Economics Review
Which of the following is not part of the political argument against trade and current trade deficits?
International trade leads to less expensive goods being sold in the US.
Positive or normative? Florida should devote all revenues from its state lottery to improving public education.
Normative
What is the opportunity cost is Molly chooses to enter the doctoral program of Microbiology at the University of Texas after receiving her masters degree?
The time molly could have spent on other activities.
The rate of inflation is a topic of macroeconomics.
True
If there are no externalities or if such costs and benefits are properly internalized, firms _____ weigh social benefits and costs in their production decisions.
Will
Which of the following is not likely to be the basis for a barrier that keeps firm from entering a monopoly?
a high ration of variable costs to fixed costs.
A price ceiling is
a maximum price set by government that sellers may charge for a good.
Government, for many reasons, often intervene in international market, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When governments set a limit on the quantity of imports, this is known as
a quota.
Every Friday night, Gustavo pays $29.99 to eat nothing but crab legs at the all-you-can-eat seafood buffet at the M Resort in Las Vegas. On average he consumes 22 crab legs. The average cost of each crab leg to Gustavo is _______ and the marginal cost of an additional crab leg is ________.
$1.36; $0
Government, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When a government makes a payment to domestic firms to encourage exports, this is known as
an export subsidy.
If an increase in income results in a decrease in the quantity demanded for a product, the product is _________ and the value of the income elasticity of demand is ________.
an inferior good; negative
Marginal cost intersects the average variable cost and the average total cost
at their lowest, or minimum points.
An example of a price ceiling would be the government setting the price of sugar
below the equilibrium market price.
A perfectly competitive firm _______ at the level of output where P=ATC
breaks even
Demand for one item goes down when the price of another item goes up. These items must be
compliments
With external economies, the long-run industry supply curve _______ with output.
decreases.
A firm will begin to experience diminishing returns at the point where
marginal cost increases
The value of the slope of a society's production possibility frontier is called the
marginal rate of transformation.
Each boat owner hires workers up to the point where
marginal revenue product of labor equals the wage rate.
Suppose you are deciding whether to spend your tax rebate check on a new iPod or a new digital camera. You are dealing with the concept of
opportunity cost
That which we forgo, or give up, when we make a choice or decision is called
opportunity cost
Marginal utility is
the additional satisfaction gained by the consumption or use of one more unit of something.
When the price of coffee decreases 5%, quantity demand increases 5%. The price elasticity of demand for coffee is _______ and total revenue from coffee sales will____________.
unit elastic; not change.
The legal principe that large size and the existence of unexerted power are not in themselves illegal
was generally accepted by the courts until 1945, let most decision rests on firms' conduct, led to a finding that US Steel had not violated any law, and is consistent with the Rule of Reason.
The law of diminishing return occurs:
when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines.
Economists use the phrase "ceteris paribus" to express the assumption
"all else equal"
The common way of expressing the efficient market concept is
"there's no such thing as a free lunch"
Jessica sells carrots at a small vegetable stand in a weekly farmers' market that contains many such stands. On average, she produces and sells 150 pounds of carrots at $0.50 per pound. Her total cost of producing carrots is $75 per week. She needs to decide whether or not to increase the production of carrots. She has been told that the market for carrots demonstrates constant returns to scale. If this is the case, what is the average cost to produce each pound of carrots when she increases production to 300 pounds of carrots per week?
$0.50 per pound
Suppose a firms pays $2500 per month to operate in the short run. From this amount $1,250 is spent on costs that do not change regardless of the level of the firm's output. What are the total variable costs of this firm?
$1,250
If the opportunity cost of producing one gallon of milk is 1 dozen eggs in France and the opportunity cost of producing one gallon of milk is 4 dozen eggs in Sweden, both countries would benefit from trading with each other if the terms of trade were one gallon of milk for ________ dozen eggs.
3
What is the opportunity cost if Tiffany goes out for a night of karaoke and sleeps through her Calculus final exam?
A better grade on the exam.
What is the opportunity cost when upgrading to a balcony suite for your cruise around the Mediterranean Sea?
An excursion you could have purchased with the money spent on the upgrade.
When a price ceiling is imposed, the price system is prohibited from rationing the product in the market in which the ceiling was imposed. What other alternative rating methods are available to determine who receives the scarce commodity?
Queuing, favoring customers, and ration coupons.
Which of the following is an example of a normative question?
Should the government provide free prescription drugs to lower-income citizens?
Which of the following is not an opportunity cost of attending college?
The cost of the food that you consume while you are attending college.
Which of the following is an opportunity cost of attending college?
The income you could have earned if you didn't attend college.
Which of the following is most likely to be a variable cost for a firm?
The payroll taxes that are paid on employee wages.
Marginalism is
The process of analyzing the additional costs or benefits arising from a decision.
Many industries lobby for favorable treatment, softer regulation, or antitrust exemption. This is called rent seeking.
True
The public choice field of economics looks at the public sector from the standpoint of the behavior of public officials and potential for inefficient choices and bureaucratic waste.
True
True of False? Three roommates are trying to decide what color to paint their living room, and following are their preferences: Alice prefers green to blue and prefers blue to purple. Bianca prefers purple to green and prefers green to blue. Cyndi prefers blue to purple and prefers purple to green. The results of their preferences represent a voting paradox.
True
True or False? All else equal, taxes that are neutral with respect to economic decision are usually preferable to taxes that distort economic decisions.
True
True or False? It is possible that government involvement in the economy can lead to markets functioning more efficiently as well as markets functioning less efficiently.
True
True or false? The collection and use of data to test economic theory is called empirical economics.
True
The existence of trade for country that has developed an expertise or reputation for quantity in the production of a particular good is best explained by
acquired comparative advantage.
A tax that causes net income to fall
causes damage on the sources side.
To analyze the relationship between two variable while holding the values of other variables unchanged is a device known as
ceteris paribus
A change in income leads to a _____ that leads to a _______.
change in demand; shift of the demand curve.
the word perfect in the term percent competition means
competition in the market is total or incomplete.
Suppose the demand for lawnmowers goes down when the price of gasoline goes up. We can say that these two goods are
complements
Public goods are _______. In addition _________ can consume them.
consumed collectively; everyone
Fixed costs are best described as
costs that are incurred even if the firm is currently producing nothing.
Two college students share an apartment and split the cost of heating, electricity, and rent. They decide to include one more roommate and divide heat, electricity, and rent costs three ways instead of two ways. If the third roommate increases the utility bill by more than one-third and it increases the amount of money each roommate pays for utilities each month, this can be described as:
diseconomies of scale.
Freely functioning markets in the the real world _____________ always produce an efficient allocation of resources.
do not
When a firm or industry sells products on the world market at prices below the cost of production, this known as
dumping
With international trade, the availability of less-expensive goods is the result of
each trading country specializing in production where it has a comparative advantage.
Firms that are breaking even are
earning zero economic profits.
The existence of trade for country that produces and sells on a large scale to a global market is best explained by
economies of scale.
When an increase in a firm's scale of production leads to lower average costs, we say that there are
economies of scale.
An approach to economics that applies statistical techniques and data to economic problems is called
empirical economics
The collection and use of the data on automobile emissions and global warming levels is an example of
empirical economics
A person who organizes, manages and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business is known as an
entrepreneur
The discipline of economics began to take shape during the time of Franklin Roosevelt's New Deal.
False
The rate of unemployment is a topic of microeconomics
False
True or False? In economics, the concept of equity is rarely debated as most people agree as to what is and what is not equitable.
False
True or False? Macroeconomics deals with the functioning of individual industries and the behavior of households.
False
True or false? In a simple, one-person economy, the person does not experience the concepts of scarcity or choice.
False
True or false? The only two fields of economic study are macroeconomics and microeconomics.
False
When a country has an absolute advantage in the production of a product, it means that country can produce the product at a lower opportunity cost than other countries.
False
The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true.
Goods X and Y are substitutes.
The existence of trade for country where capital is relatively abundant specializing in capital intensive goods might by explained by
Hecksher-Ohlin theorem.
There are three important properties to remember about demand curves . Describe these properties.
It has a negative slope, which intersects the X, or quantity, axis and intersects the Y or price axis
What two important functions does a market system perform?
It provides an automatic mechanism for distributing scarce goods and services and determines both the allocation of resources among producers and the final mix of outputs.
_______ are likely a fixed cost of a firm
Lease payments for office space.
Regarding social choice, which of the following is not a problem with majority-rule voting?
Legislation that benefits only a small region will often command a majority vote.
If an industry realizes positive economic profits, new firms and investment will gravitate toward that industry. Those industries that suffer economic losses will tend to lose firms and investment. At the point where economic profits are neither positive nor negative (zero), the industry is said to have achieved:
Long-run competitive equilibrium and P=SRMC=SRAC=LRAC
Bubba's Bait and Tackle is maximizing profits, so it must be where
MR=MC
Congress extends the maximum duration for the collection of unemployment benefits from 26 weeks to 52 weeks. This is an example of a ___________ concern.
Macroeconomic
The president has proposed increasing the marginal tax rate for people whose annual earning exceed $275,000 and lowering the marginal tax rate for those who earn less than $275,000. This is an example of a ___________ concern.
Macroeconomics
A resource's ____________ is the additional output that can be produced by adding one more unit of a specific input, ceteris paribus, while __________ is the average amount produced by each unit of a variable factor of production.
Marginal product; average product.
Among the fundamental concepts in economics are:
Marginalism, opportunity cost, efficient markets.
The FAA is considering increasing the number of takeoff and landing slots available at Ronald Reagan Washington National Airport. Is is an example of a _________ concern.
Microeconomics
Walmart has announced that it will increase its starting wage for employees to $10 per hour by February 2016. This is an example of a ________ concern.
Microeconomics
Which of the following is not a resource as the term is used by economists?
Money
You discover that Ohio exports more to Canada and Mexico than all other countries combined. Is this fact surprising?
No, because of NAFTA, you would expect the exports of goods to Canada and Mexico to be substantial.
Positive or normative? As a public safety measure, the state of Texas should not pass legislation that allows people to carry concealed weapons on college campuses.
Normative
Which of the following is not an argument for protectionism in international trade?
Protecting a key source of government revenue
The amount by which the burden of a tax exceeds the revenue collected by the government is called the
excess burden of the tax.
Favored customers are customers who receive special treatments from deals during periods of
excess supply
In a black market
illegal trading at market prices takes place
A firm that is breaking even is
in an industry that is not attracting new firms, earning a normal rate of return, earning zero economic profit.
When P=SRMC=SRAC=LRAC and industry is considered to be
in long-run competitive equilibrium and making zero profits.
Exports represent goods produced __________ and sold _______.
in the US; abroad.
In response to news reports that taking aspirin daily can reduce an individual's risk of a heart attack, there will most likely be an
increase in the demand for aspirin.
The study of economics
is a way of analyzing decision-making processes caused by scarcity.
Two congressmen agree to support each others legislations this
is an example of logrolling and it could result in two pieces of efficient legislation being passes.
For a monopoly, marginal revenue
is less than price, because a monopolist must lower its price in order to sell more.
In the short run, firms earning a profit will want to ________ their profits while firms suffering losses will want to ________ their losses.
maximize; minimize
The income elasticity of demand
measures the responsiveness of quantity demanded changes in income.
If a monopoly is protected by barriers that prevent other firms from selling the same product, then the monopolist
is still constrained by the demand curve for its product.
Producer surplus
is the difference between the current market price and the cost of production for the firm
Consumer surplus
is the difference between the maximum amount a person is willing to pay for a good and its current market price.
Marginal cost
is the increase in total cost resulting from producing one more unit.
You own American Sniper on DVD. The opportunity cost of watching the DVD for the fourth time
is the value of the alternative use of the time you spend watching the DVD.
Because a monopoly is the only firm in its industry,
it can set the industry prices
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units is
microeconomics
The marginal cost curve intersects the average variable cost curve at the _____ value of the average variable cost.
minimum
A(n) ______ is a formal statement of a theory
model
A mass transit authority charges bus fares of $1.25 during morning rush hours but only $1.00 during the late morning non-rush hours. Economists explain the fare difference by the fact that the demand for bus rides during the morning rush hours is ______ but during the late morning it is __________.
more inelastic; more elastic.
Firms have ______ over their ________ costs in the short run
no control; fixed
If a profit-maximizing firm is currently producing output where MR=MC in the short run, it should
not change output
A representative firm in a perfectly competitive industry will continue to expand its operation so long as
it is earning positive profits, there are economics of scale to be realized, new firms have incentive to enter the industry.
If a firm shuts down in the short run, then
its losses are equal to its fixed costs.
Viewed as an example of an input market, we can conclude that
labor will be allocated efficiently among the firms.
Sanjay is consuming X and Y so that he is spending his entire income and MUxIpx=8 and MUyIPx=14. To maximize utility, he should consumer
less X and more Y
The ________ is that period of time for which there are no fixed factors of production: firms can increase or decrease the scale of operation, and new firms can enter the industry and/or existing firms can exit the industry.
long run.
The shutdown point for a perfectly competitive firm is the
lowest point on the AVC curve.
In interpreting the Sherman Act, the Supreme Court developed the Rule of Reason, which says that a firm may be found guilty of violating the law
only if its conduct is unreasonable.
The process of deciding what society wants, and then aggregating individual preferences to make a choice for society as a whole is called
social choice.
A government policy that tries to minimize inflation and unemployment can best be described as trying to achieve economic
stability
When the decrease in the price of one good causes the demand for another good to decrease, the goods are
subsitutes
An example of a positive eternality is
the beauty of a home's well-kept lawn.
the financial capital market is
the complex set of institutions in which suppliers of capital (households that save) and the demand for capital (firms wanting to invest) interact.
One of the major characteristics of pure monopoly is
there are several barriers to entering the industry.
One of the major characteristics of pure monopoly is
there is only one firm in the industry.
For a demand curve to be more elastic:
there should be an availability of substitutes.
When a firm engages in perfect price discrimination
they produce the same output level as a competitive firm, consumer surplus is zero and there is no deadweight loss.
When firms earn below normal rates of return
they tend to leave the industry and seek profits elsewhere.
According to the benefits principle:
those who benefit from the tax expenditures should provide the tax revenues.
Which type of cost does spend on a firm's output?
total cost, variable cost, marginal cost.
A firm earns a profit if
total revenue exceeds the total cost of production.
A firm suffers losses if
total revenue is greater than the total variable cost of production but less than total cost.
At an output of zero, ______ is zero.
total variable cost
According to the theory of comparative advantage, _______ raises productivity by lowering opportunity costs
trade and specialization
Since about 1976, the United States has been running a
trade deficit
Prior to 1976, the US was running a
trade surplus
When the price of cheddar cheese increases 15%, quantity demand decreases 15%. The price elasticity is _______ and total revenue will__________
unit elastic; not change
A firm will shut down in the short run if
variable costs exceed revenues.
Among the methods of nonprice rationing are
waiting in line, coupons, favored customers.
If Macroland's economy is at Point A, it could produce more consumer goods
without sacrificing any capital goods.
Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At his output level, price equals this firm's marginal cost. Assuming price exceeds average variable cost, to maximize profits Cathy's Cupcake Company should
make no adjustments as they are already maximizing their profits.
Assuming that households confine their choices to products that improve their well-being, a decline in the price of any product, ceteris paribus:
makes the household unequivocally better off.
Perfect competition is defined as
many firms, each being small relative to the industry and producing virtually identical products, and in which no firm is large enough to have control over prices.
The process of analyzing the additional costs or benefits which arise from a decision is known as marginalism.
True
Imports represent goods produced _________ and sold _______.
abroad; in the US.
The process by which inputs are combined, transformed and turned into outputs is called
poduction
A firm in a perfectly competitive industry produces its profit-maximizing quantity, 40 units. Industry price is $3, total fixed costs are $45, and total variable costs are $60. The firm's economic profit is
$15
If the market price of a basketball is $35 and the full cost of producing it is $20, then the basketball producing firm gets producer surplus of
$15.
Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. What is the equation for Jane's budget constraint?
$25*clothing +$10*food=$500
A firm in a perfectly competitive industry is currently producing 5,000 units of output and the market equilibrium price for the good is $5.00. If the firm chooses to increase output by one additional unit, total revenue is _________. Marginal revenue is ________.
$25,005; $5.00
If a firm's total costs are $100 when 10 units of output are produced and $103 when 11 units are produced, the marginal cost of the 11th unit is
$3
The Lawn Ranger, a landscaping company has total costs of $4000 and total variable costs of $1000. What are their fixed costs?
$3000
If the most someone is willing to pay for a ticket to see their favorite team is $100 and the market price of the ticket is $35, then this buyer will get consumer surplus of
$65.
Which of the following is used to calculate cross-price elasticity of demand?
(% change in quantity of Y demanded)/(% change in price of X)
Which of the following is used to calculate elasticity of labor supply?
(% change in quantity of labor supplied)/(% change in the wage rate)
Which of the following is used to calculate elasticity of supply?
(% change in quantity supplied)/(% change in price)
Which of the following is used to calculate income elasticity of demand?
(%change in quantity demanded)/(% change in income)
Economic profit is
(P-ATC)*q
If the quantity of tea increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is
0.33
If the quantity demanded of ages decreases by 8% when the price of croissants decreases by 16%, the cross-price elasticity of demand between bagels an croissants is
0.5
is an organization that transforms resources into products
A firm
In order for an economy to be successful, there must be some form of organization. Firms produce products that are marketed and sold. There must be people who desire to purchase and consume the products that are produced by the firms. This group of individuals that consumes the products that are produced in a market economy are known as households . Which of the following is true in a market economy?
A household demands goods and services from the market and supplies factor inputs
A profit-maximizing strategy becomes a loss minimizing strategy when a firm in a perfectly competitive industry is producing where
AVC<P<ATC
Which of the following is not an additional requirement for efficiency?
All resources must be devoted to the production of a single good.
What is the opportunity cost if the Agrizone Corporation invests $10.5 million in a new inventory tracking system?
Any other projects Agrizone could have invested in.
These agents:
Are the primary producing units in a market economy
Once you choose a most important use of time, why do you not spend all your time on that activity?
As more and more time is spent on one activity, the opportunity cost of that activity in terms of other activities rises.
If one country has an absolute advantage in the production of all goods, it is impossible for that country to benefit from trade.
False
If the private sector can provide a service at a lower cost, the public sector should let the private sector take over.
False
Does the richest man in the world face scarcity, or does scarcity only affect those with limited income and lower net worth?
Bill Gates faces scarcity because resources are limited.
When considering the circular flow of economic activity, households supply resources (inputs) such that the resources supplied by the households may be thought of as being provided in individual markets. Which of the following accurately describes this statement?
In the labor market, households earn wages by supplying labor to firms that demand it.
Why is demand likely to become more elastic, or response, in the long run?
In the long run, households make adjustments over time and producers develop substitute goods.
Related to the Economics in Practice on page 99: which of the following best explains why demand is often less elastic in the short run that it is in the long run?
In the short run, consumers have less access to substitutes.
What is the primary difference between income and wealth?
Income is a flow variable; wealth is a stock variable
Two college students share an apartment and split the cost of heating, electricity, and rent. They decide to include one more roommate and divide heat, electricity, and rent costs three ways instead of two ways. If adding the third roommate reduces the amount of money they each pay for utilities and rent each month, this can be described as:
Increasing returns to scale
The best alternative given up when you make a decision is called the _________ of that decision.
Opportunity cost
If a perfectly competitive firm is currently producing where ________, then the firm will earn zero profits.
P=MC and MC=ATC
In a perfectly competitive market in the long run, profits are driven to zero due to which of the following relationships?
P=SRMC=SRAC=LRAC
Positive or normative? A devaluation of the US dollar would increase exports from the United States.
Positive
Positive or normative? Eliminating the trade embargo with Cuba will increase the number of Cuban cigars available in the United States.
Positive
Positive or normative? Increasing the federal tax on gasoline would cause shipping costs in the US to increase.
Positive
Total cost is
TFC+TVC
If a firm's profit is $0, then it must be true that
TR equals TC
Economic profit is
TR-TC
Profit is
TR-TC
Total revenue is best characterized by which of the following?
TR=P*q TR=Profit+total cost TR is the total amount that a firm makes in from the sale of its product.
If a perfectly competitive firm operates in the short run but exits the industry in the long run, then the firm's short run condition is
TR>TVC and TR<TC
In 1914 Congress passed the Clayton Act and the Federal Trade Commission Act
The Clayton Act outlaws certain specific behavior and the FTC Act prohibits unfair methods of competition.
In the circular flow of economic activity, there are two kinds of markets in which firms and households interact. In the factor market
The resources used to produce goods and services are exchanged
Which of the following is the best definition of economics?
The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
Distorting taxes are favored when
There are other distorting taxes that distort economic decision, the purpose is to force decision makers to consider real costs they would otherwise ignore, the tax forces firms to consider the full economic costs of a decision.
If the market price of coffee is $3.00 per pound but the government will not allow coffee growers to change more than $2.00 per pound of coffee, which of the following will happen?
There will be a shortage of coffee.
What is the opportunity cost when going home for Thanksgiving vacation?
Time spent studying
Being an informed citizen requires a basic understanding of economics.
True
Which of the following is true?
Workers bear the bulk of the burden of a payroll tax if labor supplies relatively inelastic. Most of the payroll tax is probably borne by workers. Firms bear the bulk of the burden of a payroll tax if labor supply is relatively elastic. For most of the workforce, the labor supply curve has an elasticity that is nearly zero.
Suppose a competitive industry experiences external economies. If so then:
a firm's long-run average cost curve shift down when the industry output expands.
If a decrease in income results in a decrease in the quantity demanded for a product, the product is________ and the value of the income elasticity of demand is _______.
a normal good; positive
The rate of return on capital that is just sufficient to keep owners and investors satisfied is called
a normal rate of return
Because all workers should be able to earn a living wage, the minimum wage should be raised to $11.50 per hour in the United States. This statement is best described as
a normative statement
A minimum price, set by the government, that sellers may charge for a good is known as
a price floor.
The condition that exists when quantity supplied exceeds quantity demanded at the current price is:
a surplus or excess supply
Governments, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When governments imposes a tax on imports, this is knowns as
a tariff.
According to the principle of neutrality
a tax that is neutral with respect to economic decision is preferred to one that distorts economic decisions.
All of the following are criteria frequently applied in judging economic outcomes except
profitability
The Latin phrase "ceteris paribus" means that when a relationship between two variables is being studied
all other variables are held fixed.
The production possibility frontier is a graph that shows
all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
According to the theory of comparative advantage, specialization and free trade will benefit
all trading parties, even when some are absolutely more efficient producers that others.
The term "rent seeking" refers to
any action taken to protect positive profits.
The profit-maximizing level for all firms in _____ is the output level where MC=MC.
any industry
A trade surplus in the US would occur when US exports ________ US imports.
are greater than.
A trade deficit in the US would occur when the US exports _______ US imports
are less than
Someone has a comparative advantage in producing a good is she can produce that good
at a lower opportunity cost
The marginal rate of transformation is the
slope of the production possibility frontier.
In order to maximize its profit, a monopolist
decided price and output simultaneously.
An increase in the price of a good or service leads to a ___________ that leads to a _________.
decrease in quantity demanded; movement along the demand curve.
Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At output level, marginal cost exceeds this firm's price. Assuming price exceeds average variable cost, to maximize profits they should
decrease their output.
The existence of trade for country that has an abundance of natural resources is best explained by
factor endowments.
Which of the following assumptions about perfect knowledge is true?
firms possess knowledge of all available information concerning wage rates, capital costs and output prices. household possess knowledge of the qualities and price of everything available in the market. Firms and household possess all the information they need to make market choices.
Which type of cost does not depend on a firm's output?
fixed cost
In the circular flow of economic activity, there are two kinds of markets in which firms and households interact. In the product market:
goods or services are exchanged.
If a tax is based on the ability-to-pay principle
horizontal equity states that people in equal positions should pay the same amount of tax.
All of the following are examples of topics examined in macroeconomics except:
household income
The fundamental decision-making units in a market economy are
households and firms
Rent seeking in the form of lobbying for an increase in import tariffs by domestic producers
increases the deadweight loss.
Total variable cost ______ as output increases, and total fixed cost _______ as output increases.
increases; does not change
Between 1890 and 1920, antitrust legislation was passes in response to the
increasing importance of very large firms and trusts, which were groups of firms that acted like monopolists.
Diminishing marginal return implies
increasing marginal costs
Homogeneous products are
indifferential outputs-- products that are identical to or indistinguishable from one another.
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is _________ and total revenue from fresh fish sales will _______.
inelastic; increase
Total cost is the total ________ costs, the _____________ on capital, and opportunity costs of all factors of production.
out-of-pocket; normal rate of return
The income elasticity of demand is calculated as the
percentage change in quantity demanded divided by the percentage change in income.
A perfectly competitive firm will earn ______ economic profits in the range of output for which the firm's price is above its minimum average total cost.
positive
A firm will choose to operate rather than shut down as long as
price is greater than or equal to AVC
In an industry characterized by imperfect competition
price is higher than marginal cost and output is less that it would be under perfect competition.
According to the law of demand, quantity demanded increases as _____, ceteris paribus.
prices fall
According to the law of demand, quantity demanded decreases as______, ceteris paribus.
prices rise.
You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shop's total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to
produce in the short run to minimize its loss, but exit the industry in the long run.
Total Revenue minus total cost is equal to
profit
If a firm in a perfectly competitive industry lowers its price below the market price, its
profit will decrease
Suppose that when the Jones family has income of $48 comma 07248,072, their tax bill is $2 comma 4522,452; but when their income is $50 comma 54850,548, their tax bill becomes to $3 comma 3873,387. The Jones family has income of $48 comma 07248,072, their tax bill is $2 comma 4522,452 so their average tax rates is 5.15.1%; but when their income rises to $50 comma 54850,548, their tax bill becomes to $3 comma 3873,387 so their average tax rate is 6.76.7%. Since the average tax rate increasesincreases as income rises, this tax is progressiveprogressive. This illustrates a tax structure that is
progressive.
A tax whose burden is a constant proportion of income for higher-income households is a
proportional income tax.
There are several types of market failure which may prevent an economy from allocating resources efficiently. Indicate which type of market failure describes each of the situations below. Everyone in a neighborhood would benefit from spraying a nearby pond for mosquitoes, but some people are not willing to pay. _____________ Charlie parks rusty old cars on his front lawn, thus reducing the neighbors' property values. __________ Both of the pizza restaurants in a small town agree on a common price. ____________ Consumers use too little legal services since they are unsure of the quality. ____________
public good; externality; noncompetitive behavior; imperfect information
Cross-pricing elasticity of demand measures the response in the
quantity of one good demanded to a change in the price of another good.
The retail sales tax is an example of what type of tax structure?
regressive
Luxury items tend to have _________ demand, and necessities tend to have ________ demand.
relatively elastic; inelastic
Economists do not consider the smartphone industry perfectly competitive because
smartphones are heterogenous.
A firm suffering economic losses decided whether or not to produce in the short run on the basis of whether
revenues cover variable costs.
Total revenue increases if price ________ and demand is ________.
rise; inelastic
Total revenue is the amount received from the _____ of the product (q*P)
sale
The concept of opportunity cost is based on the principle of
scarcity
Perfectly competitive firms
sell identical products
If someone has a comparative advantage in growing pineapples,
she can grow pineapples a a lower opportunity cost that other pineapple growers.
During the Iraq War many of Iraq's oil refineries were destroyed. This would best be represented by a
shift of Iraq's production possibility frontier toward the origin.
As cellular phones have become more popular, some families have chosen not to have a "land line" (wired phone) in their homes. This has led to a reallocation of labor between the labor market for cellular phone manufacturing and the labor market for telephone installers. The new demand curve for workers who install land linesinstall land lines
shifts left
The ____ is the period of time for which two conditions hold: the firm is operating under a fixed scale of production and firms can neither enter nor exit an industry.
short run
If a price floor is set below the equilibrium price
the floor will be ineffective
Marginal costs measures
the increase in total cost that results from producing an additional unit of output.
For a demand curve to be more inelastic
the item should represent a small portion of an individual's total budget.
A firm has no fixed factors of production in
the long run.
Total utility is
the total amount of satisfaction yielded by the consumption of a good or service.
Demand has unitary elasticity if
the percentage change in quantity of a product demanded is the same as the percentage change in price absolute value. (a demand elasticity of 1)
The quantity demanded of Pepsi has decreased. The best explanation for this is that
the price of Pepsi has increased.
Production is
the process by which inputs are combined, transformed, and turned into outputs.
The optimal method of production is
the production method that minimizes cost for a given level of output.
The labor supply curve shows
the quantity of labor supplied at different wage rates. It shape depends on how households react to changes in the wage rate.
Price elasticity of demand is defined as
the ratio of the percentage of change in quantity demanded to the percentage of change in price.
The ultimate burden of the corporate tax appears to depend on
the relative capital/labor intensity of the two sectors, elasticities of demand for products of each sector and the ease with which capital and labor can be substituted in the two sectors.
If wages are uniform in this industry, and all the firms are maximizing profits, then the marginal product of labor will be
the same on all boats.
Utility is
the satisfaction a product yields relative to its alternatives.
A fall in the price of a product might cause a household to shift its purchasing pattern away from substitutes toward that product. This shift is called:
the substitute effect of a price change.
Total cost is calculate as
the sum of total fixed costs and total variable cost