PRice theory final - Assignment Essays

question

Holding all other factors constant, consumers demand more of a good the

answer

Lower its price

question

If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely

answer

Shift leftward

question

If a yet to be released video game receives a positive review in a popular gaming magazine.

answer

The demand curve is expected to shift to the right

question

Which of the following cultural events likely increased the demand for the associated product?

answer

The inclusion of Reeses Pieces in the movie E.T.

question

If on Tuesday the perceived price of studying for an exam is $4 per hour but on Saturday the perceived price of studying for
an exam is $10, the law of demand predicts

answer

more studying on Tuesday and less on Saturday.

question

Lionfish is an aquatic invasive species in the southeastern U.S. and the Caribbean. Current removal policies focus on
harvesting the lionfish for human consumption. However, a fishing license is required to fish in most southern states.
Assume that the supply of fishing licenses is Qs = 50 + 0.05L + 40P, where and P = price of a fishing
license, and the demand for fishing licenses is . What is the equilibrium price and quantity of fishing
licenses when L = 10,000?
L = lionfish population
Qd = 1400 − 60P

answer

P = $8.5, Q = 890

question

Given the inverse demand curve ,
p = 14.3 − 0.05 Q,
how much would the price have to rise for consumers to want to buy 9 million fewer kg of pork per year?
The price would have to rise by $

answer

. 0.45

question

After a major disaster such as the Los Angeles earthquake and hurricanes such as Katrina, retailers often raise the price
of milk, gasoline, and other staples because supplies have fallen. In some states, the government forbids such price
increases. What is the likely effect of such a law?

answer

more will be demanded than is supplied, resulting in a shortage

question

"...Great market penetration enables the company to maximize sales volume, which ensures profits despite relatively
low selling prices". This statement is_______________

answer

False

question

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

answer

price elasticity of demand.

question

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for
orange juice is

answer

inelastic.

question

How will a decrease in price affect a firm's revenues?

answer

It depends on the price elasticity of demand.

question

Cranfield (2012) estimated that the demand elasticities were , , and for Canadian beef, chicken, and
pork, respectively. Among the three, the most elastic demand is for ____________

answer

beef

question

Who will bear the burden of a $1.00 tax placed on soda suppliers in a soda market where Qd = 150 3P and Qs = 130 +
2P?

answer

Sellers pay $0.6 of the tax and bear the burden.

question

An indifference curve represents bundles of goods that a consumer

answer

views as equally desirable.

question

The assumption of completeness means that

answer

the consumer can rank all possible consumption bundles.

question

If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit, in order to satisfy assumptions about
preferences she has to prefer

answer

Apples to Citrus Fruit.

question

The principle that "More is better" results in indifference curves

answer

All of the above.

question

If the utility for two goods "x" and "y" is measured as U = x + y, then it can be concluded that

answer

"x" and "y" are perfect substitutes.

question

Some people view cosmetic surgery (c) and facials (f) as perfect substitutes as measured by the utility function U(c,f) = 5c+ 10f. What is the marginal utility of cosmetic surgery?

answer

MU = 5.

question

Individuals derive utility from picnics, p, and kayak trips, k. Assuming that an individual's utility is
U(p,k) = and income is $100, what is the marginal rate of substitution (MRS) between picnics and kayak trips?

answer

MRS = 1.

question

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following
represents his budget constraint?

answer

All of the above.

question

By selecting a bundle where MRS = MRT, the consumer is

answer

reaching the highest possible indifference curve she can afford.

question

When the price of a good changes, the substitution effect can be found by comparing the equilibrium quantities purchased

answer

on the original indifference curve when faced with the original prices and when faced with the
new prices.

question

Diminishing marginal rate of substitution can be seen when indifference curves

answer

become flatter as we move down and to the right

question

The short run is a period when

answer

at least one input is fixed.

question

The difference between a fixed and a variable input is that a

answer

fixed input does not change with output and a variable input changes with output.

question

What is the difference between an isoquant and an indifference curve?

answer

Isoquants map inputs to output and indifference curves map goods to utility

question

Economists typically assume that the owners of firms wish to

answer

maximize profits.

question

Efficient production occurs if a firm

answer

All the above

question

A production function tells the firm

answer

the maximum it can expect to produce with a given mix of inputs

question

The Marginal Product of Labor is

answer

. the change in total product resulting from an extra unit of labor, holding other factors constant

question

Which of the following statements best summarizes the law of diminishing marginal returns?

answer

In the short run, as more labor is hired, output increases at a diminishing rate.

question

Which situation is most likely to exhibit diminishing marginal returns to labor?

answer

A factory that hires more workers and never increases the amount of machinery

question

What is the MRTS for a firm with the following production function , q = 10L^.5K^0.3?

answer

MRTS = −5K/3L

question

Returns to scale refers to the change in output when

answer

all inputs increase proportionately

question

What is the principle distinction between explicit costs and implicit costs?

answer

Explicit costs are direct, out-of-pocket payments, while implicit costs are all foregone opporunity costs.

question

Which of the following statements is NOT true?

answer

AVC =wage/MPL

question

Suppose the total cost of producing T − shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T − shirt is

answer

question

If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

answer

MPL is falling

question

When the isocost line is tangent to the isoquant, then

answer

All the Above

question

Suppose the firm faces a price of $ , an average variable cost of $ , and has an average fixed cost of $ . In the
short-run, the firm

answer

will earn an economic profit.

question

Many auction sites, such as eBay, provide a reputation score by which previous customers can rate a seller. Which of the
following characteristics of a competitive market is this policy trying to emulate?

answer

Buyers have more complete information.

question

If a firm is operating at an output level where losses are minimized, the firm

answer

is maximizing profits

question

A firm should always shut down if its revenue is

answer

less than its avoidable costs

question

If a competitive firm finds that it maximizes short − run profits by shutting down, which of the following must be true?

answer

p ≺ AVC for all levels of output

question

The competitive firm's supply curve is equal to

answer

the portion of its marginal cost curve that lies above AVC.

question

To maximize profits, a firm must produce as efficiently as possible. A firm engages in efficient production if:

answer

All of the above

question

Initially, the market price is p = 15, and the competitive firm's average variable cost is 16, while its average cost is 19.
Should it shut down? Why?
This firm should

answer

shut down because average variable cost is greater than the market price

1 of 49

question

Holding all other factors constant, consumers demand more of a good the

answer

Lower its price

question

If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely

answer

Shift leftward

question

If a yet to be released video game receives a positive review in a popular gaming magazine.

answer

The demand curve is expected to shift to the right

question

Which of the following cultural events likely increased the demand for the associated product?

answer

The inclusion of Reeses Pieces in the movie E.T.

question

If on Tuesday the perceived price of studying for an exam is $4 per hour but on Saturday the perceived price of studying for
an exam is $10, the law of demand predicts

answer

more studying on Tuesday and less on Saturday.

question

answer

P = $8.5, Q = 890

question

Given the inverse demand curve ,
p = 14.3 − 0.05 Q,
how much would the price have to rise for consumers to want to buy 9 million fewer kg of pork per year?
The price would have to rise by $

answer

. 0.45

question

answer

more will be demanded than is supplied, resulting in a shortage

question

"...Great market penetration enables the company to maximize sales volume, which ensures profits despite relatively
low selling prices". This statement is_______________

answer

False

question

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

answer

price elasticity of demand.

question

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for
orange juice is

answer

inelastic.

question

How will a decrease in price affect a firm's revenues?

answer

It depends on the price elasticity of demand.

question

Cranfield (2012) estimated that the demand elasticities were , , and for Canadian beef, chicken, and
pork, respectively. Among the three, the most elastic demand is for ____________

answer

beef

question

Who will bear the burden of a $1.00 tax placed on soda suppliers in a soda market where Qd = 150 3P and Qs = 130 +
2P?

answer

Sellers pay $0.6 of the tax and bear the burden.

question

An indifference curve represents bundles of goods that a consumer

answer

views as equally desirable.

question

The assumption of completeness means that

answer

the consumer can rank all possible consumption bundles.

question

If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit, in order to satisfy assumptions about
preferences she has to prefer

answer

Apples to Citrus Fruit.

question

The principle that "More is better" results in indifference curves

answer

All of the above.

question

If the utility for two goods "x" and "y" is measured as U = x + y, then it can be concluded that

answer

"x" and "y" are perfect substitutes.

question

Some people view cosmetic surgery (c) and facials (f) as perfect substitutes as measured by the utility function U(c,f) = 5c+ 10f. What is the marginal utility of cosmetic surgery?

answer

MU = 5.

question

answer

MRS = 1.

question

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following
represents his budget constraint?

answer

All of the above.

question

By selecting a bundle where MRS = MRT, the consumer is

answer

reaching the highest possible indifference curve she can afford.

question

When the price of a good changes, the substitution effect can be found by comparing the equilibrium quantities purchased

answer

on the original indifference curve when faced with the original prices and when faced with the
new prices.

question

Diminishing marginal rate of substitution can be seen when indifference curves

answer

become flatter as we move down and to the right

question

The short run is a period when

answer

at least one input is fixed.

question

The difference between a fixed and a variable input is that a

answer

fixed input does not change with output and a variable input changes with output.

question

What is the difference between an isoquant and an indifference curve?

answer

Isoquants map inputs to output and indifference curves map goods to utility

question

Economists typically assume that the owners of firms wish to

answer

maximize profits.

question

Efficient production occurs if a firm

answer

All the above

question

A production function tells the firm

answer

the maximum it can expect to produce with a given mix of inputs

question

The Marginal Product of Labor is

answer

. the change in total product resulting from an extra unit of labor, holding other factors constant

question

Which of the following statements best summarizes the law of diminishing marginal returns?

answer

In the short run, as more labor is hired, output increases at a diminishing rate.

question

Which situation is most likely to exhibit diminishing marginal returns to labor?

answer

A factory that hires more workers and never increases the amount of machinery

question

What is the MRTS for a firm with the following production function , q = 10L^.5K^0.3?

answer

MRTS = −5K/3L

question

Returns to scale refers to the change in output when

answer

all inputs increase proportionately

question

What is the principle distinction between explicit costs and implicit costs?

answer

Explicit costs are direct, out-of-pocket payments, while implicit costs are all foregone opporunity costs.

question

Which of the following statements is NOT true?

answer

AVC =wage/MPL

question

Suppose the total cost of producing T − shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T − shirt is

answer

question

If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

answer

MPL is falling

question

When the isocost line is tangent to the isoquant, then

answer

All the Above

question

Suppose the firm faces a price of $ , an average variable cost of $ , and has an average fixed cost of $ . In the
short-run, the firm

answer

will earn an economic profit.

question

answer

Buyers have more complete information.

question

If a firm is operating at an output level where losses are minimized, the firm

answer

is maximizing profits

question

A firm should always shut down if its revenue is

answer

less than its avoidable costs

question

If a competitive firm finds that it maximizes short − run profits by shutting down, which of the following must be true?

answer

p ≺ AVC for all levels of output

question

The competitive firm's supply curve is equal to

answer

the portion of its marginal cost curve that lies above AVC.

question

To maximize profits, a firm must produce as efficiently as possible. A firm engages in efficient production if:

answer

All of the above

question

Initially, the market price is p = 15, and the competitive firm's average variable cost is 16, while its average cost is 19.
Should it shut down? Why?
This firm should

answer

shut down because average variable cost is greater than the market price

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