micro exam 2

When the price of candy bars decreased from $0.55 to $0.45, the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is 2. 1. 0.5. 0.2.

0.5

When the price of movie tickets in a certain town was reduced, the movie theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of zero. 1.0. greater than 1. 0.5.

1

If the total utility from consuming seven units of a product is 336 and the marginal utility of a eighth unit is 16, then the total utility from consuming eight units would be 320. 352 42. 128.

352

The minimum acceptable price for a product that producer Sam is willing to receive is 6. The price he could get for the product in the market is 12. How much is Sam's producer surplus? more than $12 18 72 6 2

6

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be 400 units. 200 units. 1,600 units. 800 units.

800 units

How did Apple overcome consumers' diminishing marginal utility for iPads? Apple ignored the problem and focused solely on attracting new buyers. Apple was unable to overcome the problem and has faced steadily declining sales . Apple introduced new features to entice previous buyers to purchase new models Apple lowered the price of iPads so that previous buyers would purchase another unit.

Apple introduced new features to entice previous buyers to purchase new models

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero? If marginal utility is falling, then total utility is falling Governments tend to limit how much of a good a person is allowed to consume. The price of a good tends to rise as an individual attempts to purchase more . Consumers face budget constraints that limit how much they can purchase.

Consumers face budget constraints that limit how much they can purchase.

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero. Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food. MU/P is consistently greater at all-you-can-eat restaurants. People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility.

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

Which of the following statements is not correct? The law of diminishing returns explains the fact that the long-run average total cost curve is U-shaped. Diseconomies of scale arise primarily from the difficulties in managing and coordinating a large-scale business enterprise. Average fixed costs diminish so long as output increases. The real cost of producing X is the quantity of products, R, S, or T etc., which could have been produced with the resources devoted to X.

The law of diminishing returns explains the fact that the long-run average total cost curve is U-shaped.

Which of the following statements is correct? Total utility is the accumulation or summation of marginal utility Total utility is the change in marginal utility as quantity consumed increases. Marginal utility is the accumulation or summation of total utility. Total utility is the product of multiplying price times marginal utility.

Total utility is the accumulation or summation of marginal utility

Which of the following statements about utility is true? Total utility diminishes as soon as additional units of a good are consumed. It is the same as usefulness. Utility is difficult to measure quantitatively Utility is objectively determined, meaning a good should provide the same satisfaction to whomever consumes it.

Utility is difficult to measure quantitatively.

When a consumer shifts purchases from product X to product Y, the marginal utility of X rises and the marginal utility of Y falls both X and Y falls. both X and Y rises. X falls and the marginal utility of Y rises.

X rises and the marginal utility of Y falls

A supply curve that is parallel to the horizontal axis suggests that the industry is organized monopolistically. Incorrect a change in demand will change the equilibrium quantity but not price. a change in demand will change price in the same direction. the relationship between price and quantity supplied is inverse.

a change in demand will change the equilibrium quantity but not price.

Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge the same price to both groups but include a "free" related product for the group that has an inelastic demand. the same price to both groups but make it difficult for the group with the more elastic demand to gain access to the product. a lower price to the group that has the less elastic demand. a higher price to the group that has the less elastic demand.

a higher price to the group that has the less elastic demand.

The utility from a specific product is determined by a consumer's income. constant as one consumes more units of it. determined by the price of the product. a measure of one's preference or taste for it

a measure of one's preference or taste for it

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis? an increase in the number of shifts of workers from two to three a switch in production to a redesigned and retooled facility a decrease in the number of production workers in the assembly line an increase in the amount of steel that the firm buys

a switch in production to a redesigned and retooled facility

Some sellers of used cars provide warranties to buyers, with the aim of reassuring buyers that the car is of good quality. These warranties help reduce the chance of what occurring? negative externalities spillover benefits moral hazard adverse selection

adverse selection

Many people have turned to the Internet to get the news. This has caused the circulation numbers of newspapers to fall drastically, which in turn caused their average total costs to decrease. average fixed costs to decrease. average fixed costs to increase. marginal costs to increase.

average fixed costs to increase.

For most producing firms, average total costs decline as output is carried to a certain level, and then begin to rise. total costs rise as output is carried to a certain level, and then begin to decline. marginal cost rises as output is carried to a certain level, and then begins to decline. average total costs rise as output is carried to a certain level, and then begin to decline.

average total costs decline as output is carried to a certain level, and then begin to rise.

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings can only be resolved by a zoning ordinance restricting high-rise buildings. can be resolved by the owners themselves through private bargaining. has to be resolved by city government officials. should be resolved by a government fine for the builder of the high-rise.

can be resolved by the owners themselves through private bargaining.

Theft and burglary are less economically rational than crimes of passion and violence. can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits. are examples of irrational behavior. are applications of the law of increasing opportunity cost.

can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

Which of the following is not an example of pricing based on group differences in elasticity of demand senior-citizen discounts at restaurants and motels cash rebates for purchases of automobiles discounted student prices for visits to museums child discounts for admission to theme parks

cash rebates for purchases of automobiles

The value that consumers get (from consuming a product) over and above what they actually paid for the product is called consumer surplus. consumption expenditures. consumer utility. consumer demand

consumer surplus

Suppose that a consumer who spends her budget on X and Y is initially at equilibrium. If the price of X increases, then the MU/P of X will increase and the consumer will respond by buying more Y and less X. decrease and the consumer will respond by buying more X and less Y. increase and the consumer will respond by buying more X and less Y. decrease and the consumer will respond by buying more Y and less X.

decrease and the consumer will respond by buying more Y and less X.

Diminishing marginal utility explains why the substitution effect exceeds the income effect. supply curves are upsloping. demand curves are downsloping. the income effect exceeds the substitution effect.

demand curves are downsloping.

The law of diminishing marginal utility explains why people will only consume their favorite goods and not try new things. addicts can never get enough. demand curves slope downward supply curves slope upward.

demand curves slope downward.

For a linear demand curve, elasticity is unity at every point on the curve. demand is elastic at relatively low prices. demand is elastic at relatively high prices. elasticity is constant along the curve.

demand is elastic at relatively high prices.

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of conservation of matter and energy. diminishing marginal utility increasing costs. diminishing returns.

diminishing marginal utility

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is perfectly inelastic from the union's perspective and perfectly elastic from management's perspective. elastic from the union's perspective, inelastic from management's perspective. inelastic from the union's perspective, elastic from management's perspective. unit-elastic from the union's perspective and unit-inelastic from management's perspective.

elastic from the union's perspective, inelastic from management's perspective.

Which of the following antipollution policies is least likely to make use of cost-benefit analysis? private bargainingIncorrect charging polluters an emission fee enacting legislation that bans pollution creating a market for pollution rights

enacting legislation that bans pollution

If the supply of product X is perfectly elastic, an increase in the demand for it will increase equilibrium price but reduce equilibrium quantity. equilibrium quantity but reduce equilibrium price. equilibrium price, but equilibrium quantity will be unchanged. equilibrium quantity, but equilibrium price will be unchanged.

equilibrium quantity, but equilibrium price will be unchanged.

The law of diminishing returns implies that eventually, the more hours you spend studying per day, the less you will learn with each added hour. the more hours you spend studying per day, the more you will learn with each added hour. your understanding will be increased by decreasing your marginal study time. the more hours you spend studying, the less you will know.

eventually, the more hours you spend studying per day, the less you will learn with each added hour.

Which of the following is most likely to be an implicit cost for Company X? payments for raw materials purchased from Company Y rental payments on IBM equipment transportation costs paid to a nearby trucking firm forgone rent from the building owned and used by Company X

forgone rent from the building owned and used by Company X

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth is relatively unappreciative of the arts. obtains more marginal utility from the play than from the hockey game. has recently attended several other Broadway plays. has a higher "marginal utility-to-price ratio" for the hockey game than for the play

has a higher "marginal utility-to-price ratio" for the hockey game than for the play

Other things equal, a fall in the market price caused by a change in supply will increase consumer surplus decrease consumer surplus. decrease producer surplus while leaving consumer surplus unchanged. increase producer surplus while leaving consumer surplus unchanged.

increase consumer surplus

Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. If the price of pizza decreases, then Tonya's consumption of pizza will decrease due to the income effect. increase due to the law of diminishing marginal utility. decrease due to the substitution effect. increase due to the income effect.

increase due to the income effect.

If the price elasticity of demand for a product is 0.5, then a price cut from $3.00 to $2.70 will increase the quantity demanded by about 5 percent increase the quantity demanded by about 20 percent. decrease the quantity demanded by about 5 percent. increase the quantity demanded by about 50 percent.

increase the quantity demanded by about 5 percent

The fact that most medical care purchases are financed through insurance reduces the amount of health care consumed by raising the price of additional units of care has no effect on health care consumption because aggregate costs are the same regardless of payment method. has decreased health care costs and therefore reduced aggregate health care expenditures. increases the amount of health care consumed by reducing the price of additional units of care.

increases the amount of health care consumed by reducing the price of additional units of care.

The long-run average total cost curve has a shape that is the inverse of the law of diminishing returns. displays declining unit costs so long as output is increasing. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size. can be derived by summing horizontally the average total cost curves of all firms in an industry.

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is inelastic. unit elastic. elastic. perfectly elastic.

inelastic.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range is elastic. is of unit elasticity. has declined. is inelastic.

is elastic

If in the short run a firm's total product is increasing, then its marginal product must be decreasing. marginal product must also be increasing. average product must also be increasing. marginal product could be either increasing or decreasing.

marginal product could be either increasing or decreasing.

A consumer's demand curve for a product is downsloping because total utility falls below marginal utility as more of a product is consumed. the income and substitution effects precisely offset each other. marginal utility diminishes as more of a product is consumed time becomes less valuable as more of a product is consumed.

marginal utility diminishes as more of a product is consumed.

An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which producer surplus exceeds consumer surplus. consumer surplus exceeds producer surplus. maximum willingness to pay exceeds minimum acceptable price. marginal cost exceeds marginal benefit.

maximum willingness to pay exceeds minimum acceptable price.

Depositors do not check their banks carefully for stability anymore, because of the federal deposit insurance program. This illustrates the problem of public goods. moral hazard adverse selection. externalities.

moral hazard

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the larger the elasticity of demand coefficient. more inelastic the demand for the product. more elastic the demand for the product. more elastic the supply curve

more inelastic the demand for the product.

Suppose an insurance company decided to offer divorce insurance. Based on the concept of moral hazard, economists would expect no married couples to purchase divorce insurance. the divorce rate to decrease. all married couples to purchase divorce insurance. mostly the couples with marital problems to purchase divorce insurance.

mostly the couples with marital problems to purchase divorce insurance.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is negative, and therefore X is an inferior good. positive, and therefore X is an inferior good. positive and therefore X is a normal good. negative, and therefore X is a normal good.

negative, and therefore X is an inferior good.

In the insurance business, the moral hazard problem arises when people who have car-insurance coverage drive less carefully people with unhealthy lifestyles buy more insurance coverage not-so-healthy people are the ones more eager to buy insurance. people do not get sufficient car-insurance coverage.

people who have car-insurance coverage drive less carefully

In the immediate market period for a highly perishable crop like tomatoes, the individual farmer's supply curve tends to be quite flat. perfectly inelastic. downward-sloping. perfectly elastic.

perfectly inelastic.

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? second-hand clothing (-0.6) plasma screen and LCD TVs (+4.2) dinner at a nice restaurant (+1.8) chicken purchased at the grocery store for preparation at home (+0.25)

plasma screen and LCD TVs (+4.2)

When total product is increasing at an increasing rate, marginal product is positive and decreasing. constant. negative. positive and increasing.

positive and increasing.

When the marginal benefit of an output exceeds the marginal cost, production of that output should be decreased, in order to achieve efficiency. increasing the production of that output would increase the deadweight loss. reducing the production of that output would reduce efficiency losses. production of that output should be increased, in order to achieve efficiency.

production of that output should be increased, in order to achieve efficiency.

A market for pollution rights can be expected to encourage potential polluters to increase emissions. eliminate all pollution. provide potential polluters with a monetary incentive to reduce emissions. produce a shortage of pollution.

provide potential polluters with a monetary incentive to reduce emissions.

If Congress decreases the amount of government insurance on bank deposits, then this action would reduce an adverse selection problem in banking. create an adverse selection problem in banking. create a moral hazard problem in banking. reduce a moral hazard problem in banking.

reduce a moral hazard problem in banking

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is perfectly elastic. relatively elastic. relatively inelastic. decreasing.

relatively inelastic.

Market Failures apply exclusively to situations where markets do not produce any of an economically desirable good. result in overproduction or underproduction of a good. are only a concern when they result in prices that are too high. result from government interference in markets.

result in overproduction or underproduction of a good.

Past costs that are not affected by new decisions are known as fixed costs. marginal costs. variable costs. sunk costs.

sunk costs

When average variable cost is at a minimum, the average product of labor is at a minimum. the marginal product of labor is at a minimum. marginal cost is at a maximum. the average product of labor is at a maximum.

the average product of labor is at a maximum.

Marginal product is the change in total revenue attributable to the employment of one more worker. the change in total output attributable to the employment of one more worker. the change in total cost attributable to the employment of one more worker. total product divided by the number of workers employed.

the change in total output attributable to the employment of one more worker.

The increase in demand for iPad tablet computers can be explained by an increase in the technology used to produce iPads, making the supply of iPads increase. an increase in the income of buyers, making the demand for iPads increase. the enhanced versatility and storage capacity of iPads, making their MU/P increase. an increase in the price of laptop computers, making their MU/P decrease.

the enhanced versatility and storage capacity of iPads, making their MU/P increase.

Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that the income elasticity of demand for the good is negative. the cross elasticity of demand for the good is positive. the price elasticity of demand for the good is negative. the income elasticity for the good is greater than 0

the income elasticity for the good is greater than 0

An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic explanation for this is the law of increasing opportunity cost. the law of diminishing marginal utility. the law of supply. the price-elasticity effect.

the law of diminishing marginal utility.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes X-inefficiency. the law of diminishing marginal utility. economies and diseconomies of scale. the law of diminishing returns.

the law of diminishing returns.

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that the total utility of gold purchased is greater than the total utility of chocolate consumed. gold is a normal good, while chocolate is an inferior good. there are many substitutes for chocolate but few for gold. the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.

the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.

Normal profit is the average profitability of an industry over the preceding 10 years. the return to the entrepreneur when economic profits are zero determined by subtracting implicit costs from total revenue. determined by subtracting explicit costs from total revenue.

the return to the entrepreneur when economic profits are zero.

When the price of gasoline increases significantly, the delivery companies like UPS, FedEx, and the USPS all find their TVC curves shifting up. themselves moving up along their TC curves. themselves moving up along their TVC curves. their TFC curves shifting up.

their TVC curves shifting up.

Most people do not steal, because stolen goods can only be sold at deep discounts. stolen goods are subject to the law of diminishing marginal utility. the marginal utilities of stolen goods are negative. their marginal costs, including guilt costs, are too high

their marginal costs, including guilt costs, are too high

When you enter a congested roadway, the increased use of gasoline is the only external cost incurred. you are the only driver that is experiencing a negative externality from the heavy traffic. the opportunity cost of idling in slow traffic is the only additional cost. there are mutual external costs from the slow traffic that include increased gasoline costs and more time spent on the roadway

there are mutual external costs from the slow traffic that include increased gasoline costs and more time spent on the roadway

Total utility is best defined as the additional satisfaction received from consuming one more unit of a product. maximum amount of satisfaction from consuming a product. change in marginal utility multiplied by the price of a product. total satisfaction received from consuming a given amount of a product.

total satisfaction received from consuming a given amount of a product.

The goal of a rational consumer is to maximize total utility from all goods consumed the quantities of all goods consumed. marginal utility of all goods consumed. the MU/P of all goods consumed.

total utility from all goods consumed

n markets entered by Southwest Airlines, gains in passenger traffic and profits went primarily to airlines already in those markets. were evenly distributed among airlines in those markets. went almost entirely to Southwest were minimal, as the highly inelastic demand for air travel meant reduced revenues for all airlines in those markets.

went almost entirely to Southwest