Econ Mid Term
Which of the following provides a measure of the overall fit of a regression?
the F-statistic and R-square
We can expect breakfast foods to have a relatively inelastic demand compared to cornflakes because
the market for breakfast foods is broadly defined compared to market for corn flakes.
Find the annual interest rate that would create a perpetual annual cash flow stream of $15,000 when the present value of the asset is $100,000.
15 percent
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the demand curve for good X?
61,500 − 4PX
Suppose total benefits and total costs are given by B(Y) = 600Y − 12Y2 and C(Y) = 20Y2. What is the maximum level of total benefits?
7500
Suppose that supply increases and demand decreases. What effect will this have on price and quantity?
Price will decrease, and quantity change is ambiguous.
Which of the following is an implicit cost of going to college?
foregone wages
If the cross-price elasticity between goods X and Y is zero, we know the goods are
independent.
Given a linear supply function of the form QXS = −10 + 5PX, find the inverse linear supply function.
PX = 2 + 0.2QX.
If good A is an inferior good, an increase in income leads to
a decrease in the demand for good A.
When the own price elasticity of good X is −3.5, total revenue can be increased by
decreasing the price.
If the own price elasticity of demand is infinite in absolute value, then
demand is perfectly elastic.
The buyer side of the market is known as the
demand side
Suppose market demand and supply are given by Qd = 100 − 2P and QS = 5 + 3P. The equilibrium price is
$19
Based on the graph, the resulting consumer and producer surplus at a price of $25 are, respectively,
$4,000 and $4,000. (1/2 base times height)
Suppose the market demand for good X is given by QXd = 20 − 2PX. If the equilibrium price of X is $5 per unit, then the consumer surplus the consumer receives from consuming the quantity bought is
$75.
ssume for the graph that the initial equilibrium price and quantity are $10 and 500. If the price increases to $12, then consumer surplus
$900 (take the first 1/2 base time height then get the second, then subtract the second from the first)
If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is the absolute value of the (arc) own-price elasticity?
1.00
Suppose total benefits and total costs are given by B(Y) = 100Y − 8Y^2 and C(Y) = 10Y^2. Then marginal benefits are
100 − 16Y.
Suppose a regression with 51 observations returns a regression sum of squares of 56,000 and a total sum of squares of 250,000. The associated residual sum of squares is
194,000
Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement?
Expenditures on transportation will fall less rapidly than income falls.
The supply function for good X is given by Qxs = 1,000 + PX − 5PY − 2PW, where PX is the price of X, PY is the price of good Y, and PW is the price of input W. If PX = 100, PY = 150, PW = 50, then the supply curve is
Qxs = 150 + Px.
Suppose that you own a clothing store. You expect food prices to increase 20 percent due to the COVID-19 pandemic. If the cross-price elasticity of demand between food and clothing is −0.18, what will be the resulting impact on sales from your clothing store?
Sales will decrease by 3.6 percent.
Good Y is a complement to good X if an increase in the price of good Y leads to
a decrease in the demand for good X.
The maximum legal price that can be charged in a market is
a price ceiling.
Which of the following is not an area in which managerial economics is applied?
analyzing historical trends in the federal budget deficit
Managerial economics assist managers in making
decisions that best achieve a firm's goal.
Which of the following is probably not a normal good?
designer jeans diamond rings bus travel (Correct) new automobiles
If supply increases, then the
equilibrium price goes down.
Maximizing the lifetime value of the firm is equivalent to maximizing the firm's current profits if the
interest rate is larger than the growth rate in profits and both are constant.
If A and B are complements, an increase in the price of good A would
lead to a decrease in demand for B.
The change in net benefits that arises from a one-unit change in quantity is the
marginal net benefits.
New firms have incentive to enter an industry when there is(are)
positive economic profits.
The primary inducement for new firms to enter an industry is
presence of economic profits
The law of demand states that if the price of a good falls and all other things remain the same, the
quantity demanded of the good rises.
The supply function
recognizes that the quantity of a good produced depends on its price and supply shifters.
Consumer-consumer rivalry
reduces the negotiating power of consumers in the marketplace.
In a competitive market, the market demand is Qd = 150 − 2P and the market supply is Qs = 30 + 4P. A price ceiling of $16 will result in a
shortage of 24 units.
When an effective price ceiling is in place,
some consumers are better off and others are worse off.
If demand for a good is perfectly inelastic, then
the demand curve is vertical.
Suppose market demand and supply are given by Qd = 100 − 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed,
there will be a shortage of 20 units.
The manager can be 95 percent confident that the true value of the underlying parameters in a regression is not zero if the absolute value of the t-statistic is
greater than 2.
As a rule of thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is
greater than or equal to 2.
If the demand function for a particular good is Q = 20 − 8P, then demand at a price of $1 is
inelastic
A firm will maximize the present value of future profits by maximizing current profits when the
interest rate is larger than the growth rate in profits and both are constant.
Maximizing the present value of all future profits is the same as maximizing current profits if the growth rate in profits is
less than the interest rate.
Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand, we know that ax will be
less than zero.
The optimal amount of studying is determined by comparing
marginal benefit and the marginal cost of studying
To maximize profits, a firm should continue to increase production of a good until
marginal revenue equals marginal cost.
Demand tends to be
more inelastic in the short term than in the long term
If a producer offers a price that is in excess of a consumer's valuation of the good, the consumer
will refuse to purchase the good.
Each week Bill buys exactly 10 hot dogs regardless of their price. Bill's own price elasticity of demand for hot dogs in absolute value is
zero
When dealing with present value, a higher interest rate
decreases the present value of a future amount.
When a demand curve is linear
demand is inelastic at low prices.
If the cross-price elasticity between ketchup and hamburgers is −1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent
drop in quantity demanded of hamburgers.
If the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be
elastic
The demand for good X is estimated to be QXd = 15,000 ? 2PX + 5PY + 4M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, goods X and Y are
substitute goods
Which of the following is not an important factor that affects the magnitude of the own price elasticity of a good?
supply of the good (time, available subs & expenditure share are)
The seller side of the market is known as the
supply side
Suppose the growth rate of the firm's profit is 5 percent, the interest rate is 6 percent, and the current profits of the firm are $100 million. What is the value of the firm?
$10,600 million
Suppose the demand function is given by Qxd = 10Px0.9 Py0.5 M0.22 H. Then the cross-price elasticity between goods x and y is
.5
Suppose demand is given by Qxd = 50 − 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the advertising elasticity of demand for good x?
.52
Which of the following is incorrect?
A) Accounting profits generally overstate economic profits. B)Accounting profits do not take opportunity cost into account. C)Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production. D)Managers should only be interested in accounting profits. (D)
Given a linear demand function of the form QXd = 100 − 0.5PX, find the inverse linear demand function.
PX = 200 − 2QX.
If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?
Price and quantity would both decrease.
Consumer-producer rivalry implies
a higher price of a good favors producers while hurting consumers
Suppose the demand for good x is ln Qxd = 21 − 0.8 ln Px − 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know good x is
a normal good
Persuasive advertising influences demand by
altering the underlying tastes of consumers.
Good X is a normal good if an increase in income leads to
an increase in the demand for good X.
An ad valorem tax causes the supply curve to
become steeper
Generally when calculating profits as total revenue minus total costs, accounting profits are larger than economic profits because economists take into account
both explicit and implicit costs.
An ad valorem tax shifts the supply curve
by rotating it counterclockwise.
Under producer-producer rivalry, individual firms want to sell the product at the maximum price consumers will pay, but they are unable to do this because of
competition among sellers.
Jane pays the market price of $69 for a new pair of running shoes, even though she would be happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of
consumer surplus.
The behavior of bidders in an auction is an example of
consumer-consumer rivalry.
Negotiation between the buyer and seller of a new ski boat is an example of
consumer-producer rivalry.
Assume that the price elasticity of demand is −0.75 for a certain firm's product. If the firm lowers the price, the firm's managers can expect total revenue to
decrease
Assume that the price elasticity of demand is −2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to
decrease
Suppose the demand for Good X is ln Qxd = 21 − 1.5 ln Px − 0.5 ln Py + 5 ln M + 0.35 ln Ax, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. If Py rises by 10 percent, what is the resulting change in quantity demanded of X?
decreases by 5 percent
Economics
exists because of scarcity.
The cross-price elasticity of demand for textbooks and copies of old exams is −3.5. If the price of copies of old exams increases by 10 percent, the quantity demanded of textbooks will
fall by 35 percent.
In order to maximize net benefits, the managerial control variable should be used up to the point where
net marginal benefits equal zero.
The cross-price elasticity of demand for books and magazines is −2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will
rise by 20 percent
Graphically, an increase in the number of vegetarians will cause the demand curve for tofu (meat substitute) to
shift rightward.
When the price of sugar was "low," U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that
the demand for sugar is inelastic.
The lower the interest rate,
the greater the present value of a future amount.
Other things being held constant, the greater the price of a good
the lower the consumer surplus.