ECON 2000 Final
A rise in the quantity demanded of lemons can be attributed to a
rightward shift in the supply curve of lemons
The imposition of an excise tax usually causes the price paid by consumers to _______, while the price received by sellers ________.
rise, falls
In the short run when the marginal product of labor ______, the marginal cost of an additional unit of output ______.
rises, falls
In the short run when the marginal product of labor _______, the marginal cost of an additional unit of output______.
rises; falls
The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal or legal within the terms of the Sherman Act is called the
rule of reason
Consider butter and margarine, which are substitutes. When the price of butter falls, the demand curve for margarine is likely to
shift to the left
Suppose there is a permanent shift of consumer preferences away from pretzels and towards potato chips. The most likely result would be
short-run profits in the potato chip market increase
A coffee manufacturer raises the price of its coffee by 12%, and the quantity demanded of its coffee falls by only 5%. This firm has
some market power
A coffee manufacturer raises the price of its coffee by 10%, and the quantity demanded of its coffee falls by only 12%. This firm has
some output power
In 1911 two major antitrust cases were brought before the Supreme Court involving
standard oil and american tobacco
A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the _______ effect of a price change.
substitute
A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the _____ effect of a price change.
substitution
Suppose a market is in equilibrium at price P0, and then an excise tax of t dollars per unit of the good is imposed. At a price of (P0 + t) there will be excess ________ for the good unless the demand curve is _______.
supply, vertical
According to the law of _______, there is a positive relationship between price and ________.
supply; the quantity supplied
If a firm is producing where MR>MC
the revenue gained by producing one more unit of output exceeds the cost incurred by doing so
Jon is consuming X and Y so that he is spending his entire income and MUx/Px=4 and MUy/Py=4. To maximize utility, he should consume
the same amount of X and Y since he is already maximizing utility
In a monopoly, the market demand curve is
the same as the demand curve facing the firm
Which of the following will definitely occur when there is a decrease in the supply of and an increase in demand for wireless speakers?
an increase in equilibrium price
Which of the following will definitely occur when there is a simultaneous increase in demand and an increase in supply?
an increase in equilibrium quantity
Economist refer to things that have already been produced that are in turn used to produce other goods and services as
capital
Economist usually assume that _______ is a fixed input in the _______ run.
capital; short
Assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates would lead to
more giving because households would have more disposable income
Ceteris paribus, the position of the demand curve for apples will remain unchanged if there is a change in the
price of apples
Consider the law of demand. Other things being equal, the quantity of beer demanded will be greater if the
price of beer is lower
You own a business that answers telephone calls for physicians after their offices close. You have incentive to substitute capital for labor if the
price of labor increases
The _______ system automatically distributes scarce goods.
price system
The main decision for a profit maximizing perfectly competitive firm is not what ______ but what _____.
price to charge, level of output to produce
Marginalism is
the process of analyzing the additional cost or benefits arising from a decision
If P<MC, society gains by _________ X
producing less
Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds the firm's marginal and average variable costs. It follows that producing one more computer will cause the firm's
profits to increase
When deriving the market demand curve for a commodity, the only variables that can change are
quantity of the commodity demand and price of the commodity
You own and are the only employee of the company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return. Your economic profit last year was
$0
Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $6 and its total variable cost is $400. The total cost of producing 100 widgets is
$1,000
You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The building's value in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is
$1,000, the difference in value if the building were used as a bookstore and its actual use
If the most someone is willing to pay for an airline ticket to Las Vegas is $300 and the market price of the ticket is $200, then this buyer will get a consumer surplus of
$100
You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your cost for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. During the year your economic cost were
$100,000
The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are
$2,000
Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen
$20,000
For a monopolist to sell more units of output
it must decrease the price
The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit cost for producing 300 muffins are $250. If the bakery is earning a normal rate of return, the implicit costs must be
$50
When a monopolist sells two units of output its total revenue is %150. When a monopolist sells three units of output its total revenue, is $210. When the monopolist sells three units of output, the price per unit is
$70
You own and are the only employee of a company that sets odds for sporting events. Last year your total revenue was $60,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $20,000 a year return. During the year your economic costs were
$70,000
The price elasticity of demand for heart transplants is perfectly inelastic. Thus, the price elasticity demand for heart transplants is
0.0
Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from $1.25 to $0.75 per unit. The price elasticity of demand for this product is
2/3
Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. The clothing and food pairs in Jane's choice set include ________ units of clothing and _______ units of food.
8, 30
A monopolist suffers a loss if its ______ schedule is everywhere above its ______ schedule
ATC; Demand
Suppose that the following demand curves for goods A,B, and C have the following functional forms: Qa=120-3.5Pa-6Pb, Qb= 100-2Pb+3Pc and Qc=1500-0.5Pc. Based on these demand curves, which of the following pairs of goods are known to be substitutes?
B and C
Marginal revenue (MR) is
Change in TR/ change in q
Which of the following statements would you expect to be true about t-shirts and clothing?
Clothing has a lower elasticity demand because it is more broadly defined
True/False: When the slope of a demand curve is constant, price elasticity of demand is constant as well
False
True/false: Average total cost is minimized in long-run equilibrium for a monopolistically competitive firm.
False
Congress established the ________ to investigate "....the organization, business conduct, practices, and management" of companies that engage in interstate commerce
Federal Trade Commission
Which of the following is a question answered with positive economic analysis?
If the college increased tuition, will class size decline?
Which of the following best explains why demand is often less elastic in the short run than it is in the long run?
In the short run, consumers have less access to substitutes
_______ are likely fixed costs of a firm.
Lease payments for office space
_________ are likely a fixed cost of a firm
Lease payments for office space
The profit-maximizing level for all firms, regardless of industry structure, is the output level where
MC=MR
We can write the cost minimizing equilibrium conditions as
MPL/PL=MPK/PK
When a monopolist's marginal profit is negative, then it follows that
MR<MC
When the addition to a monopolist's total profit is negative from selling another unit, then it follows that
MR<MC
_______ is an example of a public good
National defense
In perfect competition, _________ is the condition that ensures that firms produce the right things
P=MC
If a firm's demand curve is perfectly elastic, then at the profit maximizing level of output
P=MR=MC
We know that monopolistically competitive firms prevent the efficient use of resources because they produce where
P>MC
_________ occurs when it is not possible to make some members of society better off without making some other members of society worse off
Pareto optimality
A basic underlying point in economics is
People have unlimited wants in the face of limited resources
_________ reflects the minimum household willingness to pay and _______ reflects the opportunity cost of the resources needed to produce a good.
Price; marginal cost
The _________ Act declared monopoly and trade restraints illegal
Sherman
Which of the following is an example of a normative question?
Should the government provide free prescription drugs to lower-income citizens?
Demand for one item goes down when the price of another item goes down. These items must be
Substitutes
The formula for total fixed cost is
TFC=TC-TVC
Suppose that two weeks ago you purchased a ticket to the symphony for $40. Last week someone invited you to go camping on the same night as the symphony concert. You would much rather go camping than go to the symphony. You have tried unsuccessfully to sell the symphony concert ticket. Which of the following statements regarding this situation is correct?
The $40 you paid for the symphony ticket should be irrelevant in your decision making, because it is a sunk cost
Amy spends $5,000 on remodeling a storefront that she then opens as a take-out deli. Business has not been very successful, and she needs additional $1,000 to keep the deli open. Which of the following is true?
The $5,000 Amy spent is a fixed cost of her business
Which of the following is a positive statement?
The higher the price for gasoline, the less it will be consumed
Which of the following is an opportunity cost of attending college?
The income you could have earned if you didn't attend college
The quantity demanded for Coca Cola has increased. The best explanation for this is that
The price of Coca Cola has decreased
Why do price discriminating firms often offer lower prices to children and elderly?
They have a lower willingness to pay than other consumers
Which of the following is the best analysis of the question of how fast a delivery truck drivers should drive in order to reduce cost?
They should balance the concerns of speed and fuel efficiency and drive at a speed that minimizes total expenses
The ABC Computer Company spends a lot of money for advertising design to convince you that their personal computers are superior to all other personal computers. If the ABC Company is successful, the demand for ABC personal computers
Will become less price elastic but the demand for other firms' personal computers will become more price elastic.
You value your favorite shirt at $110. Someone else values it at $150, and that person is willing to pay you $120 for your shirt. Would selling your shirt to this person for $120 be pareto efficient?
Yes, because both of you are better off as a result of the trade.
A change in the demand for some commodity can result from all of the following EXCEPT:
a change in the price of a commodity
A cartel is
a group of oligopolists who make price and output decisions jointly
All of the following are key characteristics of a monopolistically competitive industry except
a homogeneous product
Which of the following demonstrates an act of production, as economist use the term?
a local nonprofessional theater company performs a play
A minimum permissible price establishment by the government is called
a price floor
In competitive markets, price floors and price ceilings usually lead to
a reduction in quantities exchanged
In an imperfectly competitive industry
a single firm has some control over the price of its output
In an imperfectly competitive industry,
a single firm has some control over the price of its output
A monopoly is an industry with
a single firm in which the entry of new firms is blocked
Marginal utility is the ______ satisfaction gained by consuming _______ of a good.
additional; one more unit
For a perfectly competitive firm, the marginal revenue curve has _______ point(s) in common with the firm's demand curve.
all
In the short run
all firms have cost they must bear regardless of their output
If a product's income elasticity of demand is -1.7, then we can conclude that
an increase in income will lead to an increase in demand for the product. A decrease in income will lead to an increase in demand for the product.
In perfect competition, a firm's marginal revenue curve
and the demand curve facing the firm are identical
In perfect competition, the marginal revenue curve
and the demand curve facing the firm are identical
Disagreements over positive statements
are best handled by an appeal to the facts
If two goods, X and Y, have a negative cross-elasticity of demand, then we know that they
are complements
If the marginal product of labor is less than the average product of labor, then the
average product must be decreasing, marginal product must be decreasing
A situation where illegal trading at market prices takes place is known in economics as a
black market
Economic costs include
both a normal rate of return on investment and the opportunity cost of each factor of production
Suppose that iPhones are normal goods. If the income of iPhone users decreases, you predict that in the market for iPhones
both equilibrium price and quantity will fall
For normal goods, the substitution and income effects of a price decrease will
both increase the quantity of the good demanded
Cost of production are determined
by the technologies that are available and by input prices
To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider
changes in the equilibrium prices and quantities of beef and chicken, changes in the price of resources allocated to the production of beef and chicken, changes in the amount of resources allocated to the production of beef and chicken (all of the above)
The term "comparative statics" describes
comparison of one equilibrium point with another
If the price of tea falls and as a consequence the demand for sugar rises, then tea and sugar are
complementary goods
When the increase in the price of one good causes the demand for another good to decrease, the goods are
complements
Which statement is NOT true? Variable cost are
constant as output increases
Richard is consuming X and Y so that he is spending his entire income and MUx/Px=6 and MUy/Py=10. To maximize utility, he should
consume less X and more Y
Ameritech has a monopoly over local telephone service. If Ameritech is producing where marginal revenue is less than marginal cost, the firm
could increase profits by reducing output.
The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must
decrease price by 2.0%
Consumers will bear a larger burden of an excise tax if
demand is relatively inelastic and supply is relatively elastic
When there are more substitutes for a product, the _______ for the product is _______.
demand; more price elastic
In the short run average costs eventually increase because of _________, and in the long run average costs eventually increase because of ______.
diminishing returns; diseconomies of scale
In a short run production process a(n) _______ marginal product of labor explains why marginal cost is positive and ______.
diminishing; rises
Fixed cost
do NOT exist in the long run
Firms that are "breaking even" are
earning zero economic profits
It is essential to establish specific criteria to judge the performance of any economic system. Two such criteria are
efficiency and equity
Marginal cost is ________ average variable cost when ________.
equal to; average variable cost is minimized
________ are sources of market failure
externalities
Average fixed cost
fall as output rises
True/false: If MUx/Px exceeds MUy/Py, then a household can increase its utility by spending more on X and less on Y
false
True/false: In long-run equilibrium for a monopolistically competitive firm, economic profit equals zero and this the outcome is efficient.
false
A normal good is a good
for which demand varies directly with household income
In order to have an efficient distribution of final products to households,
free and open markets are essential
Monopolies, oligopolies, and monopolistic competitive industries all
have market power
The key issue surrounding the US Supreme Court case of American Needle v. NFL was
if American Needle could sign an exclusive deal with the NFL
One of the characteristics of a monopolistically competitive industry is easy entry for new firms and easy exit of existing firms. This means
if firms in the industry are making positive profits, other firms will enter, pushing each firm's demand curve to the left
The quantity exchanged in the market will be below the equilibrium quantity
if there is either access supply or demand
Economic cost
include both a normal rate of return on investment and the opportunity cost of each factor of production
As output decreases, average fixed costs
increase
The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will
increase the quantity of education demanded by 14%
Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers a day. At this output level, price exceeds this firm's marginal cost. To maximize profits, Dell should
increase their output
For economies of scale, a(n)________ in a firm's scale of production leads to _________ average total cost.
increase; lower
Diminishing marginal returns implies
increasing marginal costs
Suppose a policy change will generate $100,000 of benefits for low income families and $120,000 of costs for high-income families. This change can best be described as
inefficient
When the price of Good A increases 10%, quantity demanded decreases 5%. The price elasticity of demand for Good A is ________ and the total revenue from Good A sales will _______.
inelastic; increase
The antitrust division of the justice department
initiates action against antitrust law violators and decides which cases to prosecute
The specific technology chosen by a profit-maximizing clothing manufacturer depends on
input prices
For a monopolist, price
is greater than marginal revenue
The demand curve for the product or service produced by a monopolistic competitor
is more elastic than the demand curve faced by a monopolist and less elastic than the demand curve faced by a perfectly competitive firm
When a firm maximizes total product in the short run, marginal product
is zero but average product is positive
A fall in price of potatoes, which are used in the production of french fries, will
lead to an increase in the supply of french fries, causing the supply curve of french fries to shift to the right
If the total expenditure on photoreceptors increases when the price of photoreceptors rises, the price elasticity of demand is
less than one (demand is inelastic)
For non-discriminating monopolist to sell one more unit, it must
lower the price of the last as well as all previous units produced
Economist usually assume households
make consistent decisions, maximize utility, and are the principle owners of the factors of production
Monopolistic competition is an industry market structure with
many firms each able to differentiate their product
The added revenue that a firm takes in when it increases output by one additional unit is _______ revenue.
marginal
The opportunity cost of using resources to produce more of one good instead of more of another good is its
marginal cost
A firm will begin to experience diminishing returns at the point where
marginal cost increases
Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. This suggests that for Kathy the
marginal utility of a slice of pizza is positive but decreasing.
The optimal production method
minimizes cost
The price elasticity of demand for a product tends to be greater the
more close substitutes for it there are
Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P=MC, the firm will be producing _______ the efficient amount of steel
more than
When______ substitutes exist, a firm in an imperfectly competitive industry has _______ power to raise a price.
more; less
An individual consumes _________ of a product within a given period of time, it is likely that each additional unit consumed will yield ________ satisfaction.
more; successively less
Pareto optimality is the condition which
no change is possible that will make some members of society better off without making at least one other member of society worse off
With respect to private goods, a _________ system is one in which all possible trades that make some societal members better off without making other worse off have been exhausted.
pareto optimal
The formula for the own-price elasticity of demand for a commodity can be written as which of the following?
percentage change in quantity demanded divided by percentage change in price
Which of the following statements regarding perfect price discrimination is false?
perfect price discrimination yields the same market price and output results as perfect competition
The law of diminishing marginal utility is effective when marginal utility is
positive and decreasing
Suppose a policy change generates $200,000 of benefits for low-income families and $175,000 of costs for high-income and middle-class families. We can describe the change as
potentially efficient
An economist estimates that the maintenance of a public park costs $20,000 a year and that the park generates $35,000 a year in revenue for merchants near it. From society's point of view, the maintenance of this park is
potentially efficient because the value of the gains exceed the value of the losses
An equilibrium price is the
price at which quantity demanded of the commodity is equal to the quantity supplied
Price and total revenue move in inverse directions when demand is
price elastic
Consider two demand curves and the same price change for both. If the resulting percentage change in quantity demanded is greater for one (D1) than the other (D2), we can conclude
the D1 is more elastic than D2
Consider a market that is in equilibrium with a market-clearing price. Economic surplus is shown by
the area below the demand curve and above the supply curve
Efficiency occurs when
the economy is producing what people want at least possible cost
If Microsoft is earning a rate of return greater than the return necessary for the business to continue operations in the long run, then
the firm is earning an economic profit
The "law of demand" hypothesizes that, other things being equal,
the higher the price, the lower the quantity demanded
At any disequilibrium price, whether controlled or not, the quantity actually exchanged is determined by
the lesser of quantity demanded and quantity supplied
When quantity demanded equals quantity supplied
the market is in equilibrium
Consider the following two statements. (1) An increase in the price of eggs will cause a decrease in the demand for eggs. (2) An increase in the price of eggs will cause a decrease in the demand for bacon. In which of these two statements is the term "demand" used correctly?
the second statement only
For normal goods,
the substitute and income effects of a price decrease will both increase the quantity of the good demanded.
For inferior goods,
the substitute effect of a price will decrease the quantity of the good demanded while the income effect of a price increase will increase the quantity of the good demanded.
Bacon is used to produce bacon cheeseburgers, and the price of bacon decreases. In the market for bacon cheeseburgers you would expect that
the supply of bacon cheeseburgers would increase and the price of bacon cheese would decrease
Under perfect competition
the system produces the goods and services consumers want, final products are distributed among households efficiently, resources are allocated among firms efficiently (all the above)
An electronics manufacturer can produce either MP3 players or cell phones. As a result of a decrease in the price of cell phones, the firm produces more MP3 players and fewer cell phones. An economist would explain this by saying
there has been a decrease in the quantity supplied of cell phones and an increase in the supply of MP3 players
A voluntary exchange between Mike (the purchasers) and Wayne (the seller) occurs because
they both gain from the transaction
An economic system that relies primarily upon custom and habit in economic decision making is a
traditional system
True/false: The Clayton Act was passed, in part, to strengthen the Sherman Act
true
When the demand curve is a downward sloping straight line, the quantity at which the demand curve intersects the horizontal (quantity) axis is _____ the quantity at which the marginal revenue curve intersects the horizontal (quantity) axis.
twice
The likely consequence of binding minimum wage in a competitive labor market is
unemployment
Perfectly competitive firms must make all of the following decisions except
what price to charge for its input
Perfectly competitive firms must make all of the following decisions EXCEPT
what price to charge for its output
Marginal cost is a good measure of
what society gives up by using resources to produce more of a good or service
If Leonardo is scalping tickets for a World Cup game, he will be successful at selling the tickets for a profit
when the price set by the World Cup organizers is less than the market equilibrium price