Econ final 1030

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____

0.2; inelastic

(Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for Basketball Sneakers shows each player's willingness to pay for basketball sneakers. Assume that each player wants to buy at most, one pair of sneakers. If the price of basketball sneakers is $125, which players will purchase sneakers?

Jamichael and Corey

(Figure: The Blu-ray Disc Rental Market) Use Figure: The Blu-ray Disc Rental Market. At a rental price of $3, there will be:

an excess demand of 40 Blu-ray disc rentals.

Suppose bad weather and pollution dramatically reduce the supply of crawfish in Louisiana next year. This would MOST likely lead to _____ in the marginal utility of crawfish consumption.

an increase

In much of the country, homeowners choose to heat their houses with either natural gas or heating oil, both of which are normal goods. Which factor would cause an increase in the demand for natural gas?

an increase in consumer incomes

Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see:

an increase in demand for new potatoes.

Which factor would cause a LEFTWARD shift in the supply curve for a good?:

an increase in the cost of an input

The demand curve for monthly subscriptions to HBO has shifted to the right. What could have caused it?

an increase in the incomes of buyers

(Figure: The Optimal Quantity) Use Figure: The Optimal Quantity. If the marginal benefit of lawn mowing decreased, the marginal _____ curve in the figure would shift to the _____ and the optimal quantity would be _____ than five lawns mowed.

benefit; left; fewer

Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working. If Joan buys the model on closeout sale and doesn't take time to do research on repair records and energy efficiency of various other models, she is using:

bounded rationality.

Ian is such a big Braves fan that his benefit of seeing a Braves game is $200. He pays $100 for a ticket to see one of their playoff games. Unfortunately, he left the ticket in his jeans when he laundered them and the ticket was destroyed. According to marginal analysis, Ian should:

buy another ticket for $100 and attend the game.

Well-defined property rights:

can allow for mutually beneficial trades.

Price ceilings will impose costs on society because they:

lead to a smaller quantity offered on the market.

Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on) to local youth leagues for $11,000 per month. The $11,000 per month is the _____ cost of capital

implicit

If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will:

import sweaters from Britain and export machinery to Britain.

The burden of a tax on a good is said to fall completely on the consumers if the:

price paid by consumers for the good increases by the amount of the tax.

(Figure: Demand for Notebook Computers) Use Figure: The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to Tsuggests that demand is:

price-elastic.

In general, we predict demand for Gala apples to be:

price-elastic.

Demand for Gala apples is relatively elastic compared to the supply of Gala apples, so if a tax is imposed on the consumers of Gala apples, the tax incidence:

is typically on producers more than consumers.

If a monopolist can engage in perfect price discrimination:

it produces at the socially efficient level.

Suppose that more police and security workers become aware that wearing bulletproof vests can protect them from injury and decide to start wearing bulletproof vests. At the same time, the price of ceramics used to produce the vests falls. The equilibrium price of bulletproof vests _____ and the equilibrium quantity produced _____.

probably changes, but in an ambiguous direction; increases

Because of tax competition, state and local taxes tend to be _____; however, federal taxes tend to be _____.

regressive; progressive

(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent 1:

rental apartments may be of inefficiently low quality.

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted surpluses. To deal with a surplus:

the U.S. government in some cases has destroyed the surplus production

When a market is efficient:

there is no way to make some people better off without making other people worse off.

Economists who are asked to choose between two government policies may disagree because:

they base their conclusions on models that make different assumptions.

A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:

the price of thin-crust pizza.

Public policies toward monopoly in the United States often consist of:

the regulation of natural monopolies.

(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent 1:

the shortage of rental units is the distance Q3 - Q1.

It is certain that the equilibrium price will fall when:

the supply curve shifts to the right and the demand curve shifts to the left.

Quantity controls set below the equilibrium quantity do NOT cause:

the supply price of the quantity transacted to exceed the demand price of the quantity transacted.

The trade-off between equity and efficiency occurs because:

allocating resources fairly may cause inefficiency.

The marginal revenue received by a firm in a perfectly competitive market:

is equal to its average revenue.

You decide whether to eat one more slice of pizza based on how hungry you feel. Which economic principle does this statement BEST represent?

"How much" is a decision at the margin.

(Figure: The Market for Productivity Apps) Use Figure: The Market for Productivity Apps. If the government imposes a tax of $1 in this market, consumers will pay _____ more per app and purchase _____ fewer apps.

$0.50; 5

Austin's total fixed cost at the bakery is $3,600 a month. Austin employs 20 workers and pays each worker $8 an hour. The marginal product of the twentieth worker is 12 iced cupcakes an hour. What is the marginal cost of the last cupcake produced by the last worker Austin hired?

$0.66

(Table: The Market for Chocolate-Covered Peanuts) Use Table: The Market for Chocolate-Covered Peanuts. A surplus of 210 bags of chocolate-covered peanuts per month exists if the price is _____ per bag.

$0.90

(Table: The Market for Fried Twinkies) Use Table: The Market for Fried Twinkies. As a result of the $0.30 tax per fried Twinkie, the government will receive total tax revenue of:

$1,500.

(Figure: The Profit-Maximizing Output and Price) Use Figure: The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, deadweight loss is:

$1,600.

Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _____ and the marginal benefit from the third slice must be less than _____.

$1.50; $1.00

(Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government imposes a quota limiting sales of shrimp to 250 pounds, the quota rent per pound is:

$10.

(Figure: The Market for Hamburgers) Use Figure: The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per hamburger, producer surplus will be reduced by:

$105.

During its only year of operation, a firm collected $175,000 in revenue and spent $50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of their own money to build the firm's factory (instead of buying bonds and earning a 10% annual rate of return), which they sold at the end of the year for $100,000. The firm's economic profit is:

$115,000.

(Figure: A Profit-Maximizing Monopoly Firm) Use Figure: A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:

$12

If personal income up to and including $30,000 is not taxed, income of $30,001 to $60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family earning an income of $100,000 will pay _____ in personal taxes.

$13,000

(Table: Producer Surplus) Use Table: Producer Surplus. If the price of a ticket to see The Nutty Nutcracker is $75 and there is no other market for tickets, the total producer surplus for the five students is

$139

(Table: Marginal Benefit of Sweatshirts) Use Table: Marginal Benefit of Sweatshirts. The marginal benefit of producing the third sweatshirt is:

$14.

(Table: Marginal Cost of Sweatshirts) Use Table: Marginal Cost of Sweatshirts. The marginal cost of the fourth sweatshirt is:

$15.

(Figure and Table: The Market for Taxi Rides) Use Figure and Table: The Market for Taxi Rides. The figure represents a competitive market for taxi rides. If the government imposes an excise tax of $2 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of _____, BUT the tax will cause a _____ deadweight loss to society.

$16 million; $2 million

(Table: Total Cost Data) Use Table: Total Cost Data. What is the total variable cost for this bicycle firm when the firm produces 5 bicycles?

$190

Sasha buys a cold soda and a slice of pizza. The marginal utility from a soda is 40, and the price of the soda is $1. The marginal utility from a slice of pizza is 80. Assume Sasha is successfully maximizing his utility. If this is the case, we know the price of a slice of pizza must be:

$2

(Figure: The Market for Hamburgers) The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If 400 hamburgers are sold, producer surplus will equal:

$200.

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220

(Figure: The Market for Sandwiches) Use Figure: The Market for Sandwiches. How much total surplus would be lost if there were a quota of eight sandwiches that could be legally exchanged?

$3

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 180. If the price is $1.55, total revenue is _____, and if the price is $2.00, total revenue is _____.

$341; $360

(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good increases from $3 to $4, producer surplus will increase by:

$35.

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $5 in average fixed cost. The total cost of producing 10 pairs of eyeglasses is:

$350

(Table: Consumer Surplus) Use Table: Consumer Surplus. Assume that each student wants to buy one ticket. If the price of a ticket to see The Nutty Nutcracker is $75 and there is no other market for tickets, the total consumer surplus for the five students is:

$40.

(Table: Production Function for Soybeans) Use Table: Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The total cost of producing 60 bushels of soybeans is:

$450.

(Figure: Monthly Demand for Ice Cream Cones) The graph Monthly Demand for Ice Cream Cones shows one individual's linear monthly demand for ice cream cones. At $5 per cone, this individual will consume 10 cones in a month. How much consumer surplus does this consumer receive?

$50

(Figure: The Market for Sandwiches) Look at the figure The Market for Sandwiches. At the competitive price of $5, 10 sandwiches are sold. At this competitive price, consumer surplus equals _____ and producer surplus equals _____.

$50; $25

Suppose Cyd knows the average total cost of producing 9 scones is $5, while the average total cost of producing 10 scones is $5.20. What is the marginal cost of the tenth scone?

$7.00

(Figure and Table: Variable, Fixed, and Total Costs) Use Figure and Table: Variable, Fixed, and Total Costs. When 51 bushels of wheat is produced, the average fixed cost is _____, average variable cost is _____, and average total cost is ____

$7.84; $11.76; $19.60

(Figure: Revenues, Costs, and Profits for Tomato Producers) Use Figure: Revenues, Costs, and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. At the profit-maximizing quantity of output in the figure, the farmer's total revenue is _____, total cost is _____, and economic profit is _____.

$90; $70; $20

Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled:

$94,000.

(Figure: Prices, Cost Curves, and Profits) Use Figure: Prices, Cost Curves, and Profits. If the price is P 2 and the firm is profit-maximizing, then the firm's profit is:

(de) × Q2

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000.

(Figure: Demand and Supply) Use Figure: Demand and Supply. The slope of the curve labeled D is:

-1

(Figure: Slope) Use Figure: Slope. In the graph, the slope of the line between points A and Bis

-2

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The slope of Faruq's budget line is equal to:

-5.

If all of the opportunities to make someone better off (without making someone else worse off) have been exploited, an economy is:

. efficient.

(Table: Tutoring) Use Table: Tutoring. If he can charge all students their willingness to pay, at the optimal hours of tutoring, Sigmund's total profit is:

. $50.

When all of a firm's inputs are doubled, input prices do not change, and this results in the firm's level of production less than doubling, a firm is operating:

.on the upward-sloping portion of its long-run average total cost curve.

(Table: Coffee and Salmon Production Possibilities) Use Table: Coffee and Salmon Production Possibilities. The table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. The opportunity cost of producing 1 unit of salmon for Alaska is _____ coffee(s).

1

The price elasticity of supply for a good is 3 if a _____ in price leads to a 3% decrease in the quantity supplied.

1% decrease

(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. If the economy produces 4 units of consumer goods per period, it also can produce, at MOST, _____ units of capital goods per period.

10

A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____.

10%; fall

(Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government imposes a quota limiting sales of shrimp to 250 pounds, it will have the same effect on transactions as a price floor of:

17.50

If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is:

2

(Table: Wages and Hours Worked) Use Table: Wages and Hours Worked. Graphing the relation with wages on the vertical axis and hours worked on the horizontal axis, the slope between point A and point B is:

2/5.

(Table: Optimal Choice of Milk and Honey) Use Table: Optimal Choice of Milk and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's income is $16. Assuming that Hal spends all of his income on honey and milk, the combination of milk and honey that will maximize his total utility is _____ jars of honey and _____ gallons of milk.

2; 4

(Figure: Demand and Supply) Use Figure: Demand and Supply. The curve labeled Dindicates that a price of $2 is associated with a quantity of:

3

The market for beef is in long-run equilibrium at $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, when the long-run equilibrium is reestablished, the price will be:

3.25 per pound.

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. With specialization, _____ brownies and _____ cookies will be made in one day.

40; 15

(Table: Comparative Advantage I) Use Table: Comparative Advantage I. The opportunity cost of producing 1 box of cell phones for Finland is _____ box(es) of herring.

5

(Figure: Omar's Production Possibilities) Use Figure: Omar's Production Possibilities. The opportunity cost for Omar to move from point A on the curve to point B is:

5 coconuts.

Egg producers know that the price elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

50%.

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If Faruq purchases 10 milkshakes, he can purchase _____ tacos.

8

(Figure: Long-Run and Short-Run Average Cost Curves) Use Figure: Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with

ATC2.

According to the substitution effect, which statement BEST describes why a decrease in the price of LED light bulbs leads to an increase in the quantity of LED light bulbs demanded?

Buyers tend to purchase more of the now less expensive LED light bulbs.

(Figure: Change in Total Surplus) Look at the figure Change in Total Surplus. Which areas represent the change in total surplus when the price falls from P 2 to P 3?

C and E

(Figure: Supply of Coconuts) Use Figure: Supply of Coconuts. If the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport coconuts increased, it could be represented in the figure as a movement from

C to A.

Which statement illustrates the law of demand?

Consumers buy more personal computers because prices have fallen.

(Figure: Budget Lines for Tea and Scones) Use Figure: Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which chart shows what will happen to her budget line if the price of a cup of tea falls to $0.50?

D

(Figure: Gain in Producer Surplus) Look at the figure Gain in Producer Surplus. Which areas represent producer surplus when the price is equal to P 2?

D, E, and F

The two most important sources of federal revenue are the _____ taxes.

FICA and personal income

The price of microchips used to produce computers falls. As a result, the equilibrium price of computers _____ and the equilibrium quantity _____.

Fall; increases

Which statement is normative?

Government has grown too large and should be reduced.

Which statement BEST describes the income effect of a price increase?

Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine.

Two neighbors, Molly and Sandy, are separated by a white picket fence. Each neighbor has a garden that grows tomatoes and peppers. To gain from trade, _____ can trade _____ to _____ for _____ if _____ is the more efficient grower of peppers.

Molly; peppers; Sandy; tomatoes; Molly

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What is MOST likely to happen?

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

During the Great Depression, consumers and producers in the United States dramatically reduced their spending relative to the quantity of goods and services available at the time. Which economic principle does this statement BEST represent?

Overall spending sometimes gets out of line with the economy's productive capacity.

In the short run, a perfectly competitive firm produces output and breaks even if the firm produces the quantity at which:

P = ATC.

(Figure: Supply and Demand) Use Figure: Supply and Demand. A binding price floor is represented by:

P1

(Figure: The Market for Candy) Use Figure: The Market for Candy. A surplus of the good will exist at a price of:

P1.

(Figure: Producer Surplus II) Look at the figure Producer Surplus II. At a price of P 1, producer surplus equals the area:

P1K0.

(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating asparagus slows the aging process. Which panel BEST describes how this will affect the market for asparagus?

Panel A

(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose a spring frost destroys one-third of the nation's artichoke crop. Which panel BEST describes how this will affect the market for mayonnaise, which is a complement to artichokes?

Panel D

Which statement about the undesirable side effects of a quantity control is NOT correct?

Quantity controls do not lead to deadweight loss

(Figure: Rent Controls) Use Figure: Rent Controls. Suppose that rent controls are imposed. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

Rent1

Which situation best demonstrates the benefits principle?

Revenue from the federal tax on gasoline is used to maintain and improve the interstate highway system.

Which statement is NOT an example of price discrimination?

Street vendors increase the price of umbrellas when it is raining.

In the market for grass-fed beef, what would cause a price increase?

The prices of grass and corn increase.

Which statement is positive?

The rate of unemployment is 4%.

When workers earn income, they and their employer pay equal portions of FICA (the Federal Insurance Contributions Act). Which statement is TRUE?

The worker bears almost all of the burden of the tax.

Which principle underlies the interaction of individual choices?

There are gains from trade.

Which statement is NOT characteristic of perfect competition?

There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

(Figure: Guns and Butter) Use Figure: Guns and Butter. Suppose the economy produced 8 guns and 12 pounds of butter per period. Given that, which statement is TRUE?

This is a possible choice, but it is inefficient

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?

Total revenue will fall.

When a factory closes, why is it bad news for the local restaurants?

Unemployed factory workers have lower incomes and are less likely to dine out.

Which scenario is most likely to INCREASE consumer surplus in the market for cotton T-shirts?

Weather provides for a bountiful cotton harvest.

Producers will sometimes lower the quality of a good when the government imposes:

a binding price ceiling.

Which factor will NOT cause an increase in demand for good X?

a decrease in the price of good X

Which factor would cause an INCREASE in the supply of a good?

a decrease in the price of resources used in production

Which factor is likely to cause a rightward shift in the demand for home-delivered pizza?

a larger population

(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price ceiling of $0.50 per can of soda, there will be:

a shortage of 3 cans.

A total product curve indicates the relationship between _____ when all other inputs are fixed.

a variable input and output

A positive relationship between swimsuits purchased and ice cream purchased could be the result of:

an omitted variable, such as the external temperature.

Suppose the NFL wants to give the "common fan" the opportunity to attend the Super Bowl, so it sets Super Bowl prices "low"—let's say they set ticket prices for a regular seat at Super Bowl LI to cost just $400. People who have tickets, however, can turn around and sell them online for $1,500 or more. If there are no transaction costs for fans with tickets to sell them, the true cost to a fan of attending Super Bowl LI is:

at least $1,500.

(Figure: Demand and Supply of Gasoline) Use Figure: Demand and Supply of Gasoline. Given the equilibrium after a change in supply from S 1 to S 2:

at the old price of $2.50, there will be pressure for the price to fall.

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is minimized in the long run.

The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week:

average variable cost is $8.

(Figure: Price Controls) Use Figure: Price Controls. The consumer surplus lost to a price floor at point b is equal to the area:

bcge.

Good X and good Y are related goods. Holding everything else constant, if the price of good X decreases and the demand for good Y increases, good X and good Y are probably:

complements

Suppose the GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. We would expect the _____ surplus to increase and _____ surplus to decrease after the breakup.

consumer and total; producer

(Table: Denise's Consumption of Coffee and Gasoline) Use Table: Denise's Consumption of Coffee and Gasoline. Suppose Denise initially chooses consumption bundle A. She can increase her total utility by:

consuming more gasoline and less coffee

Zoe, the owner of Zoe's Bakery, determines that, at her optimal level of production in the short run, P < ATC and P > AVC. In the short run, Zoe should:

continue to operate, even though she is taking an economic loss.

For which decision would marginal analysis be relevant?

deciding how much to spend on a summer vacation

(Figure and Table: The Budget Line) Use Figure and Table: The Budget Line. A(n) _____ in the price of potatoes would rotate the budget line, changing the intercept on the _____ axis and moving it _____ the origin.

decrease; vertical; away from

The total cost curve gets steeper as output increases because of:

decreasing returns to the variable input.

A monopolist responds to a decrease in demand by _____ price and _____ output.

decreasing; decreasing

Consumers' willingness to pay for a good is used to derive the _____ for that good.

demand curve

The market price of airline flights increased recently. Some economists suggest that the price increased because of an increase in the number of business travelers. They believe that, in the market for flights:

demand increased.

Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

economies of scale.

Airlines that engage in price discrimination charge higher prices to business travelers because their _____ is more _____ than that of other travelers.

demand; inelastic

The larger the output, the more variable input required to produce additional units. Called the _____ effect, this leads to a _____ average _____ cost as output rises.

diminishing returns; higher; variable

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a _____ demand curve, while the purely competitive firm has a _____ demand curve

downward-sloping; perfectly elastic

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

earn an economic profit.

(Figure: Price Controls) Use Figure: Price Controls. A price floor has been set at point b .The area of deadweight loss that results from this price floor is:

egh.

(Table: Total Product and Marginal Product) Use Table: Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added.

eighth

A higher rate is MOST likely to decrease the amount of revenue that the government collects from an excise tax if demand is _____ and supply is _____.

elastic; elastic

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

elastic; elastic

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy now operates at point C. Moving to point E would require that the economy:

eliminate its production of strawberries.

In microeconomics, the short run is:

enough time to vary output but not plant capacity

(Table: Price, Quantity Demanded, and Quantity Supplied) Use Table: Price, Quantity Demanded, and Quantity Supplied. The slope of the line representing the relation between price on the vertical axis and quantity supplied on the horizontal axis is:

equal to 1/2.

In baseball, when one manager decides to send in a pinch hitter, the other manager often changes pitchers. This sometimes causes the first manager to send in a new pinch hitter. Once both managers decide that no more player substitutions will benefit their team, the situation has reached:

equilibrium.

If a tax system is poorly designed, it may be possible to increase:

equity without causing inefficiency or increase efficiency without sacrificing equity.

(Figure: Demand, Revenue, and Cost Curves) Use Figure: Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government regulated the figglenut market by setting a price ceiling of $40, Figglenuts-R-Us might:

exit in the long run.

Accountants use only _____ costs in their computations.

explicit

Steven consumes staples and paper clips. He is maximizing his utility in consumption of both goods. The price of staples rises. After the change in price, Steven should consume _____ staples and _____ paper clips.

fewer; more

The simplest circular-flow model shows the interaction between households and firms. In this model:

firms supply goods and services to households, which in turn supply factors of production to firms.

(Table: The Utility of Pecan Rolls) Use Table: The Utility of Pecan Rolls. Total utility is maximized at the _____ roll.

fourth

Other things being equal, the price elasticity of demand for a product will be lower:

if there are few or no substitutes available.

When markets fail:

government intervention may help.

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.

greater than

Suppose Governor Meridias decides to initiate a state income tax. The first $50,000 of household income is tax-free, while any income above $50,000 is taxed at 10%. The marginal tax rate for a household earning $75,000 is:

greater than its average tax rate.

Economic signals:

guide decision makers in their transactions in the marketplace.

The pair of items that is MOST likely to have a negative cross-price elasticity of demand is:

hot dogs and mustard.

(Table: Hours Studied and Quiz Score) Use Table: Hours Studied and Quiz Score. The table shows data for students in an economics class. If we were to graph these data and draw a line through the points, we would choose _____ to be the independent variable; the vertical intercept of our line would be _____; and the slope of our line would be _____.

hours studied; y = 2; +2

Jim is being paid $7.25 an hour to work at a restaurant. In the circular flow, this is an example of a:

household selling a resource in the factor market.

If Benjamin considers sushi to be a normal good and if his income increases by 20%, his purchases of sushi will:

increase

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, to maximize profits (or minimize losses), this firm should:

increase output.

A monopoly is producing output so that average total cost is $30, marginal revenue is $40, and the price is $50. If ATC is at its minimum level and the ATC curve is U-shaped, to maximize profits, this firm should:

increase output.

A new wonder diet that results in a dramatic weight loss sweeps through the United States. The key to the diet is to eat large amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect a(n) _____ in the _____ beef, leading to a shift to the _____ in the _____ curve for beef and _____ beef prices.

increase; demand for; right; demand; higher

Assuming that U.S. and French wines are substitutes in consumption, if the U.S. government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium, the price of French wine in the United States will _____ while the price of the U.S.-produced wine will _____.

increase; increase

When the price of an inferior good falls, the substitution effect contributes to a(n) _____ in the quantity demanded, and the income effect _____ the substitution effect.

increase; opposes

An increase in the consumer surplus in the market for milkshakes may result from a(n) _____ in the _____ of milkshakes.

increase; supply

(Figure: Cold Drinks Sold and Temperature) Use Figure: Cold Drinks Sold and Temperature. If we move from point C to point D in the figure, the outside temperature has _____ degrees and the number of cold drinks sold has _____.

increased by 20; increased by 20

(Figure: Good X and Good Y) Use Figure: Good X and Good Y. If we move from point B to point C in the figure, the x-variable has _____ units and the y-variable has _____ units.

increased by 2; decreased by 15

(Figure: Producer Surplus) Look at the figure Producer Surplus. When the price rises from $25 to $35, producer surplus _____ for a total producer surplus of _____.

increases by $30; $60

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production

The market for corn is in equilibrium. Which factor is most likely to INCREASE the equilibrium price of corn?

increasing production of corn-based ethanol

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly is the result of your:

increasing returns to scale.

Which method of discouraging speeding is likely to be MOST effective given that people usually exploit opportunities to make themselves better off?

increasing the fine associated with speeding tickets

(Figure: Guns and Butter) Use Figure: Guns and Butter. On this figure, points A, B, E, and F:

indicate combinations of guns and butter that society can produce using all of its factors efficiently.

It is very difficult for Julia to find inexpensive inputs for her business. Because of this, we predict that Julia's price elasticity of supply is:

inelastic.

You manage a nightclub, and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that your bouncer thinks the demand for drinks is _____ and your bartender thinks the demand for drinks is _____.

inelastic; elastic

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a _____ demand for swimming at the pool than do residents.

less elastic

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:

less price-elastic as departure time approaches.

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.

less than 13

If an increase in output results in a DECREASE in average total cost, the corresponding marginal cost is:

less than average total cost.

If two variables are positively related, on a graph they will always be represented by a:

line or curve that slopes upward.

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that, if she waits long enough, she will recover her investment. What type of behavior does this represent?

loss aversion

Many furniture stores run "going out of business" sales but never actually go out of business. Assume that furniture is sold in a perfectly competitive market. For a furniture firm to actually shut down in the short run, the price of furniture must be _____ than the _____ average variable cost.

lower; minimum

Amtrak is a publicly owned company that provides rail service. This means that Amtrak's prices tend to be _____ than if it were a private company, and the quality of service tends to be _____ than if it were a private company.

lower; worse

A monopolistically competitive industry is made up of

many firms producing a slightly differentiated product.

(Figure: The Supply of Online Movie Rentals) Use Figure: The Supply of Online Movie Rentals. A decrease in the price of online movies sold by movie producers to rental outlets like Amazon and Apple would result in a change illustrated by the move from:

n to o in panel A.

A "how much" decision is BEST made by comparing the _____ of an action to the _____ of that action.

marginal benefits; marginal costs

(Figure: Revenues, Costs, and Profits for Tomato Producers III) Use Figure: Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. The farm's short-run supply curve is the _____ cost curve above a price of _____.

marginal; $10

The horizontal summation of individual demand curves for a particular product, holding the price constant and completed for all possible prices, gives you:

market demand.

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power.

For Domingo, the optimum consumption bundle is the one that _____ his _____, given his budget constraint.

maximizes; utility

Joshua is tired of school as well as his part-time job and decides on the spur of the moment to take a weekend trip to Cabo San Lucas. He pays for it with his credit card, rather than with money from his checking account. Which type of irrational behavior does this BEST represent?

mental accounting

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

monopoly

In general, when marginal benefit is greater than marginal cost, the decision maker should do _____ of the activity.

more

When Caroline's dress factory hires two workers, the total product is 50 dresses. When she hires three workers, total product is 60, and when she hires four workers, total product is 65. The slope of the marginal product curve between two and four workers hired is:

negative

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be:

negative

Kayla and Jada are roommates in New York City. Both Kayla and Jada recently received raises. Kayla now purchases more mp3 albums online than before, but Jada buys fewer. Kayla behaves as if mp3 albums are _____ goods, and Jada's income elasticity of demand for mp3 albums is _____.

normal; negative

Freshwater is considered a scarce good because:

not enough of it is available for all needs.

Suppose that people expect the price of Bluetooth speakers to rise next year. As a result of this expectation, people will MOST likely:

observe higher prices for Bluetooth speakers this year.

The substitution effect always entails a change in consumption in the _____ direction as (of) the change in _____.

opposite; price

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has a comparative advantage in producing:

oranges only

Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has an absolute advantage in producing:

oranges only.

Which type of behavior is a systematic mistake that leads to irrational decisions?

overconfidence

Which good(s) is/are MOST likely to have a vertical supply curve?

paintings by Van Gogh

The demand curve faced by a single perfectly competitive firm is:

perfectly elastic

The most likely reason that the government would implement a _____ is because it feels that the price is too low for _____.

price floor; producers

If a firm's economic profits are equal to zero, its accounting profits are MOST likely:

postive

Many hotel chains offer discounts to senior citizens. This is an example of _____ that is _____ in the United States.

price discrimination; legal

If the government wants to minimize the deadweight loss from taxes, it should tax goods for which the:

price elasticity of demand is low.

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm, in the short run, should:

produce more guidebooks because the next guidebook produced will increase profit by $5.

The _____ illustrates the trade-offs facing an economy that produces only two goods.

production possibility frontier

Annual _____ taxes are paid on the value of a home.

property

A decrease in the price of eggs will result in an increase in the:

quantity of eggs demanded.

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

quantity; price; decrease

The decision to tip a server is a(n):

rational decision if the person leaving the tip is concerned about fairness

The incidence of a tax:

refers to how much of the tax is actually paid by consumers and producers.

An efficient way to finance the provision of city services such as street cleaning would be to charge all city residents a lump-sum tax. Such a tax would be:

regressive.

Sales taxes are considered to be:

regressive.

Suppose the market for gasoline is in equilibrium. You have heard that the price of crude oil is falling because of new oil discoveries. You are also aware that the number of car and truck drivers is steadily rising. Knowing this, you predict that the price of gasoline will _____ and the quantity of gasoline bought and sold will _____.

rise or fall; rise

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

rises.

People are willing to buy insurance because of:

risk aversion.

The U.S. production possibility frontier would _____ if all computers using Microsoft operating systems contracted a virus that corrupted all information on those computers.

shift in

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

short-run market supply

Suppose Ivy buys only two things, books and coffee, and receives the same satisfaction from the last book bought as she did from the last coffee bought. Books cost twice as much as coffee, and she has spent all of her money. Diminishing marginal utility applies to both goods. If she is trying to maximize her utility, Ivy:

should buy more coffee and fewer books

Benny spends all of his money buying wine and cheese. Diminishing marginal utility applies to both goods. The marginal utility of the last bottle of wine he bought is 60, and the marginal utility of the last block of cheese he bought is 30. The price of wine is $3, and the price of cheese is $2. Benny:

should buy more wine and less cheese.

When building a model, economists:

simplify reality to highlight what really matters.

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market.

small; standardized; little or no

The basic concern of microeconomics is to:

study the choices people make.

Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are _____, and the cross-price elasticity of demand is _____.

substitutes; 2

Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market _____ curve will shift to the right, and _____ will _____.

supply; output; increase

(Figure: The Market for Butter) Use Figure: The Market for Butter. If a government price floor of $1.20 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

surplus; 4.5

Which tax reflects the ability-to-pay principle?

the federal income tax

You own a small deli that sells sandwiches, salads, and soup. Which factor is an implicit cost of the business?

the job offer you did not accept at a local catering service

(Figure: Short-Run Costs II) Use Figure: Short-Run Costs II. Curve 1 crosses the average total cost curve at:

the minimum value of curve 2.

Market structures are categorized by:

the number of firms and whether products are differentiated.

When a chef prepares a dinner for a customer, which factor is physical capital?

the oven

The relation between an individual's consumption bundle and her satisfaction is called a _____ function.

utility

Scarcity in economics means that:

we often do not have sufficient resources to achieve our objectives.

Margo spends $30,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

whatever she would have purchased with the $30,000 plus whatever she would have earned had she not been in college.

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

will decrease (the MC curve will shift down).

Coffee and tea are substitutes in consumption. If there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market:

will increase.

If the technology of producing peanuts improves, total surplus in the peanut butter market:

will increase.

Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market:

will increase.

Marginal cost CANNOT be calculated as:

ΔATC * ΔQ, where ATC is average total cost and Q is output.