question
Adhira buys chocolate and almonds. She has 3 bars of chocolate and 4 bags of almonds. The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18. Is Adhira maximizing her utility?
answer
Uncertain; without information on her income and the prices of the two goods, we cannot answer the question.
question
The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
answer
the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
question
A perfectly elastic demand curve is shown in
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straight horizontal line
question
The ________ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.
answer
income
question
Suppose the value of the price elasticity of demand is -3. What does this mean?
answer
.
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
question
According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?
answer
There are few close substitutes for toothpaste.
question
Refer to Figure 10-4. Which of the following statements is true?
answer
Bundles r and w are not affordable.
question
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
answer
an inferior good
question
Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. All other things being equal, what will be the effect of this policy on the market for sparkling wine in Vinyardia?
answer
The quantity supplied will be greater than the quantity demanded, There will be no effect on the equilibrium price or quantity of sparking wine
question
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit
answer
the supply curve shifted to the left resulting in an increase in the equilibrium price
question
In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
answer
. the price of the product and hold everything else constant
question
The demand curve for a Giffen good is
answer
upward-sloping
question
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
answer
1.62
question
If a consumer receives 20 utils from consuming two candy bars, and 25 utils from consuming three candy bars, the marginal utility of the third candy bar is
answer
5 utils
question
. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?
answer
demand curve shifts to the right, demand goes down
question
computer and software are likely to have cross-price elasticity which is...
answer
negative
question
studies show that the income elasticity of demand for wine is approximately five. what does this mean expressed in words?
answer
a one percent increase in income leads to a five percent increase in wine consumption
question
Which of the following would shift the supply curve for MP3 players to the right? (go down)
answer
a decrease in the price of an input used to produce MP3 players
question
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
answer
increase in demand is represented by a rightward shift of the demand curve, increase in quantity demanded is represented by a movement along a given demand curve
question
if the price of lattes, a normal good, falls,
answer
both the income and substitution effects lead you to buy more lattes
question
a binding price ceiling
answer
must be set below the equilibrium price
question
a increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in
answer
an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease
question
if the midpoint of the curve above is unit elastic, the inelastic segment of the demand curve ...
answer
lies below the midpoint of the curve
question
If Marlowe obtains 9 utils per dollar spent on apples and 6 utils per dollar spent on oranges, then Marlowe
answer
should buy more apples and fewer oranges
question
Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions)?
answer
The demand for blu-ray players would increase and the equilibrium price of blu-ray players would increase.
question
Which of the following costs will not change as output changes?
answer
total fixed cost
question
Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs?
answer
marginal revenue is less that price
question
which of the following statements is correct?
answer
economic profit equals accounting profit minus implicit costs
question
the demand curve for each seller's product in perfect competition is horizontal at the market price because
answer
each seller is too small to affect market price
question
the substitution effect of a wage increase is observed when
answer
leisure's higher opportunity cost causes workers to take less leisure and work more.
question
Perfect competition is characterized by all of the following except
answer
heavy advertising by individual sellers
question
A patent or copyright is a barrier to entry based on
answer
government action to encourage invention and creativity
question
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
answer
$700
question
Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?
answer
supply curve shifts to the right
question
Marginal revenue product of labor is
answer
equal to the marginal product go labor multiplied by the output price
question
If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
answer
average cost will fall
question
What is the difference between labor's marginal product and marginal revenue product?
answer
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
question
If a typical firm in a perfectly competitive industry is incurring losses, then
answer
some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.
question
A four-firm concentration ratio measures
answer
the fraction of an industry's sales accounted for by the four largest firms.
question
If Alan Shaw reduces his work hours when his salary increases, then
answer
the income effect of his salary increase dominates the substitution effect.
question
When a country has a comparative advantage in producing a certain good,
answer
none of the above is correct
question
suppose scientists provide evidence to the effect that chocolate pudding increases cholesterol. We would expect to see
answer
a decrease in demand for pudding
question
Good x and y are substitutes. If the price of good Y increases, then the ...
answer
demand for good x will increase
question
demand is said to have unit elasticity if the absolute value of elasticity is
answer
equal to 1
question
income elasticity of demand measures how
answer
the quantity demanded changes as consumer income changes
question
Holding all other factors constant and using the midpoint method where necessary, if a pencil manufacturer increases production by 20 percent when the market price of pencils increases from $0.50 to $0.60, then supply is
answer
elastic, since the price elasticity is equal to 1.1
question
if a price ceiling is a binding constraint on the market,
answer
buyers cannot buy all they want to buy at the price ceiling
question
starting at the market equilibrium, if a binding price floor were imposed in the soybean market, and the government buys any surplus
answer
the quantity of soybeans supplied by producers would increase
question
Shannon buys a new CD player for $135. She receives consumer surplus of $25 on her purchase if the value she places on the CD player is
answer
$160
question
Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs, but buys them on sale for $575. Cameron's consumer surplus from the purchase is
answer
175
question
if the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus realized from that purchase is
answer
0
question
Cornflakes and milk are complements. A decrease in the price of corn will
answer
increase consumer surplus in the market for cornflakes and increase producer surplus in the market for milk
question
when externalities exist, buyers and sellers
answer
neglect the spillover effects of their actions, and the market equilibrium is not efficient
question
if an externality is present in a market, economic efficiency may be enhanced by
answer
government intervention
question
Private goods have high rivalry in..
answer
consumption and high excludability
question
In the case of a common resource, which of the following would not be correct?
answer
irrespective of rivalry or excludability, property rights are still well-defined
question
private firms have little incentive to produce a public good because
answer
there is a free-rider problem
question
Why has the value of ivory threatened the extinction of the elephant, whereas the value of beef has enhanced the survival of the cow?
answer
elephants are a common resource, whereas cows are privately owned.
question
Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two (L, Q) combinations for a firm are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is
answer
10 units of output
question
average total cost equals...
answer
(total fixed costs + total variable costs) divided by quantity produced
question
if marginal cost is constant across all output levels,
answer
marginal variable cost must be constant
question
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
answer
the cost of the steel that is used in producing automobiles
question
True/false:If marginal cost is rising, then average variable cost must be rising.
answer
False
question
When average cost is greater than marginal cost, marginal cost must be
answer
the direction of change in marginal cost cannot be determined from this information
question
Suppose you are covered under health insurance or belong to a Health Maintenance Organization
(HMO), and you are insured against all or most of the costs of visits to the doctor. As a result
you are likely to make greater use of medical services of all kinds. This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called
(HMO), and you are insured against all or most of the costs of visits to the doctor. As a result
you are likely to make greater use of medical services of all kinds. This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called
answer
moral hazard
question
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
answer
total variable costs
question
For a monopolist, when does marginal revenue exceed average revenue?
answer
Never
question
If a monopolist sells 100 units at $8 per unit and incurs an average cost of $6 per unit, what is the monopolist's profit?
answer
200
question
a monopolist produces
answer
less than the socially efficient quantity of output, and charges a higher price than in a competitive market.
question
Which of the following events could increase the demand for labor?
a. a decrease in output price
b. a decrease in the marginal productivity of workers
c. an increase in the marginal productivity of workers
d. a decrease in the wage.
a. a decrease in output price
b. a decrease in the marginal productivity of workers
c. an increase in the marginal productivity of workers
d. a decrease in the wage.
answer
c. an increase in the marginal productivity of workers
question
Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a perfectly competitive market. The market is in long-run equilibrium. If the price of a haircut is $7, what is Sally's average cost per haircut?
answer
7
question
If the apple pickers start working fewer hours (by taking more vacation time), the equilibrium wage will
answer
rise above w1 due to a shift in supply.
question
U.S. income data since 1980 suggests that the distribution of income
answer
has gradually become less equal
question
as long as a consumer remains on the same indifference curve
answer
she in indifferent among the points on that curve
question
indifference curves will slope down as long as
answer
both products in the bundle are "goods"
question
As one moves down a typical, "bowed-in" indifference curve, the marginal rate of substitution
answer
decreases
question
Given a consumer's indifference curves, the demand curve for a good can
answer
be derived by moving a consumer's budget constraint as the price of one of the goods changes.
question
Suppose good K is a Giffen good. When the price of good K increases
answer
the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K. However, the substitution effect is less than the income effect.
question
absolute advantage
answer
exists when one nation can produce goods more cheaply than another nation
question
comparative advantage
answer
ability of a nation to specialize in the production of the good for which it has lowest opportunity cost
question
what is MOC?
answer
amount of x you have to give up to produce one more unit of y
question
What is a coase theorem
answer
in the case of an externality, two parties can resolve the externality without government intervention if transaction costs are low income
question
what is always the cause of DWL?
answer
incorrect quantity produced
question
For which externalities is Q EFE < Q MKT?
answer
negative externalities (market produces too much)
question
For which externalities is Q MKT < Q EFF?
answer
positive externalities (market produces too little)
question
How much does a monopoly produce in order to maximize profits?
answer
marginal revenue = marginal cost
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