question
Gasoline is a normal good.
A huge deposit of oil and natural gas is discovered. At the same time, consumers' incomes go up.
What will happen to the equilibrium price for gasoline, and what will happen to the equilibrium quantity?
A huge deposit of oil and natural gas is discovered. At the same time, consumers' incomes go up.
What will happen to the equilibrium price for gasoline, and what will happen to the equilibrium quantity?
answer
The change in price is indeterminate. Quantity will rise.
question
Peanut Butter & Jelly are ____________ goods.
answer
complementary
question
The price of Peanut butter falls.
What will happen to the equilibrium price of jelly, and what will happen to the equilibrium quantity of jelly?
What will happen to the equilibrium price of jelly, and what will happen to the equilibrium quantity of jelly?
answer
The price of Jelly will rise; the quantity of jelly will rise.
question
Milk and Orange Juice are _________.
answer
substitutes
question
Oranges become more expensive, and at the same time, milk becomes more expensive. What can we expect to happen to the equilibrium price and quantity of orange juice?
answer
Prices will rise. The change in quantity is indeterminate.
question
Beans are an inferior good.
Suppose that income to consumers goes up. At the same time, new technology makes growing beans less expensive.
What will happen to the quantity of beans produced, and what will happen to the price of beans?
Suppose that income to consumers goes up. At the same time, new technology makes growing beans less expensive.
What will happen to the quantity of beans produced, and what will happen to the price of beans?
answer
Price will fall. The change in quantity of beans is indeterminate.
question
Consider the market for milk.
The equilibrium price for milk is $3 per gallon. Suppose the government now creates a price floor of $2.50 per gallon.
What would we expect to occur?
The equilibrium price for milk is $3 per gallon. Suppose the government now creates a price floor of $2.50 per gallon.
What would we expect to occur?
answer
Price will stay at $3, and there will be neither a shortage or a surplus of milk.
question
Suppose the equilibrium rent for 1 bedroom apartments in Tucson is $700 per month. The city passes an ordinance stating that rent for 1 bedroom apartments shall be no less than $750 per month. If the ordinance is effectively enforced, what will happen to the market for apartments in Tucson?
answer
The price will raise to $750, and there will be a surplus of apartments.
question
Which of the following is not a determinant of supply?
The price of a complementary good.
Expected future prices for suppliers.
Costs of production.
Physical Availability of Resources (PAR).
Advances in technology.
The price of a complementary good.
Expected future prices for suppliers.
Costs of production.
Physical Availability of Resources (PAR).
Advances in technology.
answer
The price of a complementary good.
question
Which of the following can cause movement along a particular demand curve?
Changes in the good's own price.
Changes in the price of a substitute.
Changes in tastes and preferences of consumers.
Changes in the number of consumers.
Changes in the income of consumers, given that the good in the question is inferior.
Changes in the good's own price.
Changes in the price of a substitute.
Changes in tastes and preferences of consumers.
Changes in the number of consumers.
Changes in the income of consumers, given that the good in the question is inferior.
answer
Changes in the good's own price.
question
Suppose the government institutes an effective price ceiling in the market for oranges. What can we expect to happen to the total surplus in the orange market?
answer
Total surplus must decrease.
question
A firm producing bicycles can sell 150 bicycles at a price of $200, and can sell 200 bicycles at the price of $150. What can we say about the own-price elasticity for bicycles over this price range?
(Hint: Use the Total Revenue Test)
(Hint: Use the Total Revenue Test)
answer
Demand for bicycles is unit-elastic.
question
Which of the following goods would we expect to exhibit the greatest price elasticity?
A good with relatively few substitutes.
A very inexpensive good.
A good that is a relative "need", as opposed to a luxury item.
A good that is easy for consumers to do without.
A good that is highly addictive.
A good with relatively few substitutes.
A very inexpensive good.
A good that is a relative "need", as opposed to a luxury item.
A good that is easy for consumers to do without.
A good that is highly addictive.
answer
A good that is easy for consumers to do without.
question
Which is true about the elasticity of a product such as gasoline?
answer
The elasticity of demand should be higher over a 12 month period than over a one-month horizon.
question
The firm determines it can sell 100 bicycles at a price of $300, and it can sell 200 bicycles at a price of $175. Given this, what price should the firm charge if it wants to maximize total profits?
Assume that it can only charge either $300 or $175.
Assume that it can only charge either $300 or $175.
answer
There is no way to know what the firm should charge.
question
What types of goods are most likely to be subject to a government-imposed excise tax?
answer
Goods with relatively inelastic demand.
question
Suppose that a firm knows that the demand for its product is relatively inelastic over the price ranges that can be charged. What should the firm do to the price it charges if it wants to maximize profits? You man assume that the firm exhibits constant costs. (hint: recall the total revenue test.)
answer
The firm should definitely increase price.
question
A firm manufacturing skateboards finds that when it reduces price by 50%, total revenue falls by exactly 50%. Given this, what can we say about the market for skateboards?
answer
Demand for skateboards is perfectly inelastic.
question
Which of the following is a determinant of supply?
The price of a substitute.
Income of consumers, given that the good is normal.
The good's own price.
The Availability of resources necessary to produce that good.
Tastes and preferences
The price of a substitute.
Income of consumers, given that the good is normal.
The good's own price.
The Availability of resources necessary to produce that good.
Tastes and preferences
answer
The Availability of resources necessary to produce that good.
question
Which of the following must always be declining as quantity increases?
answer
Average Fixed Costs (AFC)
question
Which of the following is a fixed cost?
The cost of rent for a factory to make automobiles.
Steel used to make automobiles.
Wages made by automobile workers who are paid by the hour.
The costs of tires put on the automobiles.
The cost of rent for a factory to make automobiles.
Steel used to make automobiles.
Wages made by automobile workers who are paid by the hour.
The costs of tires put on the automobiles.
answer
The cost of rent for a factory to make automobiles.
question
When price rises from $4 to $6, the quantity demanded falls from 75 to 60. What is the elasticity of demand?
0.4
0.6
0.75
0.9
1.2
0.4
0.6
0.75
0.9
1.2
answer
0.4 (% change in quantity demanded/ change in price)
question
If the price of a good falls from $6 to $3, and the quantity demanded rises from 100 to 300, what is the elasticity of demand?
answer
4.0
question
Suppose that price falls from $4 to $3, and quantity demanded rises from 75 to 100. Using the total revenue test, what can we say about the elasticity of demand over that interval?
answer
Demand is unit elastic. (i.e. neither elastic not inelastic)
question
Suppose that the average total cost (ATC) of producing 8 units is less than the average total cost of producing 9 units.
What can we say about marginal costs (MC) in relation to ATC?
MC > ATC
MC < ATC
MC = ATC
We can't specify a relation between MC and ATC.
What can we say about marginal costs (MC) in relation to ATC?
MC > ATC
MC < ATC
MC = ATC
We can't specify a relation between MC and ATC.
answer
MC > ATC
question
Suppose that it costs Joe $1 to plant and tend to tomato plants that will yield 1 bushel of tomatoes.
Suppose that it costs an additional $1.50 to pick, distribute, and sell a bushel of tomatoes.
It is now time to harvest the tomatoes. What is the minimum price that Joe (a profit maximizer) must be able to sell his tomatoes for to justify harvesting and selling his tomatoes?
Suppose that it costs an additional $1.50 to pick, distribute, and sell a bushel of tomatoes.
It is now time to harvest the tomatoes. What is the minimum price that Joe (a profit maximizer) must be able to sell his tomatoes for to justify harvesting and selling his tomatoes?
answer
$1.50 per bushel
question
Which of the following would we expect to have the highest elasticity of demand?
A relative luxury such as jewelry.
A relative necessity such as milk.
Something with few substitutes such as milk.
Something with few substitutes such as insulin.
A relatively inexpensive good such as a pack of gum.
A relative luxury such as jewelry.
A relative necessity such as milk.
Something with few substitutes such as milk.
Something with few substitutes such as insulin.
A relatively inexpensive good such as a pack of gum.
answer
A relative luxury such as jewelry.
question
Suppose that a company is operating on the inelastic portion of its demand curve. Assuming constant costs, how should the firm change its price if it wants to maximize profits?
answer
It definitely should raise its price.
question
Which of the following is not a characteristic of a perfectly competitive market?
Firms have power and have the ability to change the market price.
Many (thousands) of buyers and sellers.
Identical (homogeneous) products.
No barriers to entry or exit into the marketplace.
Perfect information (everyone knows all the information, and everyone knows that everyone knows).
Firms have power and have the ability to change the market price.
Many (thousands) of buyers and sellers.
Identical (homogeneous) products.
No barriers to entry or exit into the marketplace.
Perfect information (everyone knows all the information, and everyone knows that everyone knows).
answer
Firms have market power and have the ability to change the market price.
question
Which of the following firms operates in a perfectly competitive market?
Oil producers.
Fast food restaurants.
Shoe stores.
Farmers.
Oil producers.
Fast food restaurants.
Shoe stores.
Farmers.
answer
Farmers
question
Which of the following is the condition for profit maximization?
MR = MC
ATC = MR
P = ATC
MC = AVC
MR = MC
ATC = MR
P = ATC
MC = AVC
answer
MR = MC
question
What price does a firm in a perfectly competitive firm charge?
answer
The firm takes the market price.
question
Total cost - Total fixed Cost = ?
answer
Total variable cost
question
In the long run...
answer
All costs are variable costs.
question
Which of the following must always decrease as quantity increases?
Average Fixed Costs.
Average Variable Costs.
Average Total Costs.
Marginal Costs.
Average Fixed Costs.
Average Variable Costs.
Average Total Costs.
Marginal Costs.
answer
Average Fixed costs.
question
If ATC=P at the profit maximizing quantity, what can we say about the firm's profit?
answer
The firm is earning neither an economic profit nor an economic loss.
question
In a graph with perfect competition, what does the bottom horizontal line represent?
answer
Average variable costs
question
Which line is the "nike swoosh?"
answer
Marginal Costs (MC)
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