econ exam 2
In what type of economy does the government decide how economic resources will be allocated?
a centrally planned economy
When nations specialize in their comparative advantage and engage in trade:
overall standards of living increase
Sellers optimize by solving the seller's problem, which dictates that decisions are made on the margin
expand production until MC equals MR.
The price elasticity of supply always has a:
positive value
Gross domestic product is best defined as the:
market value of all final goods and services produced in a country during a period of time
According to the graph the shut-down point corresponds to:
Point d
The market for economics textbooks is in equilibrium. The government decides to relax export restrictions on paper, leading to an increase in the demand for paper. How does social surplus in the market for textbooks change? Why?
The social surplus Th decreases, producer surplus may increase or decrease, and consumer surplus decreases.
When is output lower than the efficient level?
When marginal benefit is greater than marginal cost
Prolonged shortages arise if:
prices are not allowed to rise to equilibrium
Absolute advantage is the ability of an individual, firm, or country to:
produce more of a good or service than competitors using the same amount of resources.
Marginal Product of labor(MP)
the change in output(Q) when one more worker is added
Marginal Cost: (MC)
the change in total cost due to a unit increase in production (what it costs to make one more unit of output)
When is output higher than the efficient level?
When marginal benefit is less than marginal cost
The market for electric drills in a certain country is characterized by a large number of buyers. The market for drills is in equilibrium. Does this also mean that it is Pareto efficient? Explain your answer.
Yes, with the market in equilibrium, no one participant can be made better off without someone else being harmed.
According to the graph, which change in output represents economies of scale in bookselling?
from 1,000 to 20,000 books sold per month
If a country has a comparative advantage in the production of a good, then that country:
has a lower opportunity cost in the production of that good
What is the name for the additional output that a firm produces as a result of hiring one more worker?
Marginal product of labor
In perfect competition, the marginal revenue is the same as:
Price
All else being equal, the flatter the demand curve, the _________ the social surplus in a market.
Smaller
According to the table, what is the average total cost of producing 550 pizzas?
$5.00
According to the graph, which level of output represents the minimum efficient scale in bookselling?
20,000 books
According to the data in the table, what level of output maximizes profit?
8 units of output
Average Variable Cost (AVC): variable cost per unit of output
AVC = VC/Q
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?
As a part of fixed cost
How much intervention by government in markets is necessary to increase GDP?
As little as possible, coordination and incentives are best addressed by unrestricted markets.
According to the graph, what size bookstore is more likely to experience diseconomies of scale?
Bookstores that sell more than 80,000 books per month
Based on the relationship between average total cost and marginal cost, which of the curves appears to be average total cost?
Curve 2
Based on the relationship between marginal and average product, which curve appears to be the average product curve?
Curve 2
Which of the following terms best refers to a fair distribution of economic benefits?
Equity
In the short-run, the cost that is independent of the amount of output produced is called __________.
Fixed cost
According to the data in the table, when the price is $4, the firm would produce:
Four units of output, although it would suffer a loss from doing so
According to the graphs, which of the following is likely to happen in this market in the long run?
No other firms will enter this market
Accounting Profit is almost always greater than zero when a firm is earning
Normal Profit
Which is the following is false for a firm in a perfectly competitive market?
The firm can raise price, but only a little.
When a competitive market is in equilibrium, what is the economically efficient level of output?
The output where marginal cost is exactly equal to marginal benefit.
According to the table of data, when do diminishing returns in the production of pizzas begin?
When the third worker is hired
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as:
absolute advantage
Variable Costs(VC)
combined total variable costs
Countries gain from specializing in goods for export in which they have a(n) __________ advantage and importing goods in which other countries have a(n) __________ advantage.
comparative, comparative
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.
increase, 8.0
A legally determined maximum that sellers may charge is known as a:
price ceiling
Price controls that put a maximum price (price ceiling) on goods and services that is below a free market price create __________.
shortages
If prices rise the quantity supplied will be greater:
the longer the time that elapses
What term do economists use to refer to the dollar amount that business owners must earn on their time and effort they invest in a firm?
Implicit cost
In the short run, the firm should:
Operate (produce) if price > average variable cost.
incorrectcorrectcorrect What is the name given to the highest-valued alternative that must be given up to engage in any activity?
Opportunity cost
What is occurring from the origin up until point A in this graph?
Output increases at an increasing rate.
Which of these costs are affected by the level of output produced?
Variable costs
Accounting profits will always be __________ economic profit.
larger than
Assume that some of the buyers in this market are now willing to pay more for a drill than they did earlier. Does this mean that the market for drills is Pareto efficient? Explain your answer.
Yes, as long as the market equilibrium still holds, the outcome is still Pareto efficient.
Earning above a normal rate of returns
Earning Economic Profit
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market?
It would reduce any downward pressure on prices from entry and allow economic profits in the long run
All else being equal, the steeper the demand curve, the _____________ the social surplus in a market
Larger
Profit Maximizing Output is where
MC=MR
Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?
North Korea
What happens when a price ceiling is put above the equilibrium price?
Nothing
The short run is a period of time where __________ while the long run is a period of time where __________.
at least one input is fixed, all inputs are variable
Average Product(AP)
average amount of output produced by each worker
For markets to generate the greatest benefit and function in the most efficient manner they must:
be perfectly competitive
The downward sloping part of the long run average total cost curve is where the firm is achieving:
economies of scale
In a perfectly competitive market
firms have no market power
The difference between price and the MC curve is
producer surplus
The relationship between the inputs used by the firm and the maximum output it can produce is known as the:
production function
Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.
rationing, highest
Prolonged agricultural surpluses can arise if governments:
set the price above equilibrium
A production possibilities curve (PPC) ___________.
shows the relationship between the maximum production of one good for a given level of production of another good.
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _ the payoff to devoting additional resources to that activity.
smaller
Costs that cannot be recovered and therefore aren't relevant to a decision for a future activity are called _______________ costs.
sunk
Price controls that put a minimum price on goods and services that is above a free market price create __________.
surpluses