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