question
Tom's consumption possibilities is defined by
answer
his income and the prices of the goods that he consumes.
question
Utility is best defined as
answer
the satisfaction from consuming a good
question
A measure of all the benefit you get from all the coffee you consume is your
answer
total utility from coffee.
question
Mark's marginal utility from reading books is the ________ when he reads ________.
answer
change in his total utility; one additional book
question
The total utility you get from eating slices of pizza on a given night is the
answer
sum of the marginal utilities of all slices eaten.
question
Marginal utility theory assumes that when Sally must consume less of a good that she likes, her ________.
answer
total utility is maximized
question
Marginal utility
answer
is the additional utility derived from the last unit of a good consumed.
question
The principle of diminishing marginal utility says that
answer
total utility increases by smaller and smaller amounts as the quantity of the good consumed increases.
question
example that is consistent with the assumptions of marginal utility theory
answer
As Jose consumes more of one good, his marginal utility from consuming more of that good decreases.
question
The fact that the fourth plate from the "All You Can Eat Country Buffet" generated more satisfaction than the fifth plate is an example of
answer
diminishing marginal utility.
question
When Ramona is in consumer equilibrium,
answer
she is maximizing her utility, given her income and the prices of goods and services.
question
what occur when a person maximizes utility?
answer
the highest level of utility is attained and all of a person's budget is spent
question
Danny has $12 to spend on two goods: pies and soda. The price of a pie is $4, and the price of a can of soda is $2. To maximize his utility, Danny buys ________.
answer
the combination that gives him the same marginal utility per dollar spent on pies as on soda
question
Emma consumes only hot dogs and hamburgers. She is at her consumer equilibrium. Hot dogs and hamburgers have the same marginal utility. Thus
answer
the price of a hot dog and the price of a hamburger must be the same.
question
Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate is 100 and his marginal utility of vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximize his utility, Bobby should
answer
not change his purchases between chocolate ice cream and vanilla ice cream.
question
Robinson spends all his income on mangos and bananas. Mangos cost $3 per pound and bananas cost $1 per pound. The marginal utility is 24 for the last pound of mangos purchased and 10 for the last pound of bananas. To maximize his utility, Robinson should buy
answer
more bananas and fewer mangos.
question
Sam spends all of his income on textbooks and hot dogs. The price of a textbook is $40 and the price of a hot dog is $0.50. If Sam is maximizing his utility and the marginal utility he derives from the last textbook he purchases is 400, then the marginal utility he derives from his last hot dog purchased must be
answer
5
question
Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her marginal utility from movies will ________ and her marginal utility from books will ________.
answer
increase; decrease
question
Teddy buys only chocolate chip cookies and hot chocolate and spends all of his income on the two items. Suppose the price of a cookie rises. According to marginal utility theory, Teddy buys
answer
fewer cookies
question
Teddy buys only chocolate chip cookies and hot chocolate and spends all of his income on the two items. Suppose the price of a cookie rises. According to marginal utility theory, Teddy will buy
answer
fewer cookies and more hot chocolate which increases his marginal utility from cookies and decreases his marginal utility from hot chocolate.
question
Suppose the price of soda is $2 each and the price of a pizza slice is $4 each. David maximizes his utility by buying only sodas and pizza. He buys 5 sodas and 10 slices of pizza. If the price of a soda increases to $3 each, David will
answer
decrease the number of sodas bought and move along the demand curve for soda.
question
The only goods you consume are pizza and soda. Both are normal goods and pizza and soda are substitutes. What leads you to buy more of both goods?
answer
Your income increases.
question
Marginal utility theory assumes that marginal utility diminishes as more of any good is consumed.
answer
...
question
The paradox of value is illustrated by the fact that
answer
a pound of bread is cheaper than a pound of gold.
question
The diamond-water paradox of value can be explained by
answer
distinguishing between total utility and marginal utility.
question
According to the paradox of value, expensive goods, such as gemstones, provide consumers with
answer
low total utility and high marginal utility.
question
Suppose that Richard has just told you that he would not pay more than $100 dollars for one of his favorite baseball cards. You offer to give him $110 dollars for his card and he refuses. What consumer choice theory or effect explains this result?
answer
the endowment effect
question
If you exhibit endowment effect, then you
answer
have a strong attachment to things you already own.
question
Neuroeconomics is
answer
the study of the activity of a human brain when the person makes economic decision.
question
Gene plays another hour of computer games rather than study for the hour even though he knows that the next day, when he takes his test, he will regret his decision. Gene is showing
answer
bounded will power
question
Lucky buys hats for $20 but Lucky will not sell one of her hats for less than $35. Lucky is
answer
displaying the endowment effect
question
Behavioral economics studies the ways in which limits on the human brain's ability to _____ influences economic behavior - both the decisions that people make and the consequence of those decisions for the way _____ work.
answer
compute and implement rational decisions; markets
question
Behavioral economics studies the ways in which limits on the human brain's ability to compute and implement rational decisions influences economic behavior - both the decisions that people make and the consequence of those decisions for the way markets work.
answer
...
question
Billy Jean loves to read and she has decided that she will buy all of her books at the bookstore at the outlet mall.
One day she is in Barnes & Noble and sees a book from the New York Times Best Sellers list that she wants to read and she decides to buy it.
Buying the book means that she will not be able to take her Mom out for coffee this week.
Billy Jean's decision is an example of ______.
One day she is in Barnes & Noble and sees a book from the New York Times Best Sellers list that she wants to read and she decides to buy it.
Buying the book means that she will not be able to take her Mom out for coffee this week.
Billy Jean's decision is an example of ______.
answer
bounded willpower
question
Bounded willpower is the less-than-perfect willpower that prevents us from making a decision that we know, at the time of implementing the decision, we will later regret.
answer
...
question
The variables that determine a household's budget line are
answer
prices and income.
question
A budget line shows the
answer
consumption possibilities of a consumer at a given level of income and prices.
question
Mary has $10 to spend each week on coffee, Qc and magazines, Qm. The price of a coffee is $1, and the price of a magazine is $2. Mary's budget equation is ________.
answer
$1 times Qc + $2 times Qm = $10
question
Real income can be measured by
answer
an intercept of the budget line.
question
Suppose you are graphing the quantity of bagels on the vertical axis and the quantity of coffee on the horizontal axis. A household's real income in terms of bagels is the
answer
point at which the budget line intersects the y-axis.
question
John has $40 to spend on pizza and tacos. Pizza costs $10 each and tacos are $1 per taco. John's real income ________.
answer
is 4 pizzas or 40 tacos
question
The ________ is the price of one good ________ the price of another good.
answer
relative price; divided by
question
A relative price is the
answer
price of one good divided by the price of another good and same as opportunity cost.
question
If the relative price of pizza in terms of movies is 3, this means that
answer
in terms of the dollars that must be spent to buy the product, pizza is more expensive than movies, 3 pizzas can be traded for 9 movies, and the opportunity cost of a pizza is 3 movies.
question
Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of cake is $2.00 per slice. The relative price of cookies in terms of cake is
answer
2 slices of cake per cookie.
question
The magnitude of the slope of the budget line is determined by
answer
relative prices.
question
The magnitude of the slope of the budget line is the ratio of
answer
two prices.
question
The magnitude of the slope of the budget line measures the
answer
opportunity cost of the good on the horizontal axis in terms of the good on the vertical axis.
question
Movies are $10 a ticket, and DVD rentals are $5 a DVD. With movies on the vertical axis, the magnitude of the slope of the budget line is
answer
1/2
question
If all prices rise by 5 percent and money income remains constant, the new budget line will have
answer
the same slope.
question
When your income increases,
answer
your budget line shifts rightward and its slope does not change.
question
what best describes a consumer's budget line?
answer
It shows the limits to a consumer's set of affordable consumption choices.
question
Sue consumes apples and bananas. Suppose Sue's income doubles and the prices of apples and bananas do not change. Sue's budget line will
answer
shift rightward and its slope will not change.
question
Consumers' preferences are represented by
answer
indifference curves.
question
An indifference curve is a curve that shows the combination of goods among which a consumer is indifferent.
answer
...
question
The marginal rate of substitution is the rate at which a consumer will give up good y to get more of good x and remain on the same indifference curve.
answer
...
question
A consumer possesses a preference map.
answer
...
question
What will change the slopes of your indifference curves between gasoline and movie rentals?
answer
a change in your preferences for either of the two goods
question
An indifference curve shows combinations of goods ________.
answer
which the consumer prefers equally
question
An indifference curve is a line that shows combinations of goods among which a consumer
answer
does not care which combination he or she receives.
question
The marginal rate of substitution is
answer
the rate at which the consumer will give up one good to get an additional unit of another good while remaining on the same indifference curve.
question
The magnitude of the slope of an indifference curve
answer
is equal to the marginal rate of substitution.
question
Bobby moves along an indifference curve for shirts and pants by increasing consumption of shirts and decreasing consumption of pants. As Bobby has more and more pants, the number of shirts he is willing to trade for yet another pair of pants
answer
decreases
question
Indifference curves shift or rotate
answer
changes in income and prices DO NOT shift indifference curves.
question
If two goods are complements, then their
answer
indifference curves are L-shaped.
question
The point where the indifference curve is tangent to the budget line
answer
is the best affordable point.
question
In an indifference curve/budget line diagram, a consumer will select the combination of goods that is on the budget line and for which the
answer
marginal rate of substitution between two goods is equal to the relative prices of the two goods.
question
If consumers buy only gasoline and food, at their best affordable choice the marginal rate of substitution between food and gasoline ________ the relative price of food and gasoline.
answer
must equal
question
Tunitra consumes at a point on her budget line where her marginal rate of substitution exceeds the magnitude of the slope of her budget line. As Tunitra moves toward her consumer equilibrium point, she will move to a
answer
higher indifference curve.
question
The effect of a change in price on the quantity bought while keeping the consumer on the same indifference curve, is called the
answer
substitution effect.
question
The substitution effect reflects a movement along a given
answer
indifference curve.
question
According to the substitution effect along an indifference curve, when the relative price of a good falls, the consumer ________ substitutes ________ of that good for the other good.
answer
always; more
question
If consumers spend their money only on beef and vegetables, then the substitution effect of an increase in the price of beef would result in consuming ________ beef and ________ vegetables.
answer
less; fewer
question
When the price of a normal good decreases, people buy ________ of the good due to ________.
answer
more; the substitution and income effects
question
Bart consumes food and clothing, which are both normal goods. Suppose that the price of food falls. The substitution effect of this price decrease is ________ and the income effect of this price decrease is ________.
answer
reflected by the change in the slope of the budget line; that Bart has greater purchasing power
question
Sue consumes only sandwiches and soda and is at her best affordable point. The price of a sandwich falls. The substitution effect is that Sue substitutes ________ for ________. The income effect is that Sue ________.
answer
sandwiches; soda; buys more of both goods
question
Nick considers macaroni and cheese to be an inferior good. As a result of macaroni and cheese being an inferior good, the
answer
income effect is negative, so that less is purchased as income increases.
question
The income effect for an inferior good
answer
is negative.
question
Firms use incentives to pursue their most fundamental goal, which is to maximize
answer
profits
question
A firm's opportunity costs ________.
answer
include the cost of using resources owned by the firm
question
What are two components of the opportunity cost of using capital already owned by the firm?
answer
economic depreciation and forgone interest
question
The difference between the market price of a new car used by a firm and the market price of the same car one year later is known as
answer
economic depreciation.
question
Economic profit is
answer
equal to the firm's total revenue minus its opportunity costs.
question
An economic profit is
answer
not the same as the company's normal profit.
question
Emma owns a firm that produces umbrellas. Currently, Emma produces 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Emma is ________ efficient.
answer
technologically
question
The accountant for Muzhi's Sushi claims that Muzhi has accomplished "technological efficiency." This means that Muzhi's Sushi
answer
produces a given output using the least inputs.
question
The accountant for Muzhi's Sushi claims that Muzhi has accomplished "economic efficiency." This means that Muzhi's Sushi
answer
produces a given output at the lowest cost.
question
A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm
answer
organizes production based on an incentive system.
question
An example of the principal-agent problem is when
answer
managers devise incentives that encourage employees to act in the owner's behalf.
question
A principal-agent problem occurs when hiring workers to work for a firm because
answer
workers' interests are not always the same as the interests of the owners of the firm.
question
A baseball player who has signed a long-term contract and then constantly says he is injured and cannot play is an example of ________.
answer
the principal-agent problem
question
You have just purchased 100 shares of the stock of the StrideRite Shoe Corporation. This places you in the role of
answer
principal
question
Which of the following forms of business organization is likely to suffer most from the principal agent problem between the owners and managers of the business?
answer
corporations
question
Gilda's Art Gallery rewards its employees with stock each year the gallery makes profits. This stock allows the employees to own part of the gallery. This practice is known as
answer
incentive pay.
question
The owner of a proprietorship has ________ liability and ________ required to use all of his or her entire wealth to pay for the firm's losses.
answer
unlimited; might be
question
A major disadvantage of a proprietorship is that the ________.
answer
owner's entire wealth is at risk
question
Fatz Confectionery is a candy company that operates at the risk of unlimited liability for its owner(s) in case, for instance, all of its former employees win a class action lawsuit because of "sugar-lung" developed over decades of working there. Thus Fatz is a
answer
either proprietorship or partnership
question
An advantage of the corporate form of organization is that
answer
owners have limited liability.
question
A form of business whose profits are taxed twice is
answer
a corporation.
question
In a market where firms are successful in convincing their customers that their product is different from their competitors' product but otherwise have no barriers to entry would be best characterized by
answer
monopolistic competition.
question
Under oligopoly, there are ________ firms selling products that are ________.
answer
a few; either identical or different
question
Coca Cola and Pepsi, which together account for about 85 percent of the soft drink market, are best described as being in
answer
an oligopolistic market.
question
A low concentration ratio indicates
answer
a high degree of competition.
question
If the four-firm concentration ratio is a very small number, then
answer
there is a high degree of competition in the market.
question
If an industry has a four-firm concentration ratio equal to one hundred percent, then it is definitely the case that the industry is
answer
either a monopoly or an oligopoly.
question
The ________ the Herfindahl-Hirschman Index (HHI), the ________ the industry.
answer
higher; less competitive
question
Dell uses outsourcing, that is, Dell buys the components of the computers it produces from other firms. This is an example of
answer
market coordination.
question
Costs to the firm arising from reaching agreements on input prices with suppliers and then ensuring that terms of agreements are fulfilled, are called
answer
transactions costs.
question
Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the ________ costs of making a purchase.
answer
transactions
question
Economies of scale exist when the
answer
cost of producing a unit of a good falls as its output increases.
question
If Quick Auto Service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of
answer
economies of scale.
question
"When the cost of producing a unit of a good falls because the firm uses specialized resources to produce a range of goods and services" is the definition of
answer
economies of scope.
question
A firm finds that it can produce several different goods at a lower average cost by using some of the same production facilities than it could if it produced each of the goods with separate production facilities. This firm is
answer
gaining economics of scope.
question
If a firm that repairs both motorcycles and cars is able to do so at a lower cost than a firm that does only one or the other, this would be an example of
answer
economies of scope.
question
Economic activity is coordinated by _______.
answer
markets and firms
question
Whether economic activity is coordinated by firms or markets is determined by _______.
answer
cost
question
Whether economic activity is coordinated by firms or markets is determined by cost.
Firms coordinate economic activity if they use the economically efficient method. And markets coordinate economic activity if they use the economically efficient method.
Firms coordinate economic activity if they use the economically efficient method. And markets coordinate economic activity if they use the economically efficient method.
answer
Firms coordinate economic activity when they can perform a task more efficiently than markets can. In such a situation, it is profitable to set up a firm.
If markets can perform a task more efficiently than a firm can, firms will use markets, and any attempt to set up a firm to replace such market coordination will be doomed to failure.
If markets can perform a task more efficiently than a firm can, firms will use markets, and any attempt to set up a firm to replace such market coordination will be doomed to failure.
question
The short run is a period of time in which
answer
the quantities of some resources the firm uses are fixed.
question
In the short run
answer
a firm's plant is fixed.
question
An example of a variable resource in the short run is
answer
an employee.
question
An example of a short-run fixed factor of production is
answer
capital equipment.
question
The long run is a time frame in which
answer
the quantities of all resources can be varied
question
The long run
answer
is a period of time in which all factors of production can be varied and is different for different firms.
question
A firm's total product curve shows
answer
how the amount of output changes when the quantity of labor changes.
question
the marginal product of labor is equal to the
answer
increase in the total product that results from hiring one more worker.
question
The total output produced with any quantity of labor is equal to the sum of the
answer
marginal products of each of the workers hired.
question
Average product equals the
answer
total amount of output produced divided by the quantity of labor employed.
question
"Diminishing marginal returns" refer to a situation in which the
answer
marginal product of the last worker hired is less than the marginal product of the previous worker hired.
question
Diminishing marginal returns to labor occur because
answer
the capital resources used by the firm are fixed in the short run.
question
The law of diminishing returns implies that, with the use of capital fixed, as the use of labor rises,
answer
the marginal product of labor will fall eventually.
question
When marginal product is less than average product, average product is falling.
answer
...
question
When the marginal and average products of labor are equal to each other, the
answer
average product must be at its maximum value.
question
When marginal product of labor is a maximum, average product of labor is ________.
answer
increasing
question
The marginal product and average product curves intersect when average product is at its maximum.
answer
...
question
A firm has fixed costs
answer
in the short run but not in the long run.
question
Total fixed cost is the sum of all
answer
costs of the firm's fixed inputs.
question
A firm's total fixed cost (TFC) is defined as a cost
answer
that does not change as output changes.
question
Total variable cost is the sum of all
answer
costs that rise as output increases.
question
Total variable cost
answer
increases as output increases.
question
Marginal cost is
answer
the change in the total cost resulting from a one-unit change in output.
question
The average total cost curve eventually slopes upwards because of the
answer
law of diminishing returns.
question
The average total cost curve
answer
diminishes initially because average fixed costs diminish, increases eventually because of diminishing returns and is U-shaped.
question
Average total costs are
answer
total costs divided by total output.
question
Marginal cost eventually increases because
answer
- of the law of diminishing returns.
- the marginal product of the variable input eventually falls.
- eventually each additional worker produces a successively smaller addition to output.
- the marginal product of the variable input eventually falls.
- eventually each additional worker produces a successively smaller addition to output.
question
A technological change that increases productivity ________ marginal product and ________ marginal cost.
answer
increases; decreases
question
The a firm's short-run cost curves shifts when there is a change in
answer
the prices of factors of production and technology
question
Which cost always increases as output increases?
answer
total cost
question
A firm's long-run average cost curve
answer
tells the firm which plant size to use and which quantity of labor to use to minimize the cost of producing any level of output.
question
The long-run average cost curve is the
answer
relationship between the lowest attainable average total cost and output when both the plant size and labor are varied.
question
A firm's long-run average cost curve is derived from a series of short-run average cost curves.
answer
...
question
Economies to scale refer to
answer
the range of output over which the long-run average cost falls as output increases.
question
In the short run
answer
no firm experiences economies of scale.
question
When long-run average costs decrease as output increases, there are
answer
economies of scale.
question
If Dell Computer Company could produce more computers at lower long-run average cost by increasing the quantity of all the inputs it uses, Dell definitely would experience
answer
economies of scale.
question
Electric utility companies have built larger and larger electric generating stations and, as a result, the long-run average cost of producing each kilowatt hour decreased. This is an example of
answer
economies of scale.
question
Diseconomies of scale definitely means that as the firm increases its output, its
answer
long-run average total cost increases.
question
One reason for diseconomies of scale is that, at very large scales, management systems can become
answer
increasingly complex and inefficient.
question
Farmer Seth has a perfectly flat long-run average total cost curve over the range of output from 10,000 bushels of wheat to 100,000 bushels of wheat. Hence, over this range of output, Farmer Seth definitely experiences
answer
constant returns to scale.
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