question
How does entrepreneurship affect the economy?
answer
Entrepreneurship is the human resource that organizes labor, land, and capital to produce goods and services.
question
What is an incentive?
answer
A reward or penalty that encourages or discourages an action.
question
A company has the following production possibilities of bicycles and helmets in a month as follows:
Bicycles-------Helmets
900-------------0
800----------200
600-----------400
350----------600
100---------800
0--------1000
Which production numbers show an attainable and efficient production for this company?
Bicycles-------Helmets
900-------------0
800----------200
600-----------400
350----------600
100---------800
0--------1000
Which production numbers show an attainable and efficient production for this company?
answer
600 bicycles, 400 helmets
question
A fast food restaurant produces 85 hamburgers and 100 trays of French fries each hour. The manager has not made any tradeoffs in production, but is producing many more hamburgers and French fries than last month. Assume the production possibilities curve has not changed, and the new production combination lies on the restaurants possibilities curve. Which scenario could have created this higher production?
answer
The old combination was inside the production possibilities curve.
question
Which factor increases the current demand of normal good?
answer
The expectation of a higher future price.
question
Which of the following is true about the used and new cars if the demand for used cars decreases after the price of a new car falls?
answer
They are both substitute goods.
question
How does an increase in demand affect a product, assuming an upward sloping and constant supply curve?
answer
The quantity demanded will increase and the price will increase.
question
Which situation increases the supply of a product?
answer
Lower prices for the resources used to produce the product
question
Which situation increases the supply of gasoline?
answer
A decrease in the price of a resource used to produce gasoline, such as crude oil
question
How will an increase in the number of suppliers affect price and quantity demanded, assuming no change in demand?
answer
Quantity demanded moves upward on the demand curve and price will decrease?
question
What will happen to the market equilibrium if the demand for oil increases and the supply of oil increases?
answer
Equilibrium quantity will increase, but equilibrium price is indeterminate
question
What is the price elasticity of demand for pizza using the midpoint method?
Price--------Quantity
2-----------40
3------------30
Price--------Quantity
2-----------40
3------------30
answer
0.50. %^Q/%^P....Percentage change in Quantity divided by percentage change in price.
question
Grafton bought a new sedan for $20,000 but was expecting and willing to pay $28,000. What is the consumer surplus in this situation?
answer
$8,000
question
As the allocation of resources becomes more efficient and approaches the production possibilities frontier, what will happen to the consumer surplus?
answer
The consumer surplus is more likely to decrease.
question
An employee makes $10 per hour. The employee takes off two hours to see a movie and pays $7.25 for his ticket. What is the opportunity cost of seeing the movie?
answer
$27.25
question
What are two features of a Production Possibilities Frontier (PPF)?
answer
1. It determines which cominations of goods are efficient or inefficient.
2. It demonstrates which combinations of goods are attainable or unattainable.
2. It demonstrates which combinations of goods are attainable or unattainable.
question
What is a characteristic of an efficient allocation?
answer
When marginal cost equals marginal benefit.
question
What is an indication of inefficient production?
answer
Producing inside the Production Possibilities Frontier
question
How might creating a rent ceiling that is below the equilibrium price negatively impact the fairness in the housing market?
answer
It may create a black market for housing.
question
Why is the minimum wage inefficient assuming it is set above the equilibrium price?
answer
Unemployment increases.
question
What is an example of government intervention in a farm market that benefits farmers?
answer
Introduce agricultural subsidies
question
Which quantities distinguish private goods from public goods?
answer
1. Excludable
2. Rival
2. Rival
question
When determining efficient quantity of public goods, how can resources be used more efficiently if marginal cost exceeds marginal social benefit?
answer
decreasing the quantity...
question
Which action can the government take to increase the quantity of public goods?
answer
(Increase funding for national defense) ...Government Action
question
Classify each situation as positive or negative externalities for residents of a town.
answer
Pollution from a nearby factory - Negative
Attractive public parks - Positive
Congestion arising from all residents commuting at the same time - Negative
Loud music played by teenagers driving in town - Negative
Attractive public parks - Positive
Congestion arising from all residents commuting at the same time - Negative
Loud music played by teenagers driving in town - Negative
question
Why do cap-and-trade programs lead to more optimal outcomes when negative externalities are present?
answer
(Because cap-and-trade gives businesses financial incentives to find more efficient methods of production.) In practice, pollution limits and pollution charges and taxes end up failing to achieve an efficient outcome because they confront all producers with the same incentives to avoid pollution. Cap-and-trade overcomes this problem and is the most effective of the three methods. Cap-and-trade requires an accurate determination of the overall quantity of pollution that brings efficiency, but it provides the strongest available incentive to individual producers to find cost effective technologies that achieve the pollution targets.
question
It costs $3 to rent a movie and $15 to buy a movie. Which graph shows consumption possibilities if a person's budgt is $60?
answer
The graph starts at 20 on the left and ends at 4 on the bottom.
question
How can the paradox of value be resolved?
answer
By distinguishing between marginal and total utility.
question
Which cost is variable in the short-run?
answer
Labor
question
A grocery store is running a buy-two-get-one-half-price sale. The store normally charges $4 for the items, and the wholesale cost is $1. It costs $1 to inventory and stock the first item and $0.25 for each additional item of the same type. What is the store's marginal cost for the third item, if a consumer buys three units of a given item?
answer
$1.25....extra cost of one additional unit?
question
Why is the long-run average cost curve U-shaped?
answer
Because economies of scale lead to increasing returns, then constant returns than decreasing returns.
question
How does a firm in perfect competition maximize profits in the short run?
answer
By determining the quantity to produce where marginal revenue is equal to or exceeds marginal cost. (Also marginal cost = price)
question
What is a factor that determines price in a perfectly competitive market?
answer
Market demand (and Market Supply)
question
What effect do technological advances in production have on a perfectly competitive market in the long run?
answer
Economic profit will be positive for adopters of the new technology
question
Which factor is necessary to create a monopoly?
answer
Lack of close substitutes
question
When would it be appropriate for a monopoly to use a single price setting strategy?
answer
When the lower paying customers could sell the products to the higher paying customers. (price discrimination). When it could be easily resold.
question
What is price set at for a single-price monopoly?
answer
Equal to (or less than) marginal revenue
question
How does a monopoly differ from a perfect competition in long-run equilibrium?
answer
A monopoly has a smaller output and a higher price.
question
Which regulatory practice requires making a payment to a monopoly that is equal to the monopoly's economic loss?
answer
Government subsidy
question
A market has a large number of firms competing to sell differentiated products. Firms are free to enter and exit the market, and there is high competition on price, quality, and marketing. What type of market is described?
answer
Monopolistic Competition
question
Which quantity do firms in monopolistic competition produce to maximize profit?
answer
The quantity at which marginal revenue equals marginal cost.
question
A company is a monopolistic competition sells 100 unites without using advertising. The company then decides to use advertising and increases the number of units sold to 300. How does the use of advertising affect cost in this particular scenario?
answer
Overall cost is decreased from $30 to $20
question
Herb's Inc. has a large share of its market and is tempted to collude with the few firms that are in is market. What type of market is Herb's Inc. operating in?
answer
An oligopoly
question
What is the reason the players in a game theory situation often do not act in their joint interest?
answer
Players are interested in minimizing opponents' profits.
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