question
For an inferior good, the income and substitution effects....
answer
Work against each other
question
True or False? concerning the substitution effect of a decrease in price, will always lead to an increase in consumption?
answer
True
question
Assuming beer is a normal good, and the price rises, then the substitution effect results in the person buying __________ of the good and the income effect results in the person buying _________ of the good.
answer
Less, Less
question
Assuming beer is an inferior good, and the price falls, then the substitution effect results in the person buying __________ of the good and the income effect results in the person buying _________ of the good.
answer
More, Less
question
What happens to a Giffen good as the price of it falls?
answer
The income effect is in the opposite direction to the substitution effect, and consumption falls.
question
True or False:
I. For all Giffen goods, the substitution effect is larger than the income effect.
II. For all inferior goods, the substitution effect is larger than the income effect.
I. For all Giffen goods, the substitution effect is larger than the income effect.
II. For all inferior goods, the substitution effect is larger than the income effect.
answer
Both are false.
question
The substitution effect of a price change for product X is the change in consumption of X associated with a change in what?
answer
The price of the good, with the level of utility held constant.
question
A Giffen good is what?
answer
A special subset of inferior goods in which the income effect dominates the substitution effect.
question
True or False:
I. All Giffen goods are inferior goods.
II. All inferior goods are Giffen goods.
I. All Giffen goods are inferior goods.
II. All inferior goods are Giffen goods.
answer
I. is true and II. is False
question
The change in the quantity demanded of a good resulting from the change in relative price with a level of satisfaction held constant is called the _________ effect?
answer
Substitution
question
What is the best definition for the production function?
answer
The relationship between the quantities of inputs needed to produce a good and the resulting level of output produced during a given time.
question
A firm's production is the relationship between what?
answer
The factors of production and the resulting outputs of the production process.
question
The term Variable Input refers to what?
answer
Inputs to production, the quantity of which can be increased or decreased at any point in time.
question
The term Fixed Input refers to what?
answer
Inputs to production, the quantity of which cannot be varied in the short run.
question
The amount of output produced with an additional unit of variable input is referred to as what?
answer
The marginal product.
question
The amount of output produced per unit of variable input is referred to as what?
answer
The average variable product.
question
The marginal product of a variable input is calculated as what?
answer
The change in total product dived by the change in the variable input.
question
The average product of a variable input is calculated as what?
answer
Total product divided by the total quantity of the variable input.
question
What is true of the typical relationship between marginal product (MP) and average product (AP)?
answer
The MP curve intersects the AP curve at maximum AP.
question
When do diminishing returns occur?
answer
When units of a variable input are added to a fixed input and marginal product falls.
question
What happens when total product reaches its maximum?
answer
MP equals 0.
question
If a producton function equals, q=AL^(a)K^(b), then the function exhibits increasing returns to scale if what is occurring?
answer
a+b>1
question
If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as what?
answer
The rate at which the firm can replace capital with labor without changing the output rate.
question
The marginal rate of technical substitution (MRTS) is equal to what?
answer
The absolute value of the slope of the isoquant and the ratio of the marginal products of the inputs.
question
An L-shaped isoquant
answer
would indicate that capital and labor cannot be substituted for each other in production.
question
To say that isoquants are convex is to say what?
answer
The MRTS falls as labor increases.
question
One way to explain the convexity of isoquants is to say that
answer
As labor increases and capital decreases, MP of L falls while MP of K rises.
question
L-shaped isoquants imply that production requires that the inputs
answer
Must be used together in a certain proportion.
question
The MRTS always equals what?
answer
The ratio of the MP of inputs.
question
The short run of a company is given by the equation
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What is the company's fixed Cost
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What is the company's fixed Cost
answer
200
question
The short run of a company is given by the equation
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
If the company produced 100,000 units of goods, what would be its average value?
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
If the company produced 100,000 units of goods, what would be its average value?
answer
55
question
The short run of a company is given by the equation
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What would be its marginal cost of production?
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What would be its marginal cost of production?
answer
55
question
The short run of a company is given by the equation
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What would be its average fixed cost?
TC=200+55Q, where TC is the total cost and Q is the total quantity of output, both measured in thousands.
What would be its average fixed cost?
answer
200/Q
question
A firm is employing 100 workers (W= $15/hour) and 50 units of capital (R=$30/hour). At the firm's current input use, the MP of L is 45 and the MP of C is 60. Is the firm producing its current level of output at the minimum cost?
answer
No
question
What is the equation for Marginal Cost (MC)?
answer
(ΔTC/ΔQ) or (VC/ΔQ) or (ΔFC/ΔQ)
question
What is the equation for TC
answer
VC+FC
question
What is the equation for TVC
answer
Q*VC
question
What is the equation for AVC
answer
VC/Q
question
What is the equation for AFC
answer
FC/Q
question
What is the equation for ATC
answer
TC/Q or AFC+AVC
question
What is the equation for MP
answer
ΔInput/ΔQ
question
What is the equation for TFC
answer
FC
question
What is the equation for TP
answer
(Product/Labor)*Labor
question
What is a normal good?
answer
A good that experiences an increase in its demand due to a rise in consumers' income.
question
What is an inferior good?
answer
A good whose demand decreases when consumer income rises.
question
What is the substitution effect?
answer
The change in demand for a good as a result of a change in the relative price of the good in terms of other goods.
question
What is the income effect?
answer
The change in demand for a good or service caused by a change in a consumer's purchasing power resulting from a change in real income.
question
What are the two axes of a price consumption curve, and how are they measured?
answer
The two goods: quantity
question
What are the two axes on a demand curve, and what are the measurments?
answer
Price and the good: measured in price and quantity.
question
What are the two axes of an income consumption curve, and how are they measured?
answer
The two goods: Quantity
question
What are the two axes of an Engle curve, and how are they measured?
answer
Income and the good: Price/Income and Quantity
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