micro final study guide - Assignment Essays

question

tim decides to spend four hours playing video games rather than attending his classes. his opportunity cost of playing video games is

answer

the value of the knowledge he would've received had he attended his class

question

your options for dinner tonight is chinese food or pizza. the pizza costs $11 and give you equivalent of $20 in benefit. chinese food costs $8 and also gives you equivalent pf $20 in benefit. how much is the economic cost of the chinese food?

answer

$17

question

answer

question

answer

net benefit of the chinese food

question

wells has 1 hour of spare time. she can work hourly at $15 per hr or babysit for $20 per hr, or study for her econ class. wells chooses to spend her time studying. what is wells' opportunity cost of studying econ?

answer

$20

question

The ticket to see Yo Yo Ma in a concert (which has no resale value) is $50. On any given day, you would be willing to pay up to $100 to see Yo Yo Ma .
Alternatively you can go to the cinema (assume it's post-Covid!) and watch a movie. The movie ticket is $10, and you are willing to pay up to $25 to see the movie. Assume there are no other costs of seeing either performances.
Based on this information, what is the economic cost of going to the movies for you?

answer

$60

question

You have won a FREE ticker to a violin concerto. The ticket to the violin concerto (which has no resale value) is $50. On any given day, you would be willing to pay up to $100 to see this concerto .
Alternatively you can go see a rock band perform in a bar . The cover charge to the bar is $10, and you are willing to pay up to $25 to see the band perform.
Assume there are no other costs of seeing either performances.
Based on this information, what is your economic cost of going to the violin concerto?

answer

$15

question

savion's aunt gave him $25 for his birthday with the condition that Savion buys himself something. in deciding how to spend the money, savion narrows his options down to four choices: option 1, option 2, option 3, and option 4. each option costs $25. finally he decides on option 2. the opportunity cost of this decision is

answer

the value to savion of the optin he would have chosen had option 2 not been available

question

For which of the following people the opportunity cost of grocery shopping is higher?

answer

a person earning $30 per hour

question

When is the opportunity cost of getting a college degree lower?

answer

when the job market is poor and there are not that many good paying jobs

question

for which of the following individuals would the opportunity cost of going to college be the highest?

answer

a famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

question

Penelope is considering 3 options for a new car she want to purchase:
1) A Tesla Model Y for $60,000
2) A Tesla Model 3 for $40,000
3) A Honda Clarity for $35,000
Penelope has done some soul searching and have assessed the benefit she will receive from each of these 3 cars to be equivalent of:
1) $60,000
2) $50,000
3) $40,000

A.) Which car provides her with the highest 'benefit'?
B.) which car provides her with the highest 'net benefit'?

answer

A.) tesla model Y
B.) tesla model 3

question

Your additional benefit (marginal benefit) from drinking bottles of water in a hot day is shown in the table.

Marginal Benefit
1st bottle
30
2nd bottle
20
3rd bottle
8
4th bottle
2

A.) What is the "total benefit" of drinking 2 bottles of water?
B.) What is the "total benefit" of drinking 3 bottles of water?
C.) What is the "total benefit" of drinking 4 bottles of water?

answer

A.) 50 (30+20)
B.) 58(30+20+8)
C.) 60 (30+20+8+2)

question

there were 5 broad situations/changes that can bring a shift in the demand curve. list them here

answer

- price of related goods
- income of consumers
- taste of consumers
- number of consumers
- expectations of consumers

question

pick 2 of the demand shifters you listed in the previous question, and provide a real life example for each

answer

- price of related goods: compliments (peanut butter and jelly)
if the price of peanut butter rises, then the quantity demanded for peanut butter will fall along with the demand of jelly.

- expectations of consumers
if consumers think that it will be extra cold this winter, there will be an increase in demand of coats and jackets.

question

based on the law of demand, a decrease in the price of a good will

answer

increase the quantity demanded of that good, ceteris paribus

question

if pasta is an inferior good, the demand curve shifts to the _______ when _________ rises.

answer

left, people's income

question

if pasta is a normal good, then the demand curve shifts to the _________ when ___________ rises.

answer

right, people's income

question

if pasta and pizza are considered substitute goods by the consumer, then the demand curve for pasta shifts to the ___________ when ____________ rises

answer

right, price of pizza

question

if beer and pizza are considered compliment goods by the consumer, then the demand curve for pizza shifts to the __________ when ________ rises.

answer

left, price of beer

question

which of the following will shift the demand curve for pizza to the right?

the departure of college students, as the colleges shift to online classes.
a decrease in the price of pizza
an increase in the price of root beer, a complement to pizza
an increase in the price of hamburgers, a substitute for pizza

answer

an increase in the price of hamburgers, a substitute for pizza

question

A change in which of the following will NOT shift the demand curve for hamburgers?

the income of hamburger consumers
the price of hot dogs
the price of hamburger buns
the price of hamburgers

answer

the price of hamburgers

question

an example of a perfectly competitive market would be the market for

answer

soybeans

question

There were 4 broad situations/changes that can bring a shift in the supply curve. List them here:

answer

- improvement in technology
- changes in input prices and/or supply
- expectations of future
- number of sellers

question

Pick 1 of the supply shifters you listed in the previous question, and provide a real life example for it.

answer

- supply shifter: changes in input prices and/or supply
- market: mashed potatoes
- situation: price of milk increases
- impact: less mashed potatoes will be in supply due to the increase in price of milk

question

The law of supply states that, other things equal, when the price of a good

answer

rises, the quantity supplied of the good rises

question

What situations/changes that can bring a shift in the supply curve of a good? Select ALL of them.

answer

change in price of an input
change in technology of production
change in number of sellers
change in expectations about future

question

Which of the following, best describes the equilibrium price in a market for a good?

answer

The price at which the quantity supplied equals quantity demanded in the market

question

John went to a pharmacy 4 times this past week to buy a bottle of rubbing alcohol. The price tag for a bottle in that store is $1.69 but, there were none to be found on the shelf each time. This indicates that the price of $1.69 _____________ for a bottle of robbing alcohol.

answer

is below the equilibrium price

question

A binding price ceiling must be set at a price level ________ the market equilibrium price, and a binding price floor must be set at a price level _______ the equilibrium price.

answer

below, above

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If the market demand increases, the equilibrium price in the market will _________ , and the equilibrium quantity will _______

answer

rise, rise

question

If the market demand decreases, the equilibrium price in the market will ___________ , and the equilibrium quantity will ____________

answer

decrease, decrease

question

If market supply decreases, the equilibrium price will _________ , and the equilibrium quantity will ________

answer

increase, decrease

question

The supply and demand in a market both increase. We can conclude that as a result, the equilibrium price will __________ , and the equilibrium quantity will __________ .

answer

be changed ambiguously, increase

question

An increase (a.k.a. shift rightwards) in ________ for a good will cause a movement along the supply curve, which is called a change in ________.

answer

demand, quantity supplied

question

The supply and demand in a market both increase, but the relative increase in demand is greater than the increase in supply.
We can conclude that as a result, the equilibrium price will be __________ , and the equilibrium quantity will _________

answer

increase, increase

question

If the economy goes into a recession and incomes fall, what happens in the markets for normal goods?

answer

Equilibrium price and quantity both fall.

question

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

answer

Prices and quantities both rise.

question

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

answer

an increase in the price of grapes, an input into jelly

question

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

answer

supply; lower

question

Explain why the sign of 'price elasticity of demand' is always negative

answer

because there will always be a decrease in either price or quantity demanded which is represented by a negative sign.

economists take the absolute value though

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Goods with many close substitutes tend to have

answer

more elastic demands

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For a good that is a luxury, demand

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tends to be elastic

question

Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

answer

2.15

question

Which of the following is likely to have the most price elastic demand?

Ice cream
Frozen yogurt
Häagen-Dazs® vanilla bean ice cream
Vanilla ice cream

answer

Häagen-Dazs® vanilla bean ice cream

question

If the demand for donuts is elastic, then a decrease in the price of donuts will

answer

increase total revenue of donuts sellers

question

If Apple decided to increase the revenue it makes off of iPhones, it should ____________ the price, if it perceive an elastic demand for iPhones.

answer

decrease

question

If Apple decided to increase the revenue it makes off of iPhones, it should ________ the price, if it perceive an inelastic demand for iPhones

answer

increase

question

Heidi used to bake and sell 3 custom cakes each week when the price of cake was $35. Now that the price has increased to $45, she bakes and sells 5 cakes.

What was the 'percentage change' in quantity supplied of cakes for Heidi? Is this 'percentage change' positive or negative?

answer

50% , positive

question

Heidi used to bake and sell 3 custom cakes each week when the price of cake was $35. Now that the price has increased to $45, she bakes and sells 5 cakes.

What was the 'percentage change' in price of cakes? Is this 'percentage change' positive or negative?

answer

25% , positive

question

Heidi used to bake and sell 3 custom cakes each week when the price of cake was $35. Now that the price has increased to $45, she bakes and sells 5 cakes.

What was Heidi's price elasticity of supply? Is this considered 'elastic', 'inelastic', or 'unit elastic'?

answer

2 , elastic

question

The price of hand sanitizers have increased by 50%. The quantity supplied of hand sanitizers have increased by 25%. We can conclude that the supply of hand sanitizers is _______.

answer

inelastic

question

George's income had decreased by 20%. His quantity demanded of restaurant meals has decreased by 25%.

George's income elasticity of demand is equal to
We can conclude that restaurant meals are considered ___________ for George.

answer

1.25 , normal good

question

Johnny's scholarship has a $500 allowance for him to be spent exclusively on books each semester. Suppose average price of books increased by 5% last semester.

We can conclude that Johnny bought _________ last semester, and that his price elasticity of demand for books is ________.

answer

5% less books , unit elastic

question

Jen's dad has pledged to pay for 5 books Jen buys each months. Suppose average price of books increase by 5% last month.

We can conclude that Jen bought ________ last month, and her price elasticity of demand for books is ________

answer

the same number of , perfectly inelastic

question

If the supply of a good is 'perfectly inelastic', the good's supply curve is ________ , and the price elasticity value is ______.

answer

vertical , 0

question

The cross price elasticity of demand between good T and good Q is correctly calculated to be -3.7 (negative 3.7).

We can conclude that:
Consumers consider goods T and Q to be _________________.

answer

complements.

question

Briefly, explain the idea of 'Invisible hand', first brought up by Adam Smith

answer

The idea of the invisible hand is meant to represent how our market operates. the fingers are the players in the market, producers, consumers, sellers, etc. The fingers represent each players benefit independent from one another but somehow the all even out because of the individualistic idea of economics. The free market is produced from the individual benefit from each player.

question

Consider the information in this table about 4 buyers of a music album.

BuyerWillingness to Pay:
Taylor $100
Carrie $80
Rihanna $70
Gaga $50

a) The price of the music album is $80.99 , who will demand the album?
b) The price of the music album is $50 , will Taylor demand the album?
c) The price of the music album is $50 , how many buyers will decide to buy?
d) The price of the music album is $51.99 , how many buyers will decide to buy?

answer

a) Taylor
b) yes
c) 4
d) 3

question

BuyerWillingness to Pay:
Taylor $100
Carrie $80
Rihanna $70
Gaga $50

If the price of music album is $95, the amount of consumer surplus to all buyers in this market is

answer

question

BuyerWillingness to Pay:
Taylor $100
Carrie $80
Rihanna $70
Gaga $50

If the price of music album is $75, the amount of consumer surplus to Taylor is ___ , the consumer surplus of Carrie is ____ , and the amount of consumer surplus to all buyers in this market is ____

answer

$25, $5, $30

question

An allocation of resources that maximizes total surplus is said to exhibit "efficiency" true or false

answer

True

question

An allocation is 'inefficient' if a good is being produced by the seller with the lowest cost true or false

answer

false

question

An allocation is 'inefficient' if a good is not being consumed by the consumers who value the good the highest true or false

answer

true

question

Bill is willing to pay $500,000 to buy an apartment. Sue is willing to pay $300,000 to buy the same apartment. The apartment has a price tag of $200,000, and Sue buys it for $200,000.

True or False: The total surplus could be raised if the apartment was sold to Bill for $200,000.

answer

true

question

Explain what is meant by "Diminishing Marginal Returns" to a variable input in a production process.

In your answer, state one example of this phenomenon, and make sure to identify the variable input, and the fixed input in your production process.

answer

Diminishing marginal returns mean that by adding more and more inputs to a product process, the output level will eventually decrease. An example of this can be bartenders at a bar. One or two bartenders is efficient enough to take peoples orders and have room to move around and use the resources they have. But having 3 or 4 workers makes it harder for the bartenders to move around and take peoples orders

question

answer

$500

question

Richard quits his $60K job to run his own company, in a building that he owns and was previously rented out for $20K. All his operating costs add up to $100K. At the end of the year, his business has a revenue of $180,500.

Was it a rational decision for Richard to quit his job and run his own business?

answer

yes

question

Richard quits his $60K job to run his own company, in a building that he owns and was previously rented out for $20K. All his operating costs add up to $100K. At the end of the year, his business has a revenue of $180,500.

Although the 'correct' profit to consider for making good decisions is the economic profit, but let's find the 'accounting profit' as well. Richard's accounting profit is

answer

$80,500

question

Profit equals total revenue minus total cost true or false

answer

true

question

A firm's total profit equals its marginal revenue minus its marginal cost true or false

answer

false

question

The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only true or false

answer

true

question

Accounting profit is greater than or equal to economic profit. true or false

answer

true

question

When economists speak of a firm's costs, they are usually excluding the opportunity costs. true or false

answer

False

question

Diminishing marginal product exists when the production function becomes flatter as inputs increase. true or false

answer

true

question

A tenth worker is likely to have a higher marginal product than the first worker, if the production involves fixed inputs. true or false

answer

false

question

Variable costs usually change as the firm alters the quantity of output produced. true or false

answer

true

question

Total costs equal fixed costs when nothing is produced. true or false

answer

true

question

Suppose a firm in a competitive market increases its output by 20 percent. As a result, the price of its output is likely to

decline by 20 percent.
remain unchanged.
increase by less than 20 percent.
decline by more than 20 percent.

answer

remain unchanged.

question

Which of the following firms is the closest to being a perfectly competitive firm?
A grain farmer in Illinois
Microsoft Corporation
Ford Motor Company
An aerospace company

answer

A grain farmer in Illinois

question

A firm is producing 100 units in a perfectly competitive market and the price of its product is $10. The firms average total cost is equal to $12. The firm's fixed cost is equal to $500.
Based on this information, only:

1. Is this firm making a profit or a loss? Calculate the amount.
2. Should this firm shut-down? Back your answer with an economic argument solely based on the information given in the question.

answer

1. A loss. TR-RC=($10 - $12)*100=-$200
2. NO! FC=$500 TC=$12100=$1200 VC=TC-FC=$700 TR=$10100=$1000 TR is larger than VC, so the firm is better off if it does NOT shut down. Because if it shuts down, it will have a loss of $500 (the fixed cost that still needs to be paid) and zero revenue. But if it doesn't shut down, it will earn $1000 in revenue that covers the VC and part of the FC too. So the loss is only $200, if the firm doesn't shut down.

question

A firm in a PCM(perfectly competitive market), can sell any quantity of output it chooses, but only at the market price. true or false

answer

true

question

A firm in a PCM(perfectly competitive market) can increase its revenue by reducing the price it sells its output at. true or false

answer

false

question

In short-run competitive equilibrium, what happens to output of an individual firm following an industry-wide rise in demand?

It will increase.
It will decrease.
It remains the same.

answer

It will increase.

question

In short-run competitive equilibrium, what happens to the profit at an individual firm in a Perfectly Competitive Market following an industry-wide rise in demand?

It remains the same.
It will increase.
It will decrease.
It is zero.

answer

It will increase.

question

The demand for the product of a firm in a Perfectly Competitive Market (i.e. the demand facing the firm) is a downward sloping line. true or false

answer

false

question

A firm in a PCM(perfectly competitive market) can make a profit in the short-run, but it will make zero profit in the long-run. true or false

answer

true

question

If the firms in a PCM are making a profit, we expect that in the long-run both the market equilibrium quantity and the market equilibrium price increase. true or false

answer

false

question

A firm in a PCM is making $15,000 in revenue, and has $10,000 in variable costs and $20,000 in fixed costs. This firm must shut-down the production in the short-run. true or false

answer

false

question

A firm in a PCM is making $15,000 in revenue, and has $10,000 in variable costs and $20,000 in fixed costs. This firm must exit the market in the long-run. true or false

answer

true

question

A firm in a PCM is making $8,000 in revenue, and has $10,000 in variable costs and $2,000 in fixed costs. This firm must shut-down the production in the short-run. true or false

answer

true

question

A firm is producing 100 units in a perfectly competitive market and the price of its product is $10. The firms average total cost is equal to $12. The firm's fixed cost is equal to $500. The firm's variable cost is equal to __________

This firm is at a loss!
1. If this firm decides to shut-down, its loss in the short-run is equal to ________
2. If this firm decides to operate, its loss in the short-run is equal to ________

answer

$700 , $500 , $1200

question

Profit of a firm can be calculate using which of the following formulas?

Profit = (P-ATC)*Q
Profit = TR - TC
Profit = TR - ATC
Profit = TR - (FC+VC)
Profit = P*Q - FC

answer

Profit = (P-ATC)*Q
Profit = TR - TC
Profit = TR - (FC+VC)

question

If a firm is at a loss in a perfectly competitive market in the short run, this firm must keep producing in the market in the short run, but can exit the market in the long-run. true or false

answer

false

question

In the long-run "entry" into a market happens, only when the operating firms in that market are making a positive profit. true or false

answer

true

question

As the firms "exit" a market, the market supply will shift to the right. true or false

answer

false

question

If the market price falls and thus a firm is at a loss, the firm's marginal cost curve will shift to the left. true or false

answer

false

question

In the long-run, a perfectly competitive market, will always have the price equal to the minimum average total cost of the firms operating in it. true or false

answer

true

question

where is economic profit found on a graph

answer

units produced = where MR and MC intersect
market price = optimal quantity meets demand

question

The graph shows a firm that is the sole producer of a product with no close substitute.

answer

all firms earn zero economic profits in the long run.

question

In monopolistically competitive markets, free entry and exit suggests that

the market structure will eventually be characterized by perfect competition in the long run.
all firms earn zero economic profits in the long run.
some firms will be able to earn economic profits in the long run.
some firms will be forced to incur economic losses in the long run.

answer

Monopoly only

question

In which of the following market structures can firms earn economic profits in the long run?

Perfect competition only
Monopolistic competition only
Monopoly only
Monopolistic competition and monopoly

answer

D shifts to the right

question

How does the exit of firms from a monopolistically competitive market affect the demand curves faced by the remaining firms?

D shifts to the right
D shifts to the left
D remains unchanged

answer

D becomes less elastic (i.e. steeper)

question

How does the exit of firms from a monopolistically competitive market affect the demand curve faced by a remaining firm in the market?

D becomes more elastic (i.e. flatter)
D becomes less elastic (i.e. steeper)
D remains unchanged
D becomes unit-elastic

answer

monopolistic competition and oligopoly.

question

The two types of imperfectly competitive markets are

monopoly and monopolistic competition.
monopoly and oligopoly.
monopolistic competition and oligopoly.
monopolistic competition and cartels.

answer

quantity demanded declines but not to zero.

question

When a monopolistically competitive firm raises its price,

quantity demanded falls to zero.
quantity demanded declines but not to zero.
the market supply curve shifts outward.
quantity demanded remains constant.

answer

It can earn an economic profit in the short run, but not the long run.

question

Which of the following is true about a monopolistically competitive firm?

It can earn an economic profit in the short run, but not the long run.
It can earn an economic profit in the short run and the long run.
It can earn an economic profit in the long run, but not the short run.
It cannot earn a economic profit in either the short or long run.

answer

Chocolate bars
Ice cream

question

Which of the following goods/services is more likely to be traded in a Monopolistic Competition market?

iPhone
Tap water
Chocolate bars
Tomatoes
Wireless service
Electricity
Ice cream

answer

The best strategy regardless of what other players do.

question

What does the term "dominant strategy" mean in game theory?

The only strategy a player is allowed to pursue.
The strategy that wins.
The strategy that is followed by all players.
The best strategy regardless of what other players do.

answer

the game does NOT have a Nash equilibrium

question

If in a game, one player has a "dominant" strategy, but the other player doesn't

the game has a Nash equilibrium.
the game does NOT have a Nash equilibrium

answer

Players pursuing their own best interest results in a bad outcome for both..

question

What is the general idea behind the prisoners' dilemma in game theory?

Players with more power in the game always win.
Players entering a game find they can never leave the game.
Players who lose the first round of a game will continue to lose.
Players pursuing their own best interest results in a bad outcome for both..

answer

it makes less profit than it would by cooperating with competitors.

question

Because each oligopolist cares more about its own profit than the collective profit,

it makes less profit than it would by cooperating with competitors.
it makes the maximum profit possible.
its behavior lessens competition in the market.
the market results in the perfectly competitive outcome.

answer

higher than in monopoly markets and lower than in perfectly competitive markets.

question

The equilibrium quantity(output) in markets characterized by oligopoly is often

higher than in monopoly markets and higher than in perfectly competitive markets.
higher than in monopoly markets and lower than in perfectly competitive markets.
lower than in monopoly markets and higher than in perfectly competitive markets.
lower than in monopoly markets and lower than in perfectly competitive markets.

answer

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

question

When an oligopoly market reaches a Nash equilibrium,

the market price will be different for each firm.
the firms will not have behaved as profit maximizers.
a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
a firm will not take into account the strategies of competing firms.

answer

price effect.

question

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

income effect.
output effect.
price effect.
cartel effect.

answer

A city with two firms who are licensed to sell school uniforms for the local schools

question

Which of the following examples illustrates an oligopoly market?

A farmers' market with many individuals selling sweet corn and tomatoes
A city whose electrical service is provided by one electric co-operative
A city with two firms who are licensed to sell school uniforms for the local schools
A city with many independently owned hair styling salons

answer

Wireless Service

question

Which of the following goods/services is more likely to be traded in a Oligopoly market?

Tab water
Often, only one provider in a location, therefor a monopoly.
Chocolate bars
Tomatoes
Wireless Service
Electricity
Ice cream

answer

A leading software company has decided to increase its research budget for inventing new open-source technologies.

question

Which of the following generate positive externality ?

A leading software company has decided to increase its research budget for inventing new open-source technologies.

Your roommate Rosa has bought a cat to which you are allergic.

The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends.

answer

negative externality

question

A ________ occurs when an economic activity has a spillover cost that affects those not directly engaged in the activity.

positive externality
negative externality
gain in consumer surplus
gain in producer surplus

answer

private cost and external costs of production

question

The social cost of producing a good that generates negative externalities is the sum of the ________.

private cost and external costs of production
total fixed cost and the total variable cost of production
average variable cost and the average fixed cost of production

answer

the market output is more than the socially optimal output.

question

If negative externalities are present in a market, ________.

the market output is less than the socially optimal output.
the market output is more than the socially optimal output.
the market output is equal to the socially optimal output.

answer

the market output is less than the socially optimal output.

question

If positive externalities are present in a market, ________.

the market output is less than the socially optimal output.
the market output is more than the socially optimal output.
the market output is equal to the socially optimal output.

answer

higher than

question

If the production of a good involves negative externalities, the socially optimal price of the good is ____________ the market price of the good.

higher than
lower than
equal to

answer

the social cost is $360 per ton and the private cost is $350 per ton

question

If a ton of newspaper costs $350 to produce and in the process causes $10 worth of pollution damage to the environment, then ________.

the social cost is $10 per ton and the private cost is $350 per ton
the private cost is $360 per ton and the social cost is $340 per ton
the private cost is $360 per ton
the social cost is $360 per ton and the private cost is $350 per ton

answer

the marginal social benefit of production exceeds the marginal private benefit

question

If positive externalities are present in a free market, ________ at any output level.

the marginal social benefit of production exceeds the marginal private benefit
the marginal social cost of production exceeds the marginal private cost
the marginal private benefit from production equals the marginal social benefit
the marginal cost of production equals the average cost of production

answer

true

question

A corrective subsidy induces the consumers of a good with positive externality to increase the quantity consumed toward the socially optimal level. true or false

answer

By taxing the agents who create the externality.

question

How should we 'internalize' the negative externality in a market?

By subsidizing the agents who create the externality.
By taxing the agents who create the externality.
By banning the economic activity that creates the externality
By NOT intervening and let the market forces take care of the externality

answer

excludable and rival in consumption

question

Private goods are ________.

non-excludable and non-rival in consumption
excludable but non-rival in consumption
non-excludable but rival in consumption
excludable and rival in consumption

answer

people can be prevented from using the good

question

If a good is excludable, ________.

one person's use of the good reduces the amount of the good available to others
several people can use the good simultaneously
people can be prevented from using the good
more than one person cannot use the good at the same time

answer

one person's use of the good does not preclude consumption by others

question

A good is non-rival in consumption if ________.

the demand for the good increases with an increase in the consumer's income
people cannot be prevented from using it
one person's use of the good does not preclude consumption by others
the government can regulate its production

answer

National defense

question

Which of the following is an example of a public good?

Music downloads
Designer clothes
A small beach
National defense

answer

public good

question

A street light is a ________.

common pool resource good
club good
private good
public good

answer

buyers and sellers have different information about the good being traded

question

In a market with asymmetric information, ________.

people tend to overuse a resource is such a way that it gets exhausted
buyers and sellers have different information about the good being traded
sellers have very low bargaining power
people with an informational disadvantage experience positive externalities

answer

the buyer or the seller observes something about the good that the other does not

question

In a market with asymmetric information, a good is said to have hidden characteristics if ________.

the seller offers secret discounts to some buyers of the good
the buyer or the seller observes something about the good that the other does not
the consumption of the good imposes an additional cost on society
the production of the good generates additional benefits to society

answer

the buyer or the seller takes actions that are relevant for, but not observed by, the other party

question

In a market with asymmetric information, hidden actions exist if ________.

the buyer or the seller observes something about the good that the other does not
the production or consumption of a good gives rise to positive externalities
the value of a good to a seller is greater than its value to a buyer
the buyer or the seller takes actions that are relevant for, but not observed by, the other party

answer

signaling

question

A warranty is an example of ________.

a price floor
a corrective tax
signaling
a price ceiling

answer

changes in behavior due to not facing costs of risky behavior.

question

A moral hazard is most closely associated with:

the payment of interest.
societal pressures to conform.
excessive amounts of debt.
changes in behavior due to not facing costs of risky behavior.

answer

the buyer or the seller takes actions that are relevant for, but not observed by, the other party

question

In a market with asymmetric information, hidden actions exist if ________.

the production or consumption of a good gives rise to negative externalities
the production or consumption of a good gives rise to positive externalities
the value of a good to a seller is greater than its value to a buyer
the buyer or the seller takes actions that are relevant for, but not observed by, the other party

answer

Adverse selection

question

Claudia went to a department store to buy a few things for her new house. She found that several items in the store were on discount and decided to make the most of the deals offered. However, when she started using the things that she bought on discount, she realized that many of them were defective. This happened because of the presence of ________.

Adverse selection
Positive externality
Negative Externality
Deadweight loss

answer

adverse selection

question

Mr. Smith put his laptop up for sale on ebay. He was aware of the fact that the laptop malfunctioned occasionally. However, he does not mention the malfunction. This is an example of ________.

positive externalities
negative externalities
adverse selection
moral hazard

answer

market failure

question

Asymmetric information in a market can lead to ________.

the tragedy of the commons
market failure
the free-rider problem
opportunity cost

answer

The sellers have more information than the buyers.

question

Which of the following is true of a used car market?

The sellers have more information than the buyers.
The cars sold are identical in quality.
There is no consumer surplus in the market.
Gains from trade do not exist in the market.

answer

patients can hide their actions

question

Moral hazard arises in the health insurance market because ________.

insurance companies can hide their actions
the number of buyers is large and the number of sellers is small
patients can hide their actions
different firms provide different insurance schemes

answer

asymmetric information

question

Signaling takes place in markets with ________.

negative externalities
positive externalities
oligopoly firms
asymmetric information

answer

non-excludable but rival

question

The tragedy of the commons occurs because some goods are ________ in consumption.

excludable and rival
non-excludable but rival
non-rival and non-excludable
excludable and rival

answer

the insurance policy allows the driver to avoid the costs of risky driving.

question

A moral hazard occurs with auto insurance when:

the driver is caught for driving faster than the speed limit.
the insurance policy allows the driver to avoid the costs of risky driving.
the insurance company raises the premium it charges drivers.
the driver does not pay the insurance premium.

answer

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1 of 146

question

tim decides to spend four hours playing video games rather than attending his classes. his opportunity cost of playing video games is

answer

the value of the knowledge he would've received had he attended his class

question

answer

$17

question

answer

question

answer

net benefit of the chinese food

question

answer

$20

question

answer

$60

question

answer

$15

question

answer

the value to savion of the optin he would have chosen had option 2 not been available

question

For which of the following people the opportunity cost of grocery shopping is higher?

answer

a person earning $30 per hour

question

When is the opportunity cost of getting a college degree lower?

answer

when the job market is poor and there are not that many good paying jobs

question

for which of the following individuals would the opportunity cost of going to college be the highest?

answer

a famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

question

answer

A.) tesla model Y
B.) tesla model 3

question

answer

A.) 50 (30+20)
B.) 58(30+20+8)
C.) 60 (30+20+8+2)

question

there were 5 broad situations/changes that can bring a shift in the demand curve. list them here

answer

- price of related goods
- income of consumers
- taste of consumers
- number of consumers
- expectations of consumers

question

pick 2 of the demand shifters you listed in the previous question, and provide a real life example for each

answer

question

based on the law of demand, a decrease in the price of a good will

answer

increase the quantity demanded of that good, ceteris paribus

question

if pasta is an inferior good, the demand curve shifts to the _______ when _________ rises.

answer

left, people's income

question

if pasta is a normal good, then the demand curve shifts to the _________ when ___________ rises.

answer

right, people's income

question

if pasta and pizza are considered substitute goods by the consumer, then the demand curve for pasta shifts to the ___________ when ____________ rises

answer

right, price of pizza

question

if beer and pizza are considered compliment goods by the consumer, then the demand curve for pizza shifts to the __________ when ________ rises.

answer

left, price of beer

question

answer

an increase in the price of hamburgers, a substitute for pizza

question

A change in which of the following will NOT shift the demand curve for hamburgers?

the income of hamburger consumers
the price of hot dogs
the price of hamburger buns
the price of hamburgers

answer

the price of hamburgers

question

an example of a perfectly competitive market would be the market for

answer

soybeans

question

There were 4 broad situations/changes that can bring a shift in the supply curve. List them here:

answer

- improvement in technology
- changes in input prices and/or supply
- expectations of future
- number of sellers

question

Pick 1 of the supply shifters you listed in the previous question, and provide a real life example for it.

answer

question

The law of supply states that, other things equal, when the price of a good

answer

rises, the quantity supplied of the good rises

question

What situations/changes that can bring a shift in the supply curve of a good? Select ALL of them.

answer

change in price of an input
change in technology of production
change in number of sellers
change in expectations about future

question

Which of the following, best describes the equilibrium price in a market for a good?

answer

The price at which the quantity supplied equals quantity demanded in the market

question

answer

is below the equilibrium price

question

A binding price ceiling must be set at a price level ________ the market equilibrium price, and a binding price floor must be set at a price level _______ the equilibrium price.

answer

below, above

question

If the market demand increases, the equilibrium price in the market will _________ , and the equilibrium quantity will _______

answer

rise, rise

question

If the market demand decreases, the equilibrium price in the market will ___________ , and the equilibrium quantity will ____________

answer

decrease, decrease

question

If market supply decreases, the equilibrium price will _________ , and the equilibrium quantity will ________

answer

increase, decrease

question

The supply and demand in a market both increase. We can conclude that as a result, the equilibrium price will __________ , and the equilibrium quantity will __________ .

answer

be changed ambiguously, increase

question

An increase (a.k.a. shift rightwards) in ________ for a good will cause a movement along the supply curve, which is called a change in ________.

answer

demand, quantity supplied

question

answer

increase, increase

question

If the economy goes into a recession and incomes fall, what happens in the markets for normal goods?

answer

Equilibrium price and quantity both fall.

question

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

answer

Prices and quantities both rise.

question

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

answer

an increase in the price of grapes, an input into jelly

question

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

answer

supply; lower

question

Explain why the sign of 'price elasticity of demand' is always negative

answer

because there will always be a decrease in either price or quantity demanded which is represented by a negative sign.

economists take the absolute value though

question

Goods with many close substitutes tend to have

answer

more elastic demands

question

For a good that is a luxury, demand

answer

tends to be elastic

question

answer

2.15

question

Which of the following is likely to have the most price elastic demand?

Ice cream
Frozen yogurt
Häagen-Dazs® vanilla bean ice cream
Vanilla ice cream

answer

Häagen-Dazs® vanilla bean ice cream

question

If the demand for donuts is elastic, then a decrease in the price of donuts will

answer

increase total revenue of donuts sellers

question

If Apple decided to increase the revenue it makes off of iPhones, it should ____________ the price, if it perceive an elastic demand for iPhones.

answer

decrease

question

If Apple decided to increase the revenue it makes off of iPhones, it should ________ the price, if it perceive an inelastic demand for iPhones

answer

increase

question

answer

50% , positive

question

Heidi used to bake and sell 3 custom cakes each week when the price of cake was $35. Now that the price has increased to $45, she bakes and sells 5 cakes.

What was the 'percentage change' in price of cakes? Is this 'percentage change' positive or negative?

answer

25% , positive

question

answer

2 , elastic

question

The price of hand sanitizers have increased by 50%. The quantity supplied of hand sanitizers have increased by 25%. We can conclude that the supply of hand sanitizers is _______.

answer

inelastic

question

answer

1.25 , normal good

question

answer

5% less books , unit elastic

question

answer

the same number of , perfectly inelastic

question

If the supply of a good is 'perfectly inelastic', the good's supply curve is ________ , and the price elasticity value is ______.

answer

vertical , 0

question

The cross price elasticity of demand between good T and good Q is correctly calculated to be -3.7 (negative 3.7).

We can conclude that:
Consumers consider goods T and Q to be _________________.

answer

complements.

question

Briefly, explain the idea of 'Invisible hand', first brought up by Adam Smith

answer

question

answer

a) Taylor
b) yes
c) 4
d) 3

question

BuyerWillingness to Pay:
Taylor $100
Carrie $80
Rihanna $70
Gaga $50

If the price of music album is $95, the amount of consumer surplus to all buyers in this market is

answer

question

answer

$25, $5, $30

question

An allocation of resources that maximizes total surplus is said to exhibit "efficiency" true or false

answer

True

question

An allocation is 'inefficient' if a good is being produced by the seller with the lowest cost true or false

answer

false

question

An allocation is 'inefficient' if a good is not being consumed by the consumers who value the good the highest true or false

answer

true

question

answer

true

question

answer

question

answer

$500

question

answer

yes

question

Richard quits his $60K job to run his own company, in a building that he owns and was previously rented out for $20K. All his operating costs add up to $100K. At the end of the year, his business has a revenue of $180,500.

Although the 'correct' profit to consider for making good decisions is the economic profit, but let's find the 'accounting profit' as well. Richard's accounting profit is

answer

$80,500

question

Profit equals total revenue minus total cost true or false

answer

true

question

A firm's total profit equals its marginal revenue minus its marginal cost true or false

answer

false

question

answer

true

question

Accounting profit is greater than or equal to economic profit. true or false

answer

true

question

When economists speak of a firm's costs, they are usually excluding the opportunity costs. true or false

answer

False

question

Diminishing marginal product exists when the production function becomes flatter as inputs increase. true or false

answer

true

question

A tenth worker is likely to have a higher marginal product than the first worker, if the production involves fixed inputs. true or false

answer

false

question

Variable costs usually change as the firm alters the quantity of output produced. true or false

answer

true

question

Total costs equal fixed costs when nothing is produced. true or false

answer

true

question

answer

remain unchanged.

question

Which of the following firms is the closest to being a perfectly competitive firm?
A grain farmer in Illinois
Microsoft Corporation
Ford Motor Company
An aerospace company

answer

A grain farmer in Illinois

question

answer

question

A firm in a PCM(perfectly competitive market), can sell any quantity of output it chooses, but only at the market price. true or false

answer

true

question

A firm in a PCM(perfectly competitive market) can increase its revenue by reducing the price it sells its output at. true or false

answer

false

question

In short-run competitive equilibrium, what happens to output of an individual firm following an industry-wide rise in demand?

It will increase.
It will decrease.
It remains the same.

answer

It will increase.

question

answer

It will increase.

question

The demand for the product of a firm in a Perfectly Competitive Market (i.e. the demand facing the firm) is a downward sloping line. true or false

answer

false

question

A firm in a PCM(perfectly competitive market) can make a profit in the short-run, but it will make zero profit in the long-run. true or false

answer

true

question

If the firms in a PCM are making a profit, we expect that in the long-run both the market equilibrium quantity and the market equilibrium price increase. true or false

answer

false

question

A firm in a PCM is making $15,000 in revenue, and has $10,000 in variable costs and $20,000 in fixed costs. This firm must shut-down the production in the short-run. true or false

answer

false

question

A firm in a PCM is making $15,000 in revenue, and has $10,000 in variable costs and $20,000 in fixed costs. This firm must exit the market in the long-run. true or false

answer

true

question

A firm in a PCM is making $8,000 in revenue, and has $10,000 in variable costs and $2,000 in fixed costs. This firm must shut-down the production in the short-run. true or false

answer

true

question

A firm is producing 100 units in a perfectly competitive market and the price of its product is $10. The firms average total cost is equal to $12. The firm's fixed cost is equal to $500. The firm's variable cost is equal to __________

This firm is at a loss!
1. If this firm decides to shut-down, its loss in the short-run is equal to ________
2. If this firm decides to operate, its loss in the short-run is equal to ________

answer

$700 , $500 , $1200

question

Profit of a firm can be calculate using which of the following formulas?

Profit = (P-ATC)*Q
Profit = TR - TC
Profit = TR - ATC
Profit = TR - (FC+VC)
Profit = P*Q - FC

answer

Profit = (P-ATC)*Q
Profit = TR - TC
Profit = TR - (FC+VC)

question

If a firm is at a loss in a perfectly competitive market in the short run, this firm must keep producing in the market in the short run, but can exit the market in the long-run. true or false

answer

false

question

In the long-run "entry" into a market happens, only when the operating firms in that market are making a positive profit. true or false

answer

true

question

As the firms "exit" a market, the market supply will shift to the right. true or false

answer

false

question

If the market price falls and thus a firm is at a loss, the firm's marginal cost curve will shift to the left. true or false

answer

false

question

In the long-run, a perfectly competitive market, will always have the price equal to the minimum average total cost of the firms operating in it. true or false

answer

true

question

where is economic profit found on a graph

answer

units produced = where MR and MC intersect
market price = optimal quantity meets demand

question

The graph shows a firm that is the sole producer of a product with no close substitute.

answer

all firms earn zero economic profits in the long run.

question

answer

Monopoly only

question

answer

D shifts to the right

question

How does the exit of firms from a monopolistically competitive market affect the demand curves faced by the remaining firms?

D shifts to the right
D shifts to the left
D remains unchanged

answer

D becomes less elastic (i.e. steeper)

question

answer

monopolistic competition and oligopoly.

question

The two types of imperfectly competitive markets are

monopoly and monopolistic competition.
monopoly and oligopoly.
monopolistic competition and oligopoly.
monopolistic competition and cartels.

answer

quantity demanded declines but not to zero.

question

answer

It can earn an economic profit in the short run, but not the long run.

question

answer

Chocolate bars
Ice cream

question

Which of the following goods/services is more likely to be traded in a Monopolistic Competition market?

iPhone
Tap water
Chocolate bars
Tomatoes
Wireless service
Electricity
Ice cream

answer

The best strategy regardless of what other players do.

question

answer

the game does NOT have a Nash equilibrium

question

If in a game, one player has a "dominant" strategy, but the other player doesn't

the game has a Nash equilibrium.
the game does NOT have a Nash equilibrium

answer

Players pursuing their own best interest results in a bad outcome for both..

question

answer

it makes less profit than it would by cooperating with competitors.

question

answer

higher than in monopoly markets and lower than in perfectly competitive markets.

question

answer

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

question

answer

price effect.

question

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

income effect.
output effect.
price effect.
cartel effect.

answer

A city with two firms who are licensed to sell school uniforms for the local schools

question

answer

Wireless Service

question

answer

A leading software company has decided to increase its research budget for inventing new open-source technologies.

question

answer

negative externality

question

answer

private cost and external costs of production

question

answer

the market output is more than the socially optimal output.

question

answer

the market output is less than the socially optimal output.

question

answer

higher than

question

If the production of a good involves negative externalities, the socially optimal price of the good is ____________ the market price of the good.

higher than
lower than
equal to

answer

the social cost is $360 per ton and the private cost is $350 per ton

question

answer

the marginal social benefit of production exceeds the marginal private benefit

question

answer

true

question

A corrective subsidy induces the consumers of a good with positive externality to increase the quantity consumed toward the socially optimal level. true or false

answer

By taxing the agents who create the externality.

question

answer

excludable and rival in consumption

question

Private goods are ________.

non-excludable and non-rival in consumption
excludable but non-rival in consumption
non-excludable but rival in consumption
excludable and rival in consumption

answer

people can be prevented from using the good

question

answer

one person's use of the good does not preclude consumption by others

question

answer

National defense

question

Which of the following is an example of a public good?

Music downloads
Designer clothes
A small beach
National defense

answer

public good

question

A street light is a ________.

common pool resource good
club good
private good
public good

answer

buyers and sellers have different information about the good being traded

question

answer

the buyer or the seller observes something about the good that the other does not

question

answer

the buyer or the seller takes actions that are relevant for, but not observed by, the other party

question

answer

signaling

question

A warranty is an example of ________.

a price floor
a corrective tax
signaling
a price ceiling

answer

changes in behavior due to not facing costs of risky behavior.

question

A moral hazard is most closely associated with:

the payment of interest.
societal pressures to conform.
excessive amounts of debt.
changes in behavior due to not facing costs of risky behavior.

answer

the buyer or the seller takes actions that are relevant for, but not observed by, the other party

question

answer

Adverse selection

question

answer

adverse selection

question

answer

market failure

question

Asymmetric information in a market can lead to ________.

the tragedy of the commons
market failure
the free-rider problem
opportunity cost

answer

The sellers have more information than the buyers.

question

answer

patients can hide their actions

question

answer

asymmetric information

question

Signaling takes place in markets with ________.

negative externalities
positive externalities
oligopoly firms
asymmetric information

answer

non-excludable but rival

question

The tragedy of the commons occurs because some goods are ________ in consumption.

excludable and rival
non-excludable but rival
non-rival and non-excludable
excludable and rival

answer

the insurance policy allows the driver to avoid the costs of risky driving.

question

answer

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