econ pt 4

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

0.33

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

1.6 elastic `=

If the price elasticity of supply for a window manufacturer is 1.5,

10% increase in the price of windows results in a 15% increase in the quantity of windows supplied.

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Drug addicts will have an even greater need for quick cash to support their habits

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

Immediately after the price increases

How does a competitive market compare to a monopoly that engages in perfect price discrimina

In both cases, total social welfare is the same.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

The number of firms selling laptop computers decreases.

Buyers and sellers are price takers..

Which of the following is a characteristic of a competitive market?

An industry is a natural monopoly when

a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.

Total revenue minus only explicit costs is called

accounting profit.

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

an inelastic demand for oil and a reduction in the amount of oil supplied.

income elasticity of demand is negative.

an inferior good.

Fixed costs can be defined as costs that

are incurred even if nothing is produced

For an individual firm operating in a competitive market, marginal revenue equals

average revenue and the price for all levels of output.

When marginal cost exceeds average total cost,

average total cost must be rising.

Constant returns to scale occur when the firm's long-run

average total costs are constant as output increases.

If a tax is imposed on a market with inelastic demand and elastic supply, then

buyers will bear most of the burden of the tax.

Because natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would

cause the monopolist to operate at a loss.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML doesnot

choose the price at which it sells its butter.

the cross-price elasticity of two goods is negative, then the two goods are

complements

he cross-price elasticity of demand can tell us whether goods are

complements or substitutes.

On a graph, the area below a demand curve and above the price measures

consumer surplus.

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

continue to operate her business, but in the long run she will probably face competition from newly entering firms.

In "Venezuela Versus the Market," the price control placed on coffee

created a shortage of coffee.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

Total surplus is represented by the area below the

demand curve and above the supply curve, up to the equilibrium quantity.

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the

demand for marijuana is inelastic.

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

double.

The market demand curve for a monopolist is typically

downward sloping.

Total revenue minus both explicit and implicit costs is called

economic profit.

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

firms are operating at their efficient scale.

A long-run supply curve is flatter than a short-run supply curve because

firms can enter and exit a market more easily in the long run than in the short run

The long-run average total cost curve is always

flatter than the short-run average total cost curve, but not necessarily horizontal.

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm

gets steeper as output increases

A benefit of a monopoly is

greater creativity by authors who can copyright their novels.

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

he size of the factory is fixed.

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

increase by 2.5%, and X is an inferior good.

the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

increase by less than $1,000.

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will

increase consumer surplus

The marginal product of any input is the

increase in total output obtained from one additional unit of that input.

if the price elasticity for wheat is less then 1 then the supply of wheat is in

inelastic

Consumer surplus

is measured using the demand curve for a product.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

In the short-run, a firm's supply curve is equal to the

marginal cost curve above its average variable cost curve.

At the profit-maximizing level of output,

marginal revenue equals marginal cost

Suppose ABC Aluminum Inc. owns 80% of the world's bauxite, a mineral used in the production of aluminum. Which of the following reasons describes the fundamental barrier to entry for the aluminum industry?

monopoly resources

Goods with many close substitutes tend to have

more elastic demands

The reason to regulate utilities instead of using antitrust laws to promote competition is that a utility is usually a

natural monopoly.

For a monopolist, when does marginal revenue exceed average revenue

never

The supply curve for the monopolist

oes not exist.

Diseconomies of scale occur when

ong-run average total costs rise as output increases.

The Federal Insurance Contribution Act (FICA) tax is an example of a(n)

payroll tax.

For a monopolist, when the output effect is greater than the price effect, marginal revenue is

positive.

Antitrust laws have economic benefits that outweigh the costs if they

prevent mergers that would decrease competition and raise the costs of production

When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to

price discriminate.

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

price is greater than average variable cost.

A key characteristic of a competitive market is that

producers sell nearly identical products.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

Diminishing marginal product suggests that the marginal

product of an extra worker is less than the previous worker's marginal product.

For a firm, the relationship between the quantity of inputs and quantity of output is called the

production function.

The price elasticity of demand measures how much

quantity demanded responds to a change in price

Which of the followinggovernmental actions would eliminate some or all of the inefficiency that results from monopoly pricing? The government could

regulate the monopoly.

Monopolies are inefficient because they

restrict output below the socially efficient level of production

Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level.

rising at all points.

Price discrimination is the business practice of

selling the same good at different prices to different customers

If a tax is levied on the sellers of a product, then the supply curve will

shift up

For a vertical demand curve,

slope is undefined and price elasticity of demand is equal to 0

When a firm experiences continually declining average total costs,

society is better served by having one firm supply the product.

If a pharmaceutical company discoversa new drug and successfully patents it, patent law gives the firm

sole ownership limited years

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

sunk cost.

Which of the following industries is most likely to exhibit the characteristic of free entry?

tennis shoes

Which of these assumptions is often realistic for a firm in the short run?

the firm can vary the number of workers it employs but not the size of its factory

When calculating a firm's profit, an economist will subtract only

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.

demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

total revenue.

The long-run market supply curve in a competitive market will

typically be more elastic than the short-run supply curve.

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then

wheat farmers would experience an increase in their total revenue.

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition-education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program

will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price.