Economics 5104 midterm Ch 1-6

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When society searches for the optimal method of producing goods and services, it is responding to the

"how" question.

What is the marginal cost of the 15th pair of jeans?

$4 - The change in cost from the 10th to the 15th units is $20 and the change in units is five, so the marginal cost would be the change in cost divided by the change in output or ($20/5 units) = $4 per unit.

Suppose a university raises its tuition by 8 percent and as a result the enrollment of students decreases by 4 percent. The absolute value of the price elasticity of demand is

0.5.

According to the graph, the diminishing marginal returns first occur with the

3rd worker - meets output at total output

Which panel represents the changes in the market for chicken when farmers use hormones to increase the production of chicken, but consumers are concerned about eating the chicken?

B - Farmers are able to produce more but consumers are not willing to buy more due to their concerns about hormones. As a result, demand decreases and supply increases.

Consider the market for new houses. The level of income increases for all consumers.

D. D1 -> D2

Ceteris paribus, which of the following will cause the demand for peanut butter to decrease?

Many people learn that they are allergic to peanut butter.

In a perfectly competitive market

No seller has market power

Which of the following is most true about the short run?

Some inputs are fixed.

The general shape of the average total cost curve is

U-shaped

Laissez-faire refers to

a belief of nonintervention by government in the market mechanism.

Which of the following is relatively inelastic with respect to demand?

a good with few substitutes

In a perfectly competitive market where firms are earning economic loss, which of the following is likely as the industry moves toward long-run equilibrium?

a higher price and fewer firms

eteris paribus, the quantity demanded of a good will decrease in response to

a higher price for the good.

Which of the following is characteristic of perfectly competitive markets?

a large number of firms

The long run refers to

a period of time long enough for all inputs to be varied.

ceteris paribus, which of the following will cause a rightward shift of the supply curve for plasma TVs?

a subsidy paid to the producers of plasma TVs

Marginal utility refers to the

additional utility from consuming the last unit of a good or service.

If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in

an increase in equilibrium quantity and a higher equilibrium price.

Ceteris paribus, which of the following will cause the demand for pizza to increase in a college town?

an increase in the number of students who eat pizza

Economic growth is represented by

an outward shift of the production-possibilities curve.

Explicit costs

are the sum of actual monetary payments made for resources used to produce a good.

According to the law of demand

as the price of a good falls, the quantity demanded will increase in a given time period, ceteris paribus.

A perfectly competitive firm

can sell all of its output at the prevailing price.

Suppose the price elasticity of demand for tacos is 0.80. If the price of tacos increases by 10 percent, then the quantity demanded of tacos should, ceteris paribus

decrease by 8 percent.

As more labor is hired in the short run, diminishing returns are observed because

each new worker has less capital and land (fixed inputs) to use at work.

Refer to the figure. If price is $4, this perfectly competitive firm is

earning an economic loss. - At a market price of $4, the firm would optimally produce 32 units. At this level of production, price would be below average total cost and so the firm would earn an economic loss.

Refer to the graph. If the market price is $20 for this perfectly competitive firm

economic losses - If the market price is $20, the firm would optimally produce 15 units, however this would not be enough to make a profit as at that quantity the firm would have average costs higher than prices.

If price equals average total cost and marginal cost, then

economic profits would be zero.

Ceteris paribus, a price increase will cause total revenue to decrease for a firm if the demand for its product is

elastic

A profit-maximizing competitive firm wants to _________ the rate of output when price _________ marginal cost.

expand; exceeds

Any place where factors of production are exchanged is a

factor market.

If the price elasticity of demand is 1.5, and the price rises by 20 percent, the quantity sold will, ceteris paribus

fall by 30.0 percent.

Rising marginal costs result from

falling marginal physical product.

Costs of production that do not change with the rate of output are

fixed costs.

Which of the following groups of words best represents macroeconomic goals?

full employment, price stability, economic growth

In economics, capital refers to

goods that can be used to produce other goods.

In the long run, a company will stay in business as long as price is

greater than or equal to average total costs.

When a price ceiling is set for a market, the quantity demanded will be

greater than the equilibrium quantity, and price will be less than the equilibrium price.

.The goals of the principal participants in the economy are to maximize

happiness for consumers, profits for businesses, and general welfare for government.

The production-possibilities curve shifts outward in response to

improved technology, more resources, or both.

The main difference to an economist between "short run" and "long run" is that

in the long run, all resources are variable whereas in the short run at least one resource is fixed.

Ceteris paribus, when a firm increases the price of its product, total revenue will

increase if the price elasticity of demand is inelastic.

Ceteris paribus, if the cost of insecticide decreases for tomato farmers, tomato farmers should do which of the following to maximize profits?

increase output

With a greater amount of consumption, total utility

increases as long as marginal utility is positive.

For a competitive firm, the marginal cost curve

is the short-run supply curve at all viable production levels.

The market supply of a particular good

is the sum of the quantities of the good that all producers are willing and able to sell at a particular price.

A perfectly competitive firm is a price taker because

it has no control over the market price of its product.

Ceteris paribus, if North Korea increases the size of its military, then

its production of consumer goods will decrease

Which of the following is most likely a variable cost in the short run?

labor payments

The factors of production include

land, labor, capital, and entrepreneurship.

The downward slope of the demand curve is related to the

law of diminishing marginal utility.

A perfectly competitive producer tries to maximize profits by operating at an output where

marginal cost equals price.

Marginal cost will increase with greater output if

marginal physical product is decreasing.

The change in total output that results from one additional unit of input is the

marginal physical product.

Which of the following best describes what allocates resources in the U.S. economy?

markets

The goal of most business firms is to

maximize total profit.

Over the long run, with perfectly competitive market equilibrium, price equals the ________ and economic profit is ________.

minimum of average total cost; zero

The economy of the United States is best characterized as

mixed economy.

Which list has market structures in the correct order from the most to the least market power?

monopoly, oligopoly, monopolistic competition, perfect competition

If the price elasticity of demand is 1.0, and a firm raises its price by 15 percent, then total revenue will

not change

Ceteris paribus means

only one variable is allowed to change while all others remain constant.

Over the long run, a perfectly competitive market equilibrium

price equals the minimum of average total cost.

In the short run, a manufacturer should produce the next unit of output as long as

price is greater than or equal to marginal cost.

Which of the following is a determinant of supply?

prices of the factors of production

An individual competitive firm

produces a small proportion of output relative to the market.

f demand is inelastic, then

quantity demanded is not very responsive to changes in price.

If demand is elastic, then

quantity demanded is very responsive to changes in price.

If a state decides to reduce the cost of college tuition by providing more Pell grants to students then, ceteris paribus, the

quantity demanded of a college education in the state will increase.

Price elasticity of demand shows how

quantity demanded responds to price changes.

Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the

quantity supplied of Z will increase.

All points on the production-possibilities curve

represent the use of all available resources.

In economic theory, utility refers to the

satisfaction obtained from a good or service.

When there is a surplus in a market, prices are likely to fall because

sellers would rather lower their prices to sell some of their goods or services than keep prices higher and be stuck with unsold products.

If the price of potato chips rises and the demand for pretzels rises, then potato chips and pretzels are

substitutes

Microeconomics focuses on

the behavior of individuals, firms, and government agencies

The main focus of economic studies concerns

the behavior of successful businesses.

Marginal cost is equal to

the change in total cost divided by the change in output.

An increase in the supply of frozen yogurt will take place when

the cost of producing frozen yogurt decreases.

Scarcity means

the desire for goods exceeds our capacity to produce them.

A market shortage occurs when

the market price is below equilibrium.

Which of the following will not cause a shift in the demand curve for a good?

the price of the good itself

When economists talk about a trade-off between "guns and butter," they mean

the production of more military goods may require the production of fewer consumer goods.

A market is said to be in equilibrium when

the quantity demanded equals the quantity supplied.

Competitive firms cannot individually affect market price because

their individual production is insignificant relative to the production of the industry.

Economists make a distinction between changes in quantity demanded and changes in demand

to distinguish a movement along a demand curve from a shift of the demand curve.

The law of diminishing returns means that

total product will eventually increase at a decreasing rate as more inputs are employed.

The difference between total utility and marginal utility is that

total utility is the complete satisfaction from consuming a product while marginal utility is the satisfaction from consuming one additional unit of a product.

Assuming all parcels of land are the same, there is a constant trade-off in the production of timber and food. When all land is in use, one more unit of food produced will require

two fewer units of timber produced.

Assume that we are using the midpoint method of calculating the price elasticity of demand. If a firm finds that it can sell 20,000 units at a price of $5 per unit and 25,000 units at a price of $4 per unit, then demand in this price range is

unitary elastic.

The demand for _________ is relatively elastic.

vacation travel

Opportunity cost may be defined as the

value of the most desired goods or services that are forgone to obtain something else.

Costs of production that change with the rate of output are

variable costs

Societies must address the question of what to produce because

we can't produce all the goods and services we want.

Economic and accounting costs will differ

whenever any factor of production is not paid an explicit factor payment equal to its market value.

Which of the following is consistent with a perfectly or monopolistically competitive market?

zero economic profit for firms in the long run

Ceteris paribus, which of the following events would most likely cause the production-possibilities curve to shift inward?

A major earthquake destroys several industrial centers.

"• A line graph showing the production possibilities curve.• The y-axis is labeled Office Buildings.• The x-axis is labeled Housing.• The line begins high on the y-axis, then curves outward and down to intersect the x-axis.• Four points are marked. They are labeled A, B, C, and D and are arranged in a diagonal line extending outward and upward from the intersection of the x-axis and y-axis at a 45 degree angle.• Point D is located where the x-axis and y-axis intersect.• Point C is located inside of the curve line, midway between point D and point B. • Point B is located on the curve line, midway between point C and point A.• Point A is located outside of the curve line." Society is employing some of the available technology but not all of it. Select the appropriate point that could represent this situation.

Point C - inside of curve line


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