econ 2030 test 2 quizlets combined

question

1) Suppose that milk benefits from successful advertising campaign. Everything else help constant, this willl cause the demand for milk_____ and become more price_____.

answer

Increase, Inelastic

question

2) Suppose rational decision-maker Christine has a voucher for a free concert ticket that she can use to see either Helen Gillet or Beth Patterson. suppose further that her reservation price for seeing Helen is $15 and her reservation price for seeing beth is $20 Which concert will she attend.

answer

Definitely see beth Patterson

question

Radishes Per hour Pears Per Hour
Cody 600 200
Sally 500 100

4) Sallies opportunity cost of harvesting one pear is _____ radishes

answer

question

Radishes Per hour Pears Per Hour
Cody 600 200
Sally 500 100

5) ______ has the absolute advantage in harvesting pears and ______ has the comparative advantage in harvesting radishes.

answer

Cody, Sally

question

6) Suppose chewing gum is an Inferior good. Suppose further that national income is increasing while, at the same time Labor costs in chewing gum industry decrease.

The equilibrium price of chewing gum will _______

answer

Decrease

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7) Suppose chewing gum is an Inferior good. Suppose further that national income is increasing while, at the same time Labor costs in chewing gum industry decrease.

The demand for chewing gum will ________

answer

Decrease

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8) Suppose chewing gum is an Inferior good. Suppose further that national income is increasing while, at the same time Labor costs in chewing gum industry decrease.

The equilibrium quantity of chewing gum transacted will ________

answer

Be Ambiguous

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9) Suppose a rational artist has a reservation price of $700 for her piece. Suppose That a customer mad an offer but the artist did not sale. it can be concluded that the offer was _____ $700

answer

Less Than

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10) The American economy might be bumbling along but it is doing better than the rest of the industrial world. This is an example of ______

answer

Macroeconmics

question

Wine Per hour Cloth Per Hour
England 36 24 Portugal 20 20

11) They move from autarky to mutually beneficial trade, this will cause the price in Portugal to?

answer

decrease

question

Wine Per hour Cloth Per Hour
England 36 24 Portugal 20 20

12) They move from autarky to mutually beneficial trade, this will cause the workers in english cloth to ______

answer

decrease

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13) On a production possibilities frontier (PPF) Graph Goods are said to be attainable and efficient at a particular point in time lies _________ on the PPF

answer

question

14) In a market, a Shortage exists when ______ is less than _____.

answer

supply, Demand

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15) Both buyers and sellers expect that the price of sunglasses will increase next month., The Supply of sunglasses will ______ and the Equilibrium price will _____ this month

answer

decrease, increase

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16) If a 5% decrease in price results in a _____ than 5% ______ in quantity Supplied, it can be concluded that supply is elastic.

answer

greater, Decrease

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17) Spam is a normal good what would what would cause the supply of spam to increase ?

answer

Decrease in input costs of manufacturing spam

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18) An increase in hourly wage rate, will cause ______ in the marginal cost of an extra hour of leisure.

answer

An Increase

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19) "As skidded to $30 a barrel, new drilling has dried up in North Dakota and the flood of wealth and workers is ebbing" is an example of a _______econmics

answer

microeconmics

question

20) Rational Harry has decided to attend a concert but he has a choice: buy a ticket to Kim or Zoe. The Price of Kim's is $25 and the Price for Zoe is $15, What is Harry's sunk cost.

answer

$15

question

21) Mike sells hot dogs and his customers' demand for hot dogs is inelastic. Suppose further that the price of Mikes' hot dogs was higher in august than it was in July. It can be concluded that the total number of hot dogs mike sold in august was _____ than it was in July and the total revenue he earned from hot dog sales in August was _____ than in July

answer

less, Greater

question

22) Suppose that apples and oranges are substitutes in consumption. Suppose Further that the price of apples increases while, at the same time, worker productivity in the orange industry increase.

The supply of oranges will _______

answer

increase

question

23) Suppose that apples and oranges are substitutes in consumption. Suppose Further that the price of apples increases while, at the same time, worker productivity in the orange industry increase.

The equilibrium price of oranges will _____ and the equilibrium quantity of oranges transacted will ______

answer

Be ambiguous, increase

question

24)when a country allows trade and becomes an exporter of a good, domestic producers of the good in the country is exporting are _____ than they were in autarky.

answer

Better off

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25) The fewer substitutes that are available for a good. the more price ______ demand will be good. The smaller the proportion of a consumer's budget a good makes up, the more price ____ demand will be for the good.

answer

inelastic, inelastic

question

1) A decrease in foreign income will cause _____ in aggregate demand in the United States and _____ in the unemployment rate in the United States in the short run, everything else held constant.

answer

a decrease, an increase

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2) The unemployment rate in the United States in February 2016 was _____ it was in January 2016.

answer

the same as

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3)Large universities, such as LSU, have career service centers. These centers are most effective in combating _____ unemployment

answer

Frictional

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4) A shortage in the labor market is a feature of _____ gap. The self-correcting mechanism operates in such a way that this gap will be eliminated, over time, by _____ in labor costs.

answer

an inflationary, increases

question

5)In which of the following situations would it be MOST advantageous to be borrowing?

answer

The nominal interest is 6 percent and the expected inflation is 7percent

question

6)Suppose 45-year-old Leslie lost her job at the popsicle factory five months ago. She is available to being in another job immediately, but she has not looked for one in the past six weeks. According to the BLS household survey, Leslie would be classified as...

answer

not in the labor force

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7)Suppose the U.S. economy is operating at full employment. An increase in the money supply by the Federal Reserve will cause _____ in real GDP and _____ in the aggregate price level in the short run, everything else held constant.

answer

an increase, an increase

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8)Suppose over a six-week period you observe the following data for initial weekly unemployment insurance claims in the United States: 656,000; 623,000; 637,000; 589,000; 599,000; and 577,000. Which of the following describes the state of the labor market in the United States during this period?

answer

contracting

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9)Suppose the U.S. economy is operating at full employment. An increase in consumer confidence will cause _____ in the aggregate price level in the short run and _____ in real GDP in the long run, everything else held constant

answer

an increase, no change

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10)In which of the following situations is the expected rate of inflation the LOWEST?

answer

the real interest rate is 11 percent and the nominal interest is

question

11)The largest expenditure component of U.S. GDP is...

answer

consumption

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12) Suppose the CPI equaled 1000 in 2010 and 110 in 2015 and a typical household's income equaled $40,000 in 2010 and $42,000 in 2015. Between 2010 and 2015 the aggregate price level _____ and real household income _____, everything else held constant.

answer

increased, decreased

question

13)Year/Quarter Annual Percent Annual Percent . Change Nominal GDP Change Real GDP
2015/Q1 +3.2 +0.2
2015/Q2 +1.6 -0.8
2015/Q3 +2.1 -0.5
2015/Q4 +3.9 -0.9

Which of the following describes the macroeconomic performance of Zenda in 2015?

answer

recession

question

14)Year/Quarter Annual Percent Annual Percent . Change Nominal GDP Change Real GDP
2015/Q1 +3.2 +0.2
2015/Q2 +1.6 -0.8
2015/Q3 +2.1 -0.5
2015/Q4 +3.9 -0.9

The inflation rate in Zenda in the first quarter of 2015 was _____ it was in the fourth quarter of 2015.

answer

less than

question

15)Suppose the U.S. economy is operating below full employment. A decrease in government spending will cause the _____ gap to _____ in the short run, everything else held constant.

answer

recessionary, widen

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16)A decrease in transfer payments is an example of _____ policy action.

answer

a contractionary fiscal

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17)Suppose Kinsey purchases a bottle of mineral water at a store in New Orleans and drinks it while walking home. Suppose further that the mineral water was produced in Romania. Everything else held constant, this purchase will cause _____ in the consumption component of U.S. GDP and _____ in the net exports of the United States.

answer

an increase, a decrease

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18)Suppose the U.S. economy is operating at full employment. A decrease in labor costs will cause ____ in the unemployment rate in the short run and _____ in the aggregate price level in the long run, everything else held constant.

answer

a decrease, no change

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19)Suppose Brian lost his job as a tennis instructor when his hotel on Long Island, New York closed for winter. In this situation, Brian would be considered _____ unemployed.

answer

seasonally

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20)Suppose 28-year-old Scarlett lost her full-time job at a comic book store on Wednesday of the reference week of the BLS household survey. Suppose further that she submitted several applications with other local retailers on Thursday and Friday but had not obtained a new job by the end of the week. According to the BLS household survey, Scarlett would be classified as...

answer

not in the civilian non-institutional population

question

21) Suppose the U.S. economy is operating at full employment. A decrease in taxes will cause _____ in real GDP in the short run _____ in the unemployment rate in the long run, everything else held constant.

answer

an increase, no change

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22)The aggregate demand curve of a country is negatively sloped because a decrease in the aggregate price level causes the real wealth of the country to _____ and the nominal interest rate to _____, everything else held constant.

answer

increase, decrease

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23)Suppose that a shoe store added domestically produced shoes to its inventory in June 2015 because it expected an increase in demand for them. The store miscalculated the preferences of its customers, however, and was not able to sell the shoes until January 2016. The shoes added to the store's inventory in June 2015...

answer

will be counted in 2015 GDP as par of investment

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24)The labor force is a _____ variable; real GDP is a _____ variable.

answer

stock, flow

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25)The term "business cycle" refers to the...

answer

short term fluctuations in economic growth

question

1)Which of the following monetary policy tools does the Fed primarily use to prevent financial panics from occurring in the United States?

answer

Discounting

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2)Suppose Judy transfers $1,000 from her money market account to her demand deposit account. This transfer will cause _____ in the M1 money supply and _____ in the M2 money supply, everything else held constant.

answer

an increase, no change

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3)Suppose Chris goes online and pays off the entire balance on her bank-issued credit card with a draft from her checking account. Everything else held constant, this payment will cause the money multiplier to _____ and the money supply to _____.

answer

decrease, decrease

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4)Suppose that the U.S. economy is operating above full employment and the actual government budget deficit is $100 billion. In this situation, the government's structural deficit is _____ $100 billion.

answer

greater than

question

5)A decrease in government spending will cause _____ in the cyclical deficit in the short run and _____ in the structural deficit in the long run, everything else held constant.

answer

an increase, decrease

question

6)The president of which of the following Federal Reserve Banks is a voting member on the FOMC this year?

answer

New York

question

7)What makes it possible for a government to maintain a constant debt-to-GDP ratio and still run continual budget deficits?

answer

continual increase in real GDP

question

8)Suppose the exchange rate between the U.S. dollar and the British pound changes from $1.42 to $1.36 per pound. In this situation, the unemployment rate in the United States will _____ in the short run, everything else held constant.

answer

remain unchanged

question

9)Suppose the exchange rate between the U.S. dollar and the British pound changes from $1.42 to $1.36 per pound. In this situation, the aggregate price level in Great Britain will _____ in the short run, everything else held constant.

answer

increase

question

10)Suppose a commercial bank purchases U.S. government bonds from the Fed. This transaction will cause the monetary base to _____ and the money supply to _____, everything else held constant.

answer

decrease, decrease

question

11)Suppose the inflation rate unexpectedly increases in the United States. Everything else held constant, this will cause the euro to become _____ desirable relative to the U.S. dollar and the dollar _____ relative to the euro.

answer

more, depreciate

question

12)The benefit of a strengthening U.S. dollar in the world's foreign exchange markets is _____ in the United States.

answer

lower inflation rates

question

13)If the exchange rate between the Hungarian forint and the U.S. dollar changes from 273 to 285 foring per dollar, then the forint has _____ relative to the dollar and Hungarian goods will becomes _____ in the United States, everything else held constant.

answer

depreciate, Cheaper

question

14)Suppose an American tourist visiting Paris, France stops to read a menu posted outside a restaurant. On the menu the price of each dish is listed in euros. The tourist pauses to mentally convert the prices into U.S. dollars. After several minutes of consideration he thinks, "No way am I going to pay $45 to eat at this place." In this situation, the U.S. dollar is performing which of the following functions of money?

answer

standard value

question

15)Suppose an American tourist visiting Paris, France stops to read a menu posted outside a restaurant. On the menu the price of each dish is listed in euros. The tourist pauses to mentally convert the prices into U.S. dollars. After several minutes of consideration he thinks, "No way am I going to pay $45 to eat at this place." In this situation, the euro is performing which of the following functions of money?

answer

unit of account

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16)Last week, Beth's federal income tax refund of $827 was directly deposited into her checking account. Used in this way $827 performed which of the following functions of money?

answer

means of unilateral payment

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17)Suppose market participants believed that interest rates would increase next week. You, on the other hand, are certain that interest rates will remain unchanged. Given your views, the most profitable action to take TODAY would be to _____ bonds.

answer

Buy

question

18)U.S. government bonds are included in which of the following measures of the money supply of the United States?

answer

neither m1 nor m2

question

19)An open market purchase of government bonds by the Federal Reserve is an example of _____ policy action.

answer

an expansionary monetary

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20)Countercyclical monetary policy involves expansionary policy actions during periods of _____ real GRP and contractionary policy actions during periods of _____ unemployment.

answer

Low, Low

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21)Suppose Lisa goes to her bank and withdraws $500 in currency from her savings account. Everything else held constant, this withdrawal will cause bank reserves to _____ and the monetary base to _____.

answer

decrease, remain unchanged

question

22) The actual government budget deficit...

answer

increase in real GDP decreases as real GDP increases

question

23) In which of the following situations is it MOST advantageous to be buying bonds?

answer

the real interest rate is 2 percent

question

24)The Federal Reserve System was created by an act of Congress in...

answer

1913

question

25) In March 2016, the unemployment rate in the United States was _____ it was in February 2016.

answer

0.1 percent points higher than

question

Suppose Andrea, a rational artist, recently sold her painting, City #1, for $325. Suppose further that her reservation price for selling the painting was $250. Andrea's producer surplus from this sale was

answer

$75

question

Suppose worker productivity increases in the orange industry. Everything else held constant, consumer surplus in the market for oranges will _____.

answer

increase

question

Suppose worker productivity increases in the orange industry. Everything else held constant, producer surplus in the market for oranges will _____.

answer

Be ambiguous

question

Suppose worker productivity increases in the orange industry. Everything else held constant, economic surplus in the market for oranges will _____.

answer

increase

question

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax.

answer

true

question

answer

40%

question

answer

60%

question

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the price the buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax.

answer

$0.80 higher

question

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the price the sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.

answer

$1.20 lower

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.

answer

elastic

question

The flu vaccine has a _____ externality associated with its _____.

answer

positive, consumption

question

In the case of a good that generates positive externalities in consumption, the equilibrium quantity transacted in the market is _____ the socially optimal quantity.

answer

less than

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Paper has a _____ externality associated with its production. In the absence of government intervention, the market equilibrium quantity of paper transacted will be _____ the socially optimal quantity.

answer

negative, more than

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Suppose worker productivity increases in the envelope industry. Everything else held constant, consumer surplus in the market for envelopes will ___.

answer

increase

question

Suppose worker productivity increases in the envelope industry everything else held constant, producer surplus in the market for envelops will ___.

answer

be ambiguous

question

Suppose worker productivity increases in the envelope industry. Everything else held constant, economic surplus in the market for envelopes will _____.

answer

increase

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Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the
tax.

answer

True

question

Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.8 and the price elasticity of supply for it is 1.2. Everything else held constant, the sellers will bear _____ percent of the
burden of the tax.

answer

question

Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.8 and the price elasticity of supply for it is 1.2. Everything else held constant, the price the buyers pay for the good after the tax is levied will be _____ higher than the price they paid prior to the tax.

answer

$4.00

question

Buyers will bear none of the burden of an excise tax if supply is perfectly _____.

answer

inelastic

question

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.)The total revenue of the store per year is $180,000. Al's explicit cost of running his shop for a year is

answer

$100,000

question

answer

$50,000

question

answer

$30,000

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Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are

answer

positive

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Suppose a firm producing one unit of output has variable costs equal to $20 and total costs equal to $30. In this situation, the firm's total cost of producing zero units of output is

answer

$10

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Suppose a firm producing one unit of output has variable costs equal to $20 and total costs equal to $30. In this situation, the firm's marginal cost of producing the first unit of output is

answer

$20

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When marginal cost is less than the average total cost at a particular level of output, average total cost must be

answer

decreasing

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If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

answer

greater than

question

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra has marginal costs equal to $2.50 per kilo. If the market price of plantains is $2.25 per kilo, it can be concluded with certainty that Petra's profits are

answer

decreasing

question

Which of the following is a characteristic of a perfectly competitive market?

answer

Firms face no barriers to entering the market

question

Suppose Ginger's Spice Company sells paprika in a perfectly competitive market and is producing her profit-maximizing level of output. Suppose further that at this level of production her average total cost of producing one pound of paprika is $12, her average fixed cost is $6, and her marginal cost is $16. At this moment in time, the price of one pound of paprika is

answer

$16

question

answer

greater than

question

answer

maintain her current level of production since she is minimizing her losses

question

answer

decrease

question

answer

decrease

question

answer

increase

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Mario is a profit-maximizing wholesale meatball distributor who sells his meatballs to all of the finest restaurants in town. Because nobody can make meatballs like Mario, he is the only distributor in town that sells meatballs to restaurants. As a result, the price of one of Mario's meatballs will be _____ the marginal revenue from producing it.

answer

greater than

question

Suppose, at a given point in time, Wanda's Wig Warehouse, a non-price discriminating monopolist, is producing at a level of output where marginal revenue is less than marginal cost. Everything else held constant, Wanda could increase her firm's profits by _____ the quantity of wigs she produces and _____ the price she charges for them.

answer

decreasing; increasing

question

Answer true or false to the following statement. If a non-price discriminating
monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

answer

False

question

Suppose, at a moment in time, the price at which a monopolist is selling its output is $14 and the marginal revenue from the last unit sold is $10. Suppose further that the marginal cost of producing the last unit of output sold is $16. Everything else held constant, which of the following actions should the non-price discriminating, profit maximizing monopolist take?

answer

increase output decrease price

question

Suppose Frank is a monopolist in the garden gnome market and is producing his profit-maximizing level of output. Suppose further that at this level of production his average total cost is $150, his average variable cost is $130, and the price of one of his gnomes is $160. It can be concluded with certainty that the marginal cost of the last gnome Frank sold was _____, everything else held constant.

answer

less than $160

question

Suppose Frank is a monopolist in the garden gnome market and is producing his profit-maximizing level of output. Suppose further that at this level of production his average total cost is $150, his average variable cost is $130, and the price of one of his gnomes is $160. Frank's economic profit is _____ in the short run, everything else held
constant.

answer

positive

question

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

answer

greater than or equal to

question

Which of the following conditions must hold if a firm is to engage in price
discrimination?

answer

the transaction cost of one consumer selling the product to another consumer must be high

question

Consider the following offer: an all-you-can-eat buffet charges $12 per person, but allows children under 10 years of age to dine for free. This pricing scheme is an
example of _____-degree price discrimination.

answer

third

question

Suppose a grocery store advertises the following special: "This Week ONLY: 10% Off & a Free Bag when you purchase 6 Bottles or more of any 750 ml Wine." With this offer, the store is engaging in _____-degree price discrimination.

answer

second

question

The flu vaccine has a _____ externality associated with its _____.

answer

positive, consumption

question

In the case of a good that generates positive externalities in consumption, the equilibrium quantity transacted in the market is _____ the socially optimal quantity.

answer

less than

question

A good that is _____ and _____ in consumption is a private good.

answer

rival; excludable

question

A National Public Radio broadcast is an example of

answer

a public good

question

inelastic; smaller

answer

The shorter the period of time that a buyer has to make a purchasing decision, everything else held constant, the more price __ demand will be for the good. The __ proportion of a consumer's budget a good makes up, everything else held constant, the more price inelastic demand will be for the good.
- inelastic; smaller
- elastic; greater
- elastic; smaller
- inelastic; greater

question

$1195

answer

Suppose the rational and chic Amber saw a beautiful pair of Christian Louboutin loafers priced at $995 and she bought them. Suppose further that her consumer surplus from the purchase was $200. It can be concluded with certainty that her reservation price for buying the loafers was...
- $0
- $200
- $795
- $995
- $1195

question

remain in business

answer

At a given point in time, suppose a monopolist is producing its profit-maximizing level of output and is earning an economic profit equal to zero. Everything else held constant, what will the monopolist do in the long run?
- shut down
- remain in business

question

A. increase
B. increase

answer

Suppose books are a normal good. Suppose further that national income in increasing.
A. In the situation above, producer surplus in the book market will __, everything else held constant.
- remain unchanged
- increase
- be ambiguous
- decrease
B. In the situation above, economic surplus in the book market will __, everything else held constant.
- remain unchanged
- increase
- be ambiguous
- decrease

question

A. the demand for bicycles is relatively more price inelastic than the supply is
B. $6.50 lower

answer

Suppose the government imposes an excise tax of $10 per unit on bicycles. Suppose further that buyers bear 65 percent of the burden of the tax.
A. In the situation above, which of the following can be concluded with certainty?
- the demand for bicycles is price elastic
- the demand for bicycles is relatively more price elastic than the supply is
- the demand for bicycles is price inelastic
- the demand for bicycles is relatively more price inelastic than the supply is
B. After the tax is imposed, the price the sellers receive for selling a bicycle will be __ than it was before the tax, everything else held constant.
- $6.50 lower
- $6.50 higher
- $10.00 hgiher
- $3.50 higher
- $3.50 lower

question

decrease output and increase price?

answer

Suppose the price at which a monopolist is selling its output is $10 and the marginal revenue associated with the last unit of output sold is $8. Suppose further that the marginal cost of producing the last unit of output sold is $6. Which of the following actions should the non-price discriminating monopolist take to increase its profits?
- decrease output and decrease price
- increase output and increase price
- increase output and decrease price
- decrease output and increase price

question

greater than?

answer

Suppose Rachel is the only person in her town who performs weddings and she is producing her profit-maximizing level of output. Suppose further that at this level of production, Rachel's average fixed cost of performing a wedding is $75, her average variable cost is $100, and the marginal revenue from performing a wedding is $175. Everything else held constant, Rachel's profit from performing weddings is __ zero.

question

average total; decreasing

answer

When marginal cost is less than average total cost at a particular level of output, __ cost MUST be __.
- marginal; increasing
- average fixed; increasing
- marginal; decreasing
- average total; decreasing
- average total; increasing

question

lower

answer

Suppose Brad's price elasticity of demand for restaurant meals in .8. Suppose further that the price of restaurant meals was __ in August than it was in July. Everything else held constant, it can be concluded with certainty that Brad's total spending on restaurant meals in August was lower than it was in July.
- lower
- higher

question

increased; 16

answer

suppose Jeff the Chef's price elasticity of supply of restaurant meals is 2. If the price of restaurant meals increased by 8 percent, then the quantity of restaurant meals Jeff supplied must have __ by __ percent, everything else held constant.
- decreased; 16
- increased; 16
- decreased; 6
- decreased, 4
- increased; 4

question

A. $375,000
B. $75,000

answer

At the beginning of January 2016, Austin decided to convert his steakhouse, from which he has been earning a steady annual profit of $50,000 into a vegan bistro. Austin earned total revenues of $500,000 and an accounting profit of $125,000 from running the bistro in 2016.
A. In the situation above, Austin's explicit costs from running the bistro in 2016 was...
- $50,000
- $125,000
- $175,000
- $325,000
- $375,000
B. In the situation above, Austin's economic profit from running the bistro in 2016 was...
- $-75,000
- $75,000
- $125,000
- $175,000
- $375,000

question

A. $1.60
B. decrease
C. increase

answer

Suppose, at a given point in time, Snappy Snack Shack operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production, Snappy's average total cost of producing snacks in $1.70, average variable cost is $1.25, and marginal cost is $1.60.
A. In the situation above, the price of snacks is __ in the short run.
- $0.45
- $1.25
- $1.60
- $1.70
- $2.85
B. Over time in the situation above, the number of firms selling snacks will __, everything else held constant.
- increase
- decrease
- remain unchanged
C. Over time in the situation above profits in the snack market will __, everything else held constant.
- increase
- decrease
- remain unchanged

question

less than 3; decrease

answer

If a __ percent increase in price results in a 3 percent __ in quantity demanded, everything else held constant, then it can be concluded that demand is price elastic.
- 3; decrease
- greater than 3; decrease
- less than 3; decrease
- less than 3; increase
- greater than 3; increase

question

Profit

answer

= benefit-cost

question

total revenue (TR)

answer

=Price(P) X quantity(Q)
- benefit from selling

question

marginal revenue (MR)

answer

change in TR/change in Q

question

total cost (TC)

answer

- explicit & implicit

question

explicit

answer

out of pocket costs; actually have to pay for; accounting cost

question

implicit

answer

not in pocket costs
accounting profit from the next best alternative
- example, if a company operates out of a building it owns, it experiences an implicit cost from the rent it could earn from leasing the building to another company. The building could earn $3,000 a month from a commercial renter, so the company has an implicit cost of $3,000 to add to its economic costs.

question

marginal costs

answer

- the change in TC from producing one more unit of the good or service
- MC=change in TC/Change in Q

question

accounting cost

answer

dollars in minus dollars out
A>E
=TR-explicit

question

economic cost

answer

=TR-explicit(accounting from what your doing)-implicit(accounting profit from what you are not doing)
- Economic profit<0
- what is the implication?
E<A

question

Maximizing Rule

answer

- produce quantity Q* where MR=MC
MR>MC; increase in profits, good, produce more
MR<MC; decrease in profits, not good, produce less

question

normal

answer

- economic profit=0
- good situation
- acct profit what your doing=acct profit from what your not doing
- equilibrium

question

Total (TC)

answer

=FC+VC

question

fixed (FC)

answer

- costs that don't change
- independent of our level of production (Q)
- rent is a FC; doesn't change how many days you stay or not
- FC doesn't matter when answering question how much to produce?
- it matters for overall profitability

question

variable (VC)

answer

- costs that fluctuate

question

Marginal (MC)

answer

- solely variable cost
- = change in VC/change in Q(output)
- Profit-maximizing rule: Produce Q* where: MR=MC

question

total (ATC)

answer

=TC/Q
- costs per unit

question

fixed (AFC)

answer

=FC/Q

question

variable (AVC)

answer

VC/Q

question

profit (working definition)

answer

- it matters to answering the question about profit
=benefit-cost
=TR-TC
=(P X Q)-TC
=(P X Q)-TC/Q X Q
=(P X Q)- ATC X Q
=(P-ATC) X Q
- true for all firms at all levels of output
Profit>ATC (+); better than best alternative
Profit<ATC(-)

question

average/marginal cost relationship

answer

- Marginal: doing one more of something (extra)
- MC>average; average goes up
- MC<average; average goes down
- MC=average; average doesn't change

question

short run

answer

FC>0
TC=FC+VC

question

long run

answer

FC=0
TC=VC
where FC becomes variable
point in time when rent it up

question

perfect information

answer

1. firms are price takers
2. demand=price=marginal revenue

question

market structure

answer

a. many small buyers and sellers
b. homogeneous good: exactly the same
c. perfect information
(abc go together)
d. no barriers to entry/exit

question

for all firms

answer

1. Profit=(P-ATC) X Q (can't produce - of something)
2. Profit-Maximizing Rue: Produce Quantity Q*; where MR=MC
3. remain in business (Produce Q*>0) if P>= AVC
4. shut down (produce Q*=0) if P<AVC

question

perfect competition

answer

P=MR

question

case 1: P>ATC

answer

- equilibrium Quantity: Q*>0
- Profit>0; accounting profit is also >0

question

case 2: P=ATC

answer

- equilibrium Quantity:Q*>0
- profit=0; good; accounting profit is higher and = to the accounting profit of the best alternative

question

case 3: ATC>P>=AVC

answer

- equilibrium quantity: Q*=0
- Profit<0; the best alternative is better than what we are doing
- in short run, firm faces choice
-- Q>0 (open) or Q=0(close)

question

case 4: P<AVC

answer

- equilibrium quantity: Q*=0; close down shop
Profit<0

question

profit maximizing rule

answer

MR>MC; profit is increasing; produce more
MR<MC; profit is decreasing; produce less
MR=MC; maximum

question

a. ex=80k+20k=$100k
b. im=$50k
c. acct=180k-100k=$80k
d. econ=180k-100k-50k=$30k

answer

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000.
what is Al's
a. explicit cost?
b. implicit cost?
c. accounting profit?
d. economic profit?

question

A. Beauty salon
B. saving (1k) + working (40k)
a. ex=20k+30k+36k+40k+43=$169k
b. im=40k+1k=$41k
c. acct=200k-169k=$31k
d. econ=200k-169k-41=$(-)10k

answer

Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year:
Furniture: $20,000Equipment: $30,000Rent: $36,000Coloring products: $40,000Styling products: $43,000
Danielle is withdrawing $50,000 from her savings account that pays 2 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000.
what is Danielle's
a. explicit cost?
b. implicit cost?
c. accounting profit?
d. economic profit?

question

positive

answer

Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are
- positive
- negative
- normal
- ambiguous (uncertain)

- A>E

question

increasing

answer

When marginal cost is greater than the average total cost at a particular level of output, average total cost must be
- increasing
- decreasing
- remaining constant

ex:
avg 1st 3 tests=80
avg 4th test=100
increasing

question

greater than

answer

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.
- greater than
- less than
- equal to

question

firms face no barriers to entering the market

answer

Which of the following is a characteristic of a perfectly competitive market?
Firms are price makers in the market.
Firms face no barriers to entering the market.
There are few firms selling the good in the market.
The goods sold in the market are differentiated.

question

remain in business

answer

- produce Q*>0
P>=AVC

question

shut down

answer

- Produce Q*=0
P<AVC

question

perfect competition

answer

P=MR at all levels of output
P=MR=MC at (and only at) the profit-maximizing level of output, Q*

question

increasing

answer

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $2.25 per kilo, it can be concluded with certainty that Petra's profits are

question

a. $1.70=AFC+$1.25; AFC=$0.45
b. MR=MC=$1.60
c. P=MR=MC=$1.60
d. Profit=(P-ATC) X Q=(1.60-1.70) X Q (negative)
e. AVC<P<ATC; 1.25<1.60<1.70; remain open

answer

Suppose, at a given point in time, Snappy Snack Shack operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production, Snappy's average total cost of producing snacks is $1.70, average variable cost is $1.25, and marginal cost is $1.60.
At her current level of production, what is...

a) Snappy's average fixed cost of producing a snack?
b) Snappy's marginal revenue from selling a snack?
c) the price of a snack?
d) Snappy's profit from selling snacks?

In the short run, will Snappy Snack Shack remain open or shut down?

question

AVC=17
ATC=19
P=MR=MC=18
17<18<19
maintain her current level of production since she is minimizing her losses

answer

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing mittens is $17, average total cost is $19, and marginal revenue is $18. In the short run, Michelle should
-maintain her current level of production since she is earning a positive economic profit.
-maintain her current level of production since her economic profit is zero.
-maintain her current level of production since she is minimizing her losses.
shut down immediately.
-increase production since it will increase her economic profit.
-decrease production since it will increase her economic profit.

question

inferior good

answer

a good whose demand decreases when consumer income rises (or demand rises when consume income decreases)

question

normal good

answer

experiences an increase in demand along with increases in the income level

question

benefit

answer

what is recieved

question

opportunity cost

answer

what is given up=benefit from the best alternative not chosen

question

marginal cost

answer

the extra cost (change in total cost) of doing one more unit of something

question

absolute advantage

answer

higher productivity of making something

question

comparative advantage

answer

lower opportunity cost in making something

question

specializtion

answer

producing goods that have higher comparative advantage (lower opportunity cost)

question

rationality

answer

- do something if benefit > equal to opportunity cost
- if this is true, then do it
- if equal, then either choice is rational
- don't purchase if cost is greater or equal to the benefit

question

ATC must be increasing
- when ATC is at its min, MC is equal to ATC
- when AVC is at its min, MC equals AVC

answer

When ATC is less than MC at a particular level of output

question

...

answer

at the beginning of January 2013, Basil decided to convert his warehouse, from which he earned a steady annual accounting profit of $100,000, into a hotel. Renovations cost $50,000, furniture and other materials cost $175,000, and labor and utilities cost $125,000. Basil earned total revenues of $400,000 from the hotel in 2013

question

economic surplus

answer

the sum of all consumer and producer surpluses in an economy

question

market equilibrium

answer

a market state where the supply in the market is equal to the demand in the market

question

equilibrium price

answer

the price of a good or service when the supply of it is equal to the demand for it in the market

question

equilibrium market price

answer

the price at which there is no tendency for it to change.
when price is lower than the equilibrium price, quantity demanded will be greater than quantity supplied

question

monopolist

answer

an individual or company that controls all of the market for a particular good or service

question

short run

answer

- both fixed and variables

question

long run

answer

- no fixed factors
- no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry

question

open

answer

P>=AVC
- Profit>0; P>ATC
-- Seller increase; Price decrease; quantity increase
- Profit <0; P<ATC
-- Seller decrease; price increase; quantity decrease
in long run profit=0

question

shut down

answer

P<ATC

question

a. $.25
b. $.25
c. (+)
a. increase
b. decrease
c. increase
d. decrease to 0

answer

Suppose Mimi's Magic Marker Company operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing magic markers is $0.20, average variable cost is $0.15, and marginal cost is $0.25.
At her current level of production, what is...

a) the marginal revenue of producing magic markers?
b) the price of a magic marker?
c) Mimi's profit from selling magic markers?

Over time, what will happen to...
a) the number of firms selling magic markers?
b) the price of magic markers?
c) the quantity of magic markers transacted in the market?
d) profits of firms operating in the magic marker market?

question

a. $3.00
b. $3.00
c. (-)
a. decrease
b. increase
c. decrease
d. increase to 0

answer

Suppose, at a given point in time, Stephanie's Soda Fountain sells ice cream in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing ice cream is $2.50, average total cost is $3.30, and marginal revenue is $3.00.
At her current level of production, what is...

a) the marginal cost of producing ice cream?
b) the price of ice cream?
c) Stephanie's profit from selling ice cream?

Over time, what will happen to...
a) the number of firms selling ice cream?
b) the price of ice cream?
c) the quantity of ice cream transacted in the market?
d) profits of firms operating in the ice cream market?

question

false

answer

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

question

less than

answer

Mario is a profit-maximizing wholesale meatball distributor who sells his meatballs to all of the finest restaurants in town. Because nobody can make meatballs like Mario, he is the only distributor in town that sells meatballs to restaurants. As a result, the marginal revenue from selling one of Mario's meatballs will be _____ the price he charges for it.

question

decreasing; increasing

answer

question

a. $1600
b. $2800
c. P>2800
d. (+)
e. remain open

answer

Suppose Marcy's Medical Machines is a monopolist and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost is $2500, average fixed cost is $900, and marginal revenue is $2800.
At her current level of production, what is...

a) Marcy's average variable cost of producing a medical machine?
b) Marcy's marginal cost of producing a medical machine?
c) the price of a medical machine?
d) Marcy's profit from selling medical machines?

Will Marcy continue to produce medical machines in the long run?

question

greater than or equal to

answer

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

question

greater than

answer

It can be concluded with certainty that a monopolist's accounting profits will be _____ zero in the long run.

question

equal to

answer

It can be concluded with certainty that a competitive firm economic profits will be _____ zero in the long run.

question

the transaction costs of one consumer selling the product to another consumer must be higher

answer

Which of the following conditions must hold if a firm is to engage in price discrimination?
The transaction costs of one consumer selling the product to another consumer must be high.
A firm must be a price taker in its market.
Different consumers must have similar preferences for the product.
A firm must be a monopolist in its market.

question

third

answer

Admission tickets to the New Orleans Museum of Art are $12 for adults and $10 for seniors (65 and over). This pricing scheme is an example of _____-degree price discrimination.

question

first degree

answer

quantity and people; both

question

second degree

answer

quantity; amount; how many?

question

third degree

answer

people; who you are?

question

second

answer

Suppose a parking garage has the following pricing schedule: 0-2 Hours, $5; 2-4 Hours, $10; 4-8 Hours, $15. With this pricing scheme, the garage is engaging in _____-degree price discrimination.

question

second

answer

question

first

answer

Suppose a grocery store advertises the following special: "For those having a reward card, this Week ONLY: 10% Off & a Free Bag when you purchase 6 Bottles or more of any 750 ml Wine." With this offer, the store is engaging in _____-degree price discrimination.

question

For a profit-maximizing firm, the goals of an advertising campaign are to _____ demand for the company's product and make it more price _____.

answer

increase; inelastic

question

If there are few substitutes for gasoline, then the _____ gasoline would tend to be price _____, everything else held constant.

answer

demand for; inelastic

question

The _____ the proportion of a consumer's budget a good makes up, everything else held constant, the more price elastic demand will be for the good.

answer

greater

question

If a 4 percent decrease in price results in a 6 percent _____ in quantity demanded, it can be concluded with certainty that demand is _____.

answer

increase; price elastic

question

Suppose green grocer Artie ran a 20 percent-off sale on artichokes last week and his revenues from selling artichokes increased from the previous week. It can be concluded with certainty that the demand for Artie's artichokes is _____, everything else held constant.

answer

price elastic

question

Last month Gene increased the price on all the jeans he sells at his local boutique by 15 percent. If the number of pairs of jeans that he sold decreased by 20 percent, it can be concluded with certainty that the demand for Gene's jeans is price _____ and his revenues for the month _____, everything else held constant.

answer

elastic; decreased

question

Suppose Charles spends $150 each and every month on paint, no matter what the price of paint is in a particular month. From this it can be concluded with certainty that Charles' price elasticity of demand for paint is

answer

unit elastic

question

If a 6 percent increase in price results in a 4 percent _____ in quantity supplied, it can be concluded with certainty that supply is _____.

answer

decrease; price inelastic

question

Suppose rational decision-maker Gena purchased a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Gena's consumer surplus from this purchase was

answer

$50

question

Suppose rational decision-maker Gena was considering purchasing a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Instead of buying the Springsteen ticket, however, Gena chose to go to a free Beth Patterson concert. Everything else held constant, it can be concluded with certainty that Gena's consumer surplus from seeing Beth Patterson was

answer

greater than or equal to 50

question

answer

$75

question

Worker productivity increases in steel industry
Change in consumer Surplus
Change in producer surplus
economic surplus

answer

?
positive
positive

question

Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.5 and the price elasticity of supply for it is 3.5.

Tax borne by buyers?
Tax borne by sellers?

answer

70%
30%

question

Buyers will bear none of the burden of an excise tax if supply is perfectly _____.

answer

inelastic

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.

answer

elastic

question

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000.

Al's explicit cost?
Implicit cost?
accounting profit?
economic profit?

answer

100,000
50,000
80,000
30,000

question

Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year:
Furniture: $20,000
Equipment: $30,000
Rent: $36,000
Coloring products: $40,000
Styling products: $43,000
Danielle is withdrawing $50,000 from her savings account that pays 2 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000.

explicit cost?
implicit cost?
accounting profit?
economic profit?

answer

169,000
41,000
31,000
-10,000

question

Suppose a profit-maximizing firm is earning positive accounting profits at its current level of output. Everything else held constant, the firm's economic profits are

answer

ambiguous

question

When marginal cost is greater than the average total cost at a particular level of output, average total cost must be

answer

increasing

question

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

answer

greater than

question

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $1.75 per kilo, it can be concluded with certainty that Petra's economic profits are

answer

decreasing

question

Which of the following is a characteristic of a perfectly competitive market?

Firms are price makers in the market.
Firms face no barriers to entering the market.
There are few firms selling the good in the market.
The goods sold in the market are differentiated.

answer

Firms face no barriers to entering the market.

question

answer

Firms face no barriers to entering the market.

question

answer

increasing

question

Suppose, at a given point in time, Sally's Smoothie Shack operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing a smoothie is $2.90, average total cost is $4.00, and marginal cost is $3.60.

Sally's AFC of producing a smoothie?
Marginal revenue from selling a smoothie
price of a smoothie
profit from selling smoothies?

answer

$1.10
$3.60
$3.60
negative

question

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing mittens is $17, average total cost is $19, and marginal revenue is $18. In the short run, Michelle should

-maintain her current level of production since she is earning a positive economic profit.
-maintain her current level of production since her economic profit is zero.
-maintain her current level of production since she is minimizing her losses.
-shut down immediately.
-increase production since it will increase her economic profit.
-decrease production since it will increase her economic profit.

answer

maintain her current level of production since she is minimizing her losses.

question

answer

.25
.25
positive

increase
decrease
increase
decrease to zero

question

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

answer

false

question

Suppose, at a moment in time, the price at which a monopolist is selling its output is $10 and the marginal revenue from the last unit sold is $6. Suppose further that the marginal cost of producing the last unit of output sold is $8. Everything else held constant, which of the following actions should the non-price discriminating, profit-maximizing monopolist take?

Increase output and increase price.
Increase output and decrease price.
Decrease output and increase price.
Decrease output and decrease price

answer

decrease output
increase price

question

Suppose Marcy's Medical Machines is a monopolist and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost is $2500, average fixed cost is $900, and marginal revenue is $2500.

Marcys AVC of producing a medical machine
Marginal cost of producing a machine
price of machine
profit?

Will Marcy continue to produce in the long run

answer

1600
2500
greater than 2500
positive

yes

question

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

answer

greater than or equal to

question

Suppose Natalie's Gummibär Boutique operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing a kilo of Gummi bears is $5.50, average variable cost is $5.00, and marginal revenue is $4.25. At this moment in time, the price of a kilo of Natalie's Gummi bears is
1)greater than $5.50.
2)$5.50.
3)$5.00.
4)$4.25.
5)less than $4.25.

answer

$4.25

question

Suppose Natalie's Gummibär Boutique operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing a kilo of Gummi bears is $5.50, average variable cost is $5.00, and marginal revenue is $4.25. At this moment in time, Natalie is earning an economic profit _____ zero.
1)greater than
2)equal to
3)less than

answer

less than

question

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing mittens is $16, average variable cost is $14, and marginal cost is $18. Michelle s
hould
1)shut down immediately.
2)continue to produce in the short run since she is minimizing her losses.
3)maintain her current level of production since she is earning a positive economic profit.
4)increase production since it will increase her economic profit.
5)decrease production since it will increase her economic profit.

answer

maintain her current level of production since she is earning a positive econ profit

question

Suppose, at a given point in time, Tammy's Tea Room is operating in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing tea is $13, average variable cost is $9, and price is $11. Over time, everything else held constant, the number of sellers in this market will _____.
1)increase.
2)decrease.
3)remain unchanged

answer

decrease

question

Suppose, at a given point in time, Tammy's Tea Room is operating in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing tea is $13, average variable cost is $9, and price is $11. Over time, everything else held constant, the market price of tea will _____.
1)increase.
2)decrease.
3)remain unchanged

answer

increase

question

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.
1)True
2)False

answer

false

question

Suppose, at a given point in time, Wanda's Wig Warehouse, a non-price discriminating monopolist, is producing at a level of output where marginal revenue is greater than marginal cost. Everything else held constant, Wanda could increase her firm's profits by _____ the quantity of wigs she produces and _____ the price she charges for them.
1)increasing; increasing
2)increasing; decreasing
3)decreasing; increasing
4)decreasing; decreasing
5)not changing; not changing

answer

increase, decrease

question

Suppose Valerie is a non-price discriminating monopolist producing violas and is producing her profit-maximizing level of output. Suppose further that at her current level of output, Valerie's average total cost is $2000, her average variable cost is $1600, and her marginal cost is $2000. Valerie's economic profit is _____ in the short run, everything else held constant.
1)negative
2)zero
3)positive
4)ambiguous

answer

positive

question

Consider the following online offer. "Get 30% off all regularly priced items + Free Shipping on all orders over $50. Coupon Code: SHIMMER." This offer is an example of _____-degree price discrimination.
1)First
2)Second
3)third

answer

first

question

"Buy two, get one free" is an example of second-degree price discrimination. For this pricing scheme to be successful for the firm, the customers who buy only one unit of the good must be relatively more price _____ in their demand than the customers who buy two units.
1)elastic
2)inelastic

answer

inelastic

question

The flu vaccine has a _____ externality associated with its consumption. In the absence of government intervention, the market equilibrium quantity of flu vaccine transacted will be _____ the socially optimal quantity.
1)negative; less than
2)negative; more than
3)negative; the same as
4)positive; less than
5)positive; more than
6)positive; the same as

answer

positive, less than

question

An e-book is similar to a physically published book in that it is _____, but is also similar to national defense in that it is _____.
1)rival in consumption; nonexcludable
2)nonrival in consumption; excludable
3)excludable; nonrival in consumption
4)nonexcludable; rival in consumption

answer

Rival in consumption; no excludable

question

Suppose the supply of automobiles decreases. Everything else held constant, consumer surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

decrease

question

Suppose the supply of automobiles decreases. Everything else held constant, producer surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

be ambiguous

question

Suppose the supply of automobiles decreases. Everything else held constant, economic surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

decrease

question

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax.
1)True
2)False

answer

true

question

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the sellers will bear _____ percent of the burden of the tax.
1)0
2)20
3)30
4)40
5)60
6)100

answer

question

answer

$.80 higher

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.
1)elastic
2)inelastic

answer

elastic

question

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's explicit cost of running his store for a year is
1)$75,000.
2)$100,000.
3)$150,000.
4)$175,000.
5)$225,000.
6)$250,000.
7)$325,000

answer

$225,000

question

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's implicit cost of running his store for a year is
1)$75,000.
2)$100,000.
3)$150,000.
4)$175,000.
5)$225,000.
6)$250,000.
7)$325,000

answer

$100,000

question

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's economic profit from running his store for a year is
1)-$25,000.
2)$25,000.
3)$50,000.
4)$75,000.
5)$125,000.
6)$150,000.
7)$300,000

answer

$25,000

question

Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are
1)positive.
2)negative.
3)normal.
4)ambiguous

answer

positive

question

Suppose, at a given level of output, a firm's average total cost is $42 and its marginal cost is $40. If the firm produces one more unit of output, everything else held constant, its average total cost will
1)increase
2)decrease
3) remain unchanged

answer

decrease

question

If the price a firm charges in a perfectly competitive market is greater than its average total cost, then the firm is earning an economic profit _____ zero.
1) greater than
2)less than
3) equal to

answer

greater than

question

answer

decreasing

question

formula for burden of tax on buyer

answer

(Es/Ed+Es)100

question

formula for % of burden of tax on seller

answer

(Ed/Ed+Es)100

question

what are explicit costs?

answer

the out of pocket costs

question

what are implicit costs?

answer

not in pocket costs. What you gave up monetary wise from your old job.

question

How do you find accounting profit?

answer

Total revenue- explicit costs

question

How do you find economic profit?

answer

Acct profit-implicit costs

question

With the maximizing rule, what is true?

answer

MR=MC

question

What are fixed costs?

answer

costs that do not change and are independent of quantity. They are not explicit

question

What are variable costs?

answer

costs that vary and depend upon quantity. They are not implicit.

question

How do you find average total cost?

answer

TC/Q=AFC+AVC

question

How do you find average fixed cost?

answer

FC/Q

question

How do you find average variable cost?

answer

VC/Q

question

What is profit equal to?

answer

Profit=(P-ATC)Q

question

In a perfect competition, what three things are equal?

answer

P=MR=MC

question

Perfect competition Case 1

answer

P>ATC
Equilibrium Q*>0
Profit>0

question

Perfect competition Case 2

answer

P=ATC
Equilibrium Q*>0
Profit=0

question

Perfect competition Case 3

answer

ATC>P≥AVC
Equilibrium Q*>0
Profit<0
Days are numbered

question

Perfect competition Case 4

answer

P<AVC
Equilibrium Q*=0
Profit<0
Should shut down immediately

question

In a monopoly, the profit maximizing rule:

answer

Produce Q* where MR=MC so
P>(MR=MC)

question

Monopoly Case 1

answer

P>ATC

question

Monopoly Case 2

answer

P=ATC

question

Monopoly Case 3

answer

ATC>P≥AVC

question

Monopoly Case 4

answer

P<ATC: Q*0

question

Price discrimination by person NOT quantity

answer

third
senior citizen discount

question

Price discrimination by quantity NOT person

answer

second
buy 2 get 1 free

question

Price discrimination by person AND quantity

answer

first
car dealership

question

a rivalrous good

answer

if one person is consuming it, another person cannot consume the exact same good at the exact same time.
A cup of coffee

question

a nonrivalrous good

answer

multiple consumers of exactly the same serice at the exact same time
a class lecture

question

an excludable good

answer

they can exclude you by forcing you to pay for it

question

a nonexcludable good

answer

they can, but they do not have to force you to pay

question

an excludable rival good

answer

private good that the market produces efficiently

question

an excludable non-rival good

answer

artificially scarce goods- they are under produced b/c it is profitable to under produce them

question

a non-excludable rival good

answer

common resource- fish in the sea
problem: over consumption

question

a non-excludable non-rival good

answer

public goods- national defense
problem: under produced, no incentive b/c you can't force people to pay for it

question

Profit

answer

(P-ATC) x Q
TR-TC

question

Profit-maximizing Rule

answer

Produce at quantity Q* where MR=MC (true for all firms)

question

Remain in business if...

answer

Price is greater than or equal to AVC

question

Shut down point

answer

Price < AVC

question

Profit-maximizing level of output for a monopoly

answer

P > MR=MC

question

Total Revenue (TR)

answer

P x Q

question

Marginal Revenue (MR)

answer

-the CHANGE in total revenue from selling one more unit of the good or service
-(change in TR) / (change in Q)

question

Explicit Costs

answer

out-of-pocket costs (labor, materials, rent)

question

Implicit Costs

answer

non-out-of-pocket costs (the revenue you aren't making for one reason or another)

question

Accounting Profit

answer

TR- Explicit Costs

question

Economic Profit

answer

TR - Explicit Costs - Implicit Costs
OR
Accounting Profit - Implicit Costs

question

Marginal Cost (MC)

answer

-the CHANGE in total cost from producing one more unit of the good or service
-(change in TC) / (change in Q)

question

Normal profit

answer

when economic profit = 0

question

Total Cost (TC) in the Short-Run

answer

TC= FC + VC

question

Price discrimination

answer

charging two different prices to two different costumers for the exact same good

question

Third degree discrimination

answer

based on who you are (coupons)- ladies night, senior discount, student discount

question

Second degree discrimination

answer

quantity of how much you're buying- buy one get one half off

question

First degree discrimination

answer

based on who you are and how much you buy (reward members get a BOGO deal)

question

What is true for all profit-maximizing firms?

answer

-produce where MR=MC
-profit= (P-ATC)xQs
-remain in business if price is greater than or equal to average variable cost
-shut down if price is less than average variable cost

question

Accounting cost

answer

same thing as explicit costs

question

Why is it good to have a normal profit of zero? Why is having a normal profit greater than zero not ideal?

answer

-your best alternative is just as good as what you're doing
-if your economic profit is greater than 0, people will join the industry

question

Fixed Costs (FC)

answer

-business costs that are constant whatever the quantity of goods or services produced (ex: rent)
-independent of quantity

question

`Variable Costs (VC)

answer

costs that vary with the level of output

question

Average Total Cost (ATC)

answer

TC/Q

question

Average Fixed Cost (AFC)

answer

FC/Q

question

Relationship between Quantity and AFC

answer

Inverse (as quantity increases in production, AFC decreases because the same amount of fixed costs is being spread over a larger number of units of output)

question

Average Variable Cost

answer

VC/Q

question

Total Cost (TC) in the long run

answer

TC=VC (because FC=0)

question

Characteristics of Perfect Competition market structure

answer

-many small buyers and tells
-homogeneous good
-perfect information (know your competition/how much they are selling for)
-no barriers to entry/exit
-price takers (P=D=MR=MC)

question

When is a firm earning a positive economic profit?

answer

when P>ATC

question

When is a firm earning an economic profit of zero?

answer

when P=ATC

question

When would a firm earn less than an economic profit of zero but still stay open?

answer

A firm is earning less than an economic profit of zero when ATC>P, but they would stay open if P is greater than or equal to AVC

question

If P>ATC, will businesses join or leave the market?

answer

Join until economic profit=0

question

If P<ATC, will businesses join or leave the market?

answer

Leave until economic profit=0

question

Characteristics of a Monopoly

answer

-one seller
-price maker
-good has not close substitutions (relatively inelastic)
-high barriers to entry

question

For a monopoly, if P is greater than or equal to ATC, then what is Q*?

answer

Q*>0

question

For a monopoly, if P is less than ATC, then what is Q*?

answer

Q*=0 (no production)

question

What are the necessary conditions for a firm to price discriminate

answer

-price maker (not perfectly competitive market)
-have customers with difference preferences in price

question

What will a monopolist's economic profits be in the long run?

answer

Greater than or equal to zero (if economic profit is zero, accounting profit will be positive)

question

Would a profit-maximizing firm operating in a perfectly competitive market ever have an incentive to advertise its product? Why or why not?

answer

No it would not--advertising would increase the marginal cost of the business and the products are standardized

question

In the long run, is the average total cost greater or less than average variable cost for a non-price discriminating, profit-maximizing monopolist? Why?

answer

Neither--TC=VC in the long run

question

price elasticity of demand

answer

the percentage change in quantity demanded divided by the percentage change in price

question

formula for price elasticity of demand

answer

price change in quantity demanded/ percentage change in price

question

price elasticity of supply

answer

is the percentage of change in quantity supplied divided by the percentage change in price

question

formula for price elasticity of supply

answer

percentage change in quantity supplied / percentage change in price

question

elastic

answer

if the percentage is greater than 1

question

inelastic

answer

if the percentage is less than 1

question

is a good more elastic or inelastic if it has many substitute goods?

answer

more elastic

question

is a good more elastic or inelastic if it has no substitute goods?

answer

inelastic

question

4 factors that affect the number of substitutes

answer

1. time
2. if the good is considered luxury
3. the market for the good
4. the importance of the good to the buyer

question

what is the most important factor of substitutes

answer

time

question

if the time lengthens on the good what happens to the supply?

answer

it becomes for elastic

question

when a supplier raises the price of a good and the demand is inelastic what does the total revenue do?

answer

it increases

question

when a supplier raises the price of a good and the demand is elastic what does the total revenue do?

answer

it decreases

question

when the supplier raises prices of a good and the demand is unit elastic what happens to total revenue?

answer

it remains constant

question

income elasticity of demand formula

answer

percentage of change in demand / percentage of change income

question

cross price elasticity of demand formula

answer

percentage change in demand / percentage change in price of related good

question

elasticity compliment

answer

cross-price elasticity of demand is negative

question

elasticity substitute

answer

cross-price elasticity of demand is positive

question

elasticity of normal good

answer

income elasticity of demand is positive

question

elasticity of luxury

answer

income elasticity is greater than 1

question

elasticity necessity

answer

income elasticity is less than 1

question

elasticity inferior

answer

income elasticity of demand is negative

question

what does equilibrium do?

answer

maximizes the combination of consumer surplus and producer surplus

question

consumer surplus

answer

is the net benefit a consumer gets from purchasing a good

question

producer surplus

answer

is the net benefit a producer gets from selling a good

question

deadweight loss

answer

taxes that create a lass of consumer and producer surplus

question

how is deadweight loss represented

answer

by the welfare loss triangle

question

the cost of taxation on consumers and producers includes?

answer

1. actual tax paid
2. deadweight loss
3. costs of administering the tax

question

the more inelastic ones relative supply and demand is what will happen

answer

the larger the burden of the tax

question

the more elastic ones relative supply and demand is what will happen

answer

the small the burden of the tax

question

what do price ceilings and price floors have in common?

answer

they will result in the loss of customer and producer surplus

question

price ceiling

answer

transfer producer surplus to consumers and therefore are equivalent to a tax on producers and a subsidy to consumer

question

price floors

answer

they are a tax on consumers and a subsidy to producers

question

when is rent seeking activities good for a producer?

answer

if they are facing inelastic demand for a product

question

when is rent seeking activities good for a consumer

answer

if they are facing inelastic supply for a product

question

the more elastic the supply and demand the greater the ________ becomes.

answer

surplus

question

what is the general rule of political economy?

answer

policies reflect small groups interests not the interests of large groups

question

excise tax

answer

a tax on a specific good

question

accounting profit

answer

is explicit revenue and less explicit cost

question

implicit revenue

answer

the increase in value of assets owned by the firm

question

implicit cost

answer

the opportunity cost of time and capital provided by the owners of the firm

question

economic profit

answer

implicit revenue and implicit cost together

question

law diminishing marginal activity

answer

as more and more of a variable input is added to fixed input, the additional output the firm gets will eventually decrease

question

cost are divided into 3 types of cost

answer

1. fixed cost
2. variable cost
3. total cost

question

marginal cost

answer

the additional cost resulting from a 1-unit increase in output

question

marginal cost formula

answer

MC=TC

question

total cost

answer

the sum of all costs of inputs used by a firm in production

question

total cost formula

answer

TC=FC+VC

question

average total cost

answer

total cost per unit of production

question

average total cost formula

answer

ATC=AFC+AVC

question

fixed cost

answer

cost that is already spent and content be recovered

question

average fixed cost

answer

fixed cost per unit of production

question

average fixed cost formula

answer

AFC=FC/Q

question

variable cost

answer

cost that vary with production

question

average variable cost

answer

variable costs per unit of production

question

average variable cost formula

answer

AVC = VC/Q

question

when MC > ATC then the ATC is?

answer

rising

question

when MC = ATC then the ATC is?

answer

held constant

question

when MC < ATC then the ATC is?

answer

falling

question

what are the necessary conditions for a perfect competition

answer

1. buyers and sellers
2. no barriers
3. products are identical

question

what is the profit-maximizing position of a competitive firm

answer

where marginal revenue equals marginal cost

question

how do you find the profit-maximizing level of output for a perfect competitor

answer

find the level of out put where MC = MR

question

do competitive firms make a profit in the long run?

answer

question

Profit formula

answer

TR - TC

question

what is the shutdown price for a perfectly competitive firm

answer

price below average variable cost

question

an increase in the number of firms will cause the curve to go

answer

right

question

a decrease in the number of firms will cause the curve to go

answer

left

question

perfectly competitive market

answer

market in which economic forces operate unimpeded

question

price taker

answer

a firm or individual who takes the price determined by the market supply and demand as given

question

barriers of entry

answer

social, political, or economic walls that prevent firms from entering a market

question

shutdown point

answer

firm will be better off temporarily shutting down

question

market supply curve

answer

horizontal sum of all the firms marginal cost curves

question

what does a monopolist take into account

answer

how its output affects price

question

a monopolist charges a _______ _______ than a competitive market.

answer

higher price

question

what is a monopolists profit maximizing output

answer

marginal revenue = marginal cost

question

how do you determine a monopolists profit

answer

1. determine output MC = MR
2. price and average total cost
3. difference between price and average total cost at the maximum level
4. multiply that number by the output

question

what do monopolies create

answer

welfare loss to society

question

how can a monopolist price discriminate

answer

1. identify a group of costumers who have different elasticities of demands
2. separate them in some way
3. limit their ability to resell its products between groups

question

what do monopolists do to price discriminate those with less elastic demands

answer

they raise the prices

question

what do monopolists do to price discriminate those with more elastic demands

answer

they lower the prices

question

what does price discrimination eliminate

answer

welfare loss from monopoly

question

whaat are the important barriers of entry

answer

1. natural ability
2. economies of scale
3. government restrictions

question

how do natural monopolies exist

answer

in industries with strong economies of scale

question

monopolists competition is characterized by 4 things

answer

1. many sellers
2. differentiated products
3. multiple dimensions of competition
4. ease of entry for new firms

question

how do monopolists competitors differ from perfect competitors

answer

the former face a downward sloping demand curve

question

how do a monopolist competitor differ from a monopolist

answer

they make zero economic profit in the long run

1 of 435

question

1) Suppose that milk benefits from successful advertising campaign. Everything else help constant, this willl cause the demand for milk_____ and become more price_____.

answer

Increase, Inelastic

question

answer

Definitely see beth Patterson

question

Radishes Per hour Pears Per Hour
Cody 600 200
Sally 500 100

4) Sallies opportunity cost of harvesting one pear is _____ radishes

answer

question

Radishes Per hour Pears Per Hour
Cody 600 200
Sally 500 100

5) ______ has the absolute advantage in harvesting pears and ______ has the comparative advantage in harvesting radishes.

answer

Cody, Sally

question

answer

Decrease

question

answer

Decrease

question

answer

Be Ambiguous

question

9) Suppose a rational artist has a reservation price of $700 for her piece. Suppose That a customer mad an offer but the artist did not sale. it can be concluded that the offer was _____ $700

answer

Less Than

question

10) The American economy might be bumbling along but it is doing better than the rest of the industrial world. This is an example of ______

answer

Macroeconmics

question

Wine Per hour Cloth Per Hour
England 36 24 Portugal 20 20

11) They move from autarky to mutually beneficial trade, this will cause the price in Portugal to?

answer

decrease

question

Wine Per hour Cloth Per Hour
England 36 24 Portugal 20 20

12) They move from autarky to mutually beneficial trade, this will cause the workers in english cloth to ______

answer

decrease

question

13) On a production possibilities frontier (PPF) Graph Goods are said to be attainable and efficient at a particular point in time lies _________ on the PPF

answer

question

14) In a market, a Shortage exists when ______ is less than _____.

answer

supply, Demand

question

15) Both buyers and sellers expect that the price of sunglasses will increase next month., The Supply of sunglasses will ______ and the Equilibrium price will _____ this month

answer

decrease, increase

question

16) If a 5% decrease in price results in a _____ than 5% ______ in quantity Supplied, it can be concluded that supply is elastic.

answer

greater, Decrease

question

17) Spam is a normal good what would what would cause the supply of spam to increase ?

answer

Decrease in input costs of manufacturing spam

question

18) An increase in hourly wage rate, will cause ______ in the marginal cost of an extra hour of leisure.

answer

An Increase

question

19) "As skidded to $30 a barrel, new drilling has dried up in North Dakota and the flood of wealth and workers is ebbing" is an example of a _______econmics

answer

microeconmics

question

20) Rational Harry has decided to attend a concert but he has a choice: buy a ticket to Kim or Zoe. The Price of Kim's is $25 and the Price for Zoe is $15, What is Harry's sunk cost.

answer

$15

question

answer

less, Greater

question

answer

increase

question

answer

Be ambiguous, increase

question

24)when a country allows trade and becomes an exporter of a good, domestic producers of the good in the country is exporting are _____ than they were in autarky.

answer

Better off

question

answer

inelastic, inelastic

question

1) A decrease in foreign income will cause _____ in aggregate demand in the United States and _____ in the unemployment rate in the United States in the short run, everything else held constant.

answer

a decrease, an increase

question

2) The unemployment rate in the United States in February 2016 was _____ it was in January 2016.

answer

the same as

question

3)Large universities, such as LSU, have career service centers. These centers are most effective in combating _____ unemployment

answer

Frictional

question

4) A shortage in the labor market is a feature of _____ gap. The self-correcting mechanism operates in such a way that this gap will be eliminated, over time, by _____ in labor costs.

answer

an inflationary, increases

question

5)In which of the following situations would it be MOST advantageous to be borrowing?

answer

The nominal interest is 6 percent and the expected inflation is 7percent

question

answer

not in the labor force

question

answer

an increase, an increase

question

answer

contracting

question

answer

an increase, no change

question

10)In which of the following situations is the expected rate of inflation the LOWEST?

answer

the real interest rate is 11 percent and the nominal interest is

question

11)The largest expenditure component of U.S. GDP is...

answer

consumption

question

answer

increased, decreased

question

answer

recession

question

answer

less than

question

15)Suppose the U.S. economy is operating below full employment. A decrease in government spending will cause the _____ gap to _____ in the short run, everything else held constant.

answer

recessionary, widen

question

16)A decrease in transfer payments is an example of _____ policy action.

answer

a contractionary fiscal

question

answer

an increase, a decrease

question

answer

a decrease, no change

question

19)Suppose Brian lost his job as a tennis instructor when his hotel on Long Island, New York closed for winter. In this situation, Brian would be considered _____ unemployed.

answer

seasonally

question

answer

not in the civilian non-institutional population

question

answer

an increase, no change

question

answer

increase, decrease

question

answer

will be counted in 2015 GDP as par of investment

question

24)The labor force is a _____ variable; real GDP is a _____ variable.

answer

stock, flow

question

25)The term "business cycle" refers to the...

answer

short term fluctuations in economic growth

question

1)Which of the following monetary policy tools does the Fed primarily use to prevent financial panics from occurring in the United States?

answer

Discounting

question

answer

an increase, no change

question

answer

decrease, decrease

question

answer

greater than

question

5)A decrease in government spending will cause _____ in the cyclical deficit in the short run and _____ in the structural deficit in the long run, everything else held constant.

answer

an increase, decrease

question

6)The president of which of the following Federal Reserve Banks is a voting member on the FOMC this year?

answer

New York

question

7)What makes it possible for a government to maintain a constant debt-to-GDP ratio and still run continual budget deficits?

answer

continual increase in real GDP

question

answer

remain unchanged

question

answer

increase

question

10)Suppose a commercial bank purchases U.S. government bonds from the Fed. This transaction will cause the monetary base to _____ and the money supply to _____, everything else held constant.

answer

decrease, decrease

question

answer

more, depreciate

question

12)The benefit of a strengthening U.S. dollar in the world's foreign exchange markets is _____ in the United States.

answer

lower inflation rates

question

answer

depreciate, Cheaper

question

answer

standard value

question

answer

unit of account

question

16)Last week, Beth's federal income tax refund of $827 was directly deposited into her checking account. Used in this way $827 performed which of the following functions of money?

answer

means of unilateral payment

question

answer

Buy

question

18)U.S. government bonds are included in which of the following measures of the money supply of the United States?

answer

neither m1 nor m2

question

19)An open market purchase of government bonds by the Federal Reserve is an example of _____ policy action.

answer

an expansionary monetary

question

20)Countercyclical monetary policy involves expansionary policy actions during periods of _____ real GRP and contractionary policy actions during periods of _____ unemployment.

answer

Low, Low

question

answer

decrease, remain unchanged

question

22) The actual government budget deficit...

answer

increase in real GDP decreases as real GDP increases

question

23) In which of the following situations is it MOST advantageous to be buying bonds?

answer

the real interest rate is 2 percent

question

24)The Federal Reserve System was created by an act of Congress in...

answer

1913

question

25) In March 2016, the unemployment rate in the United States was _____ it was in February 2016.

answer

0.1 percent points higher than

question

answer

$75

question

Suppose worker productivity increases in the orange industry. Everything else held constant, consumer surplus in the market for oranges will _____.

answer

increase

question

Suppose worker productivity increases in the orange industry. Everything else held constant, producer surplus in the market for oranges will _____.

answer

Be ambiguous

question

Suppose worker productivity increases in the orange industry. Everything else held constant, economic surplus in the market for oranges will _____.

answer

increase

question

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax.

answer

true

question

answer

40%

question

answer

60%

question

answer

$0.80 higher

question

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the price the sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.

answer

$1.20 lower

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.

answer

elastic

question

The flu vaccine has a _____ externality associated with its _____.

answer

positive, consumption

question

In the case of a good that generates positive externalities in consumption, the equilibrium quantity transacted in the market is _____ the socially optimal quantity.

answer

less than

question

answer

negative, more than

question

Suppose worker productivity increases in the envelope industry. Everything else held constant, consumer surplus in the market for envelopes will ___.

answer

increase

question

Suppose worker productivity increases in the envelope industry everything else held constant, producer surplus in the market for envelops will ___.

answer

be ambiguous

question

Suppose worker productivity increases in the envelope industry. Everything else held constant, economic surplus in the market for envelopes will _____.

answer

increase

question

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the
tax.

answer

True

question

answer

question

Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.8 and the price elasticity of supply for it is 1.2. Everything else held constant, the price the buyers pay for the good after the tax is levied will be _____ higher than the price they paid prior to the tax.

answer

$4.00

question

Buyers will bear none of the burden of an excise tax if supply is perfectly _____.

answer

inelastic

question

answer

$100,000

question

answer

$50,000

question

answer

$30,000

question

Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are

answer

positive

question

Suppose a firm producing one unit of output has variable costs equal to $20 and total costs equal to $30. In this situation, the firm's total cost of producing zero units of output is

answer

$10

question

Suppose a firm producing one unit of output has variable costs equal to $20 and total costs equal to $30. In this situation, the firm's marginal cost of producing the first unit of output is

answer

$20

question

When marginal cost is less than the average total cost at a particular level of output, average total cost must be

answer

decreasing

question

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

answer

greater than

question

answer

decreasing

question

Which of the following is a characteristic of a perfectly competitive market?

answer

Firms face no barriers to entering the market

question

answer

$16

question

answer

greater than

question

answer

maintain her current level of production since she is minimizing her losses

question

answer

decrease

question

answer

decrease

question

answer

increase

question

answer

greater than

question

answer

decreasing; increasing

question

Answer true or false to the following statement. If a non-price discriminating
monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

answer

False

question

answer

increase output decrease price

question

answer

less than $160

question

Suppose Frank is a monopolist in the garden gnome market and is producing his profit-maximizing level of output. Suppose further that at this level of production his average total cost is $150, his average variable cost is $130, and the price of one of his gnomes is $160. Frank's economic profit is _____ in the short run, everything else held
constant.

answer

positive

question

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

answer

greater than or equal to

question

Which of the following conditions must hold if a firm is to engage in price
discrimination?

answer

the transaction cost of one consumer selling the product to another consumer must be high

question

answer

third

question

answer

second

question

The flu vaccine has a _____ externality associated with its _____.

answer

positive, consumption

question

In the case of a good that generates positive externalities in consumption, the equilibrium quantity transacted in the market is _____ the socially optimal quantity.

answer

less than

question

A good that is _____ and _____ in consumption is a private good.

answer

rival; excludable

question

A National Public Radio broadcast is an example of

answer

a public good

question

inelastic; smaller

answer

question

$1195

answer

question

remain in business

answer

question

A. increase
B. increase

answer

question

A. the demand for bicycles is relatively more price inelastic than the supply is
B. $6.50 lower

answer

question

decrease output and increase price?

answer

question

greater than?

answer

question

average total; decreasing

answer

question

lower

answer

question

increased; 16

answer

question

A. $375,000
B. $75,000

answer

question

A. $1.60
B. decrease
C. increase

answer

question

less than 3; decrease

answer

question

Profit

answer

= benefit-cost

question

total revenue (TR)

answer

=Price(P) X quantity(Q)
- benefit from selling

question

marginal revenue (MR)

answer

change in TR/change in Q

question

total cost (TC)

answer

- explicit & implicit

question

explicit

answer

out of pocket costs; actually have to pay for; accounting cost

question

implicit

answer

question

marginal costs

answer

- the change in TC from producing one more unit of the good or service
- MC=change in TC/Change in Q

question

accounting cost

answer

dollars in minus dollars out
A>E
=TR-explicit

question

economic cost

answer

=TR-explicit(accounting from what your doing)-implicit(accounting profit from what you are not doing)
- Economic profit<0
- what is the implication?
E<A

question

Maximizing Rule

answer

- produce quantity Q* where MR=MC
MR>MC; increase in profits, good, produce more
MR<MC; decrease in profits, not good, produce less

question

normal

answer

- economic profit=0
- good situation
- acct profit what your doing=acct profit from what your not doing
- equilibrium

question

Total (TC)

answer

=FC+VC

question

fixed (FC)

answer

question

variable (VC)

answer

- costs that fluctuate

question

Marginal (MC)

answer

- solely variable cost
- = change in VC/change in Q(output)
- Profit-maximizing rule: Produce Q* where: MR=MC

question

total (ATC)

answer

=TC/Q
- costs per unit

question

fixed (AFC)

answer

=FC/Q

question

variable (AVC)

answer

VC/Q

question

profit (working definition)

answer

question

average/marginal cost relationship

answer

- Marginal: doing one more of something (extra)
- MC>average; average goes up
- MC<average; average goes down
- MC=average; average doesn't change

question

short run

answer

FC>0
TC=FC+VC

question

long run

answer

FC=0
TC=VC
where FC becomes variable
point in time when rent it up

question

perfect information

answer

1. firms are price takers
2. demand=price=marginal revenue

question

market structure

answer

a. many small buyers and sellers
b. homogeneous good: exactly the same
c. perfect information
(abc go together)
d. no barriers to entry/exit

question

for all firms

answer

1. Profit=(P-ATC) X Q (can't produce - of something)
2. Profit-Maximizing Rue: Produce Quantity Q*; where MR=MC
3. remain in business (Produce Q*>0) if P>= AVC
4. shut down (produce Q*=0) if P<AVC

question

perfect competition

answer

P=MR

question

case 1: P>ATC

answer

- equilibrium Quantity: Q*>0
- Profit>0; accounting profit is also >0

question

case 2: P=ATC

answer

- equilibrium Quantity:Q*>0
- profit=0; good; accounting profit is higher and = to the accounting profit of the best alternative

question

case 3: ATC>P>=AVC

answer

- equilibrium quantity: Q*=0
- Profit<0; the best alternative is better than what we are doing
- in short run, firm faces choice
-- Q>0 (open) or Q=0(close)

question

case 4: P<AVC

answer

- equilibrium quantity: Q*=0; close down shop
Profit<0

question

profit maximizing rule

answer

MR>MC; profit is increasing; produce more
MR<MC; profit is decreasing; produce less
MR=MC; maximum

question

a. ex=80k+20k=$100k
b. im=$50k
c. acct=180k-100k=$80k
d. econ=180k-100k-50k=$30k

answer

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000.
what is Al's
a. explicit cost?
b. implicit cost?
c. accounting profit?
d. economic profit?

question

A. Beauty salon
B. saving (1k) + working (40k)
a. ex=20k+30k+36k+40k+43=$169k
b. im=40k+1k=$41k
c. acct=200k-169k=$31k
d. econ=200k-169k-41=$(-)10k

answer

question

positive

answer

question

increasing

answer

question

greater than

answer

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.
- greater than
- less than
- equal to

question

firms face no barriers to entering the market

answer

question

remain in business

answer

- produce Q*>0
P>=AVC

question

shut down

answer

- Produce Q*=0
P<AVC

question

perfect competition

answer

P=MR at all levels of output
P=MR=MC at (and only at) the profit-maximizing level of output, Q*

question

increasing

answer

question

a. $1.70=AFC+$1.25; AFC=$0.45
b. MR=MC=$1.60
c. P=MR=MC=$1.60
d. Profit=(P-ATC) X Q=(1.60-1.70) X Q (negative)
e. AVC<P<ATC; 1.25<1.60<1.70; remain open

answer

Suppose, at a given point in time, Snappy Snack Shack operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production, Snappy's average total cost of producing snacks is $1.70, average variable cost is $1.25, and marginal cost is $1.60.
At her current level of production, what is...

a) Snappy's average fixed cost of producing a snack?
b) Snappy's marginal revenue from selling a snack?
c) the price of a snack?
d) Snappy's profit from selling snacks?

In the short run, will Snappy Snack Shack remain open or shut down?

question

AVC=17
ATC=19
P=MR=MC=18
17<18<19
maintain her current level of production since she is minimizing her losses

answer

question

inferior good

answer

a good whose demand decreases when consumer income rises (or demand rises when consume income decreases)

question

normal good

answer

experiences an increase in demand along with increases in the income level

question

benefit

answer

what is recieved

question

opportunity cost

answer

what is given up=benefit from the best alternative not chosen

question

marginal cost

answer

the extra cost (change in total cost) of doing one more unit of something

question

absolute advantage

answer

higher productivity of making something

question

comparative advantage

answer

lower opportunity cost in making something

question

specializtion

answer

producing goods that have higher comparative advantage (lower opportunity cost)

question

rationality

answer

- do something if benefit > equal to opportunity cost
- if this is true, then do it
- if equal, then either choice is rational
- don't purchase if cost is greater or equal to the benefit

question

ATC must be increasing
- when ATC is at its min, MC is equal to ATC
- when AVC is at its min, MC equals AVC

answer

When ATC is less than MC at a particular level of output

question

...

answer

question

economic surplus

answer

the sum of all consumer and producer surpluses in an economy

question

market equilibrium

answer

a market state where the supply in the market is equal to the demand in the market

question

equilibrium price

answer

the price of a good or service when the supply of it is equal to the demand for it in the market

question

equilibrium market price

answer

the price at which there is no tendency for it to change.
when price is lower than the equilibrium price, quantity demanded will be greater than quantity supplied

question

monopolist

answer

an individual or company that controls all of the market for a particular good or service

question

short run

answer

- both fixed and variables

question

long run

answer

- no fixed factors
- no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry

question

open

answer

P>=AVC
- Profit>0; P>ATC
-- Seller increase; Price decrease; quantity increase
- Profit <0; P<ATC
-- Seller decrease; price increase; quantity decrease
in long run profit=0

question

shut down

answer

P<ATC

question

a. $.25
b. $.25
c. (+)
a. increase
b. decrease
c. increase
d. decrease to 0

answer

question

a. $3.00
b. $3.00
c. (-)
a. decrease
b. increase
c. decrease
d. increase to 0

answer

question

false

answer

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

question

less than

answer

Mario is a profit-maximizing wholesale meatball distributor who sells his meatballs to all of the finest restaurants in town. Because nobody can make meatballs like Mario, he is the only distributor in town that sells meatballs to restaurants. As a result, the marginal revenue from selling one of Mario's meatballs will be _____ the price he charges for it.

question

decreasing; increasing

answer

question

a. $1600
b. $2800
c. P>2800
d. (+)
e. remain open

answer

question

greater than or equal to

answer

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

question

greater than

answer

It can be concluded with certainty that a monopolist's accounting profits will be _____ zero in the long run.

question

equal to

answer

It can be concluded with certainty that a competitive firm economic profits will be _____ zero in the long run.

question

the transaction costs of one consumer selling the product to another consumer must be higher

answer

question

third

answer

Admission tickets to the New Orleans Museum of Art are $12 for adults and $10 for seniors (65 and over). This pricing scheme is an example of _____-degree price discrimination.

question

first degree

answer

quantity and people; both

question

second degree

answer

quantity; amount; how many?

question

third degree

answer

people; who you are?

question

second

answer

Suppose a parking garage has the following pricing schedule: 0-2 Hours, $5; 2-4 Hours, $10; 4-8 Hours, $15. With this pricing scheme, the garage is engaging in _____-degree price discrimination.

question

second

answer

question

first

answer

question

For a profit-maximizing firm, the goals of an advertising campaign are to _____ demand for the company's product and make it more price _____.

answer

increase; inelastic

question

If there are few substitutes for gasoline, then the _____ gasoline would tend to be price _____, everything else held constant.

answer

demand for; inelastic

question

The _____ the proportion of a consumer's budget a good makes up, everything else held constant, the more price elastic demand will be for the good.

answer

greater

question

If a 4 percent decrease in price results in a 6 percent _____ in quantity demanded, it can be concluded with certainty that demand is _____.

answer

increase; price elastic

question

answer

price elastic

question

answer

elastic; decreased

question

answer

unit elastic

question

If a 6 percent increase in price results in a 4 percent _____ in quantity supplied, it can be concluded with certainty that supply is _____.

answer

decrease; price inelastic

question

answer

$50

question

answer

greater than or equal to 50

question

answer

$75

question

Worker productivity increases in steel industry
Change in consumer Surplus
Change in producer surplus
economic surplus

answer

?
positive
positive

question

answer

70%
30%

question

Buyers will bear none of the burden of an excise tax if supply is perfectly _____.

answer

inelastic

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.

answer

elastic

question

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000.

Al's explicit cost?
Implicit cost?
accounting profit?
economic profit?

answer

100,000
50,000
80,000
30,000

question

Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year:
Furniture: $20,000
Equipment: $30,000
Rent: $36,000
Coloring products: $40,000
Styling products: $43,000
Danielle is withdrawing $50,000 from her savings account that pays 2 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000.

explicit cost?
implicit cost?
accounting profit?
economic profit?

answer

169,000
41,000
31,000
-10,000

question

Suppose a profit-maximizing firm is earning positive accounting profits at its current level of output. Everything else held constant, the firm's economic profits are

answer

ambiguous

question

When marginal cost is greater than the average total cost at a particular level of output, average total cost must be

answer

increasing

question

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

answer

greater than

question

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $1.75 per kilo, it can be concluded with certainty that Petra's economic profits are

answer

decreasing

question

Which of the following is a characteristic of a perfectly competitive market?

Firms are price makers in the market.
Firms face no barriers to entering the market.
There are few firms selling the good in the market.
The goods sold in the market are differentiated.

answer

Firms face no barriers to entering the market.

question

answer

Firms face no barriers to entering the market.

question

answer

increasing

question

answer

$1.10
$3.60
$3.60
negative

question

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing mittens is $17, average total cost is $19, and marginal revenue is $18. In the short run, Michelle should

-maintain her current level of production since she is earning a positive economic profit.
-maintain her current level of production since her economic profit is zero.
-maintain her current level of production since she is minimizing her losses.
-shut down immediately.
-increase production since it will increase her economic profit.
-decrease production since it will increase her economic profit.

answer

maintain her current level of production since she is minimizing her losses.

question

answer

.25
.25
positive

increase
decrease
increase
decrease to zero

question

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

answer

false

question

answer

decrease output
increase price

question

Suppose Marcy's Medical Machines is a monopolist and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost is $2500, average fixed cost is $900, and marginal revenue is $2500.

Marcys AVC of producing a medical machine
Marginal cost of producing a machine
price of machine
profit?

Will Marcy continue to produce in the long run

answer

1600
2500
greater than 2500
positive

yes

question

It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.

answer

greater than or equal to

question

answer

$4.25

question

Suppose Natalie's Gummibär Boutique operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing a kilo of Gummi bears is $5.50, average variable cost is $5.00, and marginal revenue is $4.25. At this moment in time, Natalie is earning an economic profit _____ zero.
1)greater than
2)equal to
3)less than

answer

less than

question

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing mittens is $16, average variable cost is $14, and marginal cost is $18. Michelle s
hould
1)shut down immediately.
2)continue to produce in the short run since she is minimizing her losses.
3)maintain her current level of production since she is earning a positive economic profit.
4)increase production since it will increase her economic profit.
5)decrease production since it will increase her economic profit.

answer

maintain her current level of production since she is earning a positive econ profit

question

answer

decrease

question

Suppose, at a given point in time, Tammy's Tea Room is operating in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing tea is $13, average variable cost is $9, and price is $11. Over time, everything else held constant, the market price of tea will _____.
1)increase.
2)decrease.
3)remain unchanged

answer

increase

question

answer

false

question

answer

increase, decrease

question

answer

positive

question

answer

first

question

answer

inelastic

question

answer

positive, less than

question

answer

Rival in consumption; no excludable

question

Suppose the supply of automobiles decreases. Everything else held constant, consumer surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

decrease

question

Suppose the supply of automobiles decreases. Everything else held constant, producer surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

be ambiguous

question

Suppose the supply of automobiles decreases. Everything else held constant, economic surplus in the market for automobiles will
1)increase.
2)decrease.
3)remain unchanged.
4)be ambiguous

answer

decrease

question

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax.
1)True
2)False

answer

true

question

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the sellers will bear _____ percent of the burden of the tax.
1)0
2)20
3)30
4)40
5)60
6)100

answer

question

answer

$.80 higher

question

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.
1)elastic
2)inelastic

answer

elastic

question

answer

$225,000

question

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's implicit cost of running his store for a year is
1)$75,000.
2)$100,000.
3)$150,000.
4)$175,000.
5)$225,000.
6)$250,000.
7)$325,000

answer

$100,000

question

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's economic profit from running his store for a year is
1)-$25,000.
2)$25,000.
3)$50,000.
4)$75,000.
5)$125,000.
6)$150,000.
7)$300,000

answer

$25,000

question

answer

positive

question

answer

decrease

question

If the price a firm charges in a perfectly competitive market is greater than its average total cost, then the firm is earning an economic profit _____ zero.
1) greater than
2)less than
3) equal to

answer

greater than

question

answer

decreasing

question

formula for burden of tax on buyer

answer

(Es/Ed+Es)100

question

formula for % of burden of tax on seller

answer

(Ed/Ed+Es)100

question

what are explicit costs?

answer

the out of pocket costs

question

what are implicit costs?

answer

not in pocket costs. What you gave up monetary wise from your old job.

question

How do you find accounting profit?

answer

Total revenue- explicit costs

question

How do you find economic profit?

answer

Acct profit-implicit costs

question

With the maximizing rule, what is true?

answer

MR=MC

question

What are fixed costs?

answer

costs that do not change and are independent of quantity. They are not explicit

question

What are variable costs?

answer

costs that vary and depend upon quantity. They are not implicit.

question

How do you find average total cost?

answer

TC/Q=AFC+AVC

question

How do you find average fixed cost?

answer

FC/Q

question

How do you find average variable cost?

answer

VC/Q

question

What is profit equal to?

answer

Profit=(P-ATC)Q

question

In a perfect competition, what three things are equal?

answer

P=MR=MC

question

Perfect competition Case 1

answer

P>ATC
Equilibrium Q*>0
Profit>0

question

Perfect competition Case 2

answer

P=ATC
Equilibrium Q*>0
Profit=0

question

Perfect competition Case 3

answer

ATC>P≥AVC
Equilibrium Q*>0
Profit<0
Days are numbered

question

Perfect competition Case 4

answer

P<AVC
Equilibrium Q*=0
Profit<0
Should shut down immediately

question

In a monopoly, the profit maximizing rule:

answer

Produce Q* where MR=MC so
P>(MR=MC)

question

Monopoly Case 1

answer

P>ATC

question

Monopoly Case 2

answer

P=ATC

question

Monopoly Case 3

answer

ATC>P≥AVC

question

Monopoly Case 4

answer

P<ATC: Q*0

question

Price discrimination by person NOT quantity

answer

third
senior citizen discount

question

Price discrimination by quantity NOT person

answer

second
buy 2 get 1 free

question

Price discrimination by person AND quantity

answer

first
car dealership

question

a rivalrous good

answer

if one person is consuming it, another person cannot consume the exact same good at the exact same time.
A cup of coffee

question

a nonrivalrous good

answer

multiple consumers of exactly the same serice at the exact same time
a class lecture

question

an excludable good

answer

they can exclude you by forcing you to pay for it

question

a nonexcludable good

answer

they can, but they do not have to force you to pay

question

an excludable rival good

answer

private good that the market produces efficiently

question

an excludable non-rival good

answer

artificially scarce goods- they are under produced b/c it is profitable to under produce them

question

a non-excludable rival good

answer

common resource- fish in the sea
problem: over consumption

question

a non-excludable non-rival good

answer

public goods- national defense
problem: under produced, no incentive b/c you can't force people to pay for it

question

Profit

answer

(P-ATC) x Q
TR-TC

question

Profit-maximizing Rule

answer

Produce at quantity Q* where MR=MC (true for all firms)

question

Remain in business if...

answer

Price is greater than or equal to AVC

question

Shut down point

answer

Price < AVC

question

Profit-maximizing level of output for a monopoly

answer

P > MR=MC

question

Total Revenue (TR)

answer

P x Q

question

Marginal Revenue (MR)

answer

-the CHANGE in total revenue from selling one more unit of the good or service
-(change in TR) / (change in Q)

question

Explicit Costs

answer

out-of-pocket costs (labor, materials, rent)

question

Implicit Costs

answer

non-out-of-pocket costs (the revenue you aren't making for one reason or another)

question

Accounting Profit

answer

TR- Explicit Costs

question

Economic Profit

answer

TR - Explicit Costs - Implicit Costs
OR
Accounting Profit - Implicit Costs

question

Marginal Cost (MC)

answer

-the CHANGE in total cost from producing one more unit of the good or service
-(change in TC) / (change in Q)

question

Normal profit

answer

when economic profit = 0

question

Total Cost (TC) in the Short-Run

answer

TC= FC + VC

question

Price discrimination

answer

charging two different prices to two different costumers for the exact same good

question

Third degree discrimination

answer

based on who you are (coupons)- ladies night, senior discount, student discount

question

Second degree discrimination

answer

quantity of how much you're buying- buy one get one half off

question

First degree discrimination

answer

based on who you are and how much you buy (reward members get a BOGO deal)

question

What is true for all profit-maximizing firms?

answer

-produce where MR=MC
-profit= (P-ATC)xQs
-remain in business if price is greater than or equal to average variable cost
-shut down if price is less than average variable cost

question

Accounting cost

answer

same thing as explicit costs

question

Why is it good to have a normal profit of zero? Why is having a normal profit greater than zero not ideal?

answer

-your best alternative is just as good as what you're doing
-if your economic profit is greater than 0, people will join the industry

question

Fixed Costs (FC)

answer

-business costs that are constant whatever the quantity of goods or services produced (ex: rent)
-independent of quantity

question

`Variable Costs (VC)

answer

costs that vary with the level of output

question

Average Total Cost (ATC)

answer

TC/Q

question

Average Fixed Cost (AFC)

answer

FC/Q

question

Relationship between Quantity and AFC

answer

Inverse (as quantity increases in production, AFC decreases because the same amount of fixed costs is being spread over a larger number of units of output)

question

Average Variable Cost

answer

VC/Q

question

Total Cost (TC) in the long run

answer

TC=VC (because FC=0)

question

Characteristics of Perfect Competition market structure

answer

-many small buyers and tells
-homogeneous good
-perfect information (know your competition/how much they are selling for)
-no barriers to entry/exit
-price takers (P=D=MR=MC)

question

When is a firm earning a positive economic profit?

answer

when P>ATC

question

When is a firm earning an economic profit of zero?

answer

when P=ATC

question

When would a firm earn less than an economic profit of zero but still stay open?

answer

A firm is earning less than an economic profit of zero when ATC>P, but they would stay open if P is greater than or equal to AVC

question

If P>ATC, will businesses join or leave the market?

answer

Join until economic profit=0

question

If P<ATC, will businesses join or leave the market?

answer

Leave until economic profit=0

question

Characteristics of a Monopoly

answer

-one seller
-price maker
-good has not close substitutions (relatively inelastic)
-high barriers to entry

question

For a monopoly, if P is greater than or equal to ATC, then what is Q*?

answer

Q*>0

question

For a monopoly, if P is less than ATC, then what is Q*?

answer

Q*=0 (no production)

question

What are the necessary conditions for a firm to price discriminate

answer

-price maker (not perfectly competitive market)
-have customers with difference preferences in price

question

What will a monopolist's economic profits be in the long run?

answer

Greater than or equal to zero (if economic profit is zero, accounting profit will be positive)

question

Would a profit-maximizing firm operating in a perfectly competitive market ever have an incentive to advertise its product? Why or why not?

answer

No it would not--advertising would increase the marginal cost of the business and the products are standardized

question

In the long run, is the average total cost greater or less than average variable cost for a non-price discriminating, profit-maximizing monopolist? Why?

answer

Neither--TC=VC in the long run

question

price elasticity of demand

answer

the percentage change in quantity demanded divided by the percentage change in price

question

formula for price elasticity of demand

answer

price change in quantity demanded/ percentage change in price

question

price elasticity of supply

answer

is the percentage of change in quantity supplied divided by the percentage change in price

question

formula for price elasticity of supply

answer

percentage change in quantity supplied / percentage change in price

question

elastic

answer

if the percentage is greater than 1

question

inelastic

answer

if the percentage is less than 1

question

is a good more elastic or inelastic if it has many substitute goods?

answer

more elastic

question

is a good more elastic or inelastic if it has no substitute goods?

answer

inelastic

question

4 factors that affect the number of substitutes

answer

1. time
2. if the good is considered luxury
3. the market for the good
4. the importance of the good to the buyer

question

what is the most important factor of substitutes

answer

time

question

if the time lengthens on the good what happens to the supply?

answer

it becomes for elastic

question

when a supplier raises the price of a good and the demand is inelastic what does the total revenue do?

answer

it increases

question

when a supplier raises the price of a good and the demand is elastic what does the total revenue do?

answer

it decreases

question

when the supplier raises prices of a good and the demand is unit elastic what happens to total revenue?

answer

it remains constant

question

income elasticity of demand formula

answer

percentage of change in demand / percentage of change income

question

cross price elasticity of demand formula

answer

percentage change in demand / percentage change in price of related good

question

elasticity compliment

answer

cross-price elasticity of demand is negative

question

elasticity substitute

answer

cross-price elasticity of demand is positive

question

elasticity of normal good

answer

income elasticity of demand is positive

question

elasticity of luxury

answer

income elasticity is greater than 1

question

elasticity necessity

answer

income elasticity is less than 1

question

elasticity inferior

answer

income elasticity of demand is negative

question

what does equilibrium do?

answer

maximizes the combination of consumer surplus and producer surplus

question

consumer surplus

answer

is the net benefit a consumer gets from purchasing a good

question

producer surplus

answer

is the net benefit a producer gets from selling a good

question

deadweight loss

answer

taxes that create a lass of consumer and producer surplus

question

how is deadweight loss represented

answer

by the welfare loss triangle

question

the cost of taxation on consumers and producers includes?

answer

1. actual tax paid
2. deadweight loss
3. costs of administering the tax

question

the more inelastic ones relative supply and demand is what will happen

answer

the larger the burden of the tax

question

the more elastic ones relative supply and demand is what will happen

answer

the small the burden of the tax

question

what do price ceilings and price floors have in common?

answer

they will result in the loss of customer and producer surplus

question

price ceiling

answer

transfer producer surplus to consumers and therefore are equivalent to a tax on producers and a subsidy to consumer

question

price floors

answer

they are a tax on consumers and a subsidy to producers

question

when is rent seeking activities good for a producer?

answer

if they are facing inelastic demand for a product

question

when is rent seeking activities good for a consumer

answer

if they are facing inelastic supply for a product

question

the more elastic the supply and demand the greater the ________ becomes.

answer

surplus

question

what is the general rule of political economy?

answer

policies reflect small groups interests not the interests of large groups

question

excise tax

answer

a tax on a specific good

question

accounting profit

answer

is explicit revenue and less explicit cost

question

implicit revenue

answer

the increase in value of assets owned by the firm

question

implicit cost

answer

the opportunity cost of time and capital provided by the owners of the firm

question

economic profit

answer

implicit revenue and implicit cost together

question

law diminishing marginal activity

answer

as more and more of a variable input is added to fixed input, the additional output the firm gets will eventually decrease

question

cost are divided into 3 types of cost

answer

1. fixed cost
2. variable cost
3. total cost

question

marginal cost

answer

the additional cost resulting from a 1-unit increase in output

question

marginal cost formula

answer

MC=TC

question

total cost

answer

the sum of all costs of inputs used by a firm in production

question

total cost formula

answer

TC=FC+VC

question

average total cost

answer

total cost per unit of production

question

average total cost formula

answer

ATC=AFC+AVC

question

fixed cost

answer

cost that is already spent and content be recovered

question

average fixed cost

answer

fixed cost per unit of production

question

average fixed cost formula

answer

AFC=FC/Q

question

variable cost

answer

cost that vary with production

question

average variable cost

answer

variable costs per unit of production

question

average variable cost formula

answer

AVC = VC/Q

question

when MC > ATC then the ATC is?

answer

rising

question

when MC = ATC then the ATC is?

answer

held constant

question

when MC < ATC then the ATC is?

answer

falling

question

what are the necessary conditions for a perfect competition

answer

1. buyers and sellers
2. no barriers
3. products are identical

question

what is the profit-maximizing position of a competitive firm

answer

where marginal revenue equals marginal cost

question

how do you find the profit-maximizing level of output for a perfect competitor

answer

find the level of out put where MC = MR

question

do competitive firms make a profit in the long run?

answer

question

Profit formula

answer

TR - TC

question

what is the shutdown price for a perfectly competitive firm

answer

price below average variable cost

question

an increase in the number of firms will cause the curve to go

answer

right

question

a decrease in the number of firms will cause the curve to go

answer

left

question

perfectly competitive market

answer

market in which economic forces operate unimpeded

question

price taker

answer

a firm or individual who takes the price determined by the market supply and demand as given

question

barriers of entry

answer

social, political, or economic walls that prevent firms from entering a market

question

shutdown point

answer

firm will be better off temporarily shutting down

question

market supply curve

answer

horizontal sum of all the firms marginal cost curves

question

what does a monopolist take into account

answer

how its output affects price

question

a monopolist charges a _______ _______ than a competitive market.

answer

higher price

question

what is a monopolists profit maximizing output

answer

marginal revenue = marginal cost

question

how do you determine a monopolists profit

answer

1. determine output MC = MR
2. price and average total cost
3. difference between price and average total cost at the maximum level
4. multiply that number by the output

question

what do monopolies create

answer

welfare loss to society

question

how can a monopolist price discriminate

answer

1. identify a group of costumers who have different elasticities of demands
2. separate them in some way
3. limit their ability to resell its products between groups

question

what do monopolists do to price discriminate those with less elastic demands

answer

they raise the prices

question

what do monopolists do to price discriminate those with more elastic demands

answer

they lower the prices

question

what does price discrimination eliminate

answer

welfare loss from monopoly

question

whaat are the important barriers of entry

answer

1. natural ability
2. economies of scale
3. government restrictions

question

how do natural monopolies exist

answer

in industries with strong economies of scale

question

monopolists competition is characterized by 4 things

answer

1. many sellers
2. differentiated products
3. multiple dimensions of competition
4. ease of entry for new firms

question

how do monopolists competitors differ from perfect competitors

answer

the former face a downward sloping demand curve

question

how do a monopolist competitor differ from a monopolist

answer

they make zero economic profit in the long run

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