question
The four types of economic goods discussed at the beginning of the semester included:
answer
public goods, club goods, private goods, and common goods (or common property resources)
question
If a good is non-rival in consumption then:
answer
one individual's consumption of the good does not affect the amount available for others to consume
question
Interstate 4 (I-4) and State Road 408 are two major highways that affect traffic flows in Orlando. Motorists are not required to pay a toll (user fee) to drive on Interstate 4, whereas they are required to pay a toll (user fee) to drive on State Road 408. If at a given time of day Interstate 4 is uncongested, then it could be considered to possess the properties of a:
answer
public good
question
Some sub-Saharan nations of Africa have resource stocks that have been depleted over time to the point where much of the landscape has turned from productive farmland to desert. This suggests that:
answer
the production possibilities curves of such nations have shifted inward
question
If a country has a comparative advantage in the production of a good over another country, then it can:
i. engage in mutually beneficial trade with other countries
ii. increase the variety of products that it can consume without increasing its use of resources
iii. consume a combination of goods that lies outside its production possibilities frontier
iv. produce a combination of goods that lies outside its production possibilities frontier
i. engage in mutually beneficial trade with other countries
ii. increase the variety of products that it can consume without increasing its use of resources
iii. consume a combination of goods that lies outside its production possibilities frontier
iv. produce a combination of goods that lies outside its production possibilities frontier
answer
i, ii, and iii
question
Suppose that for each bottle of wine France produces it must forego the production of 25 pounds of cheese and that for each bottle of wine Italy produces it must forego the production of 10 pounds of cheese. It follows that:
answer
France has a comparative advantage in the production of cheese
question
From a production possibilities curve (or frontier) it may be concluded that:
answer
if an economy's resources are fully employed, then production of some goods must be sacrificed if resources are allocated to the production of other goods
question
Consider a country that uses it resources to produce consumer goods (e.g., cars and housing) and to provide infrastructure (e.g., roads and bridges). If a change in government policy results in greater production of consumer goods and infrastructure with the same amount of available resources (e.g., the size of the labor force and stocks of natural resources do not change), then:
answer
the country's resources were under-utilized or resources were being used inefficiently prior to the policy change
question
If a country has a comparative advantage in the production of a good over another country, this means that it has the ability to produce the good:
answer
at a lower opportunity cost than the other country
question
Suppose an individual has an absolute advantage over other individuals in completing a particular task. It follows that the individual:
answer
can accomplish the task using fewer resources than other individuals
question
Markets for goods and services appear in a number of forms. In perfectly (or purely) competitive markets:
i. there are large numbers of independently acting buyers and sellers
ii. the good that is produced and traded is homogenous or standardized
iii. an individual buyer can affect the market price whereas an individual seller can not
iv. an individual seller can affect the market price whereas an individual buyer can not
i. there are large numbers of independently acting buyers and sellers
ii. the good that is produced and traded is homogenous or standardized
iii. an individual buyer can affect the market price whereas an individual seller can not
iv. an individual seller can affect the market price whereas an individual buyer can not
answer
i and ii
question
The income effect, substitution effect, and diminishing marginal utility are all explanations for:
-the effect that changing a good from being rival to being non-rival has on quantity supplied
-the effect that changing a good from being non-rival to being rival has on quantity demanded
-why demand curves are upward sloping (i.e., positively sloped)
-why supply curves are downward sloping (i.e., negatively sloped)
-the effect that changing a good from being rival to being non-rival has on quantity supplied
-the effect that changing a good from being non-rival to being rival has on quantity demanded
-why demand curves are upward sloping (i.e., positively sloped)
-why supply curves are downward sloping (i.e., negatively sloped)
answer
none of the above are correct
question
From an individual's demand curve for a good, which of the following may be determined?
i. the quantity demanded at a given price, holding all other factors constant
ii. the total expenditures on the good at a given price, holding all other factors constant
iii. how quantity demanded changes if the price of the good changes, holding all other factors constant
i. the quantity demanded at a given price, holding all other factors constant
ii. the total expenditures on the good at a given price, holding all other factors constant
iii. how quantity demanded changes if the price of the good changes, holding all other factors constant
answer
i, ii, and iii
question
A good's 'choke price' is the dollar amount at which none of the good will be purchased and below which units will be purchased. If an individual's demand function for a good is given by the linear equation Q = 80 - 0.25P, then the choke price is:
answer
$320
question
Consider the market for two goods, say X and Y, each of which has a downward sloping market demand curve. Suppose the amount of X that consumers purchase per period depends upon its price and the price of Y; similarly, the amount of Y that consumers purchase per period depends upon its price and the price of X. Given this information, which of the following is/are true?
i. if consumers confront an increase in the price of Y, the demand for Y will decrease
ii. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are substitutes
iii. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are substitutes
iv. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are complements
v. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are complements
i. if consumers confront an increase in the price of Y, the demand for Y will decrease
ii. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are substitutes
iii. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are substitutes
iv. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are complements
v. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are complements
answer
iii and v
question
If the demand for a good declines as a result of an increase in consumer income, then the good is said to be:
answer
an inferior good
question
If the demand curve for a good is vertical, then it may be concluded that:
answer
quantity demanded is completely insensitive to changes in price and the law of demand fails to hold
question
Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant:
answer
the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300
question
The law of supply states that:
i. as the price of a good increases, quantity supplied will increase, holding all other factors constant
ii. as the price of a good decreases, quantity supplied will decrease, holding all other factors constant
iii. as the price of a good increases, supply will increase
iv. as the price of a good decreases, supply will decrease
v. as the price of a good increases, quantity supplied will increase
vi. as the price of a good decreases, quantity supplied will decrease
vii. as the price of a good increases, supply will increase, holding all other factors constant
viii. as the price of a good decreases, supply will decrease, holding all other factors constant
i. as the price of a good increases, quantity supplied will increase, holding all other factors constant
ii. as the price of a good decreases, quantity supplied will decrease, holding all other factors constant
iii. as the price of a good increases, supply will increase
iv. as the price of a good decreases, supply will decrease
v. as the price of a good increases, quantity supplied will increase
vi. as the price of a good decreases, quantity supplied will decrease
vii. as the price of a good increases, supply will increase, holding all other factors constant
viii. as the price of a good decreases, supply will decrease, holding all other factors constant
answer
i and ii
question
A firm's supply curve for a good indicates:
i. the minimum quantity supplied at each price, holding all other factors constant
ii. the maximum quantity supplied at each price, holding all other factors constant
iii. the firm's maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
iv. the firm's minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
i. the minimum quantity supplied at each price, holding all other factors constant
ii. the maximum quantity supplied at each price, holding all other factors constant
iii. the firm's maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
iv. the firm's minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
answer
ii and iv
question
The determinants of supply are:
i. factors that affect a producer's maximum willingness-to-accept (WTA) to produce various quantities of a good
ii. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce
iii. factors that affect a producer's minimum willingness-to-accept (WTA) to produce various quantities of a good
i. factors that affect a producer's maximum willingness-to-accept (WTA) to produce various quantities of a good
ii. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce
iii. factors that affect a producer's minimum willingness-to-accept (WTA) to produce various quantities of a good
answer
ii and iii
question
As discussed in class and the readings, the determinants of supply (DOS) include:
i. input (or resource) prices
ii. the prices of 'substitutes in production'
iii. expectations about the future
iv. the level of technology used in production
v. taxes and subsidies
i. input (or resource) prices
ii. the prices of 'substitutes in production'
iii. expectations about the future
iv. the level of technology used in production
v. taxes and subsidies
answer
i, ii, iii, iv and v
question
The market supply curve may be derived from a collection of individual supply curves by:
i. horizontally summing the individual supply curves
ii. vertically summing the individual supply curves
iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices
i. horizontally summing the individual supply curves
ii. vertically summing the individual supply curves
iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices
answer
i and iii
question
If a firm upgrades its machinery and in so doing it increases the level of technology embedded in the production process, then:
i. the firm must have increased its plant size and its market share
ii. more output may be obtained with a given amount of inputs compared to before the improvement
iii. a given amount of output may be obtained with fewer inputs compared to before the improvement
i. the firm must have increased its plant size and its market share
ii. more output may be obtained with a given amount of inputs compared to before the improvement
iii. a given amount of output may be obtained with fewer inputs compared to before the improvement
answer
ii and iii
question
Consider a market for a good that is comprised of two identical buyers whose demand functions are P = 30 - 4Q. Given this information, the market demand function is:
answer
P = 30 - 2Q
question
From the framework developed and discussed in class and the readings it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:
answer
seller minimum willingness-to-accept is less than or equal to buyer maximum willingness-to-pay
question
A surplus of a good (or commodity) will arise in a market if its price is sustained:
answer
above the equilibrium price, resulting in the quantity supplied exceeding the quantity demanded
question
Consider a perfectly competitive market described by the demand function P = 80 - 0.1Q and supply function P = 20 + 0.3Q. The equilibrium price and quantity are:
answer
P = $65 and Q = 150
question
Suppose that a perfectly competitive market is initially in equilibrium. If market demand increases and market supply simultaneously decreases, then the equilibrium:
answer
price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged
question
An ongoing concern regards the affects of sustained summer droughts (water shortages) on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:
answer
the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase
question
Suppose that changes in market conditions (i.e., market demand and/or supply) cause the equilibrium market price to increase and the quantity of output produced and traded each period to decrease. Which of the following could have caused such a change?
i. a decrease in demand and an increase in supply
ii. a decrease in demand and a decrease in supply
iii. an increase in demand and an increase in supply
iv. an increase in demand and a decrease in supply
i. a decrease in demand and an increase in supply
ii. a decrease in demand and a decrease in supply
iii. an increase in demand and an increase in supply
iv. an increase in demand and a decrease in supply
answer
ii and iv
question
Consumer surplus (CS) is a monetary measure of _________________, whereas maximum willingness-to-pay (WTP) is a monetary measure of _________________.
answer
net value (or net benefit); total value (or total benefit)
question
Consumer surplus in a perfectly competitive market appears graphically as:
answer
the area below the demand curve and above the market price
question
The producer surplus that results from a firm producing and selling some quantity of a good:
answer
is the difference between the minimum amount the firm was willing to accept on each unit that it sold and the price it actually received for each unit
question
Suppose the market demand for a good is described by the equation P = 80 - 0.5Q. If the equilibrium price in the market is P = $60, then the consumer surplus is:
answer
$400
question
Suppose the market supply for a good is described by the equation P = 40 + 2Q. If the equilibrium price in the market is P = $80, then the producer surplus is:
answer
$400
question
Suppose the market supply for a good is described by the equation P = 20 + Q. If a change in market demand results in price increasing from P0 = $50 to P1 = $60, then the resulting change in producer surplus is:
answer
$350
question
If the government intervenes in a perfectly competitive market and imposes a price ceiling below the unregulated equilibrium price, then compared to the unregulated market:
i. the quantity of the good demanded will decrease and the quantity supplied will increase
ii. the quantity of the good demanded will increase and the quantity supplied will decrease
iii. a surplus of units will result in the market
iv. a shortage of units will result in the market
i. the quantity of the good demanded will decrease and the quantity supplied will increase
ii. the quantity of the good demanded will increase and the quantity supplied will decrease
iii. a surplus of units will result in the market
iv. a shortage of units will result in the market
answer
ii and iv
question
Consider a perfectly competitive market described by the demand function P = 80 - 0.3Q and supply function P = 30 + 0.2Q. Suppose the market is initially in equilibrium. If the government intervenes in the market and imposes of a price restriction of P = $65, the result rounded to the nearest unit will be a:
answer
surplus of 125 units
question
An example of a specific tax is:
i. a 6.5% sales tax charged by a local grocery store on products other than food
ii. a $2 per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand
iii. the 18.3 cent federal tax charged on each gallon of gasoline purchased
iv. a residential property tax paid by a homeowner that depends upon the property's market value as determined by a county tax appraiser
i. a 6.5% sales tax charged by a local grocery store on products other than food
ii. a $2 per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand
iii. the 18.3 cent federal tax charged on each gallon of gasoline purchased
iv. a residential property tax paid by a homeowner that depends upon the property's market value as determined by a county tax appraiser
answer
ii and iii
question
Suppose a specific tax or ad valorem tax is imposed directly upon sellers in a perfectly competitive market. As a result:
-the equilibrium market price will rise
-the equilibrium quantity of the good that is produced and traded will fall
-total economic surplus (consumer surplus + producer surplus) will fall
-tax revenue will be generated that may be used to fund public goods
-a deadweight loss will result
-the equilibrium market price will rise
-the equilibrium quantity of the good that is produced and traded will fall
-total economic surplus (consumer surplus + producer surplus) will fall
-tax revenue will be generated that may be used to fund public goods
-a deadweight loss will result
answer
all of the above are correct
question
Consider a perfectly competitive market described by the per-period supply function P = 34 + 0.2Q and per-period demand function P = 160 - 0.6Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $6 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:
answer
$900 in tax revenues will be generated each period
question
An elasticity is:
i. a measure of the sensitivity of a variable to a change in another variable
ii. invariant to the units in which variables are measured
iii. equal to the ratio of the percentage change in the affected variable to the percentage change in the affecting variable
iv. equal to the ratio of the percentage change in the affecting variable to the percentage change in the affected variable
i. a measure of the sensitivity of a variable to a change in another variable
ii. invariant to the units in which variables are measured
iii. equal to the ratio of the percentage change in the affected variable to the percentage change in the affecting variable
iv. equal to the ratio of the percentage change in the affecting variable to the percentage change in the affected variable
answer
i, ii, and iii
question
The price elasticity of demand is defined as the:
answer
percentage change in quantity demanded divided by the percentage change in price
question
The price elasticity of demand is often favored over the slope of the demand curve for evaluating the affects of price changes. This is because:
i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ
ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured
iii. the slope of the demand curve can only be used if the demand curve is linear
i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ
ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured
iii. the slope of the demand curve can only be used if the demand curve is linear
answer
i and ii
question
If the price elasticity of demand for a good at the current price is ED = -0.25, then a 10 percent decrease in price will result in a:
answer
2.5 percent increase in quantity demanded
question
Suppose an individual's demand for a good is described by the demand function P = 120 - 2Q. Using the mid-point formula, the price elasticity of demand within the range of prices between $20 and $30 is:
answer
0.26
question
Consider the market for a normal good. If the market price falls from $50 to $40 and as a result the per-period quantity demanded increases from 60 to 70 units, then it may be concluded that over this price range:
i. demand has increased
ii. demand is unit elastic
iii. demand is inelastic
iv. demand is elastic
i. demand has increased
ii. demand is unit elastic
iii. demand is inelastic
iv. demand is elastic
answer
iii
question
If the demand for a good is elastic with respect to its price, then a:
i. change in price will cause revenues (or consumer expenditures) to change in the same direction
ii. change in price will cause revenues (or consumer expenditures) to change in the opposite direction
iii. percentage change in price will result in a smaller percentage change in quantity demanded
iv. percentage change in price will result in a greater percentage change in quantity demanded
i. change in price will cause revenues (or consumer expenditures) to change in the same direction
ii. change in price will cause revenues (or consumer expenditures) to change in the opposite direction
iii. percentage change in price will result in a smaller percentage change in quantity demanded
iv. percentage change in price will result in a greater percentage change in quantity demanded
answer
ii and iv
question
Suppose the market demand for a good is described by the demand function P = 100 - 2Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
answer
TR = 100Q - 2Q2
question
Which of the following is not a characteristic of a good whose demand is elastic at the current market price?
answer
the price elasticity is less than one
question
An individual's total expenditures on a good are equal to the quantity purchased multiplied by the per-unit price. If an individual's demand function for a good is given by the linear equation Q = 160 - 2P, then as price increases from zero to the choke price his/her total expenditures on the good:
answer
increase initially and then decrease
question
A local theme park has estimated that in order to increase revenues generated from ticket sales it must reduce ticket prices. It follows that the theme park has estimated the demand for visits to the park to be:
answer
elastic
question
Suppose that at the current prices the price elasticity of demand is 2.42, 0.67, 1.96, and 0.32 for products A, B, C, and D respectively. A one percent decrease in price will decrease total revenue (TR) in which of the following:
answer
B and D
question
In 2014 the U.S. Department of Energy reported that it estimated that the average household would spend about $750 less on gasoline in 2015 compared to 2014 as a result of the decline in the price of crude oil. Given this information, it may be concluded that for the average household:
i. demand is price inelastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)
ii. demand is price elastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)
iii. if expenditures on gasoline decrease, then seller revenues from gasoline sales to the household will also decrease
i. demand is price inelastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)
ii. demand is price elastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)
iii. if expenditures on gasoline decrease, then seller revenues from gasoline sales to the household will also decrease
answer
i and iii
question
Which of the following generalizations is not correct?
answer
the price elasticity of demand is greater for necessities than it is for luxuries
question
The more narrowly a product is defined (for example, a specific brand of gasoline versus gasoline in general):
answer
the larger the number of substitutes that exist and the larger the price elasticity of demand
question
Suppose that a 4 percent decrease in the price of good X causes a 10 percent decrease in the quantity demanded of good Y. The cross-price elasticity of demand is therefore:
answer
positive and the goods are substitutes
question
If purchases of a good (i.e., the number of units purchased) increase as a result of an increase in household income, then:
answer
the good is normal and the income elasticity of demand is positive
question
The income elasticity of demand for food (e.g., measured by daily calories consumed) can reasonably be expected to be:
answer
smaller than the income elasticity of demand for foreign vacation travel
question
Just as consumer sensitivity to changes in price and in the determinants of demand (DOD) may be measured through demand elasticities, producer sensitivity to changes in price and in the determinants of supply (DOS) may be measured through supply elasticities. The price elasticity of supply measures how:
answer
responsive the quantity supplied of a good is to changes in its price
question
The primary determinant of the price elasticity of supply is the:
answer
amount of time a producer has to adjust inputs in response to a change in the market price
question
The supply of housing within a local housing market (e.g., Orange county) takes a considerable amount of time to increase as a result of an increase in the demand for housing. Defining the short-run as a period of time less than six months and the long-run as a period of time greater than six months, it follows that:
answer
the short-run supply curve for housing is less elastic than the long-run supply curve for housing
question
In microeconomics the term 'utility' references the:
i. relative scarcity of a good or service
ii. usefulness of a good or service
iii. satisfaction derived from consumption of a good or service
iv. slope of a consumer's demand curve for a good or service
i. relative scarcity of a good or service
ii. usefulness of a good or service
iii. satisfaction derived from consumption of a good or service
iv. slope of a consumer's demand curve for a good or service
answer
iii
question
From a utility function (e.g., U = 2X + 3Y or U = X0.5Y0.5), which of the following may be determined?
i. the utility derived from all bundles of goods and services
ii. the bundle of goods and services that maximizes utility
iii. the bundles of goods and services that yield the same level of utility
i. the utility derived from all bundles of goods and services
ii. the bundle of goods and services that maximizes utility
iii. the bundles of goods and services that yield the same level of utility
answer
i and iii
question
Sandy likes smoothies. If she consumes 1 smoothie, she obtains 7 units of utility, if she consumes 2 smoothies she obtains 16 units of utility, and if she consumes 3 smoothies she obtains 28 units of utility. It follows that:
answer
total utility is increasing at an increasing rate and marginal utility is increasing
question
Marginal utility refers to the:
answer
change in total utility from consuming each additional unit of a good
question
The law of diminishing marginal utility (LODMU) states that:
answer
as more and more of a good is consumed, beyond a point marginal utility will decrease
question
Suppose an individual's preferences are described by the utility function U = X0.5Y0.5 and consider the following three bundles, where the first number references the quantity of good X and the second number references the quantity of good Y: Bundle A (6,2); Bundle B (4,4); Bundle C (3,5). The bundles ranked from most-preferred to least-preferred are:
answer
Bundle B, Bundle C, Bundle A
question
Suppose that total utility increases as consumption of a good increases. It follows that the marginal utility from each successive unit of the good consumed:
answer
is positive, but it may be either increasing or decreasing
question
An indifference curve involving two goods identifies the:
answer
bundles of the two goods that yield the same level of utility
question
Suppose a consumer's utility function is U = X0.5Y0.5. It follows that the indifference function associated with the bundle X = 8 and Y = 2 or (8, 2) is:
answer
y = 16/X
question
Consider an individual whose utility function is U = X0.5Y0.5. If she consumes 2 units of X and 6 units of Y, then some level of utility will be experienced. If the individual instead consumes 3 units of X, how much of good Y must she consume in order to attain the level of utility associated with 2 units of X and 6 units of Y?
answer
Y = 4
question
If an indifference curve relating X and Y is upward sloping, then it may be concluded that:
i. both X and Y are goods
ii. both X and Y are bads
iii. X is a good and Y is a bad or X is a bad and Y is a good
i. both X and Y are goods
ii. both X and Y are bads
iii. X is a good and Y is a bad or X is a bad and Y is a good
answer
iii
question
In moving upward or downward along a consumer's budget constraint:
answer
the prices of the goods and income are constant
question
Any bundle of goods located outside (versus inside) of a consumer's budget constraint:
i. is unobtainable, given the consumer's income
ii. implies the consumer is not spending all of her income on goods and services
iii. will yield less utility than any bundle located on the budget constraint
iv. will yield less utility than any bundle located outside of the budget constraint
i. is unobtainable, given the consumer's income
ii. implies the consumer is not spending all of her income on goods and services
iii. will yield less utility than any bundle located on the budget constraint
iv. will yield less utility than any bundle located outside of the budget constraint
answer
i
question
Suppose a consumer has an income of $15 that is spent on two goods: X and Y. The price of good X is $1.00 and the price of good Y is $3.00. Which of the following combinations (or bundles) of X and Y lie on the individual's budget constraint?
answer
6x and 3y
question
Suppose an individual exhausts his income on goods X and Y. If his income is $100, the price of good X is PX = $4, and the price of good Y is PY = $2, then the algebraic expression for his budget constraint is:
answer
Y = 50 - 2X
question
Suppose a quantity discount applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 30 units of the good for $6 each and all additional units (i.e., the 31st, 32nd, etc.) can be purchased for $3 each. If the consumer has an income of $300, what is the maximum number of units of the good that can be purchased?
answer
70 units
question
Consider a consumer that exhausts her income by purchasing units of various goods and services at the market prices. If the consumer is a utility maximizer, then income will be allocated such that:
answer
marginal utility per dollar (i.e., marginal utility divided by price) is equal over the goods and services purchased
question
If a consumer were to purchase units of goods X and Y such that MUY/PY < MUX/PX , then total utility could be increased by purchasing:
answer
more of X and less of Y
question
Suppose an individual is purchasing the utility maximizing quantities of goods X and Y. If the price of X is $2 and the price of Y is $4:
answer
the marginal utility of Y is twice that of X
question
Consider a consumer who maximizes utility subject to a budget constraint. If her income decreases, then:
answer
the budget constraint will shift inward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will decrease
question
A consumer's demand curve for a good may be derived from the consumer choice model. To do so:
answer
the price of the good is varied, holding the prices of other goods and income constant, in order to identify the utility maximizing quantity of the good purchased
question
In economics, the difference between the short run and the long run is that:
answer
in the short run at least one input is fixed whereas in the long run no inputs are fixed
question
The law of diminishing marginal product (or returns) states that:
answer
as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate
question
Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 5 units of output will be produced; if it employs 2 units of labor, then 12 units of output will be produced; and if it employs 3 units of labor, then 20 units of output will be produced. It follows that:
answer
total output is increasing at an increasing rate and the marginal product of labor is increasing
question
Suppose a small farm uses machinery and laborers to grow and harvest fruits or vegetables. Which of the following best describes one of its fixed costs?
answer
insurance or loan payments on machinery
question
If a firms management permits its laborers to shirk and its laborers choose to do so, then:
i. the level of output produced per period will be less than the level of output if laborers do not shirk
ii. more time will be required to produce a given level of output than if laborers do not shirk
iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected
i. the level of output produced per period will be less than the level of output if laborers do not shirk
ii. more time will be required to produce a given level of output than if laborers do not shirk
iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected
answer
i, ii, and iii
question
Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?
i. if MPL is greater than APL, then APL will be increasing
ii. if MPL is less than APL, then APL will be decreasing
iii. if APL is greater than MPL, then MPL will be increasing
iv. if APL is less than MPL, then MPL will be decreasing
i. if MPL is greater than APL, then APL will be increasing
ii. if MPL is less than APL, then APL will be decreasing
iii. if APL is greater than MPL, then MPL will be increasing
iv. if APL is less than MPL, then MPL will be decreasing
answer
i and ii
question
The marginal product of labor is:
answer
the change in total output attributed to employing an additional worker
question
If a technological improvement occurs in a production process, then:
A). a given amount of inputs will yield more output
B). the total product curve (or short run production function) will rotate upward
C). total variable cost and average variable cost will be reduced at all positive levels of output
D). a given amount of output may be produced with fewer inputs
A). a given amount of inputs will yield more output
B). the total product curve (or short run production function) will rotate upward
C). total variable cost and average variable cost will be reduced at all positive levels of output
D). a given amount of output may be produced with fewer inputs
answer
all of the above
question
A fixed cost is:
answer
any cost which does not change when the firm changes the amount of output it produces
question
A firms marginal cost of production is the:
i. change in total variable cost that results from producing each additional unit of output
ii. change in total cost that results from producing each additional unit of output
iii. change in total fixed cost that results from producing each additional unit of output
iv. change in average variable cost that results from producing each additional unit of output
v. change in average total cost that results from producing each additional unit of output
vi. change in average fixed cost that results from producing each additional unit of output
i. change in total variable cost that results from producing each additional unit of output
ii. change in total cost that results from producing each additional unit of output
iii. change in total fixed cost that results from producing each additional unit of output
iv. change in average variable cost that results from producing each additional unit of output
v. change in average total cost that results from producing each additional unit of output
vi. change in average fixed cost that results from producing each additional unit of output
answer
i and ii
question
If a firms total fixed costs increase, then:
answer
average fixed costs and average total costs will rise
question
Consider a short run production process in which MPL increases initially as more and more labor is employed and then decreases beyond a point as the gains from specialization are exhausted. It follows that:
answer
TVC will increase initially at a decreasing rate and beyond a point it will increase at an increasing rate
question
The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?
answer
total variable cost, total cost, average variable cost, average total cost, and marginal cost
question
Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms short run production function is:
answer
Q = 4L0.5
question
Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:
answer
TC = 800 + Q2/4
question
Which of the following is not a characteristic of a perfectly competitive market?
answer
the ability of an individual firm to affect the market price
question
The total revenue generated by a perfectly competitive firm:
i. appears graphically as an upward sloping straight line from the origin
ii. increases by a constant amount as the quantity of output produced and sold increases
iii. increases initially, reaches a maximum, and then decreases as the quantity of output produced and sold increases
i. appears graphically as an upward sloping straight line from the origin
ii. increases by a constant amount as the quantity of output produced and sold increases
iii. increases initially, reaches a maximum, and then decreases as the quantity of output produced and sold increases
answer
i and ii
question
Consider a perfectly competitive firm producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $4 per unit and average total costs of $6 per unit. Given this information, it may be concluded that the firm:
answer
is operating at maximum total profit
question
If a firm wants to know how much it would save if it were to reduce the level of output it produces, it will evaluate its:
answer
marginal cost function
question
A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:
answer
total variable costs
question
The rule of producing output to the point MR = MC in order to maximize total profit or minimize total operating losses applies:
answer
to both perfectly competitive firms and monopolies
question
if a firm is producing at a break-even point, then:
i. average total cost is equal to average revenue
ii. total cost is equal to total revenue
iii. average variable cost is equal to average revenue
iv. total variable cost is equal to total revenue
i. average total cost is equal to average revenue
ii. total cost is equal to total revenue
iii. average variable cost is equal to average revenue
iv. total variable cost is equal to total revenue
answer
i and ii
question
If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:
answer
price and minimum average variable cost
question
The market demand curve for a good that is produced and traded in a perfectly competitive industry is ___________, while the demand curve for a single competitive firms good ___________.
answer
downward sloping, perfectly elastic
question
For a purely competitive firm _______________; and for a uniform-price monopolist _______________
answer
P = MR = AR; P = AR > MR
question
A perfectly competitive firms average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and it marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:
answer
produce 30 units of output and earn a total profit of $60
question
Suppose the firms comprising the supply-side of a perfectly competitive market are earning economic profits, creating the incentive for new firms to enter the market and compete. Which of the following best describes the effect on the market resulting from the entry of new firms?
answer
the market supply increases, causing price to decrease and the total output produced and sold to increase
question
Consider a firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the minimum of the firms average total cost curve but is greater than the minimum of its average variable cost curve, the firm:
answer
will experience a loss but should continue to operate in the short-run
question
The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing the extra unit is known as the:
answer
profit maximization rule
question
If a firm is producing and selling a level of output that maximizes total profit, then it will be:
answer
maximizing the difference between total revenue and total cost
question
Under which of the following situations would a perfectly competitive firm increase its per-period total profits by increasing output:
answer
if it were producing a level of output such that MC < MR
question
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
answer
they are all barriers to entry
question
In contrast to a perfectly competitive firm, the demand curve for a monopolists good is:
answer
less elastic at all levels of output
question
Suppose the demand for a monopolists good is described by the demand function P = 100 - 2Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
answer
TR = 100Q - 2Q2
question
Suppose the demand for a monopolists good is described by the demand function P = 100 - 0.5Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
answer
TR = 100Q - 0.5Q2
question
Which of the following is not correct regarding the behavior of monopolies in the marketplace?
A). because of their market power they charge the highest price possible
B). they sell their output at prices that maximize per-unit profits instead of total profits
C). because of their market power they are guaranteed to earn economic profits
A). because of their market power they charge the highest price possible
B). they sell their output at prices that maximize per-unit profits instead of total profits
C). because of their market power they are guaranteed to earn economic profits
answer
D). all of the above
question
A patent or copyright is a barrier to entry based on:
answer
government action to encourage and protect private research and development efforts
question
Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for the same price. The price that will yield the firm the maximum total profit is:
answer
the price at which marginal revenue equals marginal cost
question
If a monopoly produces and sells a quantity of output (Q) for a price per unit (P) that is equal to average total cost (ATC), then:
answer
it will earn zero profit
question
If a profit maximizing monopolist is producing a level of output such that marginal cost is $8 and its marginal revenue is $4, it will increase its profits by:
answer
increasing price and reducing output
question
Suppose a monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $14 per unit and is incurring average variable costs of $12 per unit and average total costs of $16 per unit. Given this information, it may be concluded that the firm:
answer
is operating at a loss that is less than the loss incurred by shutting down
question
Consider a monopoly whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firms good is P = 120 - 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:
answer
produce 110 units of output, charge a price of $98, and earn a profit of $6030
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