question
Opportunity cost is...
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the loss of potential gain from other alternatives when one alternative is chosen.
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Which of the following would cause a decrease in the supply of milk?
answer
An increase in the price of a product that producers sell instead of milk.
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If, in the market for oranges supply has increased then...
answer
the supply curve for oranges has shifted to the right.
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_________________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.
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Deadweight loss
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The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
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Budget constraint
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Karl views cake and pie as substitutes for one another. If the price of the cake increases, economists would expect:
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Karl's quantity of cake demanded to decrease.
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If an increase in the income of a consumer increases in the demand for Goods X and Y, we can conclude that:
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Goods X and Y are normal goods.
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_________________ refers to the total number of units that are produced at that price.
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Quantity supplied
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When demand in price is elastic, a fall in the price causes total revenue to rise because...
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the increase in quantity sold is large enough to offset the lower price.
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A 20% increase in the quantity of pizza demanded results from a 10% decline in its price. The price elasticity of demand for pizza is...
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2.0
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The price elasticity of supply measures the:
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responsiveness of quantity supplied to change in price.
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When demand is inelastic:
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consumers are not very responsive to changes in price.
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If the demand and supply curves for corn are elastic, then an increase in supply will cause...
answer
equilibrium price to fall and the equilibrium quantity to rise.
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Suppose that a student purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the student's price elasticity of demand?
answer
4.25
question
A shift in supply curve for oil raises the price of oil from $6.00 to $10.00 per barrel and reduces the quantity demanded from 14 to 10 barrels per day. The price elasticity of demand for oil is...
answer
2/3
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If both supply and demand shift right and neither are perfectly elastic which of the following must be true?
answer
Equilibrium price must increase.
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The imposition of a price floor on a market often results in...
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a surplus.
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Whenever there is a shortage at a particular price, the quantity sold at that price will equal...
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the quantity supplied at that price.
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Consider the secondary ticket market for the LSU-Alabama home game. Market demand is given by P = 1000 - Qd/200. Market supply is P = Qs/150. P is price and Q is the number of tickets sold in the secondary market. The university mandates a secondary market price ceiling of $500. Holding everything else constant, which of the following statements is true?
answer
b. There will be a shortage of 25,000 tickets AND d. The equilibrium market price for a ticket would be $571.42 without the price ceiling.
question
A freeze occurs in Florida destroying 100,000 acres of farmland used to grow oranges. Holding everything else constant, what does this do to the supply and demand of oranges?
answer
The supply shifts left which causes and upward movement in the price of oranges.
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In economics, a firm that faces many competitors is referred to as...
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a perfect competitor.
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A firm's _________________ consist of expenditures that must be made before production starts that typically, over the short run, _________________ regardless of the level of production.
answer
fixed costs; do not change
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In order to determine the average variable cost, the firm's variable costs are divided by _________________.
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the quantity of output
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The term _________________ describes a situation where the quantity of output rises, but the average cost of production falls.
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Economies of scale
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_________________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
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Total revenue
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Why would labor be treated as a variable cost?
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Producing larger quantities of a good or service generally requires more workers.
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I'mABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'mABigCorp.'s average fixed cost to produce the 7,000 can openers was...
answer
$2.43
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The term refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.
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Price taker
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If a firm's revenues do not cover its average variable costs, then that firm has reached its...
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shutdown point.
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A defining characteristic of a natural monopoly is that...
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it has no close substitutes.
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In a free market economy, firms operating in a perfectly competitive industry have only one major choice to make. Which of the following correctly sets out that choice?
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What quantity to produce.
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Which is true of a natural monopoly?
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The firm can supply the entire market at a lower cost than could two or more firms. AND The firm is not protected by any barrier to entry.
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SEE TEST 2: If Sarah wants to maximize profit, what should she do in the short run?
answer
Do not change output.
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SEE TEST 2: What should Sarah do in the long run?
answer
Exit the industry.
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SEE TEST 2: What should happen to the market price of consultancy services in the long run?
answer
It will increase.
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Which of the following statements about a monopoly is FALSE?
answer
Monopolies produce a good which has many close substitutes in the market.
question
A patent grants...
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an exclusive right to an inventor of a product.
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For a monopoly, the industry demand curve is the firm's...
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demand curve.
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The marginal revenue curve for a monopoly...
answer
lies below its demand curve.
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In comparison with a perfect competition, a monopolist with the same costs and market demand...
answer
generates a smaller consumer surplus but a larger economic profit.
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SEE TEST 3: In the figure above, the monopolist produces...
answer
20 units per day.
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SEE TEST 3: In the figure above, the monopolist sets a price of...
answer
$60 per unit.
question
SEE TEST 3: In the figure above, total revenues for the monopolist are...
answer
$1200.
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SEE TEST 3: In the figure above, what is the consumer surplus?
answer
$200
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Which of the following is not a characteristic of oligopoly?
answer
Low barriers to entry.
question
What is the prisoner's dilemma?
answer
A game in which players act in rational, self-interested ways that leave everyone worse off.
question
A dominant strategy...
answer
is one that is best for a firm, no matter what strategies other firms use.
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The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called...
answer
game theory.
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A cartel is...
answer
a group of firms that enter into a formal agreement to fix prices to maximize joint profits.
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Oligopolists interacting with one another each choose their best strategy given the strategies that all the other oligopolists results in a...
answer
Nash equilibrium.
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