Microeconomics Final
A business produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's average total cost (ATC) is ________.
$30
How is the total revenue calculated in a perfectly competitive firm?
Quantity of goods sold times the market price.
________ are generally the result of price ceilings.
Shortages
The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is
The product is now relatively more expensive than it was before.
Self-interest is not necessarily selfish, some say. In fact, self-interest likely includes an individual's consideration for
close friends and family.
Greg eats pizza every day of the week. The marginal utility of pizza will most likely ________ by the end of the week, and all else being equal, this demonstrates the law of ________.
decrease; diminishing marginal utility
A price ceiling when it is set ________ the equilibrium price creates ________.
below; excess demand
Refer to the figure below. If the government sets a price ceiling of $6,, PICTURE 1
consumers would demand 14 units.
The graph below shows a perfectly competitive firm in short run equilibrium, where the firm has chosen the output level maximizing its profit. Consider the level of profits being earned here, and what will happen over time. What will happen in the long run? PIC 14
The market price will decrease until economic profit is zero
If a technology change reduces a company's production costs, it will
shift the supply curve to the right.
Refer to the figure below. If the government sets a price floor of $80, the price would be: PICTURE 3
$30 higher than the equilibrium price.
Joseph has a budget of $11 to spend at the food court in the mall. His two favorite items are tacos (Product X) which cost $5 and cinnamon buns (Product Y) which cost $2. In the schedule below you can see the marginal utility for each of his favorite foods. What combination would maximize Joseph's utility and meal? PIC 11
1 Taco and 3 cinnamon buns
The table below shows cost data for WipeOutSki Company, which manufactures skis for beginners. If the company's fixed costs are $30, what is the average variable cost in A? PIC 13
$12.50
What is total surplus area from the figure below? PIC 10
$210
Refer to the figure below. Consumer surplus is: PIC 5
$30
A government decides to set a price ceiling on eggs. The conditions of demand and supply are given in the table below. What will the excess supply or the shortage be if the price ceiling is set at $2.00? PIC 8
3,000 shortage
If the total surplus in a market is $500, and there is no government intervention, but the producer surplus is $200, consumer surplus is ________.
300
Allison has a weekend education budget of $125 to spend on movies or video games. A movie rental costs $20 while a video game costs $15. Use the table below to identify the utility maximizing quantity of movies and games given Allison's budget constraint. PIC 12
4 movies and 3 games
Analyze the following diagram: If price was $1.40 per gallon and increased to $2.00 per gallon, how does quantity of gasoline demanded change? PIC 6
600 million gallons to 460 million gallons
Looking at the graph, if price was $1.60 per gallon and increased to $2.20 per gallon, how does quantity supplied of gasoline change? PIC 7
640 million gallons to 720 million gallons
Which of the following represents consumer surplus? PICTURE 4
A
Heath loves candy bars and gummy bears. After using his entire $30 budget at the local supermarket he finds that the marginal utility from the last candy bar he consumed was 30 and the last bag of gummy bears was 60. Assuming he has maximized his utility, what could be true about the prices of gummy bears and candy bars?
A bag of gummy bears must cost twice as much as a candy bar.
Which of the following will shift the supply curve to the right?
A decrease in the price of inputs to production.
Which of the following statements are true if you are comparing a market that is operating at a quantity lower than equilibrium (ie. a price floor) with the same market operating at the equilibrium quantity?
A market operating below equilibrium will transfer some consumer surplus to producers.
Which of the following will shift the supply curve to the left?
An increase in the price of inputs to production.
According to the law of demand, assuming other factors are held constant
As the price of milk decreases, the quantity of milk demanded will increase.
What are the main differences between traditional economics and behavioral economics?
Behavioral economics does not take as a given that decision makers are rational.
Silicon is used for the manufacturing of semiconductor chips. At the end of last year a large new source of silicon has been discovered this year and the price of silicon has decreased by 15%. Semiconductor chips are used in devices, cell phones, gaming systems, and this year many new devices are now using chips. If you were drawing a supply and demand graph to illustrate the changes to the semiconductor market since last year, what would you say has happened to the supply and demand curves and the equilibrium price and quantity this year?
Both the demand and supply of semiconductor chips will increase shifting the curves to the right with equilibrium quantity increasing but it is impossible to pinpoint the equilibrium price change.
Which of the following statements reflects marginal decision-making?
If we double the order to a dozen cookies, we will pay only 15 percent more.
What is a key difference between the short run and the long run?
In the long run, all resources are variable; in the short run, at least one resource is fixed.
Consider peanut butter as a normal good and answer the questions of what would happen if a decrease in income occured?
It would cause the quantity consumed of peanut butter to decrease.
What happens to marginal cost if a business's average total cost is decreasing?
Marginal cost must be lower than average total cost.
When new firms enter a perfectly competitive market, what is the impact on prices?
Prices go down.
Epson's office printer price increased from $97 to $150. At the same time the quantity demanded for printer ink decreased from 260 to 160. Calculate the cross price elasticity of demand using the midpoint method. Are these products complements or substitutes?
The cross-price elasticity of demand is -1.11 and they are compliments.
A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank's funds for this fundraiser be justified when its goal is to maximize profit?
The money spent is worth the public relations boost it gives to the bank's image.
How does a production possibilities model differ from a budget constraint model?
The production possibilities model demonstrates diminishing returns.
Suppose the local government is concerned about the health of local school children, and for that reason imposes a price ceiling of $3 on yogurt. Based on the graph below, which of the following is true? PICTURE 2
The quantity supplied will be 3 yogurts.
Which of the following goods represent a cross-price elasticity likely greater than zero?
The substitute goods of blueberries and strawberries.
Which assumption below best reflects a basic understanding economists have about the world?
The world has limited productive resources.
This year the cost of iron used in manufacturing cars has increased by 15%. With the costs for manufacturing cars now up, what effect will this have on the car market?
This will decrease the quantity demanded.
Which is a true statement about marginal benefit?
To an individual, one good may have a larger marginal benefit than than another.
What happens to total revenue (TR) if the price decreases on a product with demand that is price inelastic?
Total revenue will fall.
What is true of total utility and consumer behavior?
Utility will increase with each additional purchase, but at a decreasing rate.
A decrease in the quantity supplied can result from
a decrease in price.
When an owner uses resources they own in a business, that usage should be considered ________.
an implicit cost
According to the law of demand, assuming other factors are held constant,
as the price of bread increases, the quantity of bread demanded will decrease.
Because of our limited money, time, and effort, we are best off when we allocate things
by constantly assessing the opportunity costs of our choices.
Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for
close friends and family.
When the Long Run Average Cost (LRAC) curve is horizontal, it implies that there are ________.
constant returns to scale
When the price of a particular good increases
demand for complementary goods falls.
The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded for a good or service is more than the percentage change in price, the demand for that good or service is ________ and price elasticity is ________.
elastic; greater than 1
What is a the typical result of a price floor?
excess supply
From an initial equilibrium, suppose there's a decrease in supply. Once the market reaches its new equilibrium, there will be
fewer transactions, and they will take place at a higher price.
Accounting profit tends to be
higher than economic profit because economic cost includes implicit and explicit costs.
Pete owns a firm that produces wheat in a purely competitive market. The firm's demand curve is a ________.
horizontal line
The slope of a budget constraint line is influenced by
how much one item costs compared to the cost of the other item.
A price ceiling causes consumer surplus to
increase
Complete the following sentence: If people think that the price of electronics will increase in the near future, that belief may cause a(n)
increase in the demand for electronics today.
A person who takes life-saving prescription drugs most likely has a(n) ________demand for that drug. Therefore an increase in the price of the drug will result in ________ total revenue for the drug company.
inelastic; increased
The theory of rational behavior
is an assumption that economists make to have a useful model for how decisions are made.
What are the factors of production?
land, economic capital, labor, entrepreneurship
Economic capital is productive, so it does NOT include
money
From an initial equilibrium, suppose there's a increase in demand. Once the market reaches its new equilibrium, there will be
more transactions, and they will take place at a higher price.
Which of the following is most likely to be a fixed cost?
mortgage payments
When certain assumptions are used to create a model of reality, its value can be tested and determined by its ability to
predict outcomes.
If there is a greater quantity supplied than the quantity demanded, in other words, an excess supply of a good or service you are most likely dealing with a
price floor set above the equilibrium price.
The federal minimum wage is an example of a
price floor.
When a good is perfectly inelastic the
product does not vary when there is a change in price.
The production possibilities model illustrates an inverse relationship between two goods or services because
production of different types will compete for limited resources.
Elastic supply occurs if the change in quantity supplied is ________ to a change in price.
relatively responsive
In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency,
since otherwise output may go to where it is less valued.
If a perfectly competitive firm is producing output at a point where marginal revenue is equal to marginal cost, then it should
stick with that level of production in order to maximize profits.
When there is an excess supply of goods
suppliers lower prices, which encourages consumers to demand more.
Marginal product refers to
the change in output or production divided by the change in variable inputs (labor).
Marginal cost is
the cost of obtaining or producing one more unit of something.
If consumption of a good obeys the law of diminishing marginal utility, then marginal utility is maximized when
the first unit is consumed.
When a 10% increase in income causes a 4% increase in quantity demanded of a good
the income elasticity is .4 and the good is a normal good.
Scarcity is imposed on individual households in the form of income and
the prices of the goods that a person may purchase.
Budget constraints impose scarcity. They are based upon
the prices of the items purchased.
Elasticity allows economists to measure
the responsiveness of one variable to changes in another variable.
Social surplus is ________.
the sum of consumer surplus and producer surplus
In the case of a positive relationship between two variables, all else remaining constant:
the values of the two variables will move in the same direction.
A competitive market is one in which
there is a large number of buyers and sellers.
When quantity demanded increases in response to a change in price
there is a movement from one point to another along the demand curve.
One difference between total utility and marginal utility is that
total utility is cumulative, and marginal utility is not.
Economists would say that the decisions we make are influenced by
trade-offs.
In general, supply curves slope
upward from left to right.
In order to maximize profit, firms will choose to
use the combination of available resources and technology that will minimize cost.
The very best models have an unusual combination of characteristics. They are both
useful and simple.
A product is considered relatively elastic ________.
when there are many substitutes
The main reason price ceilings are set is so that consumer prices
will be lower.
A nation that bans trade with other nations
will be unable to specialize in what they are good at and therefore end up consuming less.
Refer to the figure below. If the government set a price floor of $30, there would be PIC 9
zero excess supply.