Microeconomics Final
the changing slope of the total cost curve reflects (curve is inc at non-linear rate: as Q cookies inc, total cost inc)
decreasing marginal product
The forces that make market economics work are...
demand and supply
If buyers are required to pay a $0.10 tax per bag on candy, the demand for candy will shift
down by $0.10 per bag
at levels of output below M, the firm experiences
economies of scale
Suppose demand for nachos inc. What will happen to producer surplus in market for nachos
it increases
which curve represents the long-run average total cost
longest curve (ATCd)
in order to sell more of its product, a monopolist must
lower its price
The sum of all individual demand curves for a product is called...
market demand
the efficient scale of the firm is the quantity of output that
minimizes average total cost
In a market, total surplus =
producer surplus + consumer surplus
A very hot summer in Atlanta will cause the demand for lemonade to...
shift to the right
When there is a shortage in a market...
there is upward pressure on price
at a production level of 4 units, which of the following is true quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82
total revenue is greater than variable cost
T / F - A market is a group of buyers and sellers of a particular product
true
T / F - Price, which is determined by all buyers and sellers as they interact in the marketplace, allocates the economy's scarce resources
true
T / F - The cost of an action is measured in terms of forgone opportunities
true
T / F - The government can potentially improve market outcomes if market inequalities or market failure exists
true
T / F - The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular price
true
T / F - a firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price
true
T / F - a firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production
true
T / F - equity refers to how the pie is divided, and efficiency refers to the size of the economic pie
true
T / F - firms in competitive markets are said to be price takers
true
T / F - the marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve
true
T / F - the marginal firm in a competitive market will earn zero economic profits in the long run
true
T / F - the quantity supplied of a good / service is the amt that sellers are willing and able to sell a t a particular price
true
T / F - the shape of the marginal cost curve tells a producer something about the marginal product of her workers
true
T / F - when average total cost rises if a producer either inc or dec production, the firm is said to be operating at efficient scale
true
T / F - when trying o understand the decision making process of different firms, economists assume that people think at the margin
true
T / F - whenever a determinant of demand other than price changes, the demand curve shifts
true
T/F The demand for Rice Krispies is more elastic than the demand for cereal
true
economies of scale arise when
workers are able to specialize in a particular task
Alice says she'll buy one banana split a day regardless of price. If she's telling the truth,
Alice's demand for banana splits is perfectly inelastic
when price is equal to P3, the profit maximizing firm will produce what level of output
Q3
the movement from D2 to D1 is called
a decrease in demand
If a surplus exists in a market we know that the actual price is...
above equilibrium price and quantity supplied is greater than quantity demanded
the movement from point A to point B on the graph shows...
an increase in demand
If a good is "normal", then an increase in income will result in...
an increase in demand for the good
the movement from S1 to S2 is called
an increase in supply
the movement from point (200,10) to (400,20) would be caused by
an increase in the price of the good
natural monopolies differ from other forms of monopoly b/c they
are generally not worried about competition eroding their monopoly position in the market
What area represents consumer surplus when price is P1
area B
What area represents producer surplus when price is P1
area C
What area represents total surplus in the market when the price is P1
areas B + C
which of the curves is most likely to represent marginal cost
black (a)
which of the curves is most likely to represent average total cost
blue (b)
If price elasticity of demand for a good is 4.0, then a 10% inc in price would result in
40% dec in quantity demanded
at which quantity of output is marginal revenue equal to marginal cost quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82
6
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
quantity will fall and the effect on price is ambiguous
externailities are
side effects passed on to a party other than buyers and sellers in the market
When a tax is placed on the buyers of milk
size of milk market is reduced
Henry decides to spend two hours of playing golf rather than working at his job which pays $8 dollars an hour. Henry's tradeoff is...
the $16 dollars he could have earned working for two hours
An example of market power is...
the last gas station in New Mexico for 100 miles
the "invisible hand" refers to
the marketplace guiding the self interests of market participants into promoting general economic well being
the key difference b/w a competitive firm and a monopoly firm is the ability to select
the price of its output
For most students, the largest single cost of a college education is...
the wages given up to attend school
The price elasticity of demand measures
a buyer's responsiveness to a change in price of a good
which of the following statements is true
a competitive firm is a price taker and a monopoly is a price maker
If a 15% inc in price causes a 30% dec in quantity demanded, his product might be
a luxury
at a price of $7
a surplus would exist and the price would tend to fall
Which is the most accurate statement about taxes and government
all governments (federal / state / local) rely on taxes to raise revenue for public purposes
for a firm in a perfectly competitive market, the price of the good is always
equal to marginal revenue
The unique point at which the supply and demand curves intersect is called...
equilibrium
if a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will
exactly triple
if marginal cost is below average total cost, then average total cost is
falling
T / F - A movement along a supply curve is called a change in supply while a shift of the curve is called a change in quantity supplied
false
T / F - A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit
false
T / F - If a good / service only has one seller it is called an oligopoly
false
T / F - If the demand for a good falls when income falls, the item is called an inferior good
false
T / F - The law of demand states that quantity demanded of a product is positively related to price
false
T / F - a competitive market will typically experience entry and exit until all accounting profits are zero
false
T / F - a firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production
false
T / F - a market economy cannot produce a socially desirable outcome b/c individuals are motivated by their own selfish interests
false
T / F - a profit maximizing firm in a competitive market will earn zero accounting profits in the long run
false
T / F - average total cost reveals how much total cost will change as the firm alters its level of production
false
T / F - baseballs and baseball bats are sustitue goods
false
T / F - diminishing marginal product exists when the total cost curve becomes flatter as outputs inc
false
T / F - dis-economies of scale often arise b/c higher production levels allow specialization among workers
false
T / F - economics is the study of how fairly goods and services are distributed within society
false
T / F - economists normally assume that people start their own business to help society maximize its income
false
T / F - fixed costs are those costs that remain fixed no matter how long the time horizon is
false
T / F - if the marginal cost curve is rising, so is the average total cost curve
false
T / F - in a perfectly competitive market, buyers and sellers are price setters
false
T / F - the average total cost curve is unaffected by diminishing marginal product
false
T / F - the market demand is the average of all the individual demands for a particular good / service
false
T / F - the shape of the total cost curve is unrelated to the shape of the production function
false
T / F - the short run supply curve in a competitive market must be more than the long run supply curve
false
T / F - the supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost
false
T / F - when economists speak of a firm's costs, they are usually excluding opportunity costs
false
T / F - when individual firms in competitive markets inc their production, it's likely that the market price will fall
false
T / F -in competitive markets, firms that raise their prices are typically rewarded with larger profits
false
T/F Connnie can clean windows at an office for $1/window. Market price for window cleaning is $3/window. If Connie cleans 100 windows, her producer surplus is $100
false
T/F Supply is said to be inelastic if quantity supplied responds substantially to changes in price, and elastic if quantity supplied responds only slightly to price
false
T/F The flatter the demand curve that passes through a given point, the more inelastic the demand
false
T/F area above the demand curve and below price measures the consumers surplus in a market
false
T/F efficiency refers to whether a market outcome is fair while equity refers whether the max amt of output was produced from a given number of inputs
false
T/F supply tends to be more elastic in the short term and more inelastic in the long term
false
T/F total surplus in a market = consumer surplus - producer surplus
false
T/F welfare economics is the study of the welfare system
false
a long run supply curve that is flatter than a short run supply curve results from which of the following
firms can enter and exit the market more easily in the long run than in the short run
which of the following is not a characteristic of a perfectly competitive market
firms have difficulty entering a market
which of the curves is most likely to characterize the short run average total cost curve of the smallest factory
first small curve (ATCa)
firms that shut down in the short run still have to pay their
fixed costs
which of the following costs do not vary w/ the amt of output a firm produces
fixed costs
which of the curves is most likely to represent average variable cost
green (c)
in a competitive market, the actions of any single buyer or seller will
have a negligible impact on the market price
A consumer's willingness to pay measures
how much a buyer values a good
Welfare economics is the study of
how the allocation of resources affects economic well-being
the entry of new firms into a competitive market will
inc market supply and dec market prices
Prices direct economic activity in a market economy by...
influencing the actions of buyers and sellers
in the long run
inputs that were fixed in the short run become variable
Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant, you notice that the price of bananas is higher. How would your demand for vanilla pudding be affected by this?
it would decrease
the short run supply curve for a firm in a perfectly competitive market is
its marginal cost curve (above average variable cost
the amt by which total cost rises when the firm produces one additional unit of output is called
marginal cost
average total cost is increasing whenever
marginal cost is greater than average total cost
if marginal cost exceeds marginal revenue, the firm
may still be earning profit
variable cost divided by quantity produced is
none of the above
An externality is the impact of...
one person's actions on the well being of a bystander
those things that must be forgone to acquire to good are called
opportunity costs
profit maximizing firms enter a competitive market when, for existing firms in the market,
price exceeds average total cost
when a perfectly competitive firm makes a decision to shut down, it is most likely that
price is below the minimum of average variable cost
The "invisible hand" directs economic activity through...
prices
if this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82
$9
which of the following is an example of a barrier to entry
- a key resource is owned by a single firm - the costs of production make a single existing monopoly the exclusive right to produce the good - the government has given the existing monopoly the exclusive right to produce the good
allowing an inventor to have the exclusive rights to market her new invention will lead to
- a product that is priced higher than it would be w/out the exclusive rights - desirable behavior in the sense that inventors are encourage to invent - higher profits for the inventor
a firm will exit the market if, for all positive levels of output
- its total revenue is less than its total cost - its profit is negative - the price of the product is less than its average cost
which of the following expressions is correct for a competitive firm
- profit = total revenue - total cost - marginal revenue = (change in total revenue) / (change in quantity of output) - average revenue = total revenue / quantity of output
Approximately what percentage of the world's economies experience scarcity?
100%
Suppose demand decreases AND supply decreases. What would you expect to occur in the market for the good?
Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous
T / F - quantity demanded is equal to quanity supplied at the equilibrium price
true
T / F - the DeBeers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they likely have a monopoly position to some degree
true
T / F - the amount of power that a monopoly has is a function of whether there are close substitutes for its product
true
T / F - the behavior of buyers and sellers drives markets toward equilibrium
true
T / F - the cost of producing an additional unit of a good is not the same as the average cost of the good
true
T / F - the long run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale
true
T / F - the use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are
true
T / F - variable costs usually change as the firm alters the quantity of output produced
true
T / F - when a firm experiences zero profit equilibrium, the firms revenue must be sufficient to cover all opportunity costs
true
T / F - when a profit maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production
true
T/F The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price
true
T/F each seller of a product is willing to sell as long as the price he / she can receive is > opportunity cost of producing product
true
T/F equilibrium of supply and demand in a market maximizes total benefits received by buyers and sellers
true
T/F free markets allocate supply of goods to buyers who value them most highly and the demand for good to sellers who can produce them at least cost
true
T/F producer surplus = amt seller is paid - cost of production
true
T/F the area below the price and above supply curve measures the producer surplus in a market
true
T/F willingness to pay is the max amt buyers will pay for a good and measures how much buyer values the good
true
producer surplus measures
well-being of sellers
The amount of tax imposed in this market is
$1
the average total cost of producing 1 widget is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10
$11
Belva is willing to pay $65 for shoes. She finds a pair for $48. Her consumer surplus is
$17
the average fixed cost of producing 5 widgets is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10
$2
the average variable cost of producing 4 widgets is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10
$2.5
The price buyers will pay after the tax is imposed is
$5
equilibrium price and quantity are
$5 , 20 units
Denea produces cookies. Production cost = $3 per dozen. She sells them for $8 per dozen. Her producer surplus is
$5 per dozen
The equilibrium price in market before the tax is imposed is
$6
the marginal cost of producing the 6th widget is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10
$6
for a competitive firm
average revenue, marginal revenue, and the price of the good are all equal to one another
the marginal product of labor can be defined as
change in output / change in labor
People make decisions at the margin by...
comparing costs and benefits
According to the law of demand, price and quantity...
demanded are inversely related
when adding another unit of labor leads to an inc in output that is smaller than inc in output that resulted from adding previous units of labor, we have the property of
diminishing marginal product
Tax incidence refers to the
division of the tax burden b/w buyers and sellers
whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue
does not change
The main determinant of the price elasticity of supply is
time
average total cost is equal to
total cost / output
economic profit is equal to
total revenue
the amount of money that a firm receives from the sale of its output is called
total revenue
efficiency occurs when
total surplus is maximized
T / F - a firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin
true
T / F - a profit maximizing firm in a competitive market will inc production when average revenue exceeds marginal cost
true
T / F - a shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium price
true
T / F - a supply curve slopes upward b/c, all else equal, a higher price means a greater quantity supplied
true
T / F - accountants often ignore implicit costs
true
T / F - as a firm moves along its long run average cost curve, it is adjusting the size of its factory to the quantity of production
true
T / F - assume jack received all A's in his classes. If jack gets a all C's in his classes this semester, his GPA may or may not fall
true
T / F - at the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit
true
T / F - average total cost and marginal cost are merely ways to express info that is already contained in a firm's total cost
true
T / F - average variable cost is equal to total variable cost divided by quantity of output
true
T / F - b/c of the greater flexibility that firms have in the long run, all short run cost curves lie on or above the long run curve
true
T / F - by comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit maximizing level of production
true
T / F - declining average total cost w/ inc production is one of the defining characteristics of a natural monopoly
true
T / F - fixed costs are incurred even when a firm does not produce anything
true
T / F - for a firm in a competitive market, marginal revenue is always equal to average revenue
true
T / F - implicit costs are costs that do not require an outlay of money by the firm
true
T / F - in a competitive market, firms are unable to differentiate their product from that of other producers
true
T / F - in a market, the price of any good adjusts until quantity demanded equals quantity supplied
true
T / F - in some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories
true
T / F - in the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost
true
T / F - in the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market
true
T / F - market failure refers to a situation in which the market does not allocate resources efficiently
true