ECON 520 FINAL

indifference curve

A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:

economies of scale

A firm increases its total spending by 10% and output increases by more than 10%. This means that the firm experiences:

marginal revenue equals marginal cost

A firm maximizes profit by operating at the level of output where:

a market failure

A situation in which the unregulated competitive market outcome is the efficient because prices fail to provide proper signals to buyers and sellers is known as:

the marginal product of an input will eventually decline

According to the law of diminishing returns:

the substitution effect

After the price of one good drops, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now more expensive. This is called:

the relationship between quantity demanded and income

An Engel curve measures:

slopes upward for normal goods

An Engel curve:

consumer surplus for certain and possibly producer surplus as well

An effective price floor causes a loss of:

MRS = Px/Py

An individual consumes only two goods, X and Y. Which of the following expressions is true only when the individual has chosen her utility-maximizing bundle of X and Y?

100

An investment opportunity is a sure thing, it will pay $100 regardless of which of the three possible outcomes comes to pass. The expected value of this investment opportunity is:

input combinations that can be purchased for a given total cost

An isocost line reveals the:

less; more

Assume that Hot Pockets are an inferior good. If the price of Hot pockets rises, then the substitution effect results in the person buying ______ Hot pockets and the income effect results in the person buying _____ Hot Pockets.

less; less

Assume that cheese is a normal good. If the price of cheese rises, then the substitution effect results in the person buying _____ cheese and the income effect results in the person buying _____ cheese.

more; more

Assume that pizza is a normal good. If the price of pizza falls, then the substitution effect results in the person buying ______ pizza and the income effect results in the person buying _____ pizza.

more; less

Assume that powdered cheese is an inferior good. If the price of powdered cheese falls, then the substitution effect results in the person buying _____ powdered cheese and the income effect results in the person buying _____ powdered cheese.

when the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker

At what point should a firm stop hiring workers in the short-run?

Blanca is risk averse

Blanca would prefer a certain income of $20,000 to a gamble with 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information:

constant returns to scale

Consider a firm with the following production function: q = 4 x __/K*L. Does this firm have:

the benefit that consumers receive from a good or service beyond what they pay

Consumer surplus measures:

the difference between the total amount that consumers are willing to pay and the total actual consumer expenditures; how well-off consumers are in a market equilibrium; the area that is underneath the market demand curve and above the market price

Consumer surplus measures:

is too low to be optimal, and equilibrium quantity is too high

Dry cleaning of clothing produces air pollutants. Therefore, in the market for dry cleaning services, the equilibrium price:

is above the optimal level, and quantity bought is below the optimal level

Due to externalities generated by home landscaping, its price:

output

Fixed costs are fixed with respect to changes in:

work against each other

For an inferior good, the income and substitution effects:

transitivity

If a consumer prefers basket A to basket B and basket B to basket C, then the consumer also A to C. This assumption is called:

complements

If a decrease in the price of one good leads to an increase in the quantity demanded of another, the two goods are:

substitutes

If an increase in the price of one good leads to an increase in the quantity demanded of another, the two goods are:

the assumption of transitivity is violated

If indifference curves cross, then:

higher domestic prices; less consumer surplus; government revenue

Import tariffs generally result in:

true

In a perfectly competitive market, the price is determined at the intersection of the demand and supply curves

decreasing returns to scale

In a production process, all inputs are increased by 10% but output increases less than 10%. This means the firm experiences:

false

Indifference curves can intersect one another.

non-satiation

Judy gets 10 units of utility from a basket of goods containing 5 books and 3 candles. It follows that a basket containing 6 books and 3 candles gives Judy more than 10 units of utility. This assumption is called:

the additional satisfaction from consuming one more unit of a good

Marginal utility measures:

total revenue minus variable costs for all firms in a market

Producer surplus measures:

-2

Product A is $7, Product B is $14. What is the slope of the budget line if Good A is on the horizontal axis and Good B is on the vertical axis?

price times quantity

Revenue is equal to:

$12,500. (250,000 x .05)

Smith just bought a house for $250,000. Earthquake insurance would pay $250,000 in the event of a major earthquake. Smith estimates that the probability of a major earthquake in the coming year is 5%, and in the event of that earthquake, the property would be worth nothing. How much would the insurance cost?

somewhat inelastic

Suppose the price of crude oil increases by 2%. In response to this price change, we observe that demand for crude oil drops by 1%. The demand for crude oil is:

somewhat elastic

Suppose the price of crude oil increases by 2%. In response, we observe that demand for crude oil drops by 3%. The demand for crude oil is:

represent the quantity of each good that could be purchased if all of the budget were allocated to that good.

The endpoints (horizontal and vertical intercepts) of the budget line:

to decrease

The federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price. This causes consumer surplus:

the addition to total output due to the addition of the last unit of an input, holding all other inputs constant

The marginal product of an input is:

equal to the selling price

The perfectly competitive firm's marginal revenue curve is:

trade-offs faced by consumers in the purchase of goods, by workers between work and leisure, and by firms in what goods to produce

The problem of scarcity means that people face trade-offs. Which of the following are the concern of microeconomics?

a time period in which at least one input is fixed

The short run is:

the marginal rate of substitution

The slope of an indifference curve at any point reflects the:

Giffen good

The special subset of inferior goods in which the income effect dominates the substitution effect

completeness

The theory of consumer behavior assumes that consumers can compare and rank all possible market baskets. This assumption is called:

0

The variance of an investment that is a sure thing is:

expected value

The weighted average of all possible outcomes of a project, with the probabilities of the outcomes used as weights, is known as the:

the asset returns in our portfolio are positively correlated

We may not be able to successfully reduce risk by diversification if:

a salaried-manager who has a three-year employment contract

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represent an example of a fixed labor cost?

they are downward sloping, they represent all pairs of capital and labor that produce a fixed level of output, their slope represents the marginal rate of technical substitution

What is true about isoquants?

a decrease in total expenditures

When demand is elastic, an increase in price leads to:

an increase in total expenditures

When demand is inelastic, and increase in price leads to:

standard deviation

Which of the following can be used as a measure of the riskiness?

expected value

Which of the following is NOT generally accepted as a measure of riskiness?

each seller has a very small share of the market

Which of the following is a key assumption of a perfectly competitive market?

higher indifference curves represent lower levels of utility

Which of the following statements about an individual's indifference curves is incorrect:

isoquants can intersect one another

Which of the following statements about isoquants is NOT true?

positive; negative

_____ questions have to do with explanation and prediction: ______ questions have to do with what ought to be.