Econ final VT
15. To maximize utility, a consumer should spend all income and choose goods X and Y such that...
MUofX/Px=MUofY/Py
36. The ability to make something using fewer resources than other producers is known as
absolute advantage
Table 7.4 Units of Labor Total Product Marginal Product 0 0 1 6 2 14 3 24 4 32 5 38 6 42 4. Refer to Table 7.4, which shows labor, total product, and marginal product for a firm. Marginal returns (marginal product) begin to diminish with the hiring of the _____ worker. a. second b. third c. fourth d. fifth e. sixth
c
. Demand is more elastic _____ a. for goods with no substitutes. b. for goods with many substitutes than for goods with only a few. c. in the short run than in the long run. d. for broadly defined goods than for narrowly defined ones. e. for necessities than for luxuries.,
b
16. The long-run industry supply curve for an increasing-cost, perfectly competitive industry _____ a. is horizontal. b. slopes upward. c. is backward bending. d. slopes downward. e. is vertical.
b
19. If the income elasticity of demand for Good X is 0.4, then _____ a. a 10 percent decrease in income leads to a 4 percent increase in the quantity demanded of Good X. b. a 10 percent increase in income leads to a 4 percent increase in the quantity demanded of Good X. c. Good X is inferior. d. The demand curve for good X is inelastic. e. a 10 percent decrease in income leads to a 40 percent decrease in the quantity demanded of Good X.
b
20. The profit-maximizing quantity for a monopolist that faces an upward-sloping marginal cost curve will _____ a. occur at the minimum point of the marginal cost curve. b. be less than the revenue-maximizing quantity. c. be equal to the revenue-maximizing quantity. d. occur along the unit elastic segment of the demand curve. e. occur along the inelastic segment of the demand curve.
b
22. Suppose a restaurant has a monopoly in a certain small town. Its rent, which is one of the several fixed costs it incurs whether it sells food or not, has gone up. In the short run, the restaurant should _____ a. increase menu prices. b. leave menu prices unchanged. c. lower menu prices. d. shut down
b
7. What causes the Law of Diminishing Marginal Returns? a. increasing marginal costs b. a capacity constraint or fixed factor of production c. limited variable resources d. lazy workers e. insufficient demand for the product
b
Exhibit 8.4 13. Refer to Exhibit 8.4, which shows the demand and the cost curves of a perfectly competitive firm. The firm will earn zero economic profit _____ a. at a price of P1. b. at a price of P2. c. at a price of P3. d. at a price between P1 and P2. e. at a price above P1.
b
13. If the price of tortilla chips increases, other things constant, the demand for salsa will _____ a. increase, because the goods are complements. b. decrease, because potato chips are an inferior good. c. increase, because the goods are substitutes. d. decrease, because the goods are substitutes. e. decrease, because the goods are complements.
e
15. If a perfectly competitive firm is in long-run equilibrium and market demand suddenly decreases, in the short run, the firm will experience _____ a. a greater economic profit. b. a normal profit. c. a lower average total cost. d. a lower average variable cost. e. an economic loss.
e
31. Game theory is most useful in understanding the decision-making behavior of firms in _____ a. perfect competition. b. a command economy. c. monopolistic competition. d. a closed economy. e. an oligopoly.
e
10. If demand decreases and supply increases in a market that is initially in equilibrium, then _____ a. the equilibrium price will always increase. b. the equilibrium quantity will remain unchanged. c. the equilibrium quantity will always decrease. d. the equilibrium price will remain unchanged. e. the equilibrium price will always decrease.
e
VERSION E Table 5.1 Quantity Demanded Price 10 $50 20 $40 30 $30 40 $20 50 $10 27. Refer to Table 5.1. If price increases from $10 to $30, the price elasticity of demand is _____ (use the midpoint formula) a. 3.3. b. 3. c. 0.5. d. 2. e. 5.
c
1. Suppose a firm has total revenues of $12 million, explicit costs of $9 million and implicit costs of $3 million. Which is true? a. Accounting profits are $3 million and economic profits are zero. b. Accounting profits are $12 million and economic profits are $3 million. c. Accounting profits are $9 million and economic profits are zero. d. Accounting profits are $3 million and economic profits are $6 million. e. Accounting profits are zero and economic profits are $3 million.
a
10. Perfectly competitive firms are price takers because _____ a. each firm is too small compared to the market to be able to affect price. b. one firm determines the market price and all other firms accept this price. c. firms charge the price that government determines. d. firms must accept any price that consumers offer them. e. firms earn high profits by charging different prices to different groups of consumers.
a
14. Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $30, average variable cost is $25, and average total cost is $45. To improve his profit or loss situation, Claude should _____ a. increase output. b. reduce output but not to zero. c. continue to produce the present level of output. d. shut down. e. raise the price.
a
16. All else equal (no change in quantity), if the price of a good falls, _____ a. the marginal utility per dollar spent of that good rises. b. the marginal utility of that good rises. c. the total utility from consuming that good increases. d. the marginal utility of that good falls. e. the marginal utility per dollar spent of that good falls.
a
2. If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is _____ a. inelastic. b. zero. c. unit elastic. d. elastic. e. perfectly elastic.
a
20. A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that _____ a. root beer and orange soda are substitutes. b. root beer and orange soda are complements. c. the cross-price elasticity of demand is equal to −2. d. the cross-price elasticity of demand is equal to 2. e. the cross-price elasticity of demand is 1.
a
21. If a firm raises the price of its product, its total revenue will _____ a. increase only if demand is price inelastic. b. remain constant regardless of the price elasticity of demand. c. never increase. d. always increase. e. increase only if demand is price elastic.
a
22. If supply increases (shifts out), what happens to consumer surplus (CS) and total surplus (TS)? a. both increase b. both decrease c. CS rises, TS falls d. CS falls, TS rises e. the effect is uncertain.
a
29. Negative marginal utility implies that _____ a. total utility decreases as additional units of a good are consumed. b. the price of a good increases as additional units are consumed. c. total utility is negative. d. marginal utility increases as additional units of a good are consumed. e. the total revenue spent by a consumer on a good decreases as more of the good is purchased.
a
3. Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year. He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year. If downloads generate $50,000 in revenue during the first year, then his business _____ a. has an accounting profit but an economic loss. b. has an accounting loss and an economic profit. c. has both accounting and economic profits. d. has both an accounting and an economic loss. e. has a normal (zero economic) profit.
a
33. Table 10.2 depicts the payoff matrix facing Donny and KJ who are supposed to fight out back of the old Henderson house after school. Each player has to choose whether to show up or not. Assuming KJ plays a normal strategy while Donny plays a maximin strategy, what is the solution to the game? (The first number is Donny's payoff, the second is KJ's) Table 10.2 KJ Show Up Don't Show Up Donny Show Up -6, -6 10, -10 Don't Show Up -10, 10 -1, -1 a. Both show up b. Donny shows up but KJ doesn't c. Donny doesn't show up but KJ does d. Both don't show up.
a
33. Which of the following is most likely to shift the current supply curve of a good to the right? a. an improvement in the technology used in the good's production b. an increase in demand for an alternative good that can be produced by the same firms c. an expectation of a higher price in the future d. an increase in the price of a resource used in the good's production e. an increase in the price of the good
a
34. In game theory, collusion between two firms over a period of years can be modeled as what? a. A tit-for-tat strategy. b. A dominant strategy. c. A maximin strategy. d. A prisoner's dilemma.
a
35. If the price elasticity of supply for a product is 5, and prices increase 10 percent, then supply will _____ a. increase by 50 percent. b. decrease by 50 percent. c. decrease by 5 percent. d. increase by 10 percent. e. increase by 5 percent.
a
36. Which market structure(s) achieve(s) allocative efficiency? a. perfect competition and perfectly price-discriminating monopoly. b. perfect competition and monopolistic competition. c. perfect competition only d. perfect competition and cartel oligopoly e. perfect competition and one-price monopoly
a
5. Which of the following statements about a demand curve is true? a. The demand curve for a good will not shift when price changes. b. If a demand curve shifts, the supply curve will shift as well irrespective of whether price changes. c. If a supply curve shifts, thereby changing price, the demand curve will shift as well. d. If price increases, the demand curve will shift to the right. e. The demand curve for a good will not shift when the money income of consumers increases.
a
6. In the long run, as a firm gets larger, average costs might increase. This is known as: a. diseconomies of scale. b. economies of scale. c. diminishing marginal product. d. a capacity constraint. e. an increasing cost industry.
a
7. Suppose both selling and buying marijuana becomes legal in Virginia. What can we say about the effect of this legalization on equilibrium price and quantity of marijuana? a. Quantity would rise but the effect on price is uncertain without more information. b. Price would rise but the effect on quantity is uncertain without more information. c. Both price and quantity would rise. d. Both price and quantity would fall. e. Price would fall but the effect on quantity is uncertain without more information.
a
Exhibit 9.6 21. Refer to Exhibit 9.6, which shows the cost and revenue curves for a monopolist. The maximum profit earned by the non-discriminating monopolist is _____ a. $14.00. b. $28.42. c. $0 d. $46.62 e. $54.00.
a
Figure 14-7 2. Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is a. $75. b. $85. c. $95. d. All of the above are correct.
a
Table 10.1 Q P ($) TC ($) 1 27 10 2 24 17 3 21 32 4 18 47 5 15 67 29. Refer to Table 10.1, which shows the output, price, and total cost for a monopolistic competitor. At the profitmaximizing output, the firm _____ a. earns an economic profit of $31. b. earns an economic profit, but the amount cannot be determined. c. earns zero economic profit. d. earns an economic profit of $32. e. suffers an economic loss.
a
Exhibit 9.14 26. Refer to Exhibit 9.14, which shows the activity of a price-discriminating monopolist that divides its customers into two segments based on price elasticity of demand. Disregarding the actual price shown, which panel is likely to represent leisure travel? a. Panel A b. Panel B c. both Panel A and Panel B d. neither Panel A nor Panel B e. Monopolists are not concerned with elasticity.
b
Exhibit 9.8 23. Refer to Exhibit 9.8, which shows the cost and revenue curves for a monopolist. Total revenue earned by the monopolist for the profit-maximizing output is _____ a. e × f. b. d × f. c. c × g. d. a × f. e. b × g.
b
Table 2.3 Products A B C D E Capital goods 0 1 2 3 4 Consumer goods 40 35 20 7 0 28. Refer to Table 2.3, which shows the production possibilities for the production of capital goods and consumer goods in an economy. What is the opportunity cost of producing the 2nd unit of capital goods? a. 10 units of consumer goods b. 15 units of consumer goods. c. 35 units of consumer goods d. 20 units of consumer goods e. 13 units of capital goods
b
VERSION E 14. If a price floor is not binding, then a. the market will be less efficient than it would be without the price floor. b. there will be no effect on the market price or quantity sold. c. there will be a shortage in the market. d. there will be a surplus in the market.
b
17. The term productive efficiency refers to _____ a. the short-run equilibrium for a competitive firm. b. the production of all goods and services that consumers want. c. the production of a good at the lowest long-run average cost. d. the equality between average total and average variable cost. e. satisfying the condition of equality between marginal cost and marginal revenue.
c
25. Suppose goods X and Y are unrelated (not substitutes or complements). If and you are spending all of your income, then you should reallocate your spending to a. buy more X and less Y. b. buy less of both. c. buy more Y and less X. d. buy more of both. e. increase the marginal utility of Y.
c
28. Which of the following is true of the relationship between price and marginal cost under monopolistic competition? a. Price equals marginal cost at all levels of output. b. Price equals marginal cost only at the profit-maximizing quantity. c. Price exceeds marginal cost at the profit-maximizing level of output. d. Price is less than marginal cost at the profit-maximizing quantity. e. Price is less than marginal cost at all levels of output.
c
31. Let's say you buy a nonrefundable ticket for a cruise. You break your leg and decide you would rather not go. Which of these best describes what you should do? a. Go! Otherwise you are "losing" the money you spent. b. Go! By going you can recover your sunk cost. c. Don't go! The ticket cost is a sunk cost and should be ignored. d. Don't go! The ticket cost is a marginal cost and should be ignored.
c
34. A normative economic statement _____ a. enables economists to test hypotheses. b. indicates what will occur if certain assumptions are true. c. is a statement of what ought to be, not what is. d. is a statement of fact. e. is a hypothesis used to test economic theory.
c
5. Which of the following is true of the relationship between marginal cost and marginal product? a. Marginal product and marginal cost are not related to each other. b. When marginal product increases, marginal cost increases. c. When marginal product increases, marginal cost falls. d. When marginal product is negative, marginal cost is negative. e. When diminishing marginal returns set in, marginal cost falls.
c
8. On a PPF picture, an increase in unemployment does what? a. Shifts the PPF in. b. Moves us closer to the PPF. c. Moves us to a point further inside the PPF. d. Shifts the PPF out. e. Moves us along the PPF toward a less labor-intensive output.
c
Exhibit 10.9 32. Refer to Exhibit 10.9.What is the Nash Equilibrium to this game? (Top left payoffs for firm B, bottom right for firm A. Ignore the colors.) a. Both charge the high price. b. A charges the low price and B charges the high price. c. Both charge the low price d. B charges the low price and A charges the high price. e. None of the above
c
Exhibit 2.2 30. Refer to Exhibit 2.2, which shows the production possibilities frontier for Good A and Good B. Point f represents _____ a. the combination of Good A and Good B that will maximize profits. b. an unattainable combination of Good A and Good B. c. an inefficient combination of Good A and Good B. d. an efficient combination of Good A and Good B. e. the combination of Good A and Good B that will maximize social welfare.
c
Exhibit 9.10 25. Refer to Exhibit 9.10, which depicts the cost and demand conditions facing a profit-maximizing monopolist that does not discriminate among its customers. The deadweight loss of monopoly equals _____ a. $5. b. $250. c. $125. d. $500. e. $10.
c
Exhibit 9.7 24. Refer to Exhibit 9.7, which shows the cost and revenue curves for a monopolist. The output level that is most likely to achieve allocative efficiency in this market is _____ a. 700 units. b. 810 units. c. 884 units. d. 976 units. e. 1,000 units.
c
Figure 7-21 12. Refer to Figure 7-21. When the price is P1, area C represents a. consumer surplus. b. total surplus. c. producer surplus. d. deadweight loss. e. None of the above is correct.
c
Table 6.4 Chocolate Bars Total Utility 1 10 2 25 3 45 4 60 5 70 17. Refer to Table 6.4, which shows a utility schedule for a consumer's consumption of chocolate bars. The marginal utility of the third chocolate bar is _____ units. a. 15 b. 70 c. 20 d. 45 e. 3
c
11. What is the opportunity cost of something? a. the value of all alternatives not chosen. b. the dollar cost of what is purchased. c. more than the dollar cost of what is purchased. d. the value of the best alternative not chosen. e. less than the dollar cost of what is purchased.
d
18. Adam's Apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production to half this year. Which of the following is likely to occur in this case? a. The market price of apples will increase. b. The market price of apples will decrease. c. The market demand for apples will increase. d. The market price of apples will not be affected. e. The market supply curve of apples will shift rightward.
d
18. If the government removes a binding price ceiling from a market, then the price paid by buyers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.
d
24. A production possibilities frontier will be bowed out (concave) if _____ a. the production of only one good involves an opportunity cost. b. resources are scarce. c. technology improves. d. resources are not perfectly adaptable to the production of each good. e. resources are used efficiently.
d
26. Demand is inelastic if _____ a. the absolute value of price elasticity is equal to 1. b. the absolute value of price elasticity is greater than 1. c. the percentage change in price is equal to the percentage change in quantity demanded. d. the percentage change in price is greater than the percentage change in quantity demanded. e. the percentage change in price is less than the percentage change in quantity demanded.
d
27. A monopolistic competitor's demand curve is _____ a. perfectly elastic. b. less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's demand curve. c. as elastic as an oligopolist's demand curve. d. more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's demand curve. e. perfectly inelastic.
d
3. ___________ is the incorrect belief that what is true for the individual must necessarily be true for the group. a. Rational ignorance b. Confusing association with causation c. Moral hazard d. The fallacy of composition e. Ignoring secondary effects
d
30. Assuming restaurants make a monopolistically competitive market, a rise in the demand for restaurant meals is likely to _____ in the long run. a. increase losses for each restaurant b. lower the price of restaurant meals c. decrease the number of restaurants d. increase the number of restaurants e. increase the economic profit earned by restaurants
d
35. Which oligopolistic model is likely to create the most deadweight loss? a. contestable markets b. Cournot model c. price leadership model d. cartel model
d
6. Robin and Robert garden and bake. If Robin has both an absolute advantage and a comparative advantage in gardening when compared to Robert, then _____ a. Robin can benefit by specializing in baking if Robert specializes in gardening. b. Robin cannot benefit by trading with Robert and should instead specialize in both gardening and baking. c. Neither Robin nor Robert can benefit from trading with the other. d. Robin can benefit by specializing in gardening if Robert specializes in baking. e. Robin and Robert may benefit from trading, but there is insufficient information to determine who should specialize in what.
d
Exhibit 7.3 8. Refer to Exhibit 7.3, which shows the U-shaped cost curves for a producer. The vertical distance between lines B and C at any level of output represents _____ a. marginal cost. b. average total cost. c. average variable cost. d. average fixed cost. e. average marginal cost.
d
Table 4.3 23. Table 4.3 above shows the quantity supplied and the quantity demanded of a good at different prices. There is no price floor or ceiling in place. At a price of $1.60, the quantity bought and sold is _____ and the price will _____. a. 60, stay the same but demand will shift out. b. 70, decrease to $1.50. c. 90, stay the same but supply will shift back. d. 60, decrease to $1.50. e. 90, decrease to $1.50.
d
Table 8.5 Quantity of Output Total Revenue ($) Total Cost ($) 0 0 50 10 50 70 20 100 90 30 150 120 40 200 200 50 250 325 12. Refer to Table 8.5, which shows the output supplied by a firm, its total revenue, and its total cost of production. It represents a firm in the _____ a. long run, because there is no fixed cost. b. short run, because there is no equilibrium. c. long run, because there is an equilibrium level of output. d. short run, because a firm incurs fixed cost. e. long run, because there is a normal profit.
d
4. If the price of a good increases and an individual's demand is inelastic, identify the correct statement about total utility (TU), marginal utility (MU), consumer surplus (CS), and total expenditure (TE=TR=PxQ). a. TU decreases, MU decreases, CS decreases, and TE decreases. b. TU increases, MU increases, CS increases, and TE increases. c. TU decreases, MU increases, CS decreases, and TE decreases. d. TU increases, MU decreases, CS decreases, and TE increases. e. TU decreases, MU increases, CS decreases, and TE increases.
e
9. Marginal Cost is the slope of what curve: a. variable cost b. total cost c. average variable cost d. average fixed cost e. both variable cost and total cost
e
Exhibit 8.1 11. Refer to Exhibit 8.1, which shows a firm's demand in wheat markets. What will happen if the firm increases its price from $5 to $6? a. Demand will decrease. b. Demand will increase. c. Profits will rise. d. The firm will sell less wheat but still sell some. e. The firm will sell no wheat.
e
Table 4.1 Cards Don Jon Ron $2 3 2 1 $1.50 4 5 3 32. Refer to the demand schedule in Table 4.1. There are three consumers in the market for playing cards: Don, Jon, and Ron. At a price of $2 per pack, what is the total quantity demanded for playing cards? a. 3 b. 2 c. 1 d. 12 e. 6
e
Table 4.6 9. Refer to Table 4.6. In which of the following combinations is the change in the equilibrium price of a good indeterminate? a. Box A and Box B b. Box A and Box C c. Box C and Box D d. Box B and Box C e. Box A and Box D
e
Table 9.2 Price ($) Quantity Demanded 60 1 50 2 40 3 30 4 20 5 10 6 19. Refer to Table 9.2. Marginal revenue from the sixth unit of output is _____ a. $10. b. $60. c. $100. d. $40. e. ‒$40.
e
