ECO Final

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is A) 2 chairs. B) 3 chairs. C) 4 chairs. D) 38 chairs.

A) 2 chairs.

Which of the following is not a characteristic of monopolistic competition? A) Firms are price takers. B) There are many buyers and sellers. C) Barriers to entry are low. D) Firms sell similar, but not identical, products.

A) Firms are price takers.

Which of the following is true at the output level where average total cost is at its minimum? A) Marginal cost equals average total cost. B) Average variable cost equals fixed cost. C) Marginal cost equals average variable cost. D) Average total cost equals average fixed cost.

A) Marginal cost equals average total cost.

Is a monopolistically competitive firm productively efficient? A) No, because it does not produce at minimum average total cost. B) Yes, because it produces where marginal cost equals marginal revenue. C) No, because price is greater than marginal cost. D) Yes, because price equals average total cost.

A) No, because it does not produce at minimum average total cost.

Which of the following statements about scarcity is true? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity only arises when there is a wide disparity in income distribution.

A) Scarcity refers to the situation in which unlimited wants exceed limited resources.

5) Which of the following is a normative economic statement? A) The price of wheat is too low. B) The current low price of wheat is the result of increased worldwide supply. C) When the price of wheat falls, the quantity of wheat purchased rises. D) When the price of wheat falls, the cost of wheat-based products falls.

A) The price of wheat is too low.

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.

A) an inferior good.

A situation in which a country does not trade with other countries is called A) autarky. B) self-actualization. C) autonomy. D) independence.

A) autarky.

Marginal cost is equal to the A) change in total cost divided by the change in output. B) change in average total costs divided by the change in output. C) change in total product divided by the change in output. D) change in average product divided by the change in output.

A) change in total cost divided by the change in output.

The key characteristics of a monopolistically competitive market structure include A) many small (relative to the total market) sellers acting independently. B) all sellers sell a homogeneous product. C) barriers to entry are strong. D) sellers have no incentive to advertise their products.

A) many small (relative to the total market) sellers acting independently.

When a negative externality exists, the private market produces A) more than the economically efficient output level. B) less than the economically efficient output level. C) products at a low opportunity cost. D) products at a high opportunity cost

A) more than the economically efficient output level.

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone A) strawberries and whipped cream are complements. B) strawberries and whipped cream and substitutes. C) strawberries and whipped cream are normal goods. D) strawberries are a normal good and whipped cream is an inferior good.

A) strawberries and whipped cream are complements.

When the price of a good falls, consumers buy a larger quantity because of the ________ effect and the ________ effect. A) substitution; income B) normal; inferior C) substitute; complement; D) supply; demand

A) substitution; income

When demand is unit elastic, a change in price causes total revenue to stay the same because A) the percentage change in quantity demanded exactly offsets the percentage change in price. B) buyers are buying the same quantity. C) total revenue never changes with price changes. D) the change in profit is offset by the change in production cost.

A) the percentage change in quantity demanded exactly offsets the percentage change in price.

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which A) the sum of consumer surplus and producer surplus is at a maximum. B) economic surplus is minimized. C) the sum of the benefits to firms is equal to the sum of the benefits to consumers. D) the sum of consumer surplus and producer surplus is minimized.

A) the sum of consumer surplus and producer surplus is at a maximum.

Which of the following is the best example of a perfectly competitive industry? A) the wheat market B) the steel market C) the electricity market D) the airplane market

A) the wheat market

A demand curve shows A) the willingness of consumers to buy a product at different prices. B) the willingness of consumers to substitute one product for another product. C) the relationship between the price of a product and the demand for the product. D) the relationship between the price of a product and the total benefit consumers receive from the product.

A) the willingness of consumers to buy a product at different prices.

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit? A) P - ATC B) (P × Q) - TC C) (P × Q) - (P × ATC) D) P - TC

B) (P × Q) - TC

Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.

B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Which of the following is not an assumption of perfectly competitive markets? A) There are many sellers and many buyers, all of which are small relative to the market. B) Each firm produces a similar but not identical product. C) There are no barriers to new firms entering the market. D) The products sold by all firms in the market are identical.

B) Each firm produces a similar but not identical product.

Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward-sloping demand curve. D) Firms take market prices as given.

B) Entry barriers into the industry are low.

________ is a situation in which a good or service is produced at the lowest possible cost. A) Allocative efficiency B) Productive efficiency C) Equity D) Optimal marginalization

B) Productive efficiency

When BMW, a German company, purchases a welding machine that was made in Toronto, the purchase is A) both a German and a Canadian import. B) a German import and a Canadian export. C) a German export and a Canadian import. D) neither an export nor an import for either country.

B) a German import and a Canadian export.

China has developed a comparative advantage in the production of clothing. The source of this comparative advantage is A) a large supply of natural resources. B) a large supply of unskilled workers and relatively little capital. C) investment in capital used to produce clothing. D) superior process technology.

B) a large supply of unskilled workers and relatively little capital.

An increase in the price of pineapples will result in A) a smaller quantity of pineapples supplied. B) a larger quantity of pineapples supplied. C) a decrease in the demand for pineapples. D) an increase in the supply of pineapples.

B) a larger quantity of pineapples supplied.

Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon? A) a decrease in demand and an increase in supply B) an increase in supply C) an increase in supply and an increase in demand greater than the increase in supply D) a decrease in demand and a decrease in supply

B) an increase in supply

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is A) an income elastic good. B) an inferior good. C) a necessity. D) a luxury good.

B) an inferior good.

A monopolistically competitive industry that earns economic profits in the short run will A) continue to earn economic profits in the long run. B) experience the entry of new rival firms into the industry in the long run. C) experience the exit of existing firms out of the industry in the long run. D) experience a rise in demand in the long run.

B) experience the entry of new rival firms into the industry in the long run.

Every firm that has the ability to affect the price of the good or service it sells will A) have a perfectly elastic demand curve. B) have a marginal revenue curve that lies below its demand curve. C) earn a short-run profit but break even in the long run. D) shut down in the short run.

B) have a marginal revenue curve that lies below its demand curve.

The long run refers to a time period A) during which a firm is able to purchase all of its inputs, including its plant and equipment. B) long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant. C) long enough for a firm to pay all of its creditors in full. D) long enough for a firm to change the use of its variable inputs.

B) long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant.

In a competitive market, the demand curve shows the ________ received by consumers and the supply curve shows the ________. A) utility; average cost. B) marginal benefit; marginal cost C) economic surplus; opportunity cost D) net benefit; net cost

B) marginal benefit; marginal cost

Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is A) positive, so Joan considers hamburger to be an inferior good. B) negative, so Joan considers hamburger to be an inferior good. C) positive, so Joan considers hamburger to be a normal good and a necessity. D) negative, so Joan considers hamburger to be a normal good.

B) negative, so Joan considers hamburger to be an inferior good.

The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) people overuse a common resource. C) people do not internalize an externality. D) there is rivalry in consumption.

B) people overuse a common resource.

Which of the following is an example of a positive externality? A) raising the speed limit to 60 mph in school zones B) planting trees along a sidewalk which add beauty and create shade C) permitting smoking on commercial airplanes D) a police department stops enforcing DUI laws

B) planting trees along a sidewalk which add beauty and create shade

The marginal product of labor is defined as A) the additional sales revenue that results when one more worker is hired. B) the additional output that results when one more worker is hired, holding all other resources constant. C) the additional number of workers required to produce one more unit of output. D) the cost of hiring one more worker.

B) the additional output that results when one more worker is hired, holding all other resources constant.

The total amount of producer surplus in a market is equal to A) the difference between quantity supplied and quantity demanded. B) the area above the market supply curve and below the market price. C) the area above the market supply curve. D) the area between the demand curve and the supply curve below the market price

B) the area above the market supply curve and below the market price.

When demand is elastic, a fall in price causes total revenue to rise because A) when price falls, quantity sold increases so total revenue automatically rises. B) the increase in quantity sold is large enough to offset the lower price. C) the percentage increase in quantity demanded is less than the percentage fall in price. D) the demand curve shifts.

B) the increase in quantity sold is large enough to offset the lower price.

Which of the following are implicit costs for a typical firm? A) the cost of labor B) the opportunity cost of capital owned and used by the firm C) the cost of energy used in production D) a business licensing fee

B) the opportunity cost of capital owned and used by the firm

The ratio at which a country can trade its exports for imports from other countries is called A) a trade barrier. B) the terms of trade. C) autarky. D) a free trade agreement.

B) the terms of trade.

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula. A) 1.67 B) 1.0 C) 0.6 D) 0.53

C) 0.6

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? A) 0.11 B) 0.37 C) 2.69 D) 9.33

C) 2.69

Which of the following equations is correct? A) AVC - ATC = AFC B) AVC + ATC = AFC C) AFC + AVC = ATC D) ATC + AVC = AFC

C) AFC + AVC = ATC

An externality is A) a benefit realized by the purchaser of a good or service. B) a cost paid for by the producer of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.

C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

A movement along the demand curve for toothpaste would be caused by A) a change in the price of toothbrushes. B) a change in consumer income. C) a change in the price of toothpaste. D) a change in population.

C) a change in the price of toothpaste.

Countries that engage in trade will tend to specialize in the production of goods and services in which they have ________ and will ________ these goods and services. A) a comparative advantage; import B) an absolute advantage; export C) a comparative advantage; export D) an absolute advantage; import

C) a comparative advantage; export

An explicit cost is defined as A) a cost that does not change as output changes. B) a nonmonetary opportunity cost. C) a cost that involves spending money. D) a nonmonetary accounting cost.

C) a cost that involves spending money.

A private good is A) a good that is rival and nonexcludable. B) a good that is nonrival and nonexcludable. C) a good that is rival and excludable. D) a good that is nonrival and excludable.

C) a good that is rival and excludable.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as A) productive efficiency. B) constant returns to scale. C) allocative efficiency. D) perfectly competitive efficiency.

C) allocative efficiency.

Private costs A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. ' C) are borne by producers of a good while social costs are borne by society at large. D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

C) are borne by producers of a good while social costs are borne by society at large.

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision? A) 0 since he will no longer be earning a salary B) depends on the "going rate" of museum employees C) at least $80,000 D) the value he attributes to the joy of working at a museum

C) at least $80,000

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must A) lobby government to erect barriers to entry in their industries. B) limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions. C) differentiate their products. D) achieve economies of scale.

C) differentiate their products.

The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area. This source of comparative advantage is referred to as A) the abundance of natural resources. B) superior process technology. C) external economies. D) best practices of unskilled labor.

C) external economies.

Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes.

C) how responsive quantity demanded is to a change in price.

A tariff is a tax imposed by a government on A) exports. B) services. C) imports. D) luxury items.

C) imports.

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is A) unit elastic. B) perfectly elastic. C) inelastic. D) elastic.

C) inelastic.

A perfectly competitive firm's marginal revenue A) is greater than its price. B) is less than price because a firm must lower its price to sell more. C) is equal to its price. D) may be either greater or less than its price, depending on the quantity sold.

C) is equal to its price.

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.

C) is incurring a loss.

If a firm faces a downward-sloping demand curve A) the demand for its product must be inelastic. B) it can control both price and quantity sold. C) it must reduce its price to sell more units. D) it will always make a profit.

C) it must reduce its price to sell more units.

An external cost is created when you A) graduate from college. B) buy flowers for your mother on Mother's Day. C) litter on the side of the road. D) buy a sandwich for lunch.

C) litter on the side of the road.

When there few close substitutes available for a good, demand tends to be A) perfectly inelastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

C) relatively inelastic.

1) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand.

C) the choices people make to attain their goals, given their scarce resources.

A positive externality causes A) the marginal social benefit to be equal to the marginal private cost at the market equilibrium. B) the marginal social benefit to be less than the marginal private cost at the market equilibrium. C) the marginal social benefit to exceed the marginal private cost at the market equilibrium. D) the marginal private benefit to exceed the marginal social cost at the market equilibrium.

C) the marginal social benefit to exceed the marginal private cost at the market equilibrium.

A negative externality exists if A) there are price controls in a market. B) there are quantity controls in a market. C) the marginal social cost of producing a good or service exceeds the private cost. D) the marginal private cost of producing a good or service exceeds the social cost.

C) the marginal social cost of producing a good or service exceeds the private cost.

What is a "social cost" of production? A) the cost of the natural resources used up in production B) the total costs of producing a product, both implicit and explicit costs C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product D) the cost of the environmental damage created by production

C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

What is the profit-maximizing rule for a monopolistically competitive firm? A) to produce a quantity that maximizes market share B) to produce a quantity that maximizes total revenue C) to produce a quantity such that marginal revenue equals marginal cost D) to produce a quantity such that price equals marginal cost

C) to produce a quantity such that marginal revenue equals marginal cost

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________. A) downward sloping; vertical B) horizontal; downward sloping C) vertical; downward sloping D) upward sloping; horizontal

C) vertical; downward sloping

Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

Which of the following is not a characteristic of a perfectly competitive market structure? A) There are a very large number of firms that are small compared to the market. B) All firms sell identical products. C) There are no restrictions to entry by new firms. D) There are restrictions on exit of firms.

D) There are restrictions on exit of firms.

Which of the following is not a source of comparative advantage? A) relative abundance of labor and capital B) technology C) climate and natural resources D) a strong foreign currency exchange rate

D) a strong foreign currency exchange rate

Which of the following would cause an increase in the supply of peanut butter? A) a decrease in the price of grape jelly (assuming that peanut butter and grape jelly are complements) B) an increase in the price of peanut butter C) an increase the price of a product that producers sell instead of peanut butter D) an increase in the number of firms that produce peanut butter

D) an increase in the number of firms that produce peanut butter

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A) producer surplus. B) the substitution effect. C) the income effect. D) consumer surplus.

D) consumer surplus.

In economics, the term "equity" means A) everyone has an equal standard of living. B) the hardest working individuals consume all they want. C) only elected officials have high standards of living. D) economic benefits are distributed fairly.

D) economic benefits are distributed fairly.

Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family A) hamburgers and chicken nuggets are complements. B) hamburgers and chicken nuggets are inferior goods. C) hamburgers and chicken nuggets are normal goods. D) hamburgers and chicken nuggets are substitutes.

D) hamburgers and chicken nuggets are substitutes.

The demand for gasoline in the short run is A) elastic because people can easily switch to public transportation. B) perfectly inelastic because people have no choice but to buy gasoline. C) unit elastic because people tend to consume a stable amount of gasoline per period. D) inelastic because there are very few good substitutes for gasoline.

D) inelastic because there are very few good substitutes for gasoline.

If a perfectly competitive firm achieves productive efficiency then A) it will raise its price in order to earn an economic profit. B) the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. C) it is producing at minimum efficient scale. D) it is producing the good it sells at the lowest possible cost

D) it is producing the good it sells at the lowest possible cost

Economists reason that the optimal decision is to continue any activity up to the point where the A) marginal benefit is zero. B) marginal benefit is greater than the marginal cost. C) marginal cost is zero. D) marginal benefit equals the marginal cost.

D) marginal benefit equals the marginal cost.

A carbon tax which is designed to reduce pollution is an example of a A) command-and-control policy. B) government administrative rule. C) noneffective incentive. D) market-based policy.

D) market-based policy.

Japan has developed a comparative advantage in designing and producing automobiles. The source of its comparative advantage in these products is A) abundant supplies of natural resources. B) a favorable climate. C) a strong central government. D) technology.

D) technology.

If a firm expects that the price of its product will be higher in the future than it is today, then A) the firm will go out of business. B) the firm has an incentive to increase supply now and decrease supply in the future. C) the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. D) the firm has an incentive to decrease supply now and increase supply in the future.

D) the firm has an incentive to decrease supply now and increase supply in the future.

Consumers are willing to purchase a product up to the point where A) the marginal benefit of consuming the product is equal to the marginal cost of consuming it. B) the consumer surplus is equal to the producer surplus. C) the marginal benefit of consuming the product equals the area below the supply curve and above the market price. D) the marginal benefit of consuming a product is equal to its price.

D) the marginal benefit of consuming a product is equal to its price.

In perfect competition A) the market demand curve and the individual's demand curve are identical. B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing A) the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola. B) the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola. C) the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola. D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

Producing where marginal revenue equals marginal cost is equivalent to producing where A) average total cost equals average revenue. B) average fixed cost is minimized. C) total revenue is equal to total cost. D) total profit is maximized.

D) total profit is maximized.

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade, a. Belarus should export linen to Russia. b. Russia should export linen to Belarus. c. trading linen would provide no net advantage to either country. d. Without additional information about opportunity costs, this question cannot be answered.

a. Belarus should export linen to Russia.