Econ Test 1
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At the midpoint of a linear demand curve, the elasticity of demand is A) zero. B) one. C) greater than one. D) less than zero.
B) one.
Which of the following is true of a production function? A) It specifies the maximum feasible output that can be produced for given amounts of inputs. B) It specifies the maximum revenue that a firm can generate by selling its output. C) It specifies the amount of goods that can be purchased in a market at a given price. D) It specifies the expenses a firm can incur as a result of a production process.
A) It specifies the maximum feasible output that can be produced for given amounts of inputs.
Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true? A) Pyrotex will increase its revenues by decreasing the price of fireworks. B) Pyrotex will increase its revenues by increasing the price of fireworks. C) Pyrotex cannot increase its revenues by changing the price of fireworks. D) Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues.
A) Pyrotex will increase its revenues by decreasing the price of fireworks.
ABC Corp. has a bonus plan in place for its CEO, linking her pay to annual earnings. ABC will pay her $180,000 if earnings are high, $90,000 if they are normal, and $0 if they are low. Each event is estimated to have equal probability. Assume the CEO is indifferent between this bonus plan and receiving $75,000 with certainty. Which of the following is true? A) The CEO's expected bonus is $90,000. B) The CEO is not willing to give up $15,000 in expected bonuses in order to avoid the risky scheme. C) $85,000 is the CEO's certainty equivalent for the current bonus plan. D) The CEO has no clue about risk management.
A) The CEO's expected bonus is $90,000.
Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry? A) The demand facing individual firms tend to be more price-elastic than those for the entire industry. B) The elasticity of demand for a firm and for an industry is the same. C) The demand facing individual firms tend to be less price-elastic than those for the entire industry. D) The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry.
A) The demand facing individual firms tend to be more price-elastic than those for the entire industry.
Which of the following is an example of positive externalities? A) Your neighbor's garden is always well taken care of. B) Your neighbor's barbecue smoke comes through your window. C) Your neighbor always listens to music at an unbearable volume. D) You allow weeds to grow on your yard.
A) Your neighbor's garden is always well taken care of.
Marginal costs A) are the incremental costs associated with making a decision. B) are the expenditures already made that can't be recovered. C) are not relevant when making an economic decision. D) are costs that are usually classified under "miscellaneous."
A) are the incremental costs associated with making a decision.
Externalities exist when the actions of one agent A) benefit or hurt another agent who is not part of the exchange relationship. B) hurt the agent committing the action. C) benefit the agent committing the action. D) benefit or hurt another agent who is a part of the exchange relationship.
A) benefit or hurt another agent who is not part of the exchange relationship.
A competitive equilibrium price guarantees that A) consumers who want to buy the product at the market price are satisfied. B) producers can hoard the quantity they want at the current market price. C) gains from trade are maximized only by the producers. D) revenues generated are equal to the cost of production.
A) consumers who want to buy the product at the market price are satisfied.
Sunk costs refer to A) costs that were incurred in the past and cannot be recovered and thus should not affect current decisions. B) all the costs that a firm must incur in the process of production. C) the costs that change proportionately with a change in the output. D) the quantities of a good that are given up to obtain one unit of another good.
A) costs that were incurred in the past and cannot be recovered and thus should not affect current decisions.
The omitted-variable problem in statistical analysis occurs when A) excluded variables are correlated with explanatory variables that are included in the analysis. B) the demand for the product has not been stable over time. C) the price of the product has been relatively unstable over time. D) there is no uniform result because the accounted variables are not affected by changes in other variables.
A) excluded variables are correlated with explanatory variables that are included in the analysis.
The ______ of an uncertain payoff is defined as the weighted average of all possible outcomes, where the probability of each outcome is used as the weights. A) expected value B) standard deviation C) variance D) skewness
A) expected value
Assume your company produces good X using only two inputs, capital (K) and labor (L). Also, assume L is measured on the vertical axis and K on the horizontal one. If the prices of inputs are PK=$30 and PL=15, and your company is behaving efficiently, what is the slope of the isoquant at the current input mix? A) -2 B) -1/2 C) 2 D) 1/2
A) -2
If the demand for movie tickets is elastic, then A) Ed > 1. B) Ed < 1. C) Ed = 1. D) Ed = 0.
A) Ed > 1.
Picture CH4 Q3 Which of the following is true of the demand curves shown below? 1) line even diagonally downward 2) straight horizontal line 3) straight line vertically A) All of them have constant price elasticity. B) None of them have constant price elasticity. C) Curves (1) and (3) have constant price elasticity. D) Curves (2) and (3) have constant price elasticity.
D) Curves (2) and (3) have constant price elasticity.
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true? A) Pyrotex will surely increase its profits by decreasing the price of fireworks. B) Pyrotex will surely increase its profits by increasing the price of fireworks. C) Pyrotex cannot increase its profits by changing the price of fireworks. D) Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
D) Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
Which of the following is a limitation of demand estimation through price experimentation? A) Consumers have incentives to be less truthful in their reaction to price changes, which will provide flawed data. B) Direct market tests like price experimentation are controlled experiments and will not reflect the effects of other changes in the market. C) This approach is comparatively <<AU: Change OK?>> more expensive than the other approaches of demand estimation. D) There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.
D) There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.
Let Edt= -2. This implies that the demand for movie tickets is A) inelastic, because a 1 percent change in Pt changes Qdt by 2 units. B) inelastic, because a 1 percent change in Pt changes Qdt by 1 percent. C) elastic, because a 1 percent change in Pt changes Qdt by 1 percent. D) elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
D) elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
The general rule for profit maximization in a firm is to A) set average cost at its minimum. B) reduce fixed costs by expanding output. C) maximize sales revenue. D) set marginal revenue equal to marginal cost.
D) set marginal revenue equal to marginal cost.
Price elasticity is defined as the change in quantity demanded relative to a change in A) the price of substitute products. B) consumer income. C) the price of complementary products. D) the price of the product.
D) the price of the product.
The shape of a perfectly inelastic demand curve is A) horizontal, Ed = ∞. B) horizontal, Ed = 0. C) horizontal, Ed = -1. D) vertical, Ed = 0.
D) vertical, Ed = 0.
Which of the following is a feature of a behavioral economic model? A) It focuses on cognitive, emotional, and social factors that affect individual decisions. B) It considers incentives an unimportant tool to study human behavior. C) It suggests that individuals always behave rationally. D) It is based on marginal analysis in decision making.
A) It focuses on cognitive, emotional, and social factors that affect individual decisions.
If employees' activities follow the economists' view of behavior, managers will be most effective if they can A) influence the costs and benefits of employee actions. B) improve employee satisfaction with the job. C) communicate goals and objectives effectively to their employees. D) fire inefficient employees.
A) influence the costs and benefits of employee actions.
The ______ represents the additional revenue that comes from using one more unit of input. A) marginal revenue product B) economic profit C) learning curve D) average revenue product
A) marginal revenue product
Marginal analysis refers to the A) relationship between the cause and effect of an economic event. B) study of trade relations based on absolute cost differences. C) comparison of benefits and costs of choosing a little more or a little less of a good. D) calculation of opportunity costs of an economic activity.
C) comparison of benefits and costs of choosing a little more or a little less of a good.
BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry and BaseBall Inc. experiences a fall in market share, we can say that the product of the company is in the ______ phase. A) decline B) maturity C) growth D) introductory
C) growth
If a company has significant economies of scale in the long run—assuming a large market —the company will tend to A) grow larger and have a declining average cost curve. B) become smaller and have a declining average cost curve. C) grow larger and have a rising average cost curve. D) become smaller and have a rising average cost curve.
A) grow larger and have a declining average cost curve.
Assume Joseph spends his entire income on X and Y, and his indifference curves have the usual convex shape. If Joseph maximizes his utility, then A) he spends his entire available income. B) there are other bundles that are preferred at the current price ratio. C) the slope of his indifference curve is greater than the slope of his budget line. D) the slope of his indifference curve is smaller than the slope of his budget line.
A) he spends his entire available income.
A working knowledge of both markets and firms is important for managers to be effective because it A) helps them make appropriate strategic and operational decisions. B) helps them to exploit other executives. C) helps them train their subordinates better. D) helps them earn high bonuses.
A) helps them make appropriate strategic and operational decisions.
The shape of a perfectly elastic demand curve is A) horizontal, Ed = infinity. B) horizontal, Ed = 0. C) horizontal, Ed = -1. D) vertical, Ed = 0.
A) horizontal, Ed = infinity.
A production function of the form Q = 150L.75 K.50exhibits ______ in the long run. A) increasing returns to scale B) decreasing returns to scale C) constant returns to scale D) diminishing returns to the variable input
A) increasing returns to scale
Diminishing marginal returns occur when A) one input is increased and the others are held constant. B) all inputs are increased. C) one input is decreased while the other is increased. D) all inputs are decreased.
A) one input is increased and the others are held constant.
Assume that the quantity of X is measured on the horizontal axis, and the quantity of Y is measured on the vertical axis. Assume that the price of X is $3 and the price of Y is $6. If Amanda has $90 to spend on X and Y, then A) she can buy, at most, 30 units of good X. B) her budget line has a slope of -2. C) her budget line has a slope of −3. D) she can buy, at most, 15 units of good X.
A) she can buy, at most, 30 units of good X.
Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then A) skin care products are normal goods. B) the elasticity of demand is equal to 11. C) skin care products are inferior goods. D) the elasticity of demand is equal to 10.
A) skin care products are normal goods.
Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium. If the demand increases while the supply decreases, then we can be certain that A) the equilibrium price will increase. B) the equilibrium quantity will increase. C) both price and quantity will increase. D) both price and quantity will decrease.
A) the equilibrium price will increase.
Fast food is believed to be an inferior good. This means that A) the quantity of fast food consumed decreases as income increases. B) the income elasticity of demand for fast food is positive. C) the quantity of fast food consumed will always be high. D) the quantity of fast food supplied decreases as income increases.
A) the quantity of fast food consumed decreases as income increases.
If the price of a variable input increases, then A) the total cost curve will shift up. B) the average total cost curve will shift down. C) the marginal cost curve will shift down. D) the fixed cost curve will shift up.
A) the total cost curve will shift up.
The production and distribution of goods and services in an economy is said to be Pareto-efficient if A) there exists no alternative that keeps all individuals at least as well off but makes even one person better off. B) there is no alternative that reduces the cost of transportation and distribution of goods in a market. C) the revenue generated from the sale of goods and services is more than the cost of production. D) the quantity of goods demanded in an economy is more than the quantity supplied.
A) there exists no alternative that keeps all individuals at least as well off but makes even one person better off.
If a company has a cost curve of TC = 300 + 2Q + Q2 and it produces 300 units per day, then its average (total) cost is A) $1. B) $303. C) $300. D) $602.
B) $303.
Assume the demand function for basketballs is given by QD = 150 −3P + 0.1I, where P = price of a basketball, and I = average income of consumers. Also, assume the supply of basketballs is given by QS = 2P. If the market for basketballs is perfectly competitive, and the average income is equal to $1,500, what is the equilibrium price and quantity? What if a 20 percent income tax is introduced? A) Before the tax, the equilibrium price was $60, and 120 basketballs were traded. The introduction of an income tax would have no effect on the equilibrium price and quantity. B) Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 108 basketballs would be traded. C) Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, which would cause the quantity of basketballs traded to increase. D) Before the tax, the equilibrium price was $60, and 108 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 120 basketballs would be traded.
B) Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 108 basketballs would be traded.
There is an increase in availability of alternative fuels through research and development. Which of the following correctly captures the effect of this change on the market for gasoline? A) Both equilibrium quantity and price will increase. B) Both equilibrium quantity and price will decrease. C) Equilibrium quantity will increase, but equilibrium price will decrease. D) Equilibrium quantity will decrease, but equilibrium price will increase.
B) Both equilibrium quantity and price will decrease.
An independent trucker has to choose one of the four possible combinations of inputs listed below. The two inputs are drivers and machinery. If he buys expensive machinery, then he can hire fewer drivers to deliver the same output. The input combinations are Method 1: 20 drivers, 10 machines; Method 2: 50 drivers, 2 machines; Method 3: 100 drivers, 0 machines; Method 4: 10 drivers, 12 machines. Hiring a driver costs $10. Each machine costs $100. Which method should he use? A) Method 1 B) Method 2 C) Method 3 D) Method 4
B) Method 2
FarAwayDrive Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for FarAwayDrive's golf balls? A) The ARC-elasticity (midpoints formula) of demand is 2.0. B) The ARC-elasticity (midpoints formula) of demand is ½ or .50. C) The ARC-elasticity (midpoints formula) of demand is 2/3 or .667. D) The ARC-elasticity (midpoints formula) of demand is 4/11 or .364.
B) The ARC-elasticity (midpoints formula) of demand is ½ or .50.
A risk-averse agent A) only cares about expected payoff. B) cares about expected payoff as well as the variability of a payoff. C) only cares about the variability of a payoff. D) does not care about expected payoff.
B) cares about expected payoff as well as the variability of a payoff.
A production function of the form Q = 40 L.75 K.20exhibits ______ in the long run. A) increasing returns to scale B) decreasing returns to scale C) constant returns to scale D) diminishing returns to the variable input
B) decreasing returns to scale
The ______ model suggests that that the productivity of employees in a firm will increase if the firm offers lifetime employment and a high salary. A) only-money-matters B) happy-is-productive C) product-of-the-environment D) good-citizen
B) happy-is-productive
The marginal product curve of input Y shows A) how the quantity of output produced changes for each amount of input Y, whether or not all other inputs are held constant. B) how the quantity of output produced changes for each amount of input Y, holding all other inputs constant. C) how the average quantity of output produced varies with input Y, whether or not all other inputs are held constant. D) how the average quantity of output produced varies with input Y, holding all other inputs constant.
B) how the quantity of output produced changes for each amount of input Y, holding all other inputs constant.
If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then A) the demand for product A is likely to have a low price elasticity. B) products A and B are substitutes. C) products A and B are complements. D) the demand for product B is likely to have a low price elasticity.
B) products A and B are substitutes.
A budget line A) shows all the combinations of goods that yield the same utility. B) shows all the combinations of goods that require the same total expenditure. C) has a slope that depends on consumers' income. D) usually slopes upward.
B) shows all the combinations of goods that require the same total expenditure.
Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis. If the budget line rotates upward while keeping the same horizontal intercept, it implies that A) the price of apples has decreased. B) the price of oranges has decreased. C) the available income has increased. D) the price of oranges has increased.
B) the price of oranges has decreased.
A firm's average total cost is minimized at $5/unit when it produces 10 units. What is the marginal cost when the firm produces 10 units? A) Less than $5/unit B) Greater than $5/unit C) $5/unit D) $10/unit
C) $5/unit
A firm produces 10 widgets that they sell for $15 each. The average variable cost for the production of 10 widgets is $13/unit. The fixed cost for this firm equals $20. What is the value of this firm's profits? A) -$20 B) -$2 C) 0 D) $20
C) 0
Bob owns an auto parts firm. He uses a combination of steel and aluminum to produce his auto parts. All of the following combinations will finish the task on time. Steel costs $15 per unit and the aluminum costs $50 per unit. What combination of steel and aluminum should he use? A) 10 units of steel and 10 units of aluminum B) 12 units of steel and 8 units of aluminum C) 15 units of steel and 7 units of aluminum D) 20 units of steel and 6 units of aluminum
C) 15 units of steel and 7 units of aluminum
Which one of the following does not cause a shift in the demand curve for gasoline? A) An increase in the amount of alternative fuels B) An increase in gas tax C) An increase in the price of gasoline D) An increase in oil imports from the Gulf
C) An increase in the price of gasoline
Assume the current market price of candles is such that there is a surplus (i.e., excess supply). Which of the following best describes the adjustment process in a competitive market? A) As the price increases, the quantity demanded and the quantity supplied decrease. B) As the price increases, the quantity demanded decreases while the quantity supplied increases. C) As the price decreases, the quantity demanded increases while the quantity supplied decreases. D) As the price decreases, the quantity demanded decreases while the quantity supplied increases.
C) As the price decreases, the quantity demanded increases while the quantity supplied decreases.
Let Qd = 10 - 2P and Qs = 3P be the demand and supply curves for Beer. The equilibrium combination (P* and Q*) in the market is ______. A) P* = 2; Q* = 5 B) P* = 5; Q* = 0 C) P* = 2; Q* = 6 D) P* = 6; Q* = 2
C) P* = 2; Q* = 6
Edt = - 5. This means that if A) Pt increases by 5 percent, then Qdt will decrease by 1 percent. B) Qdt increases by 5 percent, Pt will decrease by 1 percent. C) Pt increases by 1 percent, Qdt will decrease by 5 percent. D) Pt decreases by $1, Qdt will decrease by 5 units.
C) Pt increases by 1 percent, Qdt will decrease by 5 percent.
Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 -25P + 4I +10PA-15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true? A) SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price. B) SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of table producers. SeatComfy's sales increase by 50 percent if the price decreases by $2. C) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1. D) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units as price increases by $1.
C) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
Assume the demand function for scooters is given by QD = 20,000 - 10P + 0.2I, where P = price of a scooter, and I = average income of consumers. Also, assume the supply function of scooters is given by QS = 20P. If the market for scooters is perfectly competitive, and the average income of consumers is $20,000, what are the equilibrium price and quantity in this market? A) The equilibrium price is $16,000, and 800 scooters are traded. B) The equilibrium price is $1,600, and 32,000 scooters are traded. C) The equilibrium price is $800, and 16,000 scooters are traded. D) The equilibrium price is $800, and 32,000 scooters are traded.
C) The equilibrium price is $800, and 16,000 scooters are traded.
Marginal utility is the A) total happiness obtained from a consumption bundle. B) additional utility obtained by a fall in the price of a good. C) additional utility obtained by consuming one additional unit of a good. D) total amount spent to purchase one additional unit of a good.
C) additional utility obtained by consuming one additional unit of a good.
The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product. A) lower than B) equal to C) higher than D) not comparable to
C) higher than
The minimum wage is a A) cost ceiling. B) positive externality. C) price floor. D) price ceiling.
C) price floor.
Assume that the quantity of CDs is measured on the horizontal axis, while the quantity of movie tickets is measured on the vertical axis. If available income decreases, then A) the horizontal intercept of the budget line decreases, while the vertical intercept remains unchanged. B) the vertical intercept of the budget line decreases, while the horizontal intercept remains unchanged. C) the budget line will shift inward. D) the budget line will shift outward.
C) the budget line will shift inward.
The opportunity cost of any business decision is A) accounting cost divided by the level of output. B) the cost per unit of output. C) the cost of the next best alternative. D) the cost of doing business in the future.
C) the cost of the next best alternative.
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that A) the cross-price ARC-elasticity (midpoints formula) between the two products is -2. B) the cross-price ARC-elasticity (midpoints formula) between the two products is -½. C) the cross-price ARC-elasticity (midpoints formula) between the two products is ½. D) the cross-price ARC-elasticity (midpoints formula) between the two products is 2.
C) the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
Assume that Janet is risk-averse. Which of the following bets is she more likely to accept, depending on the degree of risk aversion? A) win $40 one-fourth of the time, win $10 one-half of the time and lose $40 on-fourth of the time. B) win $40 one-fourth of the time, breakeven one-half of the time and lose $40 on-fourth of the time. C) win $20 one-fourth of the time, win $10 one-half of the time and lose $10 on-fourth of the time. D) win $20 one-fourth of the time, win $10 one-fourth of the time and lose $20 on-fourth of the time.
C) win $20 one-fourth of the time, win $10 one-half of the time and lose $10 on-fourth of the time.