ECO Final Study Guide

Average income for adults still varies widely across gender and racial groups in the United States, which tells us that:

income is correlated with race and gender.

Economists typically use the mid-point method of calculating elasticity because:

the elasticity between two points is the same, regardless of the direction of the movement.

Programs such as unemployment insurance, disability or health insurance, and job training can be effective in fighting:

transient poverty, but not chronic poverty.

A utility function is an equation for calculating:

the total utility that an individual derives from consuming a particular combination of goods and services.

The most valuable asset for most (if not all) businesses is

their employees

If the market price falls below the minimum of the firm's average total cost curve:

there is no level of output at which the firm can make a profit.

Pigovian taxes are not always effective because:

they do not directly compensate those who are affected by the externality.

If the U.S. population were split into quintiles based on income, with the lowest quintile representing the poorest 20 percent, then those who earned the median income for the United States would be in the _______ quintile.

third

The way a business continues to succeed over an extended period is

to differentiate the product

The amount that a firm receives from the sale of goods and services is:

total revenue

When a perfectly competitive, well-functioning market is in equilibrium:

total surplus is maximized

What is the deadweight loss in this market?

$25

What are the firm's fixed costs?

$10

Assume the graph shown represents Ayesha's budget constraint. If a movie rental costs $3, what must a movie theater ticket cost?

$10.50

What is the value of the marginal product of labor for the sixth worker?

$100

The table shows costs for an individual firm. What is the variable cost of producing four units?

$50

Suppose the figure shown represents the production possibilities frontier for Country A. Which of the following combinations of goods could Country A consume in the absence of trade?

(5 airplanes, 30 trucks)

Suppose Bob earns $20,000 per year and pays $2,000 in taxes, while Cindy earns $40,000 per year and pays $4,000 in taxes. In this scenario, Bob's tax rate is _______ and Cindy's tax rate is _______.

10 percent; 10 percent

The graph shown portrays a subsidy to buyers. With the subsidy, sellers sell _______ units, and the post-subsidy price received for each one is _______.

150; $40

The graph shown demonstrates a tax on sellers. After the tax has been imposed, the sellers produce _______ units, and the post-tax price received for each one sold is _______.

15; $6

The table shows the total production of hats at a factory given various numbers of employees. What is the marginal product of the fifth worker?

40

Sam has $200 a month to spend on either tanning sessions or rounds of golf. Tanning sessions are $20 each and a round of golf is $50. Which of the following would be a point on Sam's budget constraint?

5 Tanning sessions and 2 rounds of golf

Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year. Country B has 400 workers. For a worker in Country A, the trade-off of making one tomato is:

5 bananas

The long run equilibrium occurs at a quantity of _______ and a price of _______.

50; $10

The graph shown demonstrates a tax on buyers. Before the tax was imposed, buyers purchased _______ units and paid _______ for each one. Multiple Choice

9; $30

If price is set at $11 in the market shown in the graph, consumer surplus will consist of areas:

A + B + G

Which action could cause the price ceiling shown in the graph to become non-binding?

A decrease in demand (shift to the left)

The concept of surplus can show:

All of these are correct

We say a market is "missing" when:

All of these are correct

If a price ceiling is set at $8 in the market in the graph shown:

All of these are correct.

Having free entry and exit in a market can help drive:

All of these are true

In the United States today, households headed by single women have higher poverty rates than:

All of these are true

Predatory pricing is:

All of these are true

Some policy makers have suggested that mandatory health insurance coverage would:

All of these are true

When two countries specialize and trade:

All of these are true

Some argue that the best government response to monopolies is no response at all. This is because:

All of these are true.

When a positive externality is present in a market, the imposition of a government subsidy will:

All of these are true.

The problem of inconsistent standards across nations can be managed by:

All of these are ways to manage inconsistent standards.

Total surplus can be increased by:

All of these can increase total surplus.

For which reason might you incorrectly conclude that an idea no other person has implemented is highly profitable?

All of these might lead you to incorrectly believe an idea is profitable.

The existence of a monopoly:

All of these result from the existence of a monopoly.

Moral hazard can be avoided by:

All of these statements are true

The concepts of comparative advantage, specialization, and trade can be useful in explaining why:

All of these statements are true.

Assume Bryce's budget constraint is represented by line C in the graph shown. Which of the following would cause Bryce's budget constraint to shift to line A?

Bryce's income increases

If the graph shown represents Damien's budget constraint, what can be said about burritos?

Burritos cost half as much as salads

Which of the following is an essential characteristic of a perfectly competitive market?

Buyers and sellers have no control over the market price.

You read a news article that states "More people purchase ChapStick after the weather report predicts a windy week." Which of the following statements is true?

Buying ChapStick is positively correlated with the announcement of a windy week.

If England buys hockey sticks from Canada, then:

Canada has a comparative advantage over England in producing hockey sticks.

The most fundamental financial principle for any business is:​

Cash in must exceed cash out

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements is true?

Country A has a comparative advantage at producing cars and Country B has a comparative advantage at producing trucks.

Assume Kevin has $48 to spend on the two items in the graph shown. If books cost $12, which line represents Kevin's budget constraint?

Either line A or B

A tax on which of the following goods is specifically designed to reduce consumption of that good?

Gasoline

Catarina has just eaten her second bowl of cereal. Which of the following is likely true?

Her second bowl added less to her total utility than the first.

Bob just got laid off from his job and now has no income. What can we assume about his demand?

His demand for inferior goods will increase.

Local governments, rather than private citizens, are typically the providers of large fireworks displays. This is because fireworks displays: suffer from the free rider problem. are non-excludable. are rival in consumption.

I and II only

The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $100, which of the following statements is true? I. This firm will earn positive profits in the short run. II. In the long run, the market supply curve will increase. III. Profits for this firm will decrease in the long run.

I, II, and III

An increase in price causes: I. a decrease in revenue due to the price effect. II. an increase in revenue due to the price effect. III. a decrease in revenue due to the quantity effect. IV. an increase in revenue due to the quantity effect.

II and III

The table shows costs for an individual firm. Which of the following statements is true? Marginal cost is greater than average total cost for quantities greater than 4. Average total cost is increasing for quantities greater than 4. The minimum of average total cost is at a quantity of 6.

III only

Latoya and Maggie are roommates. Maggie likes to play music in their dorm room every evening. Tonight, Latoya needs to study for her economics exam and would prefer that Maggie not play music. Latoya values silence at $50. Maggie values her music at $20. Assume the roommates can bargain with zero transactions costs. If the dorm rules are such that Maggie is allowed to play music whenever she likes, which of the following is true?

Latoya could offer to pay Maggie $25 in exchange for Maggie turning off her music, an offer that Maggie would accept.

The goal of a business is:

Maximize profit or minimize loss

Which of the following is not a public good that the government can make excludable?

National Defense

When a company's accounting profit is negative, what will the economic profit be?

Negative

Suppose Chip's Chips produces bags of potato chips. An example of a variable cost for this firm would be:

None of these are examples of variable costs.

Which of the following is one of the defining characteristics of an oligopoly?

One firm's behavior can affect the profits earned by other firms.

What is every business in business for?

Provide a product or service

Assume the market depicted in the graph is in equilibrium. If the market price is set to $7, which of the following statements is true?

Some consumers will gain surplus, but total surplus will fall.

The market price has fallen below a firm's average total costs, and the firm is now earning a loss. What is the best action for the firm to take in the short run?

Stay open as long as price is greater than average variable costs.

After getting a raise at work, Tiana now regularly buys steak instead of hamburger. Based on this behavior, what can we assume about these goods for Tiana?

Steak is a normal good and hamburger is an inferior good.

Assume there are three bakeries, each willing to sell one dozen cupcakes in a given time period. The Sweet Treat can offer a dozen cupcakes for a minimum of $6. The Cake Corner can offer a dozen cupcakes for a minimum of $9. Pastry Place can offer a dozen cupcakes for a minimum of $13. If the market price of one dozen cupcakes increased from $8 to $12:

The Sweet Treat's producer surplus would increase by $6.

Suppose that, given the same number of workers, the United States can produce five times as many computers or ten times as many airplanes as Mexico. Which of the following statements is true?

The United States has an absolute advantage at producing both airplanes and computers.

Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. Which of the following statements is true?

The United States has an absolute advantage at producing both shoes and apples.

Suppose Bev's Bags makes large and small handbags. Bev rents an industrial space where she keeps the company's fabric, industrial sewing machine, measuring board, cutting shears, extra needles, thread, buttons, and labels. Bev can produce three bags an hour, regardless of the size of the bag. Which of the following would be considered a variable cost?

The fabric

Suppose the government would like to reduce smoking rates among teenagers. Which of the following policies is designed to achieve this goal by changing incentives?

The government raises the tax on cigarettes.

Which of the following is a classic example of adverse selection?

The imbalance of information that exists between used car buyers and sellers.

How does the amount of time consumers have to adjust to a price change affect elasticity?

The more time consumers have to adjust, the more elastic their demand will be.

A product is a quality product if it

The product satisfies the consumer for the price of they paid

Which of the following is one of the defining characteristics of an oligopoly?

The strategic interactions between a firm and its rivals have a major impact on each firm's profits.

Which of the following is considered a macroeconomic issue?

The unemployment rate in the U.S. falls during the month of June.

Why might a government impose a minimum wage?

To redistribute surplus in a market

How is profit calculated?

Total revenue minus total cost

Assume the market depicted in the graph is in equilibrium at demand (D) and supply (S1). If the supply curve shifts to S2, and a new equilibrium is reached, which of the following is true?

Total surplus increases by $90.

A supplier should price a product based on:

Whatever the customer will pay

Reading a Consumer Reports review of a vacuum cleaner before making a purchase solves the problem of information asymmetry in a similar way as:

a buyer choosing a used car from a brand dealership.

A group of firms who collude to make collective production decisions about quantities or prices is called:

a cartel

Fish in the ocean would be considered:

a common resource

Only a firm with ______________ at producing a particular good will be able to produce that good profitably.

a comparative advantage

Utility is:

a quantitative measure of consumers' preferences.

If a producer incorrectly sets the price of its product too low:

a shortage (excess demand) will result.

Because a price ceiling causes:

a shortage, some form of rationing must occur.

A market failure is most likely to occur when:

a sole producer of a good faces no threat of competition

Profits earned by foreign firms or governments under a quota are called:

quota rents

Moral hazard is a problem that arises _____ the parties have entered into an agreement.

after

Suppose the graph shown depicts the demand for a normal good. A shift from A to B might be caused by:

an increase in income

External costs:

are imposed without compensation on someone other than the person who caused them.

At the price a monopolist sets, it will sell:

as much as consumers are willing to buy.

Disclosure laws are an example of how the government:

attempts to solve information asymmetry in markets.

In the short run, when a firm stops producing it:

avoids paying variable costs

If this economy were to open to trade, domestic producers would:

receive additional surplus in areas B + C + D.

Instead of trying to balance the budget every year, it is easier for a government to:

balance the budget over the business cycle.

When a transaction takes place repeatedly, one way to avoid information asymmetry is:

building a reputation

Tradable allowances and quotas both:

reduce the quantity bought and sold to the efficient level.

Price discrimination:

can benefit consumers with a lower willingness to pay as compared to other consumers in the market.

Suppose the cross-price elasticity of demand between two goods is −2. This tells us the two goods are:

complements

When an economist says that a country can experience gains from trade, this means it can:

consume at a point outside its production possibilities frontier.

According to the graph shown, if the market goes from equilibrium to having its price set at $10:

consumer surplus will definitely fall

The graph shown displays the cost curves for one firm in a perfectly competitive market. If the market price is $6, this firm should:

continue producing in the short run but exit in the long run.

The most difficult thing a business has to do is to

convince a customer to buy the product

When toilet paper sales increase, quarterly economic growth rates tend to rise. This is an example of:

correlation without causation

According to the graph shown, if the market goes from equilibrium to having its price set at $10 consumer surplus will:

decrease by (B + C)

If there is a decrease in demand for a certain good produced by workers, the value of the marginal product of labor will _______ and the demand for labor will _______.

decrease; decrease

A decrease in the price of spaghetti noodles is likely to cause a(n) _____ in the demand for penne pasta, due to a change in the price of a _____.

decrease; substitute good

Means-tested government programs:

define eligibility for benefits based on recipients' income.

The demand for factor inputs:

depends upon the markets for the goods that the inputs are used to produce.

Olivia decides to forgo a third slice of pizza and eats an ice cream cone instead. This behavior exemplifies the economic concept of:

diminishing marginal utility

A tax imposed on a good can:

discourage consumption of the good

If firms are producing at a profit-maximizing level of output where the price exceeds the average total cost:

economic profits must be positive

The single most costly item for most businesses is

employees

A perfectly straight Lorenz curve would indicate perfect _______, which _______.

equality; does not exist in the real world

Economists refer to the pattern of income that people derive from different factors of production as the:

factor distribution of income

In practice, oligopolistic markets are:

fairly common

In the short run in a perfectly competitive market:

firms cannot enter or exit the market.

Thomas Malthus was an early 19th century economist who created a model describing the relationship between population growth and:

food production

A perfectly competitive market is one in which _____ buyers and sellers easily trade a standardized good or service.

fully informed, price-taking

The increase in welfare, in both countries' experience, as a result of specialization and trade is called:

gains from trade

Nikolaj makes a New Year's resolution to lose weight. On January 3rd, he decides to go out for ice cream instead of going to the gym. Using the concept of revealed preference, economists would most likely conclude that Nikolaj:

gains more utility from ice cream than working out.

Consider the production possibilities frontier in the figure shown. The opportunity cost of cars between points B and C is:

greater than the opportunity cost of cars between points A and B.

A linear demand curve:

has a constant slope

When the competitive firm's value of the marginal product of labor intersects the market-wage level, the firm:

has found the profit-maximizing quantity of labor to hire.

When the price effect outweighs the quantity effect, the oligopolistic firm:

has no incentive to increase output

If Spain sells soccer balls to the United States, then Spain:

has the ability to produce soccer balls at a lower opportunity cost than the United States can.

Social disapproval carries a higher cost when you:

have very close interactions with community members

With the baby boomer generation hitting the retirement age, waiting lists to get into nursing homes are on the rise. In this situation, we could reasonably expect the demand for geriatric care to:

increase due to the number of buyers increasing.

Any event that increases the value of the marginal product of labor will:

increase labor demand

When a subsidy is imposed on a market with a positive externality, efficiency:

increases

When two countries specialize and trade with one another, total production:

increases, but only if a comparative advantage exists.

If increasing the admission charge for national parks increases the National Park Service's total revenue, then the demand for national park visits is:

inelastic

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 0.4 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

inelastic; less

The factors of production are the:

ingredients that go into making any good or service.

The two flows, or things being exchanged, in the circular flow model are:

inputs/outputs and money

The price elasticity of demand for eggs is −0.27 and the price elasticity of demand for soft drinks is −0.70. Therefore, the demand for eggs:

is less elastic than the demand for soft drinks.

The evidence on how minimum wage laws work in the real world:

is mixed

When the free rider problem is present in a market, the good:

is not excludable

Marginal utility:

is the change in total utility that comes from consuming one additional unit of a good or service.

if a firm adopts a labor-augmenting piece of technology:

labor demand will increase

The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

less; a subway ride requires a smaller portion of one's income

Median income is the:

level earned by the household exactly in the middle of the national income distribution.

For a monopoly, for all units greater than one the marginal revenue curve:

lies below the average revenue curve.

The monopolist's outcome happens at a _______ the perfectly competitive one.

lower quantity than

The firm's marginal revenue for the fourth unit is ______ the marginal revenue of the third unit.

lower than

With a monopolist's outcome, consumer surplus is _______ that of a competitive market.

lower than

For almost all goods, the:

lower the price goes, the higher the quantity demanded.

Tradable allowances and taxes both:

maximize surplus

People with auto insurance tend to drive less carefully. Economists use this as an example of:

moral hazard

We might predict that Japan has a comparative advantage in the production of hi-tech electronics compared to Russia because Japan has:

more advanced electronics technology.

A baker of chocolate chip cookies is likely to have a _____ price elasticity of supply than the seller of rare baseball cards due to _____.

more elastic; the availability of inputs

In general, the _______ complicated and _______ efficient the design of a tax system is, the more equitable its incidence.

more; less

The Lorenz curve demonstrates inequality visually, in that the _______ linear the curve, the _______ inequality exists.

more; less

Ren loves to go to the movies, and he just learned that he can buy a ticket at a discounted price using his student ID. Ren now sees movies at the theater even more frequently. The change in Ren's behavior would be shown graphically by a:

movement down along his demand curve

Even if there are big gains to be had from specialization and trade, countries generally don't produce only one good because:

no national economy is a perfectly free market.

The free-rider problem exists when a good is:

nonexcludable

The free rider problem arises when a good is _______ and the tragedy of the commons arises when a good is ________________.

nonexcludable; both rival and nonexcludable

If the punishment associated with breaking a government ban is not severe enough, it may:

not alter the trade-offs enough to change the consumption patterns of the banned good.

An increase in the price of butter is likely to cause the demand for:

olive oil to increase

If a monopolistically competitive firm is earning profits in the short run:

other firms have an incentive to enter the market.

To measure income mobility in relative terms, we would measure whether a person's income:

places them higher or lower in the income distribution than their parents.

This is a _______ externality, and the optimal quantity is _______ units.

positive; 8

When choosing its production level, an oligopolist needs to consider how the _______ effect affects its profit.

price

The most commonly used measures of elasticity are:

price elasticity of demand and price elasticity of supply.

If a monopolistically competitive firm's demand curve is shifting to the left, it will stop shifting when:

price is equal to the firm's average total cost.

Retirement benefits are less like _______ and more like _______.

private insurance; collective savings program

The relationship between the quantity of inputs and the quantity of outputs is called the:

production function

Taxes are generally classified into three categories:

progressive, regressive, and proportional

A preference for policies that place limits on trade is called:

protectionism

FICA, the tax that supports U.S. Medicare and Social Security programs, is generally:

regressive

A tax that is levied in such a way that low-income taxpayers pay a greater proportion of their income than high-income taxpayers is called a:

regressive tax

Most goods are:

rival in consumption

When fishing at a pond, catching and keeping one fish means that this fish is no longer available for another person to catch. This is an example of:

rivalry

Taking action to reveal one's own private information is called:

signaling

If the price effect outweighs the income effect of a wage increase, the labor supply curve will:

slope upward

If the price effect outweighs the income effect of a wage increase, the labor supply curve will:

slope upward.

A lump-sum tax:

taxes everyone the same amount, regardless of income.

The federal debt is _______ and the federal deficit is _______.

the cumulative total of what the federal government owes; the amount the federal government overspent in a given year

In an oligopoly, the price effect is:

the decrease in total revenue that occurs when an increased quantity sold pushes the market price down.

Suppose Sam's Shoe Co. makes one kind of shoe. An example of a variable cost for this company would be:

the leather needed to make the shoes.

Tina withdraws $20,000 from her money market account to start up her own house cleaning business. Over that time, the account would have earned 3 percent interest. In order to properly account for all costs of her business, Tina must not forget:

the opportunity cost of $600

The slope of a production possibilities frontier measures:

the opportunity cost of producing one good in terms of the other.

The prices of related goods matter when determining supply because they affect:

the opportunity cost of production

If the intended aim of the price floor set at $23, as shown in the graph, was a net increase in the well-being of producers, then positive analysis would have us consider whether:

the producer surplus lost due to fewer transactions taking place is greater than the producer surplus gained from a higher price.

Average product measures:

the quantity of output produced per unit of input.

For a single country to influence the price of a particular good in the world market:

the quantity of the good produced and consumed by the country must be large relative to the total amount bought and sold worldwide.

If a Pigovian tax is levied on producers, the supply curve will shift straight _______ and the equilibrium quantity will _______.

up; decrease

When a rare skill contributes to the production of something that consumers value highly, the:

value of the marginal product is high.

Long-term solutions to community-wide poverty must involve:

ways to expand the range of opportunities available to the population

In the early 2000s, laws requiring banks and mortgage brokers to disclose the terms of home loans:

were so numerous and detailed that borrowers didn't read or understand the information the companies had disclosed.

When a positive externality exists in a market, the distribution of surplus received from a subsidy depends on:

where the government obtains the money it uses to pay for the subsidy.

The absolute poverty line indicates _______ while the relative poverty line indicates _______.

who cannot afford the basic necessities; what people can afford compared to those around them