Economic Problem
Traditions
_____
Plans
What to produce?
Traditions drive decisions about what to produce.
_______ guide consumer decisions about what to produce.
A central plan drives what to produce.
How to produce?
Traditions drive decisions about how to produce.
_______ guide producer decisions about how to produce.
A central plan drives how to produce.
Who gets what's produced?
Traditions drive decisions about who gets what's produced.Income earned from sale of resources determines who gets what's produced.
The central authority determines who gets what's produced.
RATIONALE
In a market economy, prices guide decisions about what to produce and how to produce.
RATIONALE
If buyers expect the product's price to increase in the near future, the demand curve shifts right in the present. Buyers will buy more now when they believe the price is soon going up.
RATIONALE
Traditional economies, market economies, and command economies all have different ways of answering these fundamental questions.
$900 million
RATIONALE
Deadweight Loss = ½ (1.5 million apartments * ($2,400 - $1,200)) = $900 million.
The study of economics is considered to be which type of science?
Social science
RATIONALE
The study of economics is a social science.
The same term can be used to fill in all of the blanks on this portion of the circular flow diagram. Select the correct term from the options below.
Households
RATIONALE
Households interact with firms in this portion of the circular flow model.
CONCEPT
Which point or points in the following Production Possibilities Model represent(s) the current maximum production possibilities given our resource constraints?
Points A, B, and E
RATIONALE
These points on the curve represent the current maximum production possibilities given our resource constraints.
What are the correct terms for the square red area and then the triangular blue area in this diagram?
producer surplus; deadweight loss
RATIONALE
This diagram shows a market affected by the government setting a minimum price. Part of the consumer surplus has now become producer surplus (the green square area) due to the minimum price. The gray area is deadweight loss, a loss in market efficiency when the market equilibrium outcome is not achieved due to the minimum price set by the government.
Which of the following would cause the change in supply illustrated in the graph below?
Technology improvements are adopted.
RATIONALE
When businesses adopt technology improvements, this amounts to a decrease in the costs of doing business, which allows them to increase production and shifts the supply curve to the right (an increase in supply).
When doing a cost-benefit analysis, what should you do before you write down a list of costs and a list of benefits?
Collect information on all possible options. Try to be as thorough as possible.
RATIONALE
You want to collect information on all possible outcomes. The problem you are analyzing needs to be clear and simple, but the items identified for the costs and benefits need to be as thorough and accurate as possible. Only then should you begin to list costs and benefits.
A movement along the supply curve for coffee would occur when __________.
The price of coffee decreases
RATIONALE
By the Law of Supply, a change in price causes a change in quantity supplied, which is a movement along the supply curve. All of the other answers reflect non-price factors that would cause a change in supply.
A major league team’s losing streak puts them in last place in their division, and sales of team jerseys in their city decrease.
How would this event be illustrated in a graph for team jerseys?
As a left (inward) change in demand
RATIONALE
The consumer preferences determinant of demand has decreased, causing a decrease in demand. More specifically, it causes a shift of the demand curve to the left on the graph for team jerseys.
At a market price of $0.75, a __________ of __________ units exists. Buyers will tend to __________ the price until it reaches __________.
shortage; 2,000; bid up; $1.00
RATIONALE
When there is a shortage (quantity demanded is greater than quantity supplied), buyers are willing to pay a bit more. The price will be bid up until it reaches the equilibrium level of $1.00.
Which of the following statements is true regarding this supply curve?
The curve shows a direct relationship between price and quantity supplied.
RATIONALE
The supply curve depicts the Law of Supply, which states that there is a direct relationship between price and quantity supplied.
Which situation best explains the horizontal demand curve in this graph?
So many farms are producing green bell peppers that they must all sell the peppers at the same price.
RATIONALE
Horizontal demand curves are exceptions to the law of demand. The price of $0.50 holds because so many green peppers are for sale that sellers have little choice but to sell green bell peppers at the same price.
Which of the following is an example of microeconomics?
A study on where housing prices are rising fastest.
RATIONALE
A study of rising housing prices is part of microeconomics because microeconomics deals with topics related to consumers. The other answers are topics for macroeconomics, which deals with broader topics for entire nations.
The graph below depicts a government intervention of a minimum price for labor of $9.00 per hour. What is the value now for the deadweight loss in this market?
$3.0 million
RATIONALE
Deadweight Loss = ½ * 1.5 million workers * ($9 - $5) = $3.0 million
Interest rates rise on your savings account at your bank, and you decide to save 5% more from your paycheck to take advantage of the increased rates. Which of the six core principles of the economic way of thinking does this decision illustrate?
People Respond in Predictable Ways to Incentives
RATIONALE
The incentive is the higher interest paid, and your choice to save more means that you are responding in a predictable way to that incentive.
$1.50
RATIONALE
Marginal Revenue = Change in Total Revenue / Change in Total Output ($555 - $465) / (370 - 310) = $90 / 60 = $1.50
Which of the following is an assumption made by rational choice theory?
A rational individual’s decisions are not shaped by society.
RATIONALE
This is one of the assumptions of rational choice theory.
If the marginal utility per the price of Good A is $2.50, and the marginal utility per the price for Good B is $2.50, what does the utility-maximizing rule tell you to do?
Check to see if the budget will allow you to purchase one more of each good, and if it is within the budget, do so.
RATIONALE
The utility-maximizing rule tells you to keep adding one more of the higher marginal utility per the price good until they are both equal. Then check to see if the budget will allow one more of each good, and do so if the budget allows it.
Consider the graph below.
What concept is shown here?
Decreasing cost industry
RATIONALE
Costs continue to decrease as production increases.
Consider the chart below. The marginal utility for the third unit of Chicken Fajitas is _____.
20 utils
RATIONALE
(85- 65) / (3-2) = +20/+1 = 20 utils
Sleek Hair Accessories has produced 35,000 hair bands that cost the company $0.03 each to make. They recently sold 35,000 of the hair bands to a local drug store at $0.11 each. Their opportunity cost is $1,000.
What is Sleek Hair Accessories’ economic profit?
$1,800
RATIONALE
Economic profit is (total explicit revenue plus total implicit revenue) minus (total explicit cost plus total implicit cost). So, the economic profit would be (35,000 × $0.11) − ((35,000 × $0.03) + ($1,000)) = ($3,850) − ($1,050 + $1,000) = ($3,850) − ($2,050) = $1,800.
The optimal choice of chicken meals and vegetarian meals for and in the diagram below is __________.
14 chicken meals and 6 vegetarian meals
RATIONALE
The optimum choice is the point of tangency where the indifference curve (iC2) touches the budget line (B2).
-10
RATIONALE
Marginal Product of Labor (MPL) = Change in TP / Change in Labor). (390 - 400) / (7 - 6) = -10 / 1 = -10
Consider the budget line graph below.
A choice of 3 Mexican meals and 5 Italian meals would be __________.
an unattainable choice
RATIONALE
The points on the budget line are the maximum consumption possibilities for the two goods, and so they are the best choices. Any combination of goods above the line is unattainable with the current resources.
Which of the following is an example of perfectly elastic demand?
Juan stopped purchasing peaches from his cousin's stall at the farmer's market when his cousin was the only farmer to raise prices.
RATIONALE
Perfectly elastic demand is the horizontal demand curve where quantity varies but the price is constant. The quantity demanded would be zero at anything above that constant price.
Economic profit is defined as __________.
total revenue minus total cost, including both explicit and implicit types of costs and revenue
RATIONALE
This is the definition of economic profit.
When a firm uses four laborers, it can produce 300 units daily. A fifth laborer allows the firm to produce 440 units daily.
Which of the following is true regarding production?
The average product for the fifth laborer is 88 units.
RATIONALE
Average Product of Labor (APL) = total output / number of workers. 440 units / 5 workers = 88 units
On a popular internet deals site, consumers purchased 1,000 weekend-getaway packages when the price was $300. After the price increased to $400, consumers purchased 600 packages.
What is the own-price elasticity of the weekend-getaway package calculated using the midpoint formula?
-1.75
RATIONALE
Apply the midpoint formula: (see picture)
Since Peter was promoted, he and his partner occasionally spend $75 for two meals and drinks at a Korean barbecue restaurant.
If the income elasticity for this expense is 2, which of these statements is true?
It is a luxury good.
RATIONALE
An income elasticity of 2 indicates a luxury good.
$1.875
RATIONALE
Marginal Cost = Change in TC / Change in Total Output Calculation is ($600 - $450) / (320 - 240) = $150 / 80 = $1.875
Your business produces widgets, which you know to be price inelastic.
To increase total sales revenue, you should __________.
increase the price
RATIONALE
Price inelastic means that the percentage change in quantity is less than the percentage change in price, so raising the price will only cause a smaller percentage decrease in quantity sold and therefore increase total sales revenue.
Janet is shopping for bottles and formula for her baby. Last month, the price of her favorite brand of formula was $15 per can. She bought six bottles last month. This month, the price of the cans of formula has increased by 20%. As a result, she will buy 50% fewer new bottles. The cross-price elasticity for the new bottles calculated using the cross-price elasticity formula is __________ and the goods are __________.
-2.5; complements
RATIONALE
The cross-price elasticity formula is
EXY=
% change in quantity of product X
__________________________
% change in price of product Y
where Product X and Product Y are related goods.
The cross-price elasticity is -0.50/0.20 = -2.5. The negative number indicates the products are complements.
Consider the indifference curve graph below.
The slope between points A and B is __________ and is known as the __________.
−2.00; marginal rate of substitution (MRS)
RATIONALE
Using the formula for slope, we get the following:
(see pic)
The slope of the indifference curve is known as the marginal rate of substitution.
Using the graph below, determine the profit-maximizing price and quantity to produce.
Profit-maximizing price = $40Quantity to produce = 60 units
RATIONALE
The price is constant here for perfect competition at $40. The quantity to produce will be where marginal revenue (MR) intersects marginal cost (MC) at 60 units.
Consider the indifference curves below.
Which curve shows the lowest level of individual satisfaction?
IC1
RATIONALE
Indifference curve IC1 represents the lowest level of individual satisfaction.
Which of these examples represents a fixed input?
Rented office space
RATIONALE
This is an example of a fixed input, an input that cannot be easily increased or decreased in the short run.
By choosing a point along the total physical product curve, physical output is __________.
Maximized
RATIONALE
The points on the total physical product curve define the maximum physical output for that quantity of inputs.
If the variable costs for a firm are $57, the fixed costs are $143, and the firm sells 40 units, what is the firm's average total cost?
$5.00
RATIONALE
Total Cost (TC) = Fixed Costs + Variable Costs
$143 + $57 = $200
Average Total Cost (ATC) = Total Cost/Total Output
$200/40 = $5
Ben’s Bagels charges $10 per dozen bagels, and Ben sells 30 dozen bagels each day. Ben’s costs of production is $150 in total each day.
Ben’s accounting profit per day is __________.
$150
RATIONALE
Accounting profit is total explicit revenue minus total explicit costs. Therefore, this would be calculated as follows:
(30 × $10) − ($150) = $300 − $150 = $150
According to __________, individual preferences are shaped by society.
behavioral economics
RATIONALE
This is the way behavioral economics views individual preferences.
The sensitivity of the quantity demanded of Cola B to a change in the price of Cola A is known as __________.
cross-price elasticity
RATIONALE
When we measure the sensitivity of the quantity demanded of one product to a change in the price of a related product, this is known as cross-price elasticity.
Consider the diagram below.
What do we call the portion of the marginal cost curve highlighted in yellow?
The short-run supply curve
RATIONALE
The short-run supply curve is represented by the Marginal Cost curve at and above the shutdown point.
Consider the graph of a labor market before and after an influx of immigrant workers. What effect does the influx have on the wage of workers and their quantity demanded in the short run?
Wages decrease, and the quantity demanded increases.
RATIONALE
Wages fall from QE1 to QE2 in the short run because of the increased supply of workers. The quantity demanded thus increases because of the lower wage.
This type of industry is classified as __________.
a decreasing cost industry
RATIONALE
The downward-sloping long-run industry supply curve and the falling price at higher levels of production indicate economies of scale in a decreasing cost industry.
Which type of economic goods can be categorized as non-rivalrous and excludable?
Club goods
RATIONALE
The use of a club good by one individual does not reduce its availability to other individuals (non-rivalrous), but it will require payment or the granting of special access to enjoy its benefits (excludable).
Assume that e-readers and paperback books are substitutes.
If the price of e-readers rises, what happens to demand for workers in the paperback industry and their wages?
The demand for workers in the paperback industry will increase, and the wages will rise.
RATIONALE
The price of a substitute good has risen, which will cause the demand for books printed on paper and the demand for workers in the paperback industry to rise. When the demand rises, the price (wage) will rise as well.
What decisions can firms in a monopolistically competitive market make, independent of other sellers in the market?
Decisions on both price and output
RATIONALE
Unlike firms in perfect competition that can only decide how much to produce but not what price to charge, firms in monopolistic competition can make decisions on both price and output, independent of other sellers in the market. They have some ability to determine price because they produce a product that is similar but not identical to that of the competition.
Consider the graph below.
When we compare the monopsonist to the competitive market, what effect does a monopsonist have on the wage and quantity of labor demanded?
The wage falls, and the quantity demanded falls.
RATIONALE
The competitive market wage is WE, and the monopsonist wage is WM, which is less than WE; therefore, the monopsonist wage falls. The competitive market quantity demanded is QE, and the monopsonist quantity demanded is QM, which is less than QE; therefore, the monopsonist quantity demanded also falls.
What quantity (Q) will the profit-maximizing monopolist below produce, what price (P) will they charge, and how much will their profit or loss be?
Q = 4 unitsP = $4,000Profit = $6,000
RATIONALE
The quantity produced is where MR = MC, or 4 units. Price is taken from the demand curve at $4,000. Profit or loss is (P − ATC) × quantity = ($4,000 − $2,500) × 4 = $1,500 × 4 = $6,000.
Consider the graph below. Suppose strict immigration laws result in a large reduction in workers immigrating to the United States.
What is the resulting effect on the labor supply curve, wage, and quantity of workers?
Supply shifts to the left, the quantity of workers decreases, and the wage rises.
RATIONALE
Less immigration of workers will decrease the labor supply, so the supply curve will shift to the left, Q (quantity) will decrease, and W(wage) will increase.
A local government has imposed rent controls on the owners of rental units, setting a legal maximum rent per month. What kind of market failure is this, and what is the imbalance that arises as a result?
Government failure; a market advantage is created for the renters
RATIONALE
The government-imposed rent controls will prevent the market from setting a price that is determined by supply and demand. The lower price will create a market advantage for renters.
The creation of new products would best be classified as a key activity of which type of resource?
Entrepreneurial
RATIONALE
Entrepreneurial resources are involved in the organizing and risk-taking activities of operating a business. The creation of new products would be a key activity of entrepreneurial resources.
What is a reason for sellers in a monopoly market to have a great deal of power over price?
They benefit from strong barriers to entry.
RATIONALE
Barriers to entry give monopoly firms a great deal of power over price because they keep the market in a state of monopoly. Entry into the market increases market supply, which lowers the equilibrium price in the market.
Consider the graph below. Suppose qMC = 400, pMC = $10, and ATC = $12 at 400 units. Is the profit-maximizing firm in monopolistic competition making a profit or loss, and by how much?
−$800 loss
RATIONALE
The quantity produced is where MR = qMC, or 400 units. Price is taken from the demand curve and given as $10. Since ATC is given as $12, profit or loss is (P − ATC) × quantity = ($10 − $12) × 400 = (−$2 × 400) = −$800. The firm has a loss.
Consider the negative externality graph.
If the firms are able to ignore the harm to society, which of the following statements is correct?
The market price is set too low
RATIONALE
If firms ignore the harm to society of the negative externality shown by this graph, the market price will be P Private, where S Private intersects MSB (the social demand curve that illustrates product price and quantity demanded at the various prices, taking into account both private benefits and social benefits). The market price, if firms take into account the harm to society, is P*. So, the market price is actually set too low when firms ignore the harm to society.
Suppose that the risks of working in a hospital during the pandemic caused many workers to reconsider applying for hospital jobs.
What will happen to the supply of labor and the wage in this market?
The supply of labor will decrease, and the wage will increase.
RATIONALE
The supply of labor decreases, which shifts the supply curve to the left, causing the wage to rise.
Consider the graph, which shows the effect of a per-unit tax on a market.
Which of the following statements is correct?
Sellers earn the price P Producers which is below the original equilibrium price P1.
RATIONALE
Buyers will actually pay a higher price for their product, but the higher price is the result of the tax. The tax is collected by the seller and then paid by the seller to the government. The supplier receives P Producers , the price for the quantity produced on the original supply curve.
A small town with one hospital and no union would be an example of what kind of labor market for hospital workers?
A Monopsony
RATIONALE
A monopsony is a labor market in which a single firm exercises market power as the sole employer of labor in an area or industry.
Select the example that is a government failure, and not simply a market failure.
Unsuccessful antitrust policies are implemented.
RATIONALE
Antitrust policies are designed to prevent firms in an industry from misusing market power. If those policies are unsuccessful, then it is a government failure, because it is an unsuccessful attempt to correct a market failure using government policies.
Which of the following is a reason why firms in a perfectly competitive market have no influence over price?
All firms in the market sell identical products.
RATIONALE
The large number of firms in perfect competition producing identical products causes overall market supply and market demand to determine the market price. Each individual firm has no influence over price.
How much influence do sellers in an oligopoly market have over pricing compared to a firm in a monopoly market?
Less
RATIONALE
Sellers in an oligopoly market have less influence over pricing compared to a firm in a monopoly market because firms in a monopoly are the market and have no similar products to compete against.
Consider the diagram below.
At a selling price of $11 per unit, how much profit or loss is this perfectly competitive firm experiencing, and should they continue to produce or shut down temporarily?
Economic profit of $500; continue to produce
RATIONALE
At a quantity where MR = MC, which is where profits are maximized, the quantity is 500 units, price = $11, and ATC = $10. This means the firm is earning a positive economic profit of 500 × ($11 − $10) = 500 × $1 = $500. The firm should continue to produce.
Select the option that correctly orders market structures from the least power over price to the highest power over price.
Perfect competition, monopolistic competition, oligopoly, monopoly
RATIONALE
This is the correct order of the least power over price to the most power over price.
Which of the following is a correct statement about how information asymmetry affects a market outcome?
A market failure occurs
RATIONALE
A market failure occurs due to the information asymmetry (important price information held by either the buyer or seller, but not both).
Consider the graph below. Suppose qO = 400, pO = $25, and ATC = $18 at 400 units.
Is the profit-maximizing firm in an oligopoly market making a profit or loss, and by how much?
$2,800 profit
RATIONALE
The quantity produced is where MR = qO, or 400 units. Price is taken from the demand curve and given as $25. Since ATC is given as $18, profit or loss is (P − ATC) × quantity = ($25 − $18) × 400 = $7 × 400 = $2,800. The firm is earning a profit.
Consider the graph below.
What is the range of possible wages for a bilateral monopoly?
W Union to WM
RATIONALE
The wage in a bilateral monopoly is indeterminate, between W Union and WM, depending on the power of the union versus the power of the monopsonist.
Consider the graph below. Assume that a union enters the labor market.
What effect does the union have on the wage? Will this result in a shift of the demand curve?
The wage rises. There is no shift of the demand curve.
RATIONALE
The higher wage negotiated by the union causes WE, the wage, to rise. When only the wage changes, this will be a movement along the demand curve, not a shift in the curve.
Which of the following could have caused the shift in demand illustrated below?
The price of a complement product increases.
RATIONALE
As the price of a complement increases, the demand curve for the original product shifts left. Remember that a complement is something that is usually bought with the original product (peanut butter and jelly, for example). So if the price of peanut butter rises, then we’ll see a decrease in the demand for jelly.
When a firm uses five laborers, it can produce 600 units daily. A sixth laborer allows the firm to produce 900 units daily.
Which of the following is true regarding production?
The average product for the sixth laborer is 150 units.
RATIONALE
Average Product of Labor (APL) = total output / number of workers. 900 units / 6 workers = 150 units
Oil is what kind of resource?
Natural
RATIONALE
Natural resources are the resources found in nature that can be used in producing goods and services for the economy. Natural gas and oil are natural resources.
On the graph below, suppose the price moved from point B to point A.
Which of the following best explains what happened?
The price of the product increased.
RATIONALE
A movement up along an existing demand curve would always be caused by an increase in the price of the product.
The number of businesses delivering frozen foods in refrigerated trucks rises.
What happens to the demand for truck drivers and the wages in these businesses?
The demand for truck drivers in the frozen food delivery business will increase, and the wages will rise.
RATIONALE
The delivery of frozen foods and the truck drivers that deliver them are factors of production used together; that is, they are complements. When the demand for one complement rises, the demand and wages for the other complement will rise as well.
Consider the graph below.
If the monopsonist has more power than the union in a bilateral monopoly, the wage will be closer to __________ than __________.
WM, W Union
RATIONALE
The wage in a bilateral monopoly is indeterminate, between W Union and W M, depending on the power of the union versus the power of the monopsonist. When the monopsonist has more power, the wage will be closer to WM than W Union.
Consider the negative externality graph.
If the firms take into account the harm to society, which of the following statements is correct?
The quantity produced will be Q*.
RATIONALE
If firms do take into account the harm to society, allowing the market price and quantity to reflect measures taken to prevent the negative externality, the quantity produced will be Q*, where MSC (the social supply curve that illustrates product price and quantity supplied at the various prices, taking into account social costs including both private costs and third-party costs) intersects MSB (the social demand curve that illustrates product price and quantity demanded at the various prices, taking into account both private benefits and social benefits).
When Sam's sandwiches were priced at $6, he sold 70 each day during lunch. When he reduced the price to $4 a sandwich, he sold 80 each day.
The own-price elasticity for Sam's sandwiches calculated using the midpoint formula is __________.
-0.33
RATIONALE
Apply the midpoint formula: (see picture)
Which of the following is an example of the Law of Supply?
The price of apples falls, and the quantity supplied of apples falls as well.
RATIONALE
This demonstrates the direct relationship between price and quantity supplied, which is the Law of Supply.
__________ make(s) the economic decisions in a command economy.
Government
RATIONALE
This is done via the design of a detailed central plan.
At a market price of $0.25, a __________ of __________ units exists. Buyers will tend to __________ the price until it reaches a price of __________.
shortage; 5,500; bid up; $1.00
RATIONALE
When there is a shortage (quantity demanded is greater than quantity supplied), buyers are willing to pay a bit more. The price will be bid up until it reaches the equilibrium level of $1.00.
Using the data below, calculate the firm’s economic profit.
product price: $1.25unit Cost: $0.75quantity sold: 690quantity produced: 690 |opportunity cost: $100
$245
RATIONALE
Economic profit is (total explicit revenue plus total implicit revenue) minus (total explicit cost plus total implicit cost). So, the economic profit would be (690 × $1.25) − ((690 × $0.75) + ($100)) = ($862.50) × ($517.50 × $100) = ($862.50) − ($617.50) = $245.
Consider the indifference curve graph below.
The slope between points A and C is __________ and is known as the __________.
−1.33; marginal rate of substitution (MRS)
Using the formula for slope, we get the following:
(See picture)
The slope of the indifference curve is known as the marginal rate of substitution.
Which of the following is a correct statement about how information asymmetry affects a market outcome?
The price will be flawed.
RATIONALE
Information asymmetry (important price information held by either the buyer or seller, but not both) will cause the price to be flawed, resulting in less than optimal decisions.
If variable costs for a firm are $800, the average total cost is $6, and the firm sells 175 units, what are the firm's fixed costs?
$250
RATIONALE
Average Total Cost (ATC) = Total Cost/Total Output, so Total Cost = ATC x Total Output
Total Cost = $6 x 175 = $1,050
Total Cost (TC) = Fixed Costs + Variable Costs, so Fixed Costs = TC - Variable Costs
Fixed Costs = $1,050 - $800 = $250
The study of economics is concerned with individuals and groups making __________.
Choices
RATIONALE
Economics studies the choices made by individuals and groups.
This type of industry is classified as __________.
a constant cost industry
RATIONALE
The horizontal long-run industry supply curve and the constant price at higher levels of production indicate a constant cost industry.
Producing at a point above the total physical product curve is __________.
Impossible
RATIONALE
The firm cannot produce at any point above the curve because resources are not currently available.
Consider the diagram below.
At a selling price of $10 per unit, how much profit or loss is this perfectly competitive firm experiencing, and should they continue to produce or shut down temporarily?
Zero economic profit, or a normal profit; continue to produce
RATIONALE
At the quantity where MR = MC, which is where profits are maximized, price = ATC, which means the firm is earning zero economic profit, or a normal profit, and should continue to produce.
$2.14
RATIONALE
Marginal Cost = Change in TC / Change in Total Output Calculation is ($750 - $600) / (390 - 320) = $150 / 70 = $2.14
Using the graph below, determine the profit-maximizing price and quantity to produce.
Profit-maximizing price = $10Quantity to produce = 15 units
RATIONALE
The price is constant here for perfect competition at $10. The quantity to produce will be where marginal revenue (MR) intersects marginal cost (MC) at 15 units.
Less
RATIONALE
Sellers in a monopolistically competitive market have less influence over pricing compared to those in a monopoly market because firms in a monopoly are selling a product without close substitutes.
Unlike accounting profit, economic profit includes __________.
implicit revenue and implicit costs
RATIONALE
This is what is added to accounting profit to get economic profit.
As a women's soccer coach, Karissa is in charge of ordering uniforms. Three years ago, Karissa ordered 15 pairs of knee socks for $5 each and 15 pairs of shin guards for $7 each. Now, the price of the shin guards hasn't changed, but the price of knee socks has increased by 40%. Karissa decided she will decrease her purchase of shin guards by 33%.The cross-price elasticity for the shin guards calculated using the cross-price elasticity formula is __________ and the goods are __________.
-0.825; complements
RATIONALE
The cross-price elasticity formula is
(see picture)
where Product X and Product Y are related goods.The cross-price elasticity is -0.33/0.40 = -0.825. The negative number indicates the products are complements.
Which of the following could be a reason for the type of market failure known as government failure?
Rent control that lowers prices for some rental units
RATIONALE
This could be a reason for government failure in a market, as the government is restricting the price for the rental units.
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