
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The factors of production are best defined as the
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inputs used to produce goods and services
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Economists call a firm's demand for labor a derived demand because
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the number of workers hired depends mainly on the demand for the product the workers produce
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Which of the following is true of the marginal factor cost for a firm hiring labor in a perfectly competitive labor market?
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It is constant and equal to the market wage rate
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Which of the following is an example of an externality?
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John's dog digs holes in the grass in the playground near John's home.
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To reduce the amount of negative externality arising from the production of some goods, the government can
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impose a corrective tax on producers to decrease production
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In a competitive market, when a negative externality exists, the private market produces
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more than the socially optimum level because the marginal social cost is greater than the marginal private cost.
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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
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common resource
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The US government uses antitrust laws to regulate private markets to
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promote a competitive market environment
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Which of the following is true about a pure public good?
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It is difficult to determine a person's marginal valuation of it
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The allocation of resources through decentralized decisions of buyers and seller is
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efficient but not equal
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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
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Comparative advantage in mango production; Comparative advantage in banana production
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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?
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Tara does not like tomatoes and James does not like brownies.
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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?
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Neither country could gain from trade with each other because neither one has a comparative advantage
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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?
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Jan can produce 6 sweaters or 12 potatoes in one hour, Tom can produce 12 sweaters of 6 potatoes in one hour
Jan can produce 4 sweaters or 8 potatoes in one hour, Tom can produce 3 sweaters or 9 potatoes in one hour
Jan can produce 4 sweaters or 8 potatoes in one hour, Tom can produce 3 sweaters or 9 potatoes in one hour
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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:
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Jan has an absolute advantage in sweaters and a comparative advantage in sweaters
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The most obvious benefit of specialization and trade is that they allow us to
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consume more goods than we otherwise would be able to consume.
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The supply curve for stand up paddle boards
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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.
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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?
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The equilibrium price would decrease, and the equilibrium quantity would increase
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Which of the following would necessarily cause a decrease in the price of a product?
answer
A decrease in the price of a substitute product and an improvement in production technology
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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?
answer
Increase in demand, and decrease in supply
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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?
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Decrease in the price of microchips, supply would shift
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If a decrease in the price of good X causes a decrease in demand for good Y, good Y is
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A substitute for good X
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Which of the following events would cause a movement upward and to the left along the demand curve for olives?
answer
The price of olives rises
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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?
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Price of biscuits would rise, so people will demand less jam
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The demand curve is downward sloping because
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As the price of the good falls, people will want to buy more of it
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Consider the demand for waffles. Which of the following scenarios would cause a shift in demand in or to the left?
answer
Coffee becomes more expensive, and people view coffee and waffles as complementary goods.
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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?
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The consumer's demand for compact discs is unit price elastic
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If the demand for a product is price elastic, which of the following is true?
answer
A decrease in the product price will increase the firm's total revenue.
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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
answer
Decreases by 6%; Decreases by 36%
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
answer
-0.325, the good is inelastic
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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?
answer
-9.51, the good is inferior
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Which of the following goods could be considered price inelastic when using the midpoint method to calculate price elasticity of demand?
answer
Food, Medicine, Shelter
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
answer
-1.00 and X and Y are complement.
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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
answer
3, and Y is a normal good.
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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?
answer
She should purchase more food and less entertainment.
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Which of the following is true if total utility is maximized?
answer
Marginal utility is equal to zero.
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TABLE The table above shows the marginal utilities in utils that Samantha receives from purchasing good X and good Y each week. The price of good X is $2 per unit, and the price of good Y is $4 per unit. Samantha has an income of $26 per week, and she spends it all on the two goods each week. If Samantha maximizes her utility, what combination of good X and good Y will she purchase? Good X; Good Y
answer
5; 4
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Which of the following best explains the reason for a downward-sloping demand curve for a product?
answer
The marginal utility decreases as additional units of the product are consumed.
question
A consumer will consume more of good X and less of good Y
answer
If the price of good X falls and the substitution effect is strong
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A consumer will decide how much of a particular good to consume
answer
Depending on the quantity that yields the highest marginal utility per dollar spent
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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
answer
No effect; Increase; No effect
question
Average total cost is equal to the sum of
answer
average fixed cost and average variable cost
question
TABLE Refer to a firm's production function given in the table below. Assume that the firm uses labor as the only variable input to produce its output.If the market wage rate is constant no matter how many workers are hired, the marginal cost of the firm is minimized with the hiring of the
answer
second worker
question
TABLE Refer to a firm's production function given in the table below. Assume that the firm uses labor as the only variable input to produce its output.If the total fixed cost is $50 and each worker receives a wage of $100 per day, then the total cost and the average variable cost of producing 50 units of output are which of the following? Total Cost; Average Variable Cost
answer
$450; $ 8
question
If a firm experiences economies of scale in production, its long-run average total cost curve
answer
falls as output increases
question
Which of the following costs continuously decrease as a firm's output increases?
answer
Average fixed cost
question
TABLE Given the information in the table above, what are the average fixed cost and average variable cost for 4 units of output?
answer
The average fixed cost is 50 and the average variable cost is 115
question
Differences in which of the following are NOT used to explain wage differentials among workers?
answer
Consumer spending
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
answer
labor until the value of the marginal product of labor equals the wage rate
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
answer
hire that worker
question
Which of the following causes an increase in the demand for labor?
answer
An increase in the price of the good that labor is producing
question
TABLE The table above shows output levels and corresponding quantities of labor for a perfectly competitive firm. What is the marginal physical product of the fifth worker?
answer
6
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