Econ practice exam
demand; positively
A Giffen good is one in which the _______ curve is _______ sloped
b) P > MR
A downward sloping demand curve will ensure that: a) P = ATC b) P > MR c) P < MC d) P = MC
b) Is maximized
A firm operating in a monopolistically competitive market is producing a quantity at which MC=MR profit: a) can be increased by increasing production b) Is maximized c) can be increased by decreasing the price d) Is maximized only if MC=P
price
A horizontal demand curve indicates extreme sensitivity to ________ changes
c) greater than 1 but less than 3
A men's tie store sold an average of 30 ties per day when the price was $5 per tie. The same store sold 60 of the same ties per day when the price was $3 per tie. In this case, the price elasticity of demand (using the midpoint method) is: a) greater than zero but less than 1 b) equal to 1 c) greater than 1 but less than 3 d) greater than 3
b) Economies of scale provide large cost advantages to having one firm produce the industry's output
A natural monopoly exists when: a) A few firms collude to make one large firm b) Economies of scale provide large cost advantages to having one firm produce the industry's output c) Firms naturally maximize profit regardless of market structure d) Firms enter the industry as a result of profit incentives
c) Is an uncompensated cost imposed by an individual or firm on others
A negative externatlity: a) Is any cost above the economic cost b) Equals the social cost plus the firm's private cost c) Is an uncompensated cost imposed by an individual or firm on others d) Equals the opportunity cost minus the social costs
Horizontal
A perfectly elastic demand curve is
vertical
A perfectly price-inelastic demand curve is:
Normal
A positive income elasticity indicates a __________ good.
0
Assume the price of a candy bar decreases from $1.00 to $0.80 and the quantity demanded does not change. If other things are unchanged, the price elasticity of demand, using the midpoint formula, is:
b) Lower; minimum
Many furniture stores run "going out of business" sales but never go out of business. In order for the shut-down decision to be the appropriate one, the price of furniture must be ________ than the ________ average variable cost. a) Higher; maximum b) Lower; minimum c) Higher; minimum d) Lower; maximum
d) Increase in total revenue when it sells an additional unit of output
Marginal Revenue is a firm's: a) Ratio of profit to quantity b) Ratio of average revenue to quantity c) Price per unit times the number of units sold d) Increase in total revenue when it sells an additional unit of output
c) Network externalities
Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through: a) Ownership of a resource b) Patents c) Network externalities d) Large economies of scale
a) Charging different prices to buyers of the same good
Price discrimination is the practice of: a) Charging different prices to buyers of the same good b) Paying different prices to suppliers of the same good c) Equating price to marginal cost d) Equating price to marginal revenue
a) Higher; less elastic
Price discrimination leads to a __________ price for consumers with a _________ demand. a) Higher; less elastic b) Higher; more elastic c) Higher; perfectly elastic d) Lower; less elastic
.33 The price of elasticity of supply is percent change in quantity supplied divided by percent change in price. In this case its 10%/30%
Suppose the price of arugula rises by 30%, but the quantity supplied rises by 10%. What is the price elasticity of supply?
b) increase; price; quantity
Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ______ because the ______ effect is greater than the ______ effect. a) decrease; quantity; price b) increase; price; quantity c) not change; quantity; price d) increase; quantity; price
a) Individuals in the market accept the market price as given
The assumptions of perfect competition imply that: a) Individuals in the market accept the market price as given b) Individuals can influence the market price c) The price will be fair d) The price will be low
The percent change in quantity demanded divided by the percent change in price
The price elasticity of demand is defined as:
The longer the period of time in consideration Given time, producers are often able to significantly change the amount they produce in response to a change in price. So supply tends to be more elastic in the long run
The price elasticity of supply rises:
Whether wine and chocolate are substitutes or complements. The negative sign of the cross-price elasticity of demand would tell us that the 2 goods are complements
The sign (negative or positive) on the cross-price elasticity of demand for wine and chocolate tells us:
Whether the good is normal or inferior
The sign (positive or negative) on the income elasticity of demand tells us:
b) Dresses tend to be differentiated among the many sellers serving this market
The wedding dress industry is monopolistically competitive. As a result, which of the following conditions applies to this industry? a) There are thousands of dress suppliers, all selling identical products b) Dresses tend to be differentiated among the many sellers serving this market c) There is freedom of entry but not exit in this industry d) Prices tend to be lower than if the dress industry approximated perfect competition
Price of a good multiplied by the quantity sold of that good
Total revenue is equal to
a) how much of the good was purchased at two different prices
What do you have to know in order to calculate the price elasticity of demand? a) how much of the good was purchased at two different prices b) the price elasticity of supply c) how many firms supply the good d) the portion of income the typical consumer spends on the good
It measures the change in the quantity consumed as the consumer substitutes away from the relatively more expensive good toward other relatively cheaper goods
What is true about the substitution effect?
Always be positive
When calculated for a normal demand curve, the price elasticity of demand will:
The demand curve is horizontal
When demand is perfectly elastic:
fewer units are sold
When the price of a good rises, total revenue falls because of the quantity effect. This means that as the price of a good rises:
$209.00; $204.25
When the price of chocolate covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is ______, and if the price is $0.95, total revenue is ________.
d) You own exclusive rights to harvest lemons from all domestic citrus orchards
You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? a) The government abolishes the system of patents & copyrights b) A booming economy increases the demand for lemonade and attracts entry into the market c) The average total cost curve for firms in the industry is horizontal d) You own exclusive rights to harvest lemons from all domestic citrus orchards
a) Collusion
If the only two firms in an industry agree to fix the price at a given level, this is an example of: a) Collusion b) Satisfying demand c) Price extortion d) Price leadership
a) price-inelastic
If the price elasticity of demand is calculated to be 3/4, then demand is: a) price-inelastic b) equal to 1 c) price unit-elastic d) positively sloped
c) approximately 1.33
If the price of a good increases by 15% and the quantity demanded changes by 20%, then the price elasticity of demand is equal to: a) 0.75 b) approximately 0.33 c) approximately 1.33 d) 1.0
c) Firms recognize their interdependence
In an Oligopoly: a) There are many sellers b) There are no barriers to entry c) Firms recognize their interdependence d) Total surplus is maximized
d) There are barriers to entry
In monopolistic competition: a) There is free entry and exit in the long run b) Each firm produces a standardized product c) There are few producers d) There are barriers to entry
a) Produces output and earns zero economic profit
In the short run, if P = ATC, a perfectly competitive firm: a) Produces output and earns zero economic profit b) Produces output and earns an economic profit c) Produces output and incurs an economic loss d) Does not produce output and incurs an economic loss
c) increase her consumption of wallets if wallets are a normal good, as the income effect reinforces the substitution effect
Jane is a utility-maximizing consumer who is consuming the optimal quantity of wallets and eyeglasses and spending her entire budget. The price of wallets falls. Jane will: a) decrease her consumption of wallets if wallets are an inferior good and the income effect is weaker than the substitution effect b) increase her consumption of wallets if wallets are an inferior good and the income effect is stronger than the substitution effect. c) increase her consumption of wallets if wallets are a normal good, as the income effect reinforces the substitution effect d) decrease her consumption of wallets if wallets are a normal good and the income effect reinforces the substitution effect
d) 50%
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower the price by: a) 0.1% b) 1% c) 5% d) 50%
a) A dominant strategy
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of: a) a dominant strategy b) a tit-for-tat strategy c) an irrational strategy d) product differentiation
d) $220
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: a) $10 b) $20 c) $200 d) $220