question
A seller expects that when the price is raised by 17%, sales will drop by 15%.
What is the price elasticity of demand, and what will happen to the total revenues?
What is the price elasticity of demand, and what will happen to the total revenues?
answer
Elasticity is 0.88, and revenues will rise
question
Which demand characteristic can be classified as unit elastic?
answer
Price elasticity of demand equals 1 all along the demand curve
question
Which demand characteristic can be classified as perfectly elastic?
answer
Above the current price, nothing will be purchased
question
Which kind of line represents a perfectly inelastic supply curve?
answer
Vertical
question
A seller can predict that revenues will drop when prices are raised by 15% because quantity sold will drop by 20%.
What is the price elasticity of demand?
What is the price elasticity of demand?
answer
1.33
question
If the percentage change in price is 10%, and the demand is elastic, then what is the percentage change in the quantity demanded?
answer
Greater than 10%
question
What is true of a normal good?
answer
An increase in income means an increase in demand.
question
The amount by which an additional unit of activity increases one's total benefit describes which concept?
answer
Marginal benefit
question
An individual can maximize the net benefit of any activity by choosing the quantity at which marginal benefit equals marginal cost. Which concept is described?
answer
Marginal benefit rule
question
It is assumed consumers seek the greatest satisfaction possible within limits. What is the term used for these limits?
answer
Constraints
question
Which describes the allocation of resources when the net benefits of all economic activities are maximized?
answer
Efficient allocation
question
Which concept is described as the difference between the demand curve and the market price?
answer
Consumer surplus
question
A price ceiling set at P2.
In the graph, a price ceiling has been set at P2 by the federal government for a heart medication.
What is the social surplus at P2?
In the graph, a price ceiling has been set at P2 by the federal government for a heart medication.
What is the social surplus at P2?
answer
A + B + H, AB Far left top and bottom are consumer profit, H is producer profit
question
In the graph above, a price ceiling has been set at P2 by the federal government for a heart medication.
What is the consumer surplus at P2?
What is the consumer surplus at P2?
answer
A + B
question
What would be the impact of imposing a price ceiling below the equilibrium price?
answer
Quantity demanded will exceed quantity supplied, resulting in a shortage.
question
What do economists call the change in total revenue resulting from selling one more unit?
answer
Marginal revenue
question
What is an assumption in the perfectly competitive model?
answer
Buyers have complete information about product and price
question
How does a firm in a perfectly competitive environment adjust its output to price changes in the short run?
answer
It adjusts its output so that MC = MR.
question
What is true in a perfectly competitive environment?
answer
There are many substitutes.
question
JoAnn's gelatin business is operating as a perfectly competitive firm. It sells gelatin for $2.00 per pound and maximizes its profit by producing 20 pounds per day. The following table shows values of the quantities sold in pounds (Qty), the price of the gelatin, and the marginal cost (MC).
Qty (pounds)
Price
MC
10 $2.00 $0.50
20 $2.00
30 $2.00 $8.00
40 $2.00 $32.00
What is the firm's marginal cost at 20 pounds?
Qty (pounds)
Price
MC
10 $2.00 $0.50
20 $2.00
30 $2.00 $8.00
40 $2.00 $32.00
What is the firm's marginal cost at 20 pounds?
answer
$2.00
question
In a perfectly competitive market, what values are always equal?
answer
Marginal revenue and average revenue
question
A wheat farmer sees the market price drop below the farm's average variable cost. What is the best strategy, in the short term, for this farm?
answer
Shut down the farm.
question
The graph below shows the profit maximization for a monopoly.
What is the profit maximizing quantity for the monopolist shown in the graph below?
What is the profit maximizing quantity for the monopolist shown in the graph below?
answer
Q1
question
What is a characteristic of a monopoly market?
answer
There are no close substitutes for the good or service produced.
question
When a monopoly's marginal revenue is positive, why will total revenue increase as output increases?
answer
Demand is elastic.
question
What protects a monopoly from competition?
answer
barriers to entry
question
A capital city bus company CEO must increase profits. A strategy of price discrimination is implemented based on multi-part pricing for bus passes.
Which of the following is an example of price discrimination?
Which of the following is an example of price discrimination?
answer
Charging government workers more than students for their bus passes
question
What should a monopolist do to maintain barriers to entry?
answer
Appeal to governments
question
Why is a monopolist considered socially inefficient in its production?
answer
Its price is greater than its MC
question
Which type of market has many firms and a high level of advertising-supported branding?
answer
Monopolistic competition
question
How is a monopolistically competitive firm similar to a monopoly firm in the short run?
answer
The firm produces an output at which marginal revenue equals marginal cost and sets its price according to its demand curve.
question
Which function does advertising perform in a monopolistic competition market?
answer
Differentiating products or services
question
In the long run, a monopolistic competitive firm will reach the zero-profit solution when the demand curve is tangent to what other curve?
answer
Average total cost
question
What happens when a monopolistically competitive firm uses advertising and has an intense brand loyalty?
answer
It will create a barrier to entry.
question
What are similarities between a monopolistically competitive market and a perfectly competitive market?
answer
A large number of firms
Easy entry and exit
Easy entry and exit
question
Which industry economic model is identical to short-run equilibrium for a monopolistically competitive firm?
answer
Monopoly
question
Which level of output maximizes profit by a monopolistic competitor?
answer
MR = MC
question
Which types of products do firms operating in an oligopolistic market produce, depending on the industry?
answer
Differentiated or homogenous products
question
What characterizes an oligopoly's market share?
answer
There are few large firms with dominant market share.
question
What is the term for when a game theory scenario has a stable solution?
answer
Nash equilibrium
question
Which of the following occurs when firms act together to reduce output and keep prices high?
answer
Collusion
question
What is the name for a group of firms that decides to collude with one another in order to produce at the monopoly output and sell at the monopoly price?
answer
Cartel
question
Which strategy works like a silent form of cooperation in an oligopoly?
answer
Matching other oligopoly firms' price increases through tacit collusion
question
What will happen to one firm operating in an oligopoly when it raises its price and the other firms do not?
answer
The sales of the firm with the higher price will decline slightly.
question
To economists, scarcity means that
answer
unlimited wants cannot be satisfied by the limited resources
question
Joe decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Joe's opportunity cost of attending the review session is
answer
the $10 he could have earned at his job
question
Decision making on the margin involves
answer
comparing the marginal cost and marginal benefits when making a decision.
question
Ford has announce that it will stop making three of its car lines for North America. Instead, the company will manufacture cross-overs, SUVs, and light trucks. Which of the three fundamental economic questions does this information answer
answer
What
question
Payments to the factors of production are
answer
rent, wages, interest, and profit or loss
question
What are the two types of markets in the circular flow model?
answer
factor and goods
question
Producers in the U.S. and in Canada can choose to produce either cheese or steel. how many pounds of cheese does a pound of steel cost in Canada?
answer
2/3
question
Based on the table above, which country has comparative advantage in which good?
answer
Canada has comparative advantage in cheese, the U.S. has comparative advantage in steel
question
As an economy grows
answer
its PPF shifts outward
question
The law of demand refers to how
answer
the quantity demanded changes when the price of the good changes
question
A change in the demand for apples could result from any of the following EXCEPT
answer
a change in the price of an apple
question
Which of the following increases the supply of gasoline?
answer
a decrease in the price of a resource used to produce gasoline, such as crude oil
question
If the number of companies producing memory chips increases, then the
answer
supply of memory chips increases
question
An increase in demand for ice cream with no change in supply of ice cream, will result in
answer
an increase in equilibrium price and quantity
question
An increase in demand for ice cream and a simultaneous increase in supply of ice cream, will result in
answer
an increase in equilibrium quantity and an ambiguous equilibrium price
question
Calculate the price elasticity of demand, when the price increases by 10% and quantity demanded decreases by 5% and determine if the demand is elastic or inelastic
answer
1/2; inelastic
question
If a 10 percent decrease in income brings about a 5 percent decrease in the demand for a good, then the
answer
good is a normal good
question
If two goods are ________, then an increase in the price of one leads to ________ in the quantity demanded of the other
answer
complements; a decrease
question
Total revenue increases if the price of the good
answer
rises and demand is inelastic
question
Suppose the price of a box of cereal rises by 40% and the price elasticity of demand is 2. What is the percentage change in the quantity demanded?
answer
80 percent
question
Which of the following does NOT influence the price elasticity of demand?
answer
the availability of complements
question
A vertical demand curve reflects demand that is
answer
perfectly inelastic
question
Perfectly inelastic demand means that consumers
answer
will buy a certain quantity, regardless of price
question
An efficient market will produce the quantity where
answer
marginal benefit equals marginal cost
question
Describe consumer surplus in a perfectly competitive market.
answer
The area below the demand curve and above the equilibrium price
question
When the benefits of producing a good or service spill over to other people, rather than just the buyer, the spillover is referred to as
answer
an external benefit
question
When production of a good has an external cost, which of the following is true about the market outcome?
answer
There will be overproduction relative to the efficient level
question
Eric goes to a jeweler to purchase a diamond ring. He doesn't know anything about how diamonds are evaluated. Because the jeweler has more knowledge, Eric is worried he won't get a quality diamond at a fair price. What do economists call this problem?
answer
Assymetric information
question
It is possible that a person with homeowners' insurance will take fewer precautions to protect their home from damage, than a person without insurance. The person with insurance knows that the damage will be covered under their policy. This problem is known as
answer
Moral hazard
question
The total utilities of consuming two bags of chips and three bags of chips are 25 and 34 respectively. What is the marginal utility of the 3rd bags of chips?
answer
9
question
Diminishing marginal utility means that
answer
total utility increases as marginal utility decreases
question
David spends all his budget to buy 3 tacos and one soda. Taco is $2 each and soda is $1.50 each. If marginal utility of soda is 15 and marginal utility of 3rd taco is 20, David
answer
is maximizing his utility
question
Suppose you maximize your utility by consuming 3 slices of pizza and 2 ice cream cones. The price of pizza increases. Even if you were given enough income to afford the original bundle of goods, you are likely to choose to consume less pizza and more ice cream. Economist refer to this as the
answer
substitution effect
question
What is the difference between economic profit and accounting profit?
answer
Implicit cost
question
Chris runs a chili restaurant. His total revenue last year was $110,000. He paid $48,000 in rent, $42,000 in wages, and $20,000 in raw materials. Chris could have worked as a teacher and earned $50,000 per year. What are his accounting and economic profits respectively?
answer
$0 ; -$50,000
question
To maximize profits, firms produce an output where marginal product of labor per dollar equals the marginal product of capital per dollar. Assume that the cost of labor is $20 an hour and its marginal product is 40. What should the marginal product of capital be if we assume the cost of capital of $40 an hour?
answer
80
question
Theresa runs a factory that makes lie detectors in Detroit, Michigan. This month, Theresa's 34 workers produced 690 lie detectors. Suppose Theresa adds one more worker and, as a result, her factory's output increases to 700. Theresa's marginal product of labor from the last worker hired equals
answer
10
question
Marie owns a factory and her total cost was $20,000 for production of 500 units. Her total revenue was $ 40,000 and her explicit cost was $15,000. What was her average total cost last year?
answer
$40.00
question
Kathleen owns a firm, but she rents the building. In the short run, Kathleen's rent does not change as her production increases. She noticed her total cost changed from $20,000 to $20,100 when her production increased from 100 units to 101 units. What do economists call Kathleen's cost of producing one additional unit?
answer
Marginal cost
question
When a firm's long-run average total cost falls as its plant size increases, the firm is experiencing
answer
economies of scale
question
In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit
answer
Only perfect competition
question
A perfectly competitive firm can
answer
sell all of its output at the prevailing market price
question
For a perfectly competitive firm, profit maximization occurs when output is such that
answer
marginal revenue (MR) = marginal cost (MC).
question
A monopolist can make an economic profit in the long run because of
answer
barriers to entry
question
A monopoly firm will always choose to produce a price and quantity combination that is
answer
in the elastic range of the demand curve
question
The key idea behind price discrimination is to convert consumer surplus into
answer
economic profit
question
Which of the following is ALWAYS true when a single-price monopolist maximizes its profit?
answer
MR = MC
question
The firm earns positive economic profit
answer
P > ATC
question
An industry with a large number of firms, differentiated products, and free entry and exit is called
answer
monopolistic competition
question
What is the effect of advertising in monopolistic competitive market?
answer
Provides information and affects competition
question
The absence of barriers to entry in monopolistic competition means that in the long run firms
answer
make zero economic profit
question
A characteristic common to both monopolistic competition and perfect competition is
answer
each market has many firms competing
question
In an oligopoly, there are
answer
few firms and barriers to entry
question
What is an overt collusion among firms in an oligopoly market
answer
Openly agreeing on price and output aimed at achieving monopoly profit
question
To economists, scarcity means that
answer
unlimited wants cannot be satisfied by the limited resources.
question
Joe decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Joe's opportunity cost of attending the review session is
answer
a) the $10 he could have earned at his job.
question
3- Decision making on the margin involves *
answer
a) comparing the marginal cost and marginal benefits when making a decision.
question
4 - Ford has announce that it will stop making three of its car lines for North America. Instead, the company will manufacture cross-overs, SUVs, and light trucks. Which of the three fundamental economic questions does this information answer?
answer
a) What
question
5 - Payments to the factors of production are *
answer
c) factor and goods
question
7- Producers in the U.S. and in Canada can choose to produce either cheese or steel. The table below shows the output choices for each of the countries. Based on the chart, how many pounds of cheese does a pound of steel cost in Canada? *
answer
c) 2/3
question
11 - The law of demand refers to how *
answer
c) the quantity demanded changes when the price of the good changes.
question
14 - Which of the following increases the supply of gasoline? *
answer
c) a decrease in the price of a resource used to produce gasoline, such as crude oil
question
15 - If the number of companies producing memory chips increases, then the *
answer
supply of memory chips increases.
question
20- An increase in demand for ice cream and a simultaneous increase in supply of ice cream, will result in *
answer
b) an increase in equilibrium quantity and an ambiguous equilibrium price.
question
21 - Calculate the price elasticity of demand, when the price increases by 10% and quantity demanded decreases by 5% and determine if the demand is elastic or inelastic. *
answer
b) 1/2; inelastic
question
22 - If a 10 percent decrease in income brings about a 5 percent decrease in the demand for a good, then the *
answer
b) good is a normal good.
question
23 - If two goods are ________, then an increase in the price of one leads to ________ in the quantity demanded of the other. *
answer
a) complements; a decrease
question
24 - Total revenue increases if the price of the good *
answer
b) rises and demand is inelastic.
question
25 - Suppose the price of a box of cereal rises by 40% and the price elasticity of demand is 2. What is the percentage change in the quantity demanded? *
answer
b) 80 percent
question
26 - Which of the following does NOT influence the price elasticity of demand? *
answer
b) the availability of complements.
question
27 - A vertical demand curve reflects demand that is *
answer
b) perfectly inelastic.
question
28 - Perfectly inelastic demand means that consumers *
answer
d) will buy a certain quantity, regardless of price.
question
29 - An efficient market will produce the quantity where, *
answer
a) marginal benefit equals marginal cost.
question
30 - Describe consumer surplus in a perfectly competitive market. *
answer
b) The area below the demand curve and above the equilibrium price.
question
35 - When the benefits of producing a good or service spill over to other people, rather than just the buyer, the spillover is referred to as *
answer
a) an external benefit.
question
36 - When production of a good has an external cost, which of the following is true about the market outcome? *
answer
a) There will be overproduction relative to the efficient level.
question
37 - Eric goes to a jeweler to purchase a diamond ring. He doesn't know anything about how diamonds are evaluated. Because the jeweler has more knowledge, Eric is worried he won't get a quality diamond at a fair price. What do economists call this problem?
answer
d) Assymetric information
question
38 - It is possible that a person with homeowners' insurance will take fewer precautions to protect their home from damage, than a person without insurance. The person with insurance knows that the damage will be covered under their policy. This problem is known as ___________. *
answer
a) Moral hazard
question
39 - The total utilities of consuming two bags of chips and three bags of chips are 25 and 34 respectively. What is the marginal utility of the 3rd bags of chips? *
answer
9
question
43 - Diminishing marginal utility means that *
answer
b) total utility increases as marginal utility decreases
question
44- David spends all his budget to buy 3 tacos and one soda. Taco is $2 each and soda is $1.50 each. If marginal utility of soda is 15 and marginal utility of 3rd taco is 20, David *
answer
b) is maximizing his utility.
question
45 - Suppose you maximize your utility by consuming 3 slices of pizza and 2 ice cream cones. The price of pizza increases. Even if you were given enough income to afford the original bundle of goods, you are likely to choose to consume less pizza and more ice cream. Economist refer to this as the *
answer
substitution effect
question
46 - What is the difference between economic profit and accounting profit? *
answer
b) Implicit cost
question
47 - Chris runs a chili restaurant. His total revenue last year was $110,000. He paid $48,000 in rent, $42,000 in wages, and $20,000 in raw materials. Chris could have worked as a teacher and earned $50,000 per year. What are his accounting and economic profits respectively? *
answer
a) $0 ; -$50,000
question
48 - To maximize profits, firms produce an output where marginal product of labor per dollar equals the marginal product of capital per dollar. Assume that the cost of labor is $20 an hour and its marginal product is 40. What should the marginal product of capital be if we assume the cost of capital of $40 an hour? *
answer
b) 80
question
49 - Theresa runs a factory that makes lie detectors in Detroit, Michigan. This month, Theresa's 34 workers produced 690 lie detectors. Suppose Theresa adds one more worker and, as a result, her factory's output increases to 700. Theresa's marginal product of labor from the last worker hired equals *
answer
10
question
50 - Marie owns a factory and her total cost was $20,000 for production of 500 units. Her total revenue was $ 40,000 and her explicit cost was $15,000. What was her average total cost last year? *
answer
c) $40.00
question
51 - Kathleen owns a firm, but she rents the building. In the short run, Kathleen's rent does not change as her production increases. She noticed her total cost changed from $20,000 to $20,100 when her production increased from 100 units to 101 units. What do economists call Kathleen's cost of producing one additional unit? *
answer
a) Marginal cost
question
52 - When a firm's long-run average total cost falls as its plant size increases, the firm is experiencing *
answer
a) economies of scale.
question
53 - In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit? *
answer
c) Only perfect competition
question
55 - A perfectly competitive firm can *
answer
a) sell all of its output at the prevailing market price.
question
56 - For a perfectly competitive firm, profit maximization occurs when output is such that *
answer
c) marginal revenue (MR) = marginal cost (MC).
question
58- A monopolist can make an economic profit in the long run because of *
answer
d) barriers to entry.
question
59 - A monopoly firm will always choose to produce a price and quantity combination that is *
answer
a) in the elastic range of the demand curve.
question
60 - The key idea behind price discrimination is to convert consumer surplus into *
answer
b) economic profit.
question
61 - Which of the following is ALWAYS true when a single-price monopolist maximizes its profit? *
answer
c) MR = MC
question
64 - An industry with a large number of firms, differentiated products, and free entry and exit is called *
answer
b) monopolistic competition.
question
65 - What is the effect of advertising in monopolistic competitive market? *
answer
b) Provides information and affects competition
question
66 - The absence of barriers to entry in monopolistic competition means that in the long run firms *
answer
b) make zero economic profit.
question
67 - A characteristic common to both monopolistic competition and perfect competition is: *
answer
c) each market has many firms competing.
question
68 - In an oligopoly, there are *
answer
c) few firms and barriers to entry.
question
70 - What is an overt collusion among firms in an oligopoly market? *
answer
b) Openly agreeing on price and output aimed at achieving monopoly profit.
question
1. Scarcity results from the fact that *
answer
A. People's wants exceed the resources available to satisfy them.
question
2. All economic questions and problems arise from *
answer
D. A society's wants exceeding what its scarce resources can produce.
question
3. An opportunity cost is *
answer
C. The benefits of the highest-valued alternative forgone.
question
4. Scarcity requires that people must *
answer
B. Make choices
question
5. Jane decides to attend the microeconomics cohort session instead of picking up a shift at work. She would have earned $50 for the shift. Jane's opportunity cost of attending the cohort is *
answer
A. The $50 she could have earned at her job.
question
6. Which economic question depends on the incomes that people earn and the prices they pay for goods and services?
answer
C. For Whom?
question
7. Microeconomics includes the study of the
answer
C. Choices made by individuals and businesses.
question
8. Which of the following is a microeconomic issue?
answer
E. Sears closes stores that are not making a profit.
question
9. A forty year old man starting going bald after the birth of his daughter. The statement "Daughters cause baldness" is an example of
answer
B. The Fallacy of False Cause.
question
10. Which of the following statements is the best example of the term ceteris paribus?
answer
A. An economist holds other factors constant when he examines the relationship between tax rates and tax revenues.
question
11. Economists classify assembly line workers as part of which factor of production?
answer
B. Labor.
question
12. Economists classify factories as part of which factor of production?
answer
C. Capital.
question
13. Sarah starts a market that sells produce from local farms. She rented the storefront, worked with farmers to get produce and advertised. What factor of production is she providing by taking risks and bringing this service to the market called?
answer
D. Entrepreneurship.
question
14. The circular flow model is used to show the
answer
D. Flow of expenditures and incomes in the economy.
question
15. My mother was a potato farmer. Her mother and all the women in my family before them were potato farmers. I plan to be a potato farmer. This is likely an example of
answer
D. A traditional economy.
question
16. During Cleopatra's reign, olive farmers were told by government officials how much of their olive crop was to be used for the production of olive oil. This is an example of
answer
A. A command economy.
question
17. The statement "Increases in the price of coffee lead to a decline in quantity demanded of coffee" is an example of
answer
A. A positive statement.
question
18. Which of the following is a normative statement?
answer
D. The price of computers should be higher so that computer manufactures can make a larger profit.
question
19. Which of the following is an example of making decisions at the margin?
answer
A. A student decides whether to study for one more hour or take a nap.
question
20. Which concepts are part of the economic way of thinking (select all that apply)
answer
B. Opportunity costs are important in evaluating choices.
C. Individuals pursue their own self-interests.
D. Decisions are made on the margin.
C. Individuals pursue their own self-interests.
D. Decisions are made on the margin.
question
1. The production possibilities frontier illustrates
answer
E. The various combinations of output a nation can produce given its available resources and technology.
question
2. Which of the following are assumptions used when drawing a production possibilities frontier? *
answer
A. Only two goods are considered.
C. The level of technology is constant.
C. The level of technology is constant.
question
3. In the production possibilities frontier model, an unattainable point lies
answer
C. Outside the production possibilities frontier.
question
6. On a production possibilities frontier, 5 guns and 12 pounds of butter can be produced. At another point on the same frontier, 3 guns and 13 pounds of butter can be produced. Between these points, what is the opportunity cost of a pound of butter?
answer
B. 2 guns.
question
7. Production possibilities frontiers usually curve out and away from the origin because
answer
D. Some resources are better at producing one good, while other resources are better at producing the other good.
question
8. If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will
answer
D. Not shift because the society moves from a point inside the frontier to a point on the frontier.
question
9. If Wendy can produce more of all goods than Tommy in an hour, then *
answer
A. Wendy has an absolute advantage in all goods.
question
1. The price elasticity of demand is a measure of
answer
B. Buyers' responsiveness to changes in the price of a product.
question
2. The elasticity of demand is used to
answer
C. Measure how responsive consumers are to a change in price.
question
3. If the demand for a good is elastic
answer
C. People substantially decrease the quantity demanded if the price rises by a small amount.
question
4. If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded.
answer
B. Is larger than 10 percent.
question
5. Which of the following influence the price elasticity of demand? (Choose 2) *
answer
D. Availability of substitutes.
E. Proportion of income spent on good.
E. Proportion of income spent on good.
question
6. If the price elasticity of demand for a good is 2, then a 10 percent increase in the price of that good _______________ the quantity demanded by __________ percent.
answer
D. Decreases; 20
question
7. Suppose the demand for cherries sold from roadside stands in Michigan is perfectly elastic. The owner of one roadside stand raises the price of cherries by 10%, as a result
answer
A. Zero cherries are sold at this stand.
question
8. Suppose that the demand for ambulance service is perfectly inelastic. This would mean that a 50% increase in price would lead to
answer
D. No change in quantity demand.
question
9. After movie streaming services became popular, movie theaters found that their revenue declined. In an attempt to boost revenues, the local movie theater raised the price of a movie. And their revenues fell even more. What can explain this result?
answer
A. The demand for movie tickets is elastic because of many substitutes.
question
10. A gas station lowers the price of gasoline. The price elasticity of demand for gasoline is 0.2. What happens to the gas station's total revenue?
answer
B. It decreases.
question
11. If a 10 percent increase in the price of good X increases the demand of good Y by 5 percent, then X and Y are
answer
C. Substitutes and the cross price elasticity equals 1/2.
question
12. The cross elasticity of demand for coffee and creamer is likely to be
answer
D. Negative because they are complements.
question
13. Mike purchases fewer boxes of cookies when his income falls. Cookies must be
answer
A. A normal good.
question
14. If a 10 percent increase in income leads to a 5 percent decrease in the demand for a good, the income elasticity of demand equals ________ and the good is ________ good.
answer
B. -1/2; an inferior.
question
15. The price elasticity of supply measures
answer
B) the extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same.
question
1. Marginal benefit is the
answer
d) change in total benefit that occurs when a person consumes another unit of the good.
question
2. The cost of producing one more unit of a good or service is equal to its
answer
e) marginal cost.
question
3. Based on the marginal decision rule, Jane should buy another cup of coffee if
answer
c) the marginal benefit of coffee is more than the marginal cost.
question
7. A point on the demand curve shows the
answer
c) maximum price that people are willing to pay for another unit of a good.
question
8. The supply curve is upward sloping because of
answer
e) increasing marginal cost.
question
9. In order for markets to achieve efficient outcomes, property rights must be (choose 2)
answer
a) exclusive
e) transferable
e) transferable
question
10. The difference between the marginal benefit from a new pair of shoes and the price of the new pair of shoes is
answer
b) the consumer surplus from that pair of shoes.
question
11. If a firm produces five chairs with marginal costs of $25, $30, $40, $55, and $75, respectively, and sells them for $80 each, what is the firm's total producer surplus?
answer
c) $175
question
12. Efficiency occurs in a market when
answer
a) the sum of consumer surplus and producer surplus is maximized.
question
15. Compared to the market equilibrium, when a price ceiling of $1 is imposed in this market
answer
a) the loss to producers is larger than when a $3 price floor is imposed.
question
8. Suppose scientific research generates external benefits. Without government intervention, the market for scientific research would
answer
b) produce some research, but less than the efficient amount.
question
9. Asymmetric information means that
answer
d) either the buyer has information that the seller does not have or the seller has information that the buyer does not have.
question
10. JCPenney guarantees to refund a customer's money if the customer is not satisfied with the quality of the clothing. This guarantee is a way of addressing the problem of
answer
e) imperfect information.
question
13. If a health insurance company offers coverage regardless of age, health status, or smoking history, it is likely to suffer
answer
b) adverse selection problems.
question
if a monopolist is producing at the point where MR exceeds marginal cost, then to maximize profit the monopolist should
A.) increase output and decrease price
B.) decrease output and increase price
C.) increase both output and price
D.) make no change in output and price
A.) increase output and decrease price
B.) decrease output and increase price
C.) increase both output and price
D.) make no change in output and price
answer
A
question
which of the following is the best description of the origin of the economic problem of scarcity
A.) humans have limited wants for good and resources are limited
B.) humans have limited wants for good and resources are unlimited
C.) humans have unlimited wants for good and resources are limited
D.) humans have unlimited wants for good and resources are unlimited
A.) humans have limited wants for good and resources are limited
B.) humans have limited wants for good and resources are unlimited
C.) humans have unlimited wants for good and resources are limited
D.) humans have unlimited wants for good and resources are unlimited
answer
C
question
a perfectly competitive firm will maximize profits where
A.) P=ATC
B.) P>MC
C.) MR=P
D.) MR=MC
A.) P=ATC
B.) P>MC
C.) MR=P
D.) MR=MC
answer
C
question
Capital, as economists use the term, refers to
A.) the money needed to start a new business
B.) the costs of operating a business
C.) shares of stock issued by businesses
D.) final goods that are used to produce other goods and services
A.) the money needed to start a new business
B.) the costs of operating a business
C.) shares of stock issued by businesses
D.) final goods that are used to produce other goods and services
answer
D
question
in a perfectly competitive market industry, the demand curve for the individual firm is _________ and the market curve is ________
A.) perfectly elastic; perfectly elastic
B.) downward-sloping; downward sloping
C.) downward sloping; perfectly elastic
D.) perrfectly elastic; downward sloping
A.) perfectly elastic; perfectly elastic
B.) downward-sloping; downward sloping
C.) downward sloping; perfectly elastic
D.) perrfectly elastic; downward sloping
answer
D
question
a price ______ states the minimum price that can legally be charged for a good. an example is ______
A.) ceiling; rent control
B.) ceiling; minimum wage
C.) floor; rent control
D.) floor; minimum wage
A.) ceiling; rent control
B.) ceiling; minimum wage
C.) floor; rent control
D.) floor; minimum wage
answer
D
question
the upward sloping portion of the supply curve for a perfectly competitive firm is its:
A.) D curve above its MR curve
B.) MR curve to the right of its MC curve
C.) MC curve about its minimum AVC curve
D.) ATC curve below its minimum MC curve
A.) D curve above its MR curve
B.) MR curve to the right of its MC curve
C.) MC curve about its minimum AVC curve
D.) ATC curve below its minimum MC curve
answer
C
question
suppose the equilibrium price of oranges is $2.00 per pound. If the actual price charged is $1.50 per pound then a ______ will exist. to restore equilibrium price will _______, quantity demanded will ______ and quantity supplied will ________.
A.) shortage; rise; fall; rise
B.) surplus; fall; rise; fall
C.) shortage; fall; rise; fall
D.) surplus; rise; fall; rise
A.) shortage; rise; fall; rise
B.) surplus; fall; rise; fall
C.) shortage; fall; rise; fall
D.) surplus; rise; fall; rise
answer
A
question
each point on a supply curve represents
A.) the highest price sellers are willing to accept to supply a unit of the good
B.) the highest price buyers are willing to pay for each unit
C.) the lowest price sellers are willing to accept to supply a unit of the good
D.) the lowest price buyers are willing to pay for each unit
A.) the highest price sellers are willing to accept to supply a unit of the good
B.) the highest price buyers are willing to pay for each unit
C.) the lowest price sellers are willing to accept to supply a unit of the good
D.) the lowest price buyers are willing to pay for each unit
answer
C
question
what benefit does a country gain when they engage in specialization and trade
A.) it allows the country to consume at points outside of their PPF
B.) it allows the country to consume at points on their PPF
C.) it allows the country to consume at points inside their PPF
D.) a country receives no benefits from specialization and trade
A.) it allows the country to consume at points outside of their PPF
B.) it allows the country to consume at points on their PPF
C.) it allows the country to consume at points inside their PPF
D.) a country receives no benefits from specialization and trade
answer
A
question
given a downward-sloping market demand curve for a product X, if the price of X increases from $12 to $14. then ceteris paribus
A.) demand for X will increase
B.) the quantity demanded of X will increase
C.) demand for X will decrease
D.) the quantity demanded of X will decrease
A.) demand for X will increase
B.) the quantity demanded of X will increase
C.) demand for X will decrease
D.) the quantity demanded of X will decrease
answer
D
question
which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect
A.) price is greater than MC in monopoly and price equals MC in perfect competition
B.) when a monopoly exists the consumer surplus is less than if the market were perfectly competitive
C.) monopoly output will be less than the output of a comparable perfectly competitive industry
D.) in the long run. economic profits are driven to zero in both a monopoly and a perfect competitive market
A.) price is greater than MC in monopoly and price equals MC in perfect competition
B.) when a monopoly exists the consumer surplus is less than if the market were perfectly competitive
C.) monopoly output will be less than the output of a comparable perfectly competitive industry
D.) in the long run. economic profits are driven to zero in both a monopoly and a perfect competitive market
answer
D
question
the MR for a monopoly firm:
A.) is equal to price at all output levels
B.) is greater than price at all output levels
C.) is less than price at all output levels
D.) has no relation to price at any output level
A.) is equal to price at all output levels
B.) is greater than price at all output levels
C.) is less than price at all output levels
D.) has no relation to price at any output level
answer
C
question
which of the following is a positive statement
A.) the best level of income tax should be 0% because workers can keep all money they earn
B.) an increase in tuition will cause fewer students to apply to college
C.) michigan should lower the tax rate on alcohol so that more students can afford to buy it
D.) econ202 should meet three times a week because it is such a fun class!
A.) the best level of income tax should be 0% because workers can keep all money they earn
B.) an increase in tuition will cause fewer students to apply to college
C.) michigan should lower the tax rate on alcohol so that more students can afford to buy it
D.) econ202 should meet three times a week because it is such a fun class!
answer
B
question
one of the key differences between a monopoly firm and a perfectly competitive firm i that a monopolist has a ______ demand curve, while the perfectly competitive firm has a _____ demand curve
A.) downward sloping; perfectly elastic
B.) perfectly inelastic; perfectly elastic
C.) downward sloping; perfectly inelastic
D.) perfectly elastic; downward sloping
A.) downward sloping; perfectly elastic
B.) perfectly inelastic; perfectly elastic
C.) downward sloping; perfectly inelastic
D.) perfectly elastic; downward sloping
answer
A
question
for a perfectly competitive firm
A.) MR>P
B.) MP=P
C.) MR<P
D.) MR decreases as the firm increases output
A.) MR>P
B.) MP=P
C.) MR<P
D.) MR decreases as the firm increases output
answer
B
question
which of the following would NOT increase the demand for beer
A.) a new FDA study suggests that beer cures colds
B.) a price war that results in the price of a beer bottle decreasing to $1.00 per bottle
C.) the price of pizza, a complement to beer, decreases
D.) the price of hard liquor, a substitute for beer, increases
A.) a new FDA study suggests that beer cures colds
B.) a price war that results in the price of a beer bottle decreasing to $1.00 per bottle
C.) the price of pizza, a complement to beer, decreases
D.) the price of hard liquor, a substitute for beer, increases
answer
B
question
which of the following is NOT a characteristic of perfect competition?
A.) all firms produce identical product
B.) there are many producers and each one has only a small market share
C.) there are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each
D.) there is free entry into and exit from the industry
A.) all firms produce identical product
B.) there are many producers and each one has only a small market share
C.) there are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each
D.) there is free entry into and exit from the industry
answer
C
question
if bagels and donuts are substitutes, then an increase in the price of bagels will result in
A.) an increase in the demand for donuts
B.) an increase in the demand for bagels
C.) a decrease in the demand for donuts
D.) a decrease in the demand for bagels
A.) an increase in the demand for donuts
B.) an increase in the demand for bagels
C.) a decrease in the demand for donuts
D.) a decrease in the demand for bagels
answer
A
question
A firm operating in a perfectly competitive market is a price
A.) maker
B.) taker
C.) discriminator
D.) maximizer
A.) maker
B.) taker
C.) discriminator
D.) maximizer
answer
B
question
_______ is the increase in output obtained by hiring one additional unit of labor
A.) AP
B.) TP
C.) MP
D.) MC
A.) AP
B.) TP
C.) MP
D.) MC
answer
C
question
opportunity cost is
A.) the value of all alternatives that must be given up in order to get something else
B.) the dollar cost to society of producing the goods
C.) the difficulty associated with using one good in place of another
D.) the highest valued alternative that must be given up in order to get something else
A.) the value of all alternatives that must be given up in order to get something else
B.) the dollar cost to society of producing the goods
C.) the difficulty associated with using one good in place of another
D.) the highest valued alternative that must be given up in order to get something else
answer
D
question
which of the following statements about price elasticity of demand is FALSE
A.) the price elasticity of Heineken Beer is higher than the price elasticity of demand for beer in general
B.) the longer the time period since a price change, the higher the price elasticity of demand
C.) a pack of chewing gum will have a higher price elasticity of demand than a new car
D.) the more substitutes that are available for a good, the higher the good's price elasticity of demand
A.) the price elasticity of Heineken Beer is higher than the price elasticity of demand for beer in general
B.) the longer the time period since a price change, the higher the price elasticity of demand
C.) a pack of chewing gum will have a higher price elasticity of demand than a new car
D.) the more substitutes that are available for a good, the higher the good's price elasticity of demand
answer
C
question
if perfectly competitive firms are making positive economic profits in the short-run, then in the long run firms will _______ and industry output will _____, market price will ______, and profit for the remaining firms will ______.
A.) enter, increase, decrease, increase
B.) exit, decrease, increase, decrease
C.) enter, decrease, increase, decrease
D.) exit, increase, decrease, increase
A.) enter, increase, decrease, increase
B.) exit, decrease, increase, decrease
C.) enter, decrease, increase, decrease
D.) exit, increase, decrease, increase
answer
D
question
a monopoly finds that when it produced 20 units of output its demand is elastic. At this level of output
A.) its MR=0
B.) its MR is negative
C.) its MR is positive
D.) none of the above. MR does not depend of the elasticity of demand
A.) its MR=0
B.) its MR is negative
C.) its MR is positive
D.) none of the above. MR does not depend of the elasticity of demand
answer
C
question
if the government decides to impose an excise tax on good with the downward sloping demand curve and an upward sloping supply curve, the price paid by consumers will ______, the price received by sellers will ______, and the quantity exchanged in the market will ______.
A.) decrease; increase; decrease
B.) increase; decrease; decrease
C.) decrease; decrease; increase
D.) increase; increase; increase
A.) decrease; increase; decrease
B.) increase; decrease; decrease
C.) decrease; decrease; increase
D.) increase; increase; increase
answer
B
question
bubbas brewery determines that P< ATC but P> AVC. bubba should
A.) continue to produce even though he is earning an economic loss
B.) continue to produce as he is making an economic profit
C.) shut down immediately as he is earning an economic loss
D.) raise the price until he has maximized his profits
A.) continue to produce even though he is earning an economic loss
B.) continue to produce as he is making an economic profit
C.) shut down immediately as he is earning an economic loss
D.) raise the price until he has maximized his profits
answer
A
question
in the short run what do we know about the following inputs
A.) labor is fixed and capital is variable
B.) bother labor and capital are variable
C.) labor is variable and capital is fixed
D.) both labor and capital are fixed
A.) labor is fixed and capital is variable
B.) bother labor and capital are variable
C.) labor is variable and capital is fixed
D.) both labor and capital are fixed
answer
C
question
a technological improvement lowers the cost of producing coffee. at the same time the FDA announces that caffeine, which is contained in coffee, can have harmful health effects. which of the following is the most likely outcome?
A.) a decrease in the equilibrium price and an increase, decrease, or no change in the equilibrium quantity
B.) an increase in the equilibrium price and an increase, decrease, or no change in the equilibrium quantity
C.) an increase, decrease, or no change in the equilibrium price and an increase in the equilibrium quantity
D.) an increase, decrease. or no change in the equilibrium price and decrease in the equilibrium quantity.
A.) a decrease in the equilibrium price and an increase, decrease, or no change in the equilibrium quantity
B.) an increase in the equilibrium price and an increase, decrease, or no change in the equilibrium quantity
C.) an increase, decrease, or no change in the equilibrium price and an increase in the equilibrium quantity
D.) an increase, decrease. or no change in the equilibrium price and decrease in the equilibrium quantity.
answer
A
question
if an economy is currently producing on their PPF, which of the following events would shift the PPF inwards
A.) an increase in the quantity of labor available
B.) a decrease in the amount of capital avaliable
C.) an increase in the level of unemployment
D.) advancement in technology
A.) an increase in the quantity of labor available
B.) a decrease in the amount of capital avaliable
C.) an increase in the level of unemployment
D.) advancement in technology
answer
B
question
if demand is price elastic
A.) a 1% decrease in the price causes quantity demanded to increase by more than 1%
B.) a 1% decrease in the price causes quantity demanded to decrease by more than 1%
C.) a 1% decrease in the price causes quantity demanded to increase by less than 1%
D.) a 1% decrease in the price causes quantity demanded to decrease by less than 1%
A.) a 1% decrease in the price causes quantity demanded to increase by more than 1%
B.) a 1% decrease in the price causes quantity demanded to decrease by more than 1%
C.) a 1% decrease in the price causes quantity demanded to increase by less than 1%
D.) a 1% decrease in the price causes quantity demanded to decrease by less than 1%
answer
A
question
if perfectly competitive firm is producing at an output level for which market price is $32 and marginal cost is #25. To increase profits, the firm should
A.) decrease their production
B.) increase their production
C.) raise the price of their good
D.) not change their production
A.) decrease their production
B.) increase their production
C.) raise the price of their good
D.) not change their production
answer
A
question
Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is experiencing
A.) increasing returns to scale
B.) decreasing returns to scale
C.) decreasing MP of Labor
D.) increasing MP of Labor
A.) increasing returns to scale
B.) decreasing returns to scale
C.) decreasing MP of Labor
D.) increasing MP of Labor
answer
A
question
a recent income tax cut decreases the amount of income taxes paid by all workers, thus increasing their net income. What is the result of this tax cut on an individual's consumption of inferior and normal goods
A.) an increase in equilibrium price and quantity for inferior goods and a decrease in equilibrium price and quantity for normal goods
B.) an increase in equilibrium price and quantity for inferior goods and an increase in equilibrium price and quantity for normal goods
C.) a decrease in equilibrium price and quantity for inferior goods and a decrease in equilibrium price and quantity for normal goods
D. ) a decrease in equilibrium price and quantity for inferior goods and a increase in equilibrium price and quantity for normal goods
A.) an increase in equilibrium price and quantity for inferior goods and a decrease in equilibrium price and quantity for normal goods
B.) an increase in equilibrium price and quantity for inferior goods and an increase in equilibrium price and quantity for normal goods
C.) a decrease in equilibrium price and quantity for inferior goods and a decrease in equilibrium price and quantity for normal goods
D. ) a decrease in equilibrium price and quantity for inferior goods and a increase in equilibrium price and quantity for normal goods
answer
D
question
the four factors of production are
A.) labor, raw materials, capital, and money
B.) rent, wages, interest, and profit
C.) production, distribution, pricing, and marketing
D.) land, labor, capital, and entrepreneurship
A.) labor, raw materials, capital, and money
B.) rent, wages, interest, and profit
C.) production, distribution, pricing, and marketing
D.) land, labor, capital, and entrepreneurship
answer
D
question
accounting profit differs from economic profit because
A.) of differences in the manner in which revenue is calculated
B.) economic costs include economic depreciation while accounting costs do not
C.) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs
D.) economic
A.) of differences in the manner in which revenue is calculated
B.) economic costs include economic depreciation while accounting costs do not
C.) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs
D.) economic
answer
D
question
which of the following is NOT an explicit cost of operating a business
A.) the wages paid to the employees of the business
B.) the cost of materials and supplies used in production
C.) the interest not earned on funds used to buy equipment for the business
D.) the interest paid on a bank loan the owners received to buy equipment
A.) the wages paid to the employees of the business
B.) the cost of materials and supplies used in production
C.) the interest not earned on funds used to buy equipment for the business
D.) the interest paid on a bank loan the owners received to buy equipment
answer
C
question
the shutdown point for a perfectly competitive firm occurs where
A.) P=min ATC
B.) P=min AVC
C.) P=min AFC
D.) P=min MC
A.) P=min ATC
B.) P=min AVC
C.) P=min AFC
D.) P=min MC
answer
B
question
assume an economy can produce two goods: automobiles and houses. The economy's production possibilities are illustrated by a bowed out PPF with automobiles on the horizontal axis and houses on the vertical axis. If the economy is producing at a point on its PPF, then as more automobiles are produced
A.) the opportunity cost of producing more automobiles is constant
B.)the opportunity cost of producing more automobiles increases
C.) the opportunity cost of producing more automobiles decreases
D.)the economy becomes more efficient in the production of automobiles
A.) the opportunity cost of producing more automobiles is constant
B.)the opportunity cost of producing more automobiles increases
C.) the opportunity cost of producing more automobiles decreases
D.)the economy becomes more efficient in the production of automobiles
answer
B
question
suppose the cross price elasticity of demand between two goods, X and Y is -0.05. if the price of good X rises by 20%, then the demand for good Y should
A.) fall by 10 %
B.) fall by 40 %
C.) rise by 10 %
D.) rise by 40 %
A.) fall by 10 %
B.) fall by 40 %
C.) rise by 10 %
D.) rise by 40 %
answer
A
question
suppose that the price of an automobile decreases by 10%. as a result, the quantity demanded increases by 40%. what is the price elasticity of demand, and how will total revenue respond to the decrease in price
A.) 4.0 and TR will decrease
B.) 4.0 and TR will increase
C.) 0.25 and TR will increase
D.) 0.25 and TR will decrease
A.) 4.0 and TR will decrease
B.) 4.0 and TR will increase
C.) 0.25 and TR will increase
D.) 0.25 and TR will decrease
answer
B
question
over the range of output where MP is increasing
A.) TFC is decreasing
B.) AFC is increasing
C.) MC is decreasing
D.) MC is increasing
A.) TFC is decreasing
B.) AFC is increasing
C.) MC is decreasing
D.) MC is increasing
answer
C
question
If the price of a good increases, consumer surplus will ______ and producer surplus will ______
A.) decrease, decrease
B.) decrease, increase
C.) increase, decrease
D.) increase, increase
A.) decrease, decrease
B.) decrease, increase
C.) increase, decrease
D.) increase, increase
answer
B
question
if julia knows that ATC of baking 12 dozen muffins is $6 and the ATC of producing 13 dozen muffins is $7, then the MC of producing the 13th dozen muffins is
A.) $7
B.) $13
C.) $19
D.) $31
A.) $7
B.) $13
C.) $19
D.) $31
answer
C
question
which of the following is a characteristic of a monopoly market
A.) many close substitutes for the good
B.) many small firms supplying the good
C.) free entry and exit
D.) barriers to entry
A.) many close substitutes for the good
B.) many small firms supplying the good
C.) free entry and exit
D.) barriers to entry
answer
D
question
for a monopoly firm, the relationship between price and MR is
A.) P= MR
B.) P> MR
C.) P<MR
D.) there is no relationship between P and MR
A.) P= MR
B.) P> MR
C.) P<MR
D.) there is no relationship between P and MR
answer
B
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