ECO 2305 Exam 2 TTU

The long run is best defined as:

a period of time sufficiently long that all factors of production are variable

Which of the following will cause an increase in market supply?

a technological innovation that lowers the marginal cost of producing the good

The market equilibrium is only efficient if:

all relevant costs and benefits are reflected in the market supply and demand curves

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:

complements

According to the law of demand, when the price of shoes _____ people will consume ______ shoes.

falls; more

One difference between the long run and the short run in a perfectly competitive industry is that:

firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run

An increase in consumers' demand for espresso will lead to an increase in _____, while an increase in the number of firms producing espresso will lead to an:

quantity supplied; increase in supply

The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the _______ function of price.

rationing

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is:

relatively inelastic

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

$3,750

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:

0

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

0.2

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

0.3

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is:

2

If the price of cheese falls by 1% and the quantity demanded rises by 3%, then the price elasticity of demand for cheese is equal to:

3

If a 1% increase in the price of oranges leads to a 5% increase in the quantity supplied, the price elasticity for the supply of oranges is:

5

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product

The price elasticity of demand equals 1:

at the midpoint of a straight-line demand curve

As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand:

becomes less elastic

Which of the following would be considered a factor of production in the provision of bus service?

bus drivers

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:

decrease by 3%

If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:

earning a normal profit

A firm earns a normal profit when its:

economic profit is zero

Generally, _______ motivates firms to enter an industry, while ______ motivates firms to exit an industry.

economic profit; economic loss

If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

elastic

To increase total revenue, ______ demand should lower price, and firms with ________ demand should increase price.

elastic; inelastic

To produce 150 units of output, the firm must use 3 employee-hours. To produce 300 units of output the firm must use 8 employee-hours. Apparently, the firm is:

experiencing diminishing returns

Mary Jane is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Mary Jane accepts the offer:

her economic rent will be $2 per hour

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

her final salary and the least she would be willing to accept to star in the movie

If your income elasticity of demand for hot dogs is negative, then:

hot dogs are an inferior good for you

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

if the firm increases its price above the market price, it will earn zero revenue

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin is:

inelastic

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

is perfectly inelastic

Demand tends to be ______ in the short run than in the long run.

less elastic

Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be ____________ than the flatter curve.

less elastic than

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue

In general, perfectly competitive firms maximize their profit by producing the level of output at which:

marginal cost equals price

Economic theory assumes that a firm's goal is to:

maximize its economic profit

On a given linear demand curve, as price increases demand becomes:

more elastic

Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require:

more than 30 additional employee-hours

A situation is efficient if it is:

not possible to find a transaction that will make at least one person better off without harming others

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

often lead to the most efficient allocation of resources

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is:

perfectly inelastic

One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:

positive economic profit is only possible in the short run

Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ______ and the market price will ________.

rise; fall

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

shift into producing good Y

If a firms total revenue is less than its variable cost when the firm produces the level of output at which price equals marginal cost, then the firm should:

shut down

If all firms in a perfectly competitive industry are experiencing economic losses, then:

some firms will exit the industry, until economic profits equal zero

The price elasticity of demand is a measure of:

the change in quantity demanded of a good that results from a change in its price

When the price of a perfectly competitive firm's output rises:

the firm will produce more

The tendency for consumers to purchase more of a good or service as its price falls is captured by:

the law of demand

In general, when the price of a fixed factor of production increases:

the profit maximizing level of output does not change

In general, when the price of a variable factor of production increases:

the profit-maximizing level of output falls

Which of the following is most likely to be a fixed factor of production at a pizza restaurant?

the size of the seating area

Accounting profit es equal to:

total revenue minus explicit costs

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:

unit elastic

Individual supply curves generally slope _______ because ________.

upward; of increasing opportunity costs

A firm should shut down if its total revenue is less than its _______ even when the firm produces the level of output at which the price equals marginal cost.

variable cost