question
To say that demand for a good is elastic, it means that.
answer
A 1% change in quantity demanded results in a 1% change in price.
question
If a good has a price elasticity of demand of 0.5, this means that if price changed by 6%, quantity demanded would change by ___.
answer
3%
question
If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity demanded would change by ___.
answer
18%
question
A good generally tends to be more elastic (elasticity of demand)
answer
If the good is a luxury
question
A good generally tends to be less elastic
answer
-in the short run.
-if the good is a necessity.
-if the market is broadly defined.
-if the good has few close substitutes.
-if the good is a necessity.
-if the market is broadly defined.
-if the good has few close substitutes.
question
If a good is a necessity with no close substitutes, then demand will most likely be
answer
Very inelastic
question
If demand for a good or service is elastic, then an increase in price will lead to ___.
answer
A decrease in revenue because the increase in price will be outweighed by the loss in quantity demand.
question
What is the formula for elasticity of demand?
answer
Ed=%ΔQd/%ΔP
Percent change in quantity demanded over percent change in price
Percent change in quantity demanded over percent change in price
question
What is the midpoint formula for elasticity of demand?
answer
Ed=[ΔQd/avgQd]/[ΔP/avgP]
(Q2-Q1/[Q2+Q1/2])/(P2-P1/[P2+P1/2])
(Q2-Q1/[Q2+Q1/2])/(P2-P1/[P2+P1/2])
question
Use the following information to answer the next several questions. You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $4 to $5 (a 20% price increase). At the old price ($4), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5.
-What was your original revenue per week from sales of Oreos (when you charged $4)?
-What was your original revenue per week from sales of Oreos (when you charged $4)?
answer
$600 per week
question
Use the following information to answer the next several questions. You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $4 to $5 (a 20% price increase). At the old price ($4), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5.
-The increase in price is 20% (from $4 to $5). How do you expect quantity demanded to change?
-The increase in price is 20% (from $4 to $5). How do you expect quantity demanded to change?
answer
Quantity demanded will fall by about 10%
question
Use the following information to answer the next several questions. You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $4 to $5 (a 20% price increase). At the old price ($4), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5.
-How many boxes of Oreos do you predict you will sell per week after the price increase?
-How many boxes of Oreos do you predict you will sell per week after the price increase?
answer
135
question
Use the following information to answer the next several questions. You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $4 to $5 (a 20% price increase). At the old price ($4), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5.
-What do you predict will happen to total revenue after raising the price?
-What do you predict will happen to total revenue after raising the price?
answer
Total revenue will rise, since demand is inelastic
question
Use the following information to answer the next several questions. You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $4 to $5 (a 20% price increase). At the old price ($4), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5.
-What is the new total revenue per week from Oreo sales?
-What is the new total revenue per week from Oreo sales?
answer
$675 per week
question
The motivating behavior we assume to drive ALL firm behavior is?
answer
Maximizing profit
question
Marginal product of labor is defined as the additional
answer
Output generated from employing 1 more unit of labor
question
At Abby's Cookie Store, 4 workers can bake 44 cookies in one hour, while 5 workers can bake 70 cookies in one hour. The marginal product of the 5th worker is
answer
26 cookies
question
Diminishing returns to labor, or diminishing marginal product of labor, implies that holding other inputs fixed, eventually
answer
Output rises by less and less as we add more units of labor
question
The short-run production function assumes that
answer
At least one input is held fixed or constant
question
The long-run production function assumes that
answer
All inputs are free to vary
question
An example of an explicit cost of production would be the cost of
answer
-hiring extra labor for a busy season.
-remodeling a store to expand business.
-repaying a business loan.
-purchasing raw materials (such as flour for a bakery)
-remodeling a store to expand business.
-repaying a business loan.
-purchasing raw materials (such as flour for a bakery)
question
Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year. Before running the broomstick factory, she was a race car driver earning $175,000 per year.
-What are Sabrina's implicit costs?
-What are Sabrina's implicit costs?
answer
Her foregone income from being a race car driver ($175,000)
question
Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year. Before running the broomstick factory, she was a race car driver earning $175,000 per year.
-What are Sabrina's explicit costs?
-What are Sabrina's explicit costs?
answer
Labor ($150,000)
Inventory ($90,000)
Rent ($60,000)
Inventory ($90,000)
Rent ($60,000)
question
Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year. Before running the broomstick factory, she was a race car driver earning $175,000 per year.
-An accountant would say that Sabrina's yearly costs are ______ while an economist would say that her yearly costs are _________.
-An accountant would say that Sabrina's yearly costs are ______ while an economist would say that her yearly costs are _________.
answer
$300,000; $475,000
question
What are accounting costs?
answer
The total of all explicit costs
question
What are economic costs?
answer
The total of all explicit costs plus implicit costs
question
Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year. Before running the broomstick factory, she was a race car driver earning $175,000 per year.
-If her revenues were $500,000 for the year, an accountant would say that Sabrina's profits were ______ while an economist would say that her profits were _________.
-If her revenues were $500,000 for the year, an accountant would say that Sabrina's profits were ______ while an economist would say that her profits were _________.
answer
$200,000; $25,000
question
Economic profits are normally _____ than accounting profits because ____.
answer
Lower; economic costs are greater than accounting costs
question
Marginal Cost (MC) can be thought of as the change in
answer
Total cost from producing one more unit of output
question
Because the amount of labor can be changed in the short run, it is known as a(n)
answer
Variable cost
question
What happens to fixed costs (FC) as the firm increases production in the short-run?
answer
FC remain constant
question
What happens to average fixed costs (AFC) as the firm increases production in the short-run?
answer
AFC continually decreases
question
What happens to variable costs (VC) as the firm increases production in the short-run?
answer
VC increase slowly at first and then increase faster and faster
question
What happens to average variable costs (AVC) as the firm increases production in the short- run?
answer
AVC decrease at first and then begin to increase
question
What happens to total costs (TC) as the firm increases production in the short-run?
answer
TC increase slowly at first and then increase faster and faster
question
What happens to average total costs (ATC) as the firm increases production in the short-run?
answer
ATC decrease at first and then begin to increase
question
What happens to marginal cost (MC) as the firm increases production in the short-run?
answer
MC decrease at first and then begin to increase
question
Which of the following concerning typical cost curves is correct?
answer
-When marginal cost equals average total cost (ATC), the ATC is at its minimum.
-When marginal cost is less than average total cost (ATC), the ATC is falling.
-When marginal cost is less than average total cost (ATC), the ATC is falling.
question
Which of the following short-run cost curves is NOT typically U-shape
answer
Average fixed cost
question
Hooray! You own your own business producing and selling Wake t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week.
-As you move from 4 to 5 to 6 workers, what is happening to your production function?
-As you move from 4 to 5 to 6 workers, what is happening to your production function?
answer
Increasing at an increasing rate
question
Hooray! You own your own business producing and selling Wake t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week.
-As you move from 4 to 5 to 6 workers, what is happening to your marginal production of labor?
-As you move from 4 to 5 to 6 workers, what is happening to your marginal production of labor?
answer
Marginal product of labor (MPL) is rising
question
Hooray! You own your own business producing and selling Wake t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week.
-What is happening to your total cost function as you increase your weekly output from 100 to 130 to 170 shirts per week?
-What is happening to your total cost function as you increase your weekly output from 100 to 130 to 170 shirts per week?
answer
TC is rising at a decreasing rate
question
Hooray! You own your own business producing and selling Wake t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week.
-What is happing to your marginal cost (MC) function as you increase your weekly output from 100 to 130 to 170 shirts per week?
-What is happing to your marginal cost (MC) function as you increase your weekly output from 100 to 130 to 170 shirts per week?
answer
MC is falling
question
Hooray! You own your own business producing and selling Wake t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week.
-What the does that mean?
-What the does that mean?
answer
-At this point in production, the 170th shirt costs you less to make than the 169th
-At this point in production, you get more shirts from your 6th worker than you did from your 5th worker
-At this point in production, you get more shirts from your 6th worker than you did from your 5th worker
question
If the social cost of supplying a good or service is higher than the private cost, then
answer
The price of the good or service is too low
question
If the social cost of producing chickens is greater than the private cost, then we can be sure that
answer
A negative externality exists
question
All of the following are ways to cope with negative externalities
answer
-obligatory controls
-pollution taxes
-tradeable permits
-pollution taxes
-tradeable permits
question
National Defense is an example of?
answer
A public good
question
Examples of Command-and-Control
answer
-the "No Smoking" signs posted in public buildings
- automobile emissions testing requirements
-restrictions on the transportation of hazardous wastes
-the requirement that cars all use unleaded fuel
- automobile emissions testing requirements
-restrictions on the transportation of hazardous wastes
-the requirement that cars all use unleaded fuel
question
A government-sponsored cash subsidy to people who plant trees will have the effect of
answer
Increasing the demand for trees
question
A situation where the seller has information regarding the hazards of a product, yet continues to sell it without informing consumers (e.g., cigarette producers), is described as ___________________, whereas, a situation where a homeowner doesn't bother to replace the battery in a smoke detector because she holds a generous insurance policy is called ___________________.
answer
Asymmetric information; moral hazard
question
i) perfect information
ii) many sellers and few buyers
iii) few sellers and many buyers
iv) many sellers and many buyers
v) one seller and many buyers
vi) firms sell identical goods/services
vii) firms sell slightly different goods/services
viii) barriers to entry
ix) no barriers to entry
-Which of the characteristics apply to perfect competition?
ii) many sellers and few buyers
iii) few sellers and many buyers
iv) many sellers and many buyers
v) one seller and many buyers
vi) firms sell identical goods/services
vii) firms sell slightly different goods/services
viii) barriers to entry
ix) no barriers to entry
-Which of the characteristics apply to perfect competition?
answer
i, iv, vi and ix
question
i) perfect information
ii) many sellers and few buyers
iii) few sellers and many buyers
iv) many sellers and many buyers
v) one seller and many buyers
vi) firms sell identical goods/services
vii) firms sell slightly different goods/services
viii) barriers to entry
ix) no barriers to entry
-Which of the characteristics apply to monopoly?
ii) many sellers and few buyers
iii) few sellers and many buyers
iv) many sellers and many buyers
v) one seller and many buyers
vi) firms sell identical goods/services
vii) firms sell slightly different goods/services
viii) barriers to entry
ix) no barriers to entry
-Which of the characteristics apply to monopoly?
answer
i, v and viii
question
When a perfectly competitive firm is producing at a level of output where MC > MR, then the firm
answer
Should decrease output to increase profits.
question
A firm should make the short-run decision to shut down if the
answer
-firm cannot cover its variable costs.
-market price is below the average variable cost.
-firm's total revenues are less than its variable costs.
-firm's losses are greater than its fixed costs.
-market price is below the average variable cost.
-firm's total revenues are less than its variable costs.
-firm's losses are greater than its fixed costs.
question
Suppose that factory XYZ is a perfectly competitive firm. At the current level of profit -maximizing level of output (Q*), the average total cost is $30, the average variable cost is $25, and the perfectly competitive price is $27. Then, in the short run, XYZ should
answer
Stay open, since it is covering its variable costs and some of its fixed costs.
question
Suppose that factory XYZ is a perfectly competitive firm. At the current level of profit -maximizing level of output (Q*), the average total cost is $30, the average variable cost is $25, and the perfectly competitive price is $27
-What if all the costs were the same at Q*, but the perfectly competitive price of was $23? Then, in the short run, XYZ should
-What if all the costs were the same at Q*, but the perfectly competitive price of was $23? Then, in the short run, XYZ should
answer
Shut down since it is not even covering its variable costs.
question
The law of diminishing marginal utility holds that
answer
Marginal utility diminishes when too much is consumed
question
The marginal-utility-to-price ratio is a representation of the
answer
Satisfaction per dollar spent that a consumer gets from a good
question
The law of diminishing marginal utility suggests that
answer
Additional units of consumption will add less to total utility
question
The marginal-utility-to-price ratio tells us that if the price of a good falls, then, ceteris paribus
answer
Its marginal-utility-to-price ratio rises
question
Suppose that Jessica's MU/P is 8 for swimming lessons, 12 for voice lessons, and 4 for piano
lessons. In order for Jessica to maximize total utility, she should definitely
lessons. In order for Jessica to maximize total utility, she should definitely
answer
Take more swimming lessons
question
As the price of a good falls, people buy more of it because
answer
The marginal-utility-to-price ratio for the good increases
question
A consumer who has spent all of her income on clothes and food and finds that her marginal- utility-to-price ratio is higher for clothes than for food should, in the future, rearrange purchases to maximize total utility by
answer
Purchasing more clothes and less food
question
Externalities
answer
A benefit or cost that affects someone (3rd party;Bystanders) who is not directly involved in the production or consumption of the good or service
question
Negative Externalities
answer
-Market is producing above efficiency
-Government can introduce a tax to allow firms to produce at efficient equilibrium
-By placing a tax it will move the market down to socially efficient levels of pollution
-Pigovian tax should equal external costs
-Government can introduce a tax to allow firms to produce at efficient equilibrium
-By placing a tax it will move the market down to socially efficient levels of pollution
-Pigovian tax should equal external costs
question
Positive Externalities
answer
-Market is producing below efficiency
-Government can make subsidies to increase the number of buyers
-Pigovian Subsidy should equal external benefits
-Increase the number of buyers in order to produce to socially efficient levels
-Government can make subsidies to increase the number of buyers
-Pigovian Subsidy should equal external benefits
-Increase the number of buyers in order to produce to socially efficient levels
question
Revenue
answer
PxQ
Price times quantity
Price times quantity
question
Command-And-Control
answer
Imposes a quantitative limits
Ex: Government can command that there are high efficient washers
Command: Produce efficient washer
Control: Check whether they are efficient
Ex: Government can command that there are high efficient washers
Command: Produce efficient washer
Control: Check whether they are efficient
question
Tradable Permits
answer
If government allows trade and issues permits, cost to society will be lower
question
Asymmetric Information
answer
A situation in which one party to an economic transaction has LESS INFORMATION than the other party
question
Adverse Selection
answer
The situation in which one party to a transaction takes advantage of knowing more than the other party
question
Moral Hazard
answer
Actions people take after they have entered into a transaction/contract that make the other party to the transaction worse off
Ex: When you buy insurance, you are more likely to take risks because you know its covered
Ex: When you buy insurance, you are more likely to take risks because you know its covered
question
Principle-Agent problem
answer
A problem caused by agents pursuing their own interest rather than the interest of principle who hired them
Ex: Doctors might have you take tests that might not be required
Ex: Doctors might have you take tests that might not be required
question
Premium
answer
Amount you pay to buy insurance
question
Deductibles
answer
Requires policy holders to pay certain dollar amount before insurance starts paying
question
Coinsurance (Copayment)
answer
Insurance company pays only certain percentage of claims
question
Public Goods
answer
Goods that are non excludable and non-rival
Excludable: A person can be prevented from using it
Rival: One persons use diminishes other peoples use
Excludable: A person can be prevented from using it
Rival: One persons use diminishes other peoples use
question
Utility
answer
The enjoyment or satisfaction people receive from consuming a good or service
-Goal of a consumer is to is to spend available income to maximize utility
-Goal of a consumer is to is to spend available income to maximize utility
question
Marginal Utility
answer
The additional utility from consuming one more unit of goods or services
question
Law of Diminishing Marginal Utility
answer
As consumer consumes more of a good, satisfaction from each additional unit diminishes
question
Budget Constraint
answer
Limited amount of income available to consumer to spend on goods and services
-Total spending on both goods must equal to the amount available to be spent
-Total spending on both goods must equal to the amount available to be spent
question
Maximization Point
answer
MUa/Pa=MUb/Pb
Marginal utility of good A divided by price of A is equal to Marginal utility of B divided by price of B
Marginal utility of good A divided by price of A is equal to Marginal utility of B divided by price of B
question
Maximum Utility
answer
Achieved when:
1. Marginal Utility per dollar of both good are equal
2. Spending on A plus Spending on B is equal to the amount available to be spent (Budget Constraint)
1. Marginal Utility per dollar of both good are equal
2. Spending on A plus Spending on B is equal to the amount available to be spent (Budget Constraint)
question
Network Externalities
answer
A situation in which usefulness of a good increases with the number of consumers who use it
Ex: Social media
Ex: Social media
question
Celebrity Endorsements
answer
You might want to use goods that famous people use
-if you are a fan you will feel more attached to that celebrity
-if you are a fan you will feel more attached to that celebrity
question
Unit Elastic
answer
If 1 percentage change in price results exactly in 1 percentage change in quantity demanded
question
Perfectly Elastic
answer
If 1 percentage change in price results in infinite change in quantity demanded
question
Perfectly Inelastic
answer
If 1 percentage change in price results in no change in quantity demanded
question
Availability of Substitutes
answer
More substitutes- More elastic
Less substitutes- Less elastic
Less substitutes- Less elastic
question
Passage of Time (Long-run vs Short-run)
answer
-In the long run demand is more elastic
-In the short run demand is less elastic
-You have more time to find substitutes if prices change over a longer amount of time
-In the short run demand is less elastic
-You have more time to find substitutes if prices change over a longer amount of time
question
Luxury vs Necessity
answer
More Luxury- More elastic
More necessity- Less elastic
More necessity- Less elastic
question
Definition of a market
answer
-If we define market as one store vs all of Winston-Salem
-Smaller (narrowly defined) markets- More elastic
-Larger (broadly defined) markets- Less elastic
-Smaller (narrowly defined) markets- More elastic
-Larger (broadly defined) markets- Less elastic
question
Share of good in consumers budget
answer
Pencils vs Car
-Car has more share in budget
-If price of pencils increase there isn't a big deal
-If the good has a less share in consumers budget- More elastic
-If the good has more share in the consumers budget- Less elastic
-Car has more share in budget
-If price of pencils increase there isn't a big deal
-If the good has a less share in consumers budget- More elastic
-If the good has more share in the consumers budget- Less elastic
question
Revenue in Inelastic Curve
answer
-If price increases, revenue will increase
-If price decreases, revenue will decrease
-If price decreases, revenue will decrease
question
Revenue in Elastic Curve
answer
-If price increases, revenue will decrease
-If price decreases, revenue will increase
-If price decreases, revenue will increase
question
Output
answer
Q=TxF(K,L,M,N)
Output equals technology times factors (capital, raw materials labor, human capital)
Output equals technology times factors (capital, raw materials labor, human capital)
question
Short-Run
answer
A period of time, where at least one input is fixed
question
Long-run
answer
A period of time, where all inputs can be varied
-Not fixed
-Not fixed
question
Marginal Product (Mp)
answer
Short-run relationship between output and a single input, holding all other inputs constant
question
Marginal Product of Labor (MPl)
answer
Additional output a firm produces as a result of hiring one more labor
-Change in quantity over change in labor
-Change in quantity over change in labor
question
Law of Diminishing Returns
answer
As we increase input (labor) while holding all other inputs constant, eventually output will begin to rise by less and less
question
Explicit Cost
answer
Costs that require actual outlay of money
question
Implicit Cost
answer
Cost that does not require actual outlay of money
-Form of opportunity cost
-Form of opportunity cost
question
Fixed Costs
answer
Costs that remain constant as output changes
question
Variable Costs
answer
Cost that changes as output changes
question
Total Costs
answer
Fixed costs plus variable costs
question
Production Function
answer
When workers are more and more productive: Increasing at an Increasing rate
When workers are less and less productive: Increasing at a decreasing rate
When workers are less and less productive: Increasing at a decreasing rate
question
Total Cost Function
answer
When workers are more and more productive; Increasing at a Decreasing rate
When workers are less and less productive: Increasing at an increasing rate
When workers are less and less productive: Increasing at an increasing rate
question
Average Fixed Cost
answer
Fixed cost over quantity
question
Average Variable Cost
answer
Variable cost over quantity
question
Average total cost
answer
Total cost over quantity or AVC + AFC
question
Marginal Cost (MC)
answer
Additional cost when one more unit of output is presented
question
Economies of Scale
answer
Portion of LRAC is falling (decreasing)
-If you double all inputs, output more than doubles
-If you double all inputs, output more than doubles
question
Constant returns to scale
answer
Portion of LRAC is flat
-If you double all inputs, outputs also doubles
-If you double all inputs, outputs also doubles
question
Diseconomies of scales
answer
Portion of LRAC is rising (increases)
-If you double all inputs, outputs less than doubles
-If you double all inputs, outputs less than doubles
question
Perfectly Competitive
answer
Many firms
Easy to enter
Identical products
Easy to enter
Identical products
question
Monopolistic Competition
answer
Many firms
Easy to enter
Differential products
Easy to enter
Differential products
question
Oligopoly
answer
...
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
