Econ Final Review

Positive economic principles are those that: -are always correct. -are influenced by political ideology. -indicate how people should behave. -predict how people will behave.

predict how people will behave.

For a single seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, how much would be supplied in the market at a price of $14 per unit? -350 -1,750 -17,500 -175,000

17,500

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown below. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. What is Jamie's optimal combination of muffins and doughnuts each day? -1 muffin, 6 doughnuts -2 muffins, 4 doughnuts -3 muffins, 2 doughnuts -4 muffins, zero doughnuts

2 muffins, 4 doughnuts

Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur? -The equilibrium price of sugar will rise. -The equilibrium quantity of sugar will rise. -The equilibrium price of sugar will fall. -The equilibrium quantity of sugar will fall.

The equilibrium price of sugar will fall.

Which of the following is the most likely to be a fixed factor of production at a farm? -The land on which the farm is located. -The number of workers hired to harvest the crops. -The amount of fertilizer used each week. -The amount of water used each day.

The land on which the farm is located.

The table below describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. If the price of a telephone increases to from $5 to $10 an hour and nothing else changes, then: -total cost would not change. -marginal cost would increase by $5 at every level of output. -marginal cost would not change. -average total cost would increase by $5 at every level of output.

marginal cost would not change.

The value of marginal product of labor equals the -marginal product of labor times the net price for which each unit of output sells. -total product of labor divided by the net price for which each unit of output sells. -marginal product of labor divided by the net price for which each unit of output sells. -average product of labor times the wage rate.

marginal product of labor times the net price for which each unit of output sells.

A monopolistically competitive firm is one: -that behaves like a monopolist. -of many firms that sell products that are close but not perfect substitutes. -of many firms that all sell the exact same product. -of a small number of firms that sell products that are close but not perfect substitutes.

of many firms that sell products that are close but not perfect substitutes.

Economic rent is: -the amount people pay for an apartment in a perfectly competitive market. -the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. -the difference between the payment made to the owner of a factor of production and the owner's reservation price. -sometimes higher and sometimes lower than the owner's reservation price.

the difference between the payment made to the owner of a factor of production and the owner's reservation price.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The long-run equilibrium price in this industry is: -$15 -$10 -$5 -$0

$10

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below. If Island Bikes charges a single price to all of its customers, then what price will it charge? -$4 -$8 -$12 -$16

$12

The table below describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Given the information in the table above, what is the call center's marginal cost when it goes from making 6 to 16 calls an hour? -50 cents -$2 -$10 -$20

$2

Suppose the table below describes the demand for a good produced by monopolist. The monopolist's total revenue from selling 3 units is ______, and the monopolist's marginal revenue from selling the 3rd unit is ______. -$28; 8 -$24; 6 -$52; 1 -$24; 8

$24; 6

When more firms enter an industry: -the amount produced by each of the new firms will be greater than the amount produced by each of the original firms. -the industry supply curve will shift left. -the amount produced by each of the new firms will be less than the amount produced by each of the original firms. -the industry supply curve will shift right.

-the industry supply curve will shift right.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: A second hour cleaning windows will yield additional earnings of ______. -$2 -$14 -$8 -$7

$8

Refer to the table below. The marginal cost of the 3rd unit of this activity is: -$30 -$25 -$20 -$10

-$20

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown below. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. If Jamie consumes 2 doughnuts a day, then what is her marginal utility per dollar spent on the second doughnut? -10 -15 -20 -40

20

Suppose a monopolist faces the demand curve shown below. If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing level of output is: -50 units -40 units -20 units -30 units

20 units

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Dusty can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter. -20; 10 -15;15 -10;20 -10;5

20; 10

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below. What is the socially optimal number of bikes for Island Bikes to rent out each day? -6 -5 -4 -3

6

Refer to the figure below. When the market is unregulated, consumer surplus is represented by the area: -AJE -ABC -AGI -DBC

ABC

Which of the following is NOT a characteristic of a market in equilibrium? -Excess supply is zero. -All consumers are able to purchase an amount equal to their quantity demanded. -Excess demand is zero. -The equilibrium price is stable, i.e., there is no pressure for it to change.

All consumers are able to purchase an amount equal to their quantity demanded.

Suppose your economics professor has an extra copy of textbook that he or she would like to give to a student in the class. Which of the following schemes is the most likely to result in an efficient outcome? -Randomly selecting one student to receive the textbook. -Auctioning off the textbook to the highest bidder. -Letting students take turns using the textbook. -Giving the textbook to the student who has the lowest midterm score.

Auctioning off the textbook to the highest bidder.

Accounting profit minus implicit costs equals: -total revenues. -economic profit. -explicit costs. -fixed costs.

economic profit.

Refer to the table below. ______ has the comparative advantage in making pizza, and ______ has the comparative advantage in delivering pizza. -Corey; Corey -Pat; Pat -Pat; Corey -Corey; Pat

Corey; Pat

Refer to the figure below. If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ______. -FEC -DAC -GJEF -JAE + DGF

FEC

Which of the following industries does not fit the natural monopoly model? -Electricity -Cable TV -Fast food restaurants -Natural gas

Fast food restaurants

Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true? -Last semester's grades were higher than your overall GPA. -Last semester's grades were lower than your overall GPA. -If this semester's grades are the same as last semester's, your overall GPA will stay the same. -If this semester's grades are the same as last semester's, you might lose your scholarship.

Last semester's grades were lower than your overall GPA.

Refer to the figure above. What might cause Supply to shift from the Original Supply to the New Supply? -A storm in South America wipes out the entire coffee crop. -New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee. -A news report that coffee consumption greatly increases productivity. -An increase in the price of tea.

New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee.

Which of the following is likely to have the highest price elasticity of demand? -shoes -running shoes -Nike running shoes -The price elasticity of demand will be the same for all of the answers listed.

Nike running shoes

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami? -Yes, your benefit is more than your cost. -No, your benefit is less than your cost. -Yes, your benefit is equal to your cost. -No, because there are no benefits in the trip.

No, your benefit is less than your cost.

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10% off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15% savings. Should you drive downtown to buy the TV? -Yes, because you will save 10%, which is better than nothing. -No, because you will save more than $20. -Yes, because you will save more than $20. -No, because you will only save 10%, which is less than 15%.

Yes, because you will save more than $20.

Refer to the figure above. Assume the market is originally at point W. Movement to point Y is a combination of: -an increase in quantity supplied and an increase in demand. -an increase in supply and an increase in demand. -an increase in supply and an increase in quantity demanded. -a decrease in supply and an increase in quantity demanded.

an increase in supply and an increase in quantity demanded.

The allocative function of price cannot operate unless there is: -a significant barrier to entry. -both free entry and free exit. -either free entry or free exit. -neither free entry nor free exit.

both free entry and free exit.

An individual has an absolute advantage in producing pizzas if that individual: -has a lower opportunity cost of producing pizzas than anyone else. -can produce more pizzas in a given amount of time than anyone else. -has a higher opportunity cost of producing pizzas than anyone else. -charges the lowest price for pizzas.

can produce more pizzas in a given amount of time than anyone else.

Price discrimination means charging: -higher prices to women and minorities. -different prices for different products because production costs are different. -the same price to all buyers even if production costs are different. -different prices to different buyers for essentially the same good or service.

different prices to different buyers for essentially the same good or service.

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should: -drink a third glass of soda. -drink a third glass of soda if the extra benefit of doing so is positive. -drink a third glass of soda if his total benefit from drinking soda is positive. -not drink a third glass of soda.

drink a third glass of soda if the extra benefit of doing so is positive.

A firm earns a normal profit when its: -accounting profit is positive. -economic profit is positive. -economic profit is zero. -accounting profit is zero.

economic profit is zero.

One difference between the long run and the short run in a perfectly competitive industry is that: -economic profits in the long run are always greater than they are in the short run. -economic profits in the short run are always greater than they are in the long run. -firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run. -firms necessarily earn positive economic profit in the long run but may earn positive or negative economic profit in the short run.

firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.

Angelina Jolie's economic rent from starring in a movie is equal to the difference between: -her initial salary offer and her final salary, including royalties. -her final salary and what she could earn by starring in a different movie. -her final salary and the average salary for leading actresses. -her final salary and the least she would be willing to accept to star in the movie.

her final salary and the least she would be willing to accept to star in the movie.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of: -inconsistent reasoning; saving $20 is saving $20. -the proper application of the Cost-Benefit Principle. -rational choice because saving 40% is better than saving 4%. -inconsistent reasoning because prices are sunk costs.

inconsistent reasoning; saving $20 is saving $20.

If the San Diego Opera decreases the price of their opera tickets and their total revenue falls, then this suggests that, at the original price, the demand for tickets to the San Diego Opera was: -unit elastic. -elastic. -inelastic -either elastic or inelastic.

inelastic

The demand for a good is inelastic with respect to price if the price elasticity of demand is: -equal to one. -greater than one. -less than one. -equal to negative one.

less than one.

The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity. -marginal benefit -total benefit -average benefit -economic benefit

marginal benefit

Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping. -goods; not -more; downward -less; upward -more; upward

more; upward

If the demand for steak increases as income increases, this means that steak is a(n): -complementary good. -normal good. -inferior good. -substitute good.

normal good.

In order to understand how the price of a good is determined in the free market, one must account for the desires of: -purchasers exclusively. -sellers exclusively. -governmental agencies exclusively. -purchasers and sellers.

purchasers and sellers.

"Market power" refers to a firm's ability to: -undercut its competitors' prices. -force consumers to buy high-priced products. -raise its price without losing all of its sales. -influence the price its competitors charge.

raise its price without losing all of its sales.

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item: -that costs the least. -that gives you the highest average utility per dollar. -that gives you the highest marginal utility per dollar. -from which you already have gained the greatest total utility.

that gives you the highest marginal utility per dollar.

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by: -reducing economic inequality. -government intervention in the market. -collective action. -the actions of independent, self-interested buyers and sellers.

the actions of independent, self-interested buyers and sellers.

Marginal cost is calculated as: -total revenue minus total costs. -the change in output divided by the change in total costs. -the percentage change in total costs divided by the percentage change in output. -the change in total costs divided by the change in output.

the change in total costs divided by the change in output.

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying: -the demand curve. -an increase in demand. -the supply curve. -a decrease in the demand curve.

the demand curve.

The tendency for marginal utility to decline as consumption increases beyond some point is called: -the law of demand -the law of diminishing marginal utility -the rational spending rule -utility maximization

the law of diminishing marginal utility

As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called: -the income effect. -the change in equilibrium. -the substitution effect. -a shift in the demand curve.

the substitution effect.

An example of an implicit cost is: -interest paid on a bank loan used to purchase equipment. -wages paid to a family member who works at the firm. -the value of a spare bedroom turned into a home office. -operating costs of a company-owned car.

the value of a spare bedroom turned into a home office.

Economists recognize that because people have limited resources: -government intervention is necessary -they have to make trade-offs -they will never be happy -our future is bleak

they have to make trade-offs

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is: -elastic -inelastic. -unit elastic. -perfectly elastic.

unit elastic.

According to economists, the satisfaction people get from their consumption activities is called: -demand. -utility -a need. -a want.

utility

Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that: -people don't like to live in your neighborhood anymore. -when housing prices rose, they started to exceed some of your neighbors' reservation prices. -the demand curve for housing in your town has shifted to the left while supply remained constant. -the supply curve for housing in your town has shifted to the right while demand has remained constant.

when housing prices rose, they started to exceed some of your neighbors' reservation prices.

The Scarcity Principle states that: -people don't have enough money to buy what they want -society will eventually run out of resources -with limited resources, having more of one thing means having less of another -some countries have fewer resources than others

with limited resources, having more of one thing means having less of another

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $625, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment? -1 hour -2 hours -3 hours -4 hours

3 hours

Refer to the table below. Martha's opportunity cost of making of a pie is: -3/4 of a cake. -4/3 of a cake. -8 cakes -80 cakes

3/4 of a cake.

Refer to the figure below. The marginal utility of the 6th pizza is: -95 -100 -5 -17.5

5

Refer to the figure below. If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______. -BJEH -BAEH -JAE -GAEF

GAEF

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Should John spend a third hour cleaning windows? -Yes, because he would earn $28. -Yes, because the additional amount he would earn is $14, which is greater than his opportunity cost of $7. -No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7. -Yes, because the additional amount he would earn is $6, which is better than earning nothing.

No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7.

The short run is best defined as: -one year or less. -a period of time sufficiently short that all factors of production are variable. -the period of time between quarterly accounting reports. -a period of time sufficiently short that at least one factor of production is fixed.

a period of time sufficiently short that at least one factor of production is fixed.

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should: -lower its price. -decrease production. -increase production. -raise its price.

increase production.

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus. -increases; decreases -increases; increases -decreases; decreases -decreases; increases

increases; decreases

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an: -inefficient point. -efficient point. -unattainable point. -ideal point.

inefficient point.

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones. -less price elastic -more price elastic -higher -lower

more price elastic

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for: -75 cents because that is the market price. -less than 75 cents because CheapFizz will have greater volume and so can lower its price. -more than 75 cents because the demand curve for CheapFizz soda will shift to the left. -more than 75 cents because CheapFizz is the only company that can sell soda on campus.

more than 75 cents because CheapFizz is the only company that can sell soda on campus.

The No-Cash-on-the-Table Principle states that there are: -never unexploited opportunities available to individuals. -never unexploited opportunities available to individuals in equilibrium. -sometimes unexploited opportunities available to individuals in equilibrium. -always unexploited opportunities available to individuals.

never unexploited opportunities available to individuals in equilibrium.