ECON- Midterm - Assignment Essays

question

Which of the following is not an assumption underlying the supply and demand model?

answer

Different firms sell their goods at different prices.

question

When demand increases:

answer

the demand curve shifts to the right.

question

If the demand curve is QD = 10 − 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is:

answer

question

Which of the following will not cause demand for apples to increase or decrease?

answer

a reduction in the price of apples

question

If the price of crude oil increases and the number of people who own cars falls:

answer

the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease.

question

If the price of crude oil decreases:

answer

the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will increase.

question

If the supply curve is QS = 4P − 4, then the highest price at which no producer is willing to sell the good (i.e. the supply choke price) is:

answer

question

When the prevailing price is above the price where supply intersects demand:

answer

price falls because there is a surplus, so producers cut prices to try to attract buyers.

question

Which of the following would cause an increase in the quantity demanded of pizza?

answer

an increase in the supply of pizza

question

If demand increases and supply increases:

answer

equilibrium price will be uncertain and equilibrium quantity will increase.

question

If supply decreases:

answer

equilibrium price increases and equilibrium quantity decreases.

question

If supply increases and demand decreases:

answer

equilibrium price will decrease and equilibrium quantity will be uncertain.

question

If demand decreases:

answer

equilibrium price decreases and equilibrium quantity decreases.

question

If the inverse demand curve is P = 12 − 2QD and the inverse supply curve is P = 4QS, then the equilibrium price and quantity are:

answer

Pe = 8; Qe = 2.

question

A decrease in supply:

answer

creates excess demand, causing equilibrium price to increase.

question

A decrease in demand:

answer

produces excess supply, causing equilibrium price to decrease.

question

The impact of an increase in demand on equilibrium price will be bigger when:

answer

supply is steeper

question

When the prevailing price is below the price where supply intersects demand:

answer

price rises because a shortage, so buyers bid up the price.

question

If the cross-price elasticity between two goods is positive, then the goods are:

answer

substitutes.

question

If the absolute value of the price elasticity of demand is 2, then demand is:

answer

elastic.

question

The price elasticity of demand of a good whose demand curve is linear with a slope of −4:

answer

decreases as quantity increases.

question

The demand curve of a good is QD = 10 −2P. When P = 5, demand is:

answer

perfectly elastic

question

If demand is linear, a price decrease will cause consumer expenditures on the good to fall when:

answer

E > −1.

question

If demand is linear, a price increase will cause consumer expenditures on the good to fall when:

answer

E < −1.

question

When demand and supply are linear, consumer surplus is equal to:

answer

The area between the demand curve and the price, out to the quantity that is exchanged.

question

When demand and supply are linear, producer surplus is equal to:

answer

The area between the supply curve and the price, out to the quantity that is exchanged.

question

When demand and supply are linear, consumer surplus is calculated as the area of a triangle:

answer

with a base equal to the quantity sold and a height equal to the difference between the market price and the demand choke price.

question

When demand and supply are linear, producer surplus can be calculated:

answer

with a base equal to the quantity sold and a height equal to the difference between the market price and the supply choke price.

question

If more substitutes for pens become available:

answer

consumer surplus for pens decreases.

question

All else equal, a negative supply shock:

answer

causes consumer surplus to decrease but has an uncertain effect on producer surplus.

question

All else equal, a demand increase:

answer

has an uncertain effect on consumer surplus but causes producer surplus to increase.

question

If the supply equation for a good is QS = 400P − 8,000 and the price is 100, then producer surplus is:

answer

$1.28 million.

question

If the demand equation for a good is QD = 800 − 2P and price increases from $150 to $200, then consumer surplus decreases by:

answer

$22,500.

question

A binding price ceiling:

answer

causes a shortage, has an uncertain effect on consumer surplus, and reduces producer surplus.

question

A binding price floor:

answer

causes a surplus, reduces consumer surplus, and has an uncertain effect on producer surplus.

question

When a price ceiling is binding, the resulting deadweight loss tends to be smaller than the resulting transfer from producers to consumers if:

answer

demand and supply are more price inelastic.

question

A nonbinding price floor:

answer

does not cause any deadweight loss.

question

A quota limiting the production of a good to a quantity less than the market equilibrium quantity:

answer

lowers consumer surplus, may cause producer surplus to increase, and creates a deadweight loss.

question

If the government provides a certain amount of a good to consumers in addition to what the private market provides:

answer

market price will fall, and market quantity will rise by less than the additional amount provided by the government.

question

If a tax and a quota raise prices by the same amount:

answer

the tax and the quota result in the same amount of deadweight loss.

question

A per-unit tax on a good that sellers are legally responsible for paying:

answer

decreases supply, increases the equilibrium price, and decreases consumer surplus.

question

As the size of a per-unit tax increases:

answer

the deadweight loss resulting from the tax gets bigger.

question

If the legal burden of a tax is passed from sellers to buyers:

answer

deadweight loss is unchanged.

question

When demand is elastic and supply is inelastic:

answer

sellers bear most of the economic burden of the tax.

question

When demand is inelastic and supply is elastic:

answer

buyers bear most of the economic burden of a tax.

question

The government wants to transfer welfare from buyers to sellers by collecting a $1 tax on a good from buyers and subsidizing sellers $1 for each unit of the good sold. This policy will:

answer

decrease the equilibrium price.

question

If the government subsidizes the production of a good:

answer

deadweight loss results because too much of the good is exchanged.

question

The assumption of transitivity implies that if a consumer prefers a bundle of goods A to another bundle of goods B, and the consumer is indifferent between bundle B and a third bundle C, then:

answer

the consumer prefers bundle A to bundle C.

question

Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?

answer

transitivity

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

If indifference curves cross, this violates the assumption:

answer

of transitivity.

question

If an indifference curve is concave to the origin, this violates the assumption:

answer

that the more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good.

question

If good X is measured on the horizontal axis and good Y is measured on the vertical axis; and if bundles A and B lie on the same indifference curve; and if bundle A contains less of good X than bundle B, then:

answer

the marginal rate of substitution is higher at bundle A than at bundle B.

question

Brad and Sara choose between meat and green beans, where green beans are measured on the horizontal axis. If Brad's indifference curves are generally steeper than Sara's indifference curves, then:

answer

Brad is more likely to be a vegetarian than Sara.

question

Evan and Lisa are consumers of apples and oranges. Evan's indifference curves are relatively straight, while Lisa's indifference curves are sharply curved. Apples and oranges are:

answer

substitutes for Evan and complements for Lisa.

question

An upward-sloping indifference curve:

answer

indicates that one of the goods is a "bad."

question

If a consumer's budget constraint has a slope that is less than -1:

answer

the price of good X is greater than the price of good Y.

question

If the price of good X increases:

answer

the slope of the budget constraint becomes steeper and the x-intercept of the budget constraint slides in along the x-axis.

question

If the price of good Y decreases:

answer

the slope of the budget constraint becomes steeper and the y-intercept of the budget constraint slides out along the y-axis.

question

If the consumer's income increases:

answer

the budget constraint shifts out, but its slope does not change.

question

At the consumer's current bundle, the indifference curve is steeper than the budget constraint. At this bundle:

answer

the marginal utility per dollar spent on good X is greater than the marginal utility per dollar spent on good Y.

question

If utility is maximized subject to the budget constraint at the consumer's current bundle A:

answer

every other bundle on the indifference curve that contains A is unaffordable.

question

If the consumer's optimal bundle is a corner solution where all income is spent on good Y:

answer

The marginal rate of substitution is less than the ratio of prices at the optimal bundle.

question

David's indifference curves are flatter than Alison's indifference curves. They have the same amount of income and pay the same prices for the two goods X and Y, and their optimal bundles are interior solutions. If Y is measured on the vertical axis, at their optimal bundles:

answer

David and Alison have the same marginal rate of substitution.

question

Jack and Meg have the same amount of income, and they both spend their money on two goods, gum and apples, where gum is measured on the vertical axis. If Jack's optimal bundle contains 9 units of gum and 1 unit of apples and Meg's optimal bundle contains 1 unit of gum and 9 units of apples:

answer

Jack's indifference curves are flatter than Meg's indifference curves.

question

Alec and Dave have the same utility function, but Alec finds his optimal bundle by maximizing utility subject to his budget constraint, while Dave finds his optimal bundle by minimizing the expenditure needed to achieve the same utility that Alec obtains. At their optimal bundles:

answer

Alec and Dave consume the same amount of both goods.

question

If a consumer's income increases and the new optimal bundle contains more of both goods:

answer

both goods are normal.

question

If good X is normal and good Y is inferior, following a loss of income:

answer

the new optimal bundle will contain more Y and less X.

question

If the income elasticity of good X is positive and the income elasticity of good Y is negative, following a loss of income:

answer

the new optimal bundle will contain less X and more Y.

question

An Engel curve that is always upward sloping indicates that:

answer

the good is always normal.

question

Julie spends all of her income on gasoline and pizza. Gasoline costs $4 per gallon and pizza costs $2 per slice. When Julie's income is $50 per week, she purchases 5 gallons of gasoline and 15 slices of pizza. When her income rises to $80 per week, she buys 15 gallons of gasoline and 10 slices of pizza. Which of the following statements is true?

answer

Gasoline is a luxury good.

question

An increase in income always:

answer

causes the consumer to buy less of a good whose income elasticity is negative.

question

John spends all of his income on apples and oranges. He learns that orange juice may cause cancer. When apples are measured on the vertical axis and oranges are measured on the horizontal axis, this new knowledge:

answer

causes John's indifference curves to become flatter, reducing the number of oranges he will purchase at any price.

question

The substitution effect of a price increase:

answer

always causes the consumer to purchase less of the good that is now relatively more expensive.

question

Gloria spends her income on two goods, X and Y. If the price of X decreases:

answer

Gloria is guaranteed to end up purchasing more Y if X is inferior.

question

The substitution effect tends to be stronger if:

answer

The goods are strong substitutes.

question

The income effect tends to be stronger if:

answer

the consumer was purchasing a larger amount of the good before the price change.

question

If the price of an inferior good X increases and the income effect is stronger than the substitution effect:

answer

the consumer's demand for good X will be upward sloping.

question

A Giffen good:

answer

has a stronger income effect than substitution effect.

question

If a good is normal:

answer

an increase in the price of the other good will always cause the consumer to want less of it.

question

If a good is inferior but not a Giffen good and the price of the good decreases:

answer

the overall effect on the amount of the good purchased will be smaller than it would have been if the good were instead normal.

question

Sara thinks of ramen noodles as a normal good, and Sean thinks of ramen noodles as an inferior good. If Sara and Sean have the same amount of income:

answer

Sean's demand for ramen noodles will be less price elastic than Sara's.

question

If X and Y are substitutes and the price of Y increases, then the overall effect of the price change on the amount of good X purchased will be:

answer

an increase.

question

If X and Y are complements and the price of Y increases, the substitution effect of this price change on the amount of X purchased will be:

answer

weaker than it would have been if X and Y were substitutes.

question

The market for ramen noodles has only two consumers, David and Wallace. Market demand for macaroni and cheese will tend to be more elastic if:

answer

David and Wallace consider macaroni and cheese to be a normal good rather than an inferior good.

question

In the short run, the slope of the production function is equal to:

answer

the marginal product of labor.

question

In the short run, the marginal product of labor:

answer

begins to decrease eventually.

question

Capital cannot be adjusted in the short run because:

answer

there is not sufficient time to adjust it.

question

If the marginal product of labor is above the average product of labor:

answer

the average product of labor increases.

question

The length of the short run is:

answer

variable across industries.

question

In the long run, because firms can adjust capital as well as labor:

answer

the impact of diminishing marginal returns is lessened.

question

The firm's goal is to:

answer

minimize the cost of producing whatever quantity it has chosen to make.

question

If labor is measured on the horizontal axis, if capital is measured on the vertical axis, and if bundle A contains less labor than bundle B:

answer

the marginal rate of technical substitution (MRTS) is higher at bundle A than at bundle B.

question

Two firms use capital and labor to produce their good. Firm 1's isoquants are relatively straight, while firm 2's isoquants are sharply curved. Capital and labor are:

answer

substitutes for firm 1 and complements for firm 2.

question

If labor and capital are perfect substitutes in production:

answer

isoquants are straight lines.

question

If labor and capital are perfect complements in production:

answer

isoquants are L-shaped right angles.

question

If a firm's isocost line has a slope that is less than -1:

answer

the wage rate is greater than the rental rate of capital.

question

The slope of isocost lines is constant because of the assumption that:

answer

the firm can buy as much capital or labor as it wants at fixed prices.

question

If the wage rate increases:

answer

the slope of an isocost line becomes steeper and the isocost line rotates clockwise.

question

If the rental rate of capital decreases:

answer

the slope of an isocost line becomes steeper and the isocost line rotates clockwise.

question

If a firm is employing one unit each of capital and labor to produce one unit of output and the firm's production exhibits increasing returns to scale:

answer

the input bundle of two units of labor and two units of capital will be above the isoquant containing all bundles that result in two units of output.

question

The production function Q = K0.75L0.75:

answer

exhibits increasing returns to scale.

question

The production function Q = 4K + 2L:

answer

exhibits constant returns to scale.

question

If technological change suddenly results in total factor productivity growth and the firm still wants to produce the same amount of output:

answer

the firm will spend less on production than before.

question

If the expansion path of a firm gets flatter as the amount of labor employed increases:

answer

the ratio of capital to labor employed decreases as output increases.

question

The difference between economic cost and accounting cost is that:

answer

economic cost includes opportunity cost, while accounting cost does not.

question

Chad runs a coffee shop that has annual revenues of $300,000, supply costs of $60,000, and employee salaries of $60,000. He has the option of renting out the coffee shop for $80,000 per year, and he has three outside offers from competitors to work as a senior barista at Starbucks (for an annual salary of $30,000), at Simon's coffee house (for an annual salary of $40,000), and at Pete's coffee shop (for an annual salary of $60,000). He can only hold one job at a time. What should Chad do?

answer

He should continue to run his coffee shop.

question

Which of the following kinds of cost should never be taken into account when making production decisions?

answer

sunk cost

question

A restaurant manager named Charles has just spent $15,000 on a new stove. Right after the new stove is installed, a new model is introduced that costs $20,000 but would increase productivity and restaurant profits by $25,000 over the next year. Charles decides not to buy the new model because he does not want to waste the $15,000 he just spent on the new stove, which cannot be resold because all restaurants seek to buy only the latest available model. What kind of mistake has Charles made?

answer

He has committed the sunk cost fallacy.

question

People who purchase gym memberships often end up using the gym infrequently, resulting in a higher cost per visit than they could get by buying a 10-visit pass. These people have:

answer

behaved rationally, because they feel their opportunity cost outweighs the benefit of going to the gym.

question

In the simple model of production, which has only two inputs, capital and labor, in the long run:

answer

there is no fixed cost.

question

Which of the following factors are likely to result in fewer fixed costs?

answer

longer time horizons

question

Amanda owns a toy manufacturing plant with the production function Q = 200L - 4,000. If the wage rate is $5 per hour, what is her cost function?

answer

(1/40)Q + 100

question

If fixed cost increases, which of the following is not true?

answer

Marginal cost increases.

question

Average fixed cost:

answer

decreases as output increases.

question

Which of the following may not be a reason that marginal cost eventually begins to increase as output increases?

answer

Employees learn by doing.

question

Which of the following is true about the relationship between marginal cost and average cost?

answer

When marginal cost is above average cost, average cost is increasing.

question

If AVC = Q3 - 20Q2 + 220 Q and MC = 3Q2 - 40Q + 220, then the quantity at which AVC is minimized is:

answer

question

The total cost of producing a particular quantity is:

answer

always at least as large in the short run as it is in the long run.

question

Average total cost is:

answer

usually higher in the short run than in the long run.

question

A firm's production function is Q = 2KL. Its marginal product of capital is 2L, and its marginal product of labor is 2K. The wage rate is $4 per hour, and the rental rate of capital is $5 per hour. If the firm wishes to produce 100 units of output in the long run, how many units of K and L should it employ?

answer

K = 6.33; L = 7.91.

question

A firm's short run marginal cost curve is:

answer

steeper than the long-run marginal cost curve.

question

Diseconomies of scale exist when:

answer

average total cost is increasing.

question

When a firm is reaping economies of scale:

answer

it may have increasing, constant, or decreasing returns to scale.

question

If ATC = Q3 - 20Q2 + 220Q and MC = 3Q2 - 40Q + 220, then there are economies of scale until the level of output reaches:

answer

question

The biggest difference between perfectly competitive markets and monopolistically competitive markets is that:

answer

firms' products are differentiated under monopolistic competition but are identical under perfect competition.

question

In perfectly competitive markets, demand for an individual firm's product is:

answer

perfectly elastic.

question

In perfect competition, the prices charged by firms:

answer

are determined by market supply and demand.

question

In perfectly competitive markets:

answer

price equals marginal revenue at all quantities.

question

If a perfectly competitive firm is making a loss in the short run, it should:

answer

produce where price equals marginal cost so long as the price is higher than minimum average variable cost.

question

If the market price is above average total cost in the short run:

answer

the firm is making an economic profit.

question

If the market price is below minimum average variable cost in the short run:

answer

the firm will shut down production.

question

The curve that is most relevant to the firm's decision to produce or shut down in the short run is:

answer

the average variable cost curve.

question

The curve that is most relevant to whether a firm makes a profit or loss in the short run is:

answer

the average total cost curve.

question

A perfectly competitive firm's supply curve is:

answer

its marginal cost curve.

question

In the short run, a perfectly competitive firm's producer surplus is equal to:

answer

total revenue minus variable cost.

question

In the long run under perfect competition, if price is initially below average total cost:

answer

the quantity produced by the firm and the price it charges will both rise.

question

In a perfectly competitive constant-cost industry, the long-run market supply curve is:

answer

perfectly elastic.

question

A perfectly competitive constant-cost industry begins in long-run equilibrium, but demand subsequently decreases. After the market readjusts, relative to the original equilibrium:

answer

the price charged by the firms remains the same, the quantity produced by a firm remains the same, and the market quantity decreases.

question

A perfectly competitive industry begins in long-run equilibrium, but a technological innovation lowers the firms' costs. After the market adjusts, relative to the original equilibrium:

answer

the price charged by the firms decreases, the quantity produced by a firm increases, and the market quantity increases.

question

In a perfectly competitive increasing-cost industry, the long-run market supply curve is:

answer

Upward-sloping.

question

Economic rent is:

answer

equal to zero for the firm that has the highest cost.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

If indifference curves cross, this violates the assumption:

answer

Of transivity

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

...

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

...

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

...

1 of 158

question

Which of the following is not an assumption underlying the supply and demand model?

answer

Different firms sell their goods at different prices.

question

When demand increases:

answer

the demand curve shifts to the right.

question

If the demand curve is QD = 10 − 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is:

answer

question

Which of the following will not cause demand for apples to increase or decrease?

answer

a reduction in the price of apples

question

If the price of crude oil increases and the number of people who own cars falls:

answer

the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease.

question

If the price of crude oil decreases:

answer

the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will increase.

question

If the supply curve is QS = 4P − 4, then the highest price at which no producer is willing to sell the good (i.e. the supply choke price) is:

answer

question

When the prevailing price is above the price where supply intersects demand:

answer

price falls because there is a surplus, so producers cut prices to try to attract buyers.

question

Which of the following would cause an increase in the quantity demanded of pizza?

answer

an increase in the supply of pizza

question

If demand increases and supply increases:

answer

equilibrium price will be uncertain and equilibrium quantity will increase.

question

If supply decreases:

answer

equilibrium price increases and equilibrium quantity decreases.

question

If supply increases and demand decreases:

answer

equilibrium price will decrease and equilibrium quantity will be uncertain.

question

If demand decreases:

answer

equilibrium price decreases and equilibrium quantity decreases.

question

If the inverse demand curve is P = 12 − 2QD and the inverse supply curve is P = 4QS, then the equilibrium price and quantity are:

answer

Pe = 8; Qe = 2.

question

A decrease in supply:

answer

creates excess demand, causing equilibrium price to increase.

question

A decrease in demand:

answer

produces excess supply, causing equilibrium price to decrease.

question

The impact of an increase in demand on equilibrium price will be bigger when:

answer

supply is steeper

question

When the prevailing price is below the price where supply intersects demand:

answer

price rises because a shortage, so buyers bid up the price.

question

If the cross-price elasticity between two goods is positive, then the goods are:

answer

substitutes.

question

If the absolute value of the price elasticity of demand is 2, then demand is:

answer

elastic.

question

The price elasticity of demand of a good whose demand curve is linear with a slope of −4:

answer

decreases as quantity increases.

question

The demand curve of a good is QD = 10 −2P. When P = 5, demand is:

answer

perfectly elastic

question

If demand is linear, a price decrease will cause consumer expenditures on the good to fall when:

answer

E > −1.

question

If demand is linear, a price increase will cause consumer expenditures on the good to fall when:

answer

E < −1.

question

When demand and supply are linear, consumer surplus is equal to:

answer

The area between the demand curve and the price, out to the quantity that is exchanged.

question

When demand and supply are linear, producer surplus is equal to:

answer

The area between the supply curve and the price, out to the quantity that is exchanged.

question

When demand and supply are linear, consumer surplus is calculated as the area of a triangle:

answer

with a base equal to the quantity sold and a height equal to the difference between the market price and the demand choke price.

question

When demand and supply are linear, producer surplus can be calculated:

answer

with a base equal to the quantity sold and a height equal to the difference between the market price and the supply choke price.

question

If more substitutes for pens become available:

answer

consumer surplus for pens decreases.

question

All else equal, a negative supply shock:

answer

causes consumer surplus to decrease but has an uncertain effect on producer surplus.

question

All else equal, a demand increase:

answer

has an uncertain effect on consumer surplus but causes producer surplus to increase.

question

If the supply equation for a good is QS = 400P − 8,000 and the price is 100, then producer surplus is:

answer

$1.28 million.

question

If the demand equation for a good is QD = 800 − 2P and price increases from $150 to $200, then consumer surplus decreases by:

answer

$22,500.

question

A binding price ceiling:

answer

causes a shortage, has an uncertain effect on consumer surplus, and reduces producer surplus.

question

A binding price floor:

answer

causes a surplus, reduces consumer surplus, and has an uncertain effect on producer surplus.

question

When a price ceiling is binding, the resulting deadweight loss tends to be smaller than the resulting transfer from producers to consumers if:

answer

demand and supply are more price inelastic.

question

A nonbinding price floor:

answer

does not cause any deadweight loss.

question

A quota limiting the production of a good to a quantity less than the market equilibrium quantity:

answer

lowers consumer surplus, may cause producer surplus to increase, and creates a deadweight loss.

question

If the government provides a certain amount of a good to consumers in addition to what the private market provides:

answer

market price will fall, and market quantity will rise by less than the additional amount provided by the government.

question

If a tax and a quota raise prices by the same amount:

answer

the tax and the quota result in the same amount of deadweight loss.

question

A per-unit tax on a good that sellers are legally responsible for paying:

answer

decreases supply, increases the equilibrium price, and decreases consumer surplus.

question

As the size of a per-unit tax increases:

answer

the deadweight loss resulting from the tax gets bigger.

question

If the legal burden of a tax is passed from sellers to buyers:

answer

deadweight loss is unchanged.

question

When demand is elastic and supply is inelastic:

answer

sellers bear most of the economic burden of the tax.

question

When demand is inelastic and supply is elastic:

answer

buyers bear most of the economic burden of a tax.

question

The government wants to transfer welfare from buyers to sellers by collecting a $1 tax on a good from buyers and subsidizing sellers $1 for each unit of the good sold. This policy will:

answer

decrease the equilibrium price.

question

If the government subsidizes the production of a good:

answer

deadweight loss results because too much of the good is exchanged.

question

The assumption of transitivity implies that if a consumer prefers a bundle of goods A to another bundle of goods B, and the consumer is indifferent between bundle B and a third bundle C, then:

answer

the consumer prefers bundle A to bundle C.

question

Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?

answer

transitivity

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

If indifference curves cross, this violates the assumption:

answer

of transitivity.

question

If an indifference curve is concave to the origin, this violates the assumption:

answer

that the more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good.

question

answer

the marginal rate of substitution is higher at bundle A than at bundle B.

question

Brad and Sara choose between meat and green beans, where green beans are measured on the horizontal axis. If Brad's indifference curves are generally steeper than Sara's indifference curves, then:

answer

Brad is more likely to be a vegetarian than Sara.

question

Evan and Lisa are consumers of apples and oranges. Evan's indifference curves are relatively straight, while Lisa's indifference curves are sharply curved. Apples and oranges are:

answer

substitutes for Evan and complements for Lisa.

question

An upward-sloping indifference curve:

answer

indicates that one of the goods is a "bad."

question

If a consumer's budget constraint has a slope that is less than -1:

answer

the price of good X is greater than the price of good Y.

question

If the price of good X increases:

answer

the slope of the budget constraint becomes steeper and the x-intercept of the budget constraint slides in along the x-axis.

question

If the price of good Y decreases:

answer

the slope of the budget constraint becomes steeper and the y-intercept of the budget constraint slides out along the y-axis.

question

If the consumer's income increases:

answer

the budget constraint shifts out, but its slope does not change.

question

At the consumer's current bundle, the indifference curve is steeper than the budget constraint. At this bundle:

answer

the marginal utility per dollar spent on good X is greater than the marginal utility per dollar spent on good Y.

question

If utility is maximized subject to the budget constraint at the consumer's current bundle A:

answer

every other bundle on the indifference curve that contains A is unaffordable.

question

If the consumer's optimal bundle is a corner solution where all income is spent on good Y:

answer

The marginal rate of substitution is less than the ratio of prices at the optimal bundle.

question

answer

David and Alison have the same marginal rate of substitution.

question

answer

Jack's indifference curves are flatter than Meg's indifference curves.

question

answer

Alec and Dave consume the same amount of both goods.

question

If a consumer's income increases and the new optimal bundle contains more of both goods:

answer

both goods are normal.

question

If good X is normal and good Y is inferior, following a loss of income:

answer

the new optimal bundle will contain more Y and less X.

question

If the income elasticity of good X is positive and the income elasticity of good Y is negative, following a loss of income:

answer

the new optimal bundle will contain less X and more Y.

question

An Engel curve that is always upward sloping indicates that:

answer

the good is always normal.

question

answer

Gasoline is a luxury good.

question

An increase in income always:

answer

causes the consumer to buy less of a good whose income elasticity is negative.

question

answer

causes John's indifference curves to become flatter, reducing the number of oranges he will purchase at any price.

question

The substitution effect of a price increase:

answer

always causes the consumer to purchase less of the good that is now relatively more expensive.

question

Gloria spends her income on two goods, X and Y. If the price of X decreases:

answer

Gloria is guaranteed to end up purchasing more Y if X is inferior.

question

The substitution effect tends to be stronger if:

answer

The goods are strong substitutes.

question

The income effect tends to be stronger if:

answer

the consumer was purchasing a larger amount of the good before the price change.

question

If the price of an inferior good X increases and the income effect is stronger than the substitution effect:

answer

the consumer's demand for good X will be upward sloping.

question

A Giffen good:

answer

has a stronger income effect than substitution effect.

question

If a good is normal:

answer

an increase in the price of the other good will always cause the consumer to want less of it.

question

If a good is inferior but not a Giffen good and the price of the good decreases:

answer

the overall effect on the amount of the good purchased will be smaller than it would have been if the good were instead normal.

question

Sara thinks of ramen noodles as a normal good, and Sean thinks of ramen noodles as an inferior good. If Sara and Sean have the same amount of income:

answer

Sean's demand for ramen noodles will be less price elastic than Sara's.

question

If X and Y are substitutes and the price of Y increases, then the overall effect of the price change on the amount of good X purchased will be:

answer

an increase.

question

If X and Y are complements and the price of Y increases, the substitution effect of this price change on the amount of X purchased will be:

answer

weaker than it would have been if X and Y were substitutes.

question

The market for ramen noodles has only two consumers, David and Wallace. Market demand for macaroni and cheese will tend to be more elastic if:

answer

David and Wallace consider macaroni and cheese to be a normal good rather than an inferior good.

question

In the short run, the slope of the production function is equal to:

answer

the marginal product of labor.

question

In the short run, the marginal product of labor:

answer

begins to decrease eventually.

question

Capital cannot be adjusted in the short run because:

answer

there is not sufficient time to adjust it.

question

If the marginal product of labor is above the average product of labor:

answer

the average product of labor increases.

question

The length of the short run is:

answer

variable across industries.

question

In the long run, because firms can adjust capital as well as labor:

answer

the impact of diminishing marginal returns is lessened.

question

The firm's goal is to:

answer

minimize the cost of producing whatever quantity it has chosen to make.

question

If labor is measured on the horizontal axis, if capital is measured on the vertical axis, and if bundle A contains less labor than bundle B:

answer

the marginal rate of technical substitution (MRTS) is higher at bundle A than at bundle B.

question

Two firms use capital and labor to produce their good. Firm 1's isoquants are relatively straight, while firm 2's isoquants are sharply curved. Capital and labor are:

answer

substitutes for firm 1 and complements for firm 2.

question

If labor and capital are perfect substitutes in production:

answer

isoquants are straight lines.

question

If labor and capital are perfect complements in production:

answer

isoquants are L-shaped right angles.

question

If a firm's isocost line has a slope that is less than -1:

answer

the wage rate is greater than the rental rate of capital.

question

The slope of isocost lines is constant because of the assumption that:

answer

the firm can buy as much capital or labor as it wants at fixed prices.

question

If the wage rate increases:

answer

the slope of an isocost line becomes steeper and the isocost line rotates clockwise.

question

If the rental rate of capital decreases:

answer

the slope of an isocost line becomes steeper and the isocost line rotates clockwise.

question

If a firm is employing one unit each of capital and labor to produce one unit of output and the firm's production exhibits increasing returns to scale:

answer

the input bundle of two units of labor and two units of capital will be above the isoquant containing all bundles that result in two units of output.

question

The production function Q = K0.75L0.75:

answer

exhibits increasing returns to scale.

question

The production function Q = 4K + 2L:

answer

exhibits constant returns to scale.

question

If technological change suddenly results in total factor productivity growth and the firm still wants to produce the same amount of output:

answer

the firm will spend less on production than before.

question

If the expansion path of a firm gets flatter as the amount of labor employed increases:

answer

the ratio of capital to labor employed decreases as output increases.

question

The difference between economic cost and accounting cost is that:

answer

economic cost includes opportunity cost, while accounting cost does not.

question

answer

He should continue to run his coffee shop.

question

Which of the following kinds of cost should never be taken into account when making production decisions?

answer

sunk cost

question

answer

He has committed the sunk cost fallacy.

question

People who purchase gym memberships often end up using the gym infrequently, resulting in a higher cost per visit than they could get by buying a 10-visit pass. These people have:

answer

behaved rationally, because they feel their opportunity cost outweighs the benefit of going to the gym.

question

In the simple model of production, which has only two inputs, capital and labor, in the long run:

answer

there is no fixed cost.

question

Which of the following factors are likely to result in fewer fixed costs?

answer

longer time horizons

question

Amanda owns a toy manufacturing plant with the production function Q = 200L - 4,000. If the wage rate is $5 per hour, what is her cost function?

answer

(1/40)Q + 100

question

If fixed cost increases, which of the following is not true?

answer

Marginal cost increases.

question

Average fixed cost:

answer

decreases as output increases.

question

Which of the following may not be a reason that marginal cost eventually begins to increase as output increases?

answer

Employees learn by doing.

question

Which of the following is true about the relationship between marginal cost and average cost?

answer

When marginal cost is above average cost, average cost is increasing.

question

If AVC = Q3 - 20Q2 + 220 Q and MC = 3Q2 - 40Q + 220, then the quantity at which AVC is minimized is:

answer

question

The total cost of producing a particular quantity is:

answer

always at least as large in the short run as it is in the long run.

question

Average total cost is:

answer

usually higher in the short run than in the long run.

question

answer

K = 6.33; L = 7.91.

question

A firm's short run marginal cost curve is:

answer

steeper than the long-run marginal cost curve.

question

Diseconomies of scale exist when:

answer

average total cost is increasing.

question

When a firm is reaping economies of scale:

answer

it may have increasing, constant, or decreasing returns to scale.

question

If ATC = Q3 - 20Q2 + 220Q and MC = 3Q2 - 40Q + 220, then there are economies of scale until the level of output reaches:

answer

question

The biggest difference between perfectly competitive markets and monopolistically competitive markets is that:

answer

firms' products are differentiated under monopolistic competition but are identical under perfect competition.

question

In perfectly competitive markets, demand for an individual firm's product is:

answer

perfectly elastic.

question

In perfect competition, the prices charged by firms:

answer

are determined by market supply and demand.

question

In perfectly competitive markets:

answer

price equals marginal revenue at all quantities.

question

If a perfectly competitive firm is making a loss in the short run, it should:

answer

produce where price equals marginal cost so long as the price is higher than minimum average variable cost.

question

If the market price is above average total cost in the short run:

answer

the firm is making an economic profit.

question

If the market price is below minimum average variable cost in the short run:

answer

the firm will shut down production.

question

The curve that is most relevant to the firm's decision to produce or shut down in the short run is:

answer

the average variable cost curve.

question

The curve that is most relevant to whether a firm makes a profit or loss in the short run is:

answer

the average total cost curve.

question

A perfectly competitive firm's supply curve is:

answer

its marginal cost curve.

question

In the short run, a perfectly competitive firm's producer surplus is equal to:

answer

total revenue minus variable cost.

question

In the long run under perfect competition, if price is initially below average total cost:

answer

the quantity produced by the firm and the price it charges will both rise.

question

In a perfectly competitive constant-cost industry, the long-run market supply curve is:

answer

perfectly elastic.

question

A perfectly competitive constant-cost industry begins in long-run equilibrium, but demand subsequently decreases. After the market readjusts, relative to the original equilibrium:

answer

the price charged by the firms remains the same, the quantity produced by a firm remains the same, and the market quantity decreases.

question

A perfectly competitive industry begins in long-run equilibrium, but a technological innovation lowers the firms' costs. After the market adjusts, relative to the original equilibrium:

answer

the price charged by the firms decreases, the quantity produced by a firm increases, and the market quantity increases.

question

In a perfectly competitive increasing-cost industry, the long-run market supply curve is:

answer

Upward-sloping.

question

Economic rent is:

answer

equal to zero for the firm that has the highest cost.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

If indifference curves cross, this violates the assumption:

answer

Of transivity

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

that more of a good is better.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

...

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

If an indifference curve has a positive slope at any point, this violates the assumption:

answer

...

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

which of two bundles gives a consumer more utility.

question

The concept of utility makes it possible to calculate:

answer

...

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