question
Which of the following would cause a normal good's demand curve to shift to the left?
answer
Income decreases.
question
Something is an inferior good if the demand for the good
answer
increases as the consumer's income decreases.
question
Shampoo and water are complement goods because they are consumed together. What would we expect to happen to the equilibrium quantity of shampoo if the price of water increased and all else is held constant?
answer
It would decrease because of a demand shift.
question
When supply shifts to the right and demand stays constant, the equilibrium price ________ and the equilibrium quantity ________
answer
decreases; increases
question
A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good is
answer
relatively inelastic.
question
Holding all else constant, when the price of a good increases,
answer
consumer surplus decreases.
question
Holding all else constant, a decrease in the price of a good would necessarily
answer
decrease producer surplus.
question
A binding price ceiling is a government-set price that
answer
is set below the equilibrium price.
question
The consequence of a price floor set below the equilibrium price is
answer
nothing; the price floor will have no impact on the quantity demanded or the quantity supplied.
question
What will happen in a market where a nonbinding price ceiling is removed?
answer
The price and quantity will not change in the legal market.
question
Consider a market with a negative externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.
answer
overproduce; external cost
question
In the short run, average total costs and average variable costs converge as output increases because
answer
average fixed costs continually decrease.
question
(graph) The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases because
answer
average fixed cost decreases as output increases.
question
Where is a perfectly competitive firm's break-even price?
answer
at the minimum point of the average total cost curve
question
In the short run, under what conditions should the firm shut down?
answer
when price is less than average variable cost
question
The perfectly competitive firm's short-run shutdown price equals
answer
the minimum of average variable cost.
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