question
Price elasticity of demand measures
answer
how responsive quantity demanded is to a change in price
question
Suppose the value of the price elasticity is -3. What does this mean?
answer
a 1% increase in the price of the good causes quantity demanded to decrease by 3%
question
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
answer
1.62
question
Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?
answer
it is elastic at high prices and inelastic at low prices
question
When there are few close substitutes available for a good, demand tends to be
answer
relatively inelastic
question
The demand for all carbonated beverages is likely to be _____ the demand for Dr. Pepper.
answer
less elastic than
question
Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that...
a) the demand for bottled water is elastic in the price range considered
b) the supply of bottled water is inelastic in the price range considered
c) the demand for bottled water is inelastic in the price range considered
d) the supply of bottled water is elastic in the price range considered
a) the demand for bottled water is elastic in the price range considered
b) the supply of bottled water is inelastic in the price range considered
c) the demand for bottled water is inelastic in the price range considered
d) the supply of bottled water is elastic in the price range considered
answer
a) the demand for bottled water is elastic in the price range considered
question
Calculate the income elasticity if an 8% increase in income leads to a 4% increase in quantity demanded for organic produce.
answer
0.5
question
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
answer
complements
question
The price elasticity of supply is equal to
answer
the % change in quantity supplied divided by the % change in price
question
The difference between technology and technological change is that
answer
technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given levle of output with a given quantity of inputs
question
Economic costs of production differ from accounting costs in that
answer
economic costs add the opportunity costs of a firm using its own resources while accounting costs do not
question
Implicit costs can be defined as
answer
the non monetary opportunity cost of using the firm's own resources
question
The law of diminishing marginal returns states
answer
that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable to decline
question
The marginal product of the 3rd worker is..
1 worker - 15 total product
2 workers - 42 total product
3 workers - 57 total product
1 worker - 15 total product
2 workers - 42 total product
3 workers - 57 total product
answer
57-42= 15
question
One reason why, in the short run, the marginal product of labor might increase initially as more workers are hired is that
answer
specialization allows a worker to focus on one task, thereby increasing her proficiency at that task
question
In the short run, if marginal product is at its maximum, then...
a) marginal cost is at its minimum
b) average cost is at its minimum
c) total cost is at its maximum
d) average variable cost is at its minimum
a) marginal cost is at its minimum
b) average cost is at its minimum
c) total cost is at its maximum
d) average variable cost is at its minimum
answer
a) marginal cost is at its minimum
question
Which of the following costs will not change as output changes?
a) average fixed cost
b) total variable cost
c) marginal cost
d) total fixed cost
e) average variable cost
a) average fixed cost
b) total variable cost
c) marginal cost
d) total fixed cost
e) average variable cost
answer
d) total fixed cost
question
If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost of $700, calculate the firm's average fixed cost of production if it expands output to 25 units.
answer
$12
question
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing?
answer
Yes, if marginal cost is less than average total cost, then average total cost will be decreasing
question
If production displays economies of scale, the long-run average cost curve is
answer
downward sloping
question
The minimum efficient scale is
answer
level of operation where long-run average costs are lowest
question
Which of the following is not a characteristic of a perfectly competitive market structure?
a) all firms sell identical products
b) there are restrictions on exit of firms
c) there are no restrictions to entry by new firms
d) there are a very large number of firms that are small compared to the market
a) all firms sell identical products
b) there are restrictions on exit of firms
c) there are no restrictions to entry by new firms
d) there are a very large number of firms that are small compared to the market
answer
b) there are restrictions on exit of firms
question
Both buyers and sellers are price takers in a perfectly competitive market because
answer
each buyer and seller is too small relative to others to independently affect the market price
question
The demand curve for each seller's product in perfect competition is horizontal at the market price because
answer
each seller is too small to affect the market price
question
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.
answer
loss of $6,000
question
If, for the last unit of a good produced by a perfectly competitive firm, MR>MC, then in producing it, the firm...
a) is maximizing marginal profit
b) added more to total revenue than it added to total cost
c) added more to total costs than it added to total revenue
d) has minimized its losses
a) is maximizing marginal profit
b) added more to total revenue than it added to total cost
c) added more to total costs than it added to total revenue
d) has minimized its losses
answer
b) added more to total revenue than it added to total cost
question
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should...
a) lower the price
b) reduce its output
c) keep output constant and enjoy the above normal profit
d) increase its output
a) lower the price
b) reduce its output
c) keep output constant and enjoy the above normal profit
d) increase its output
answer
d) increase its output
question
If a perfectly competitive firm's price is above its average total cost, the firm...
a) is incurring a loss
b) is breaking even
c) is earning a profit
d) should shut down
a) is incurring a loss
b) is breaking even
c) is earning a profit
d) should shut down
answer
c) is earning a profit
question
When the production possibilities curve is bowed out, resources are
answer
not equally well suited to the production of both goods
question
The demand by all the consumers of a given good or service is the _____ for the good or service
answer
market demand
question
Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?
a) an increase in the price of sheep feed
b) a decrease in the price of cattle
c) an increase in the demand for cattle
d) an increase in the price of sheep
a) an increase in the price of sheep feed
b) a decrease in the price of cattle
c) an increase in the demand for cattle
d) an increase in the price of sheep
answer
b) a decrease in the price of cattle
question
Consumers are willing to purchase a product up to the point where
answer
the marginal benefit of consuming a product is equal to its price
question
If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set
answer
equal to the marginal external cost at the economically efficient level of pollution
question
If the demand for a good increases, which of the following will generally occur in a market setting?
a) the supply of the good will increase
b) the price of the good will decrease
c) producer profits will fal
d) the quantity supplied will increase
a) the supply of the good will increase
b) the price of the good will decrease
c) producer profits will fal
d) the quantity supplied will increase
answer
d) the quantity supplied will increase
question
Which of the following is a positive economic statement?
a) people should not buy SUVs
b) foreign workers should not be allowed to work for lower wages than the citizens of a country
c) the government should mandate electric automobiles
d) scarcity necessitates that people make trade-offs
a) people should not buy SUVs
b) foreign workers should not be allowed to work for lower wages than the citizens of a country
c) the government should mandate electric automobiles
d) scarcity necessitates that people make trade-offs
answer
d) scarcity necessitates that people make trade-offs
question
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
answer
declines
question
Economic efficiency in a competitive market is achieved when
answer
the marginal benefit equals the marginal cost from the last unit sold
question
Which of the following displays these 2 characteristics: rivalry and nonexcludability?
a) private good
b) common resource
c) quasi-public good
d) public good
a) private good
b) common resource
c) quasi-public good
d) public good
answer
b) common resource
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