Wiseman final quiz and test
If a given production combination is known to be attainable, then it:
could be either an inefficient or efficient point
In the long run, in a perfectly competitive industry:
economic profit and loss are driven to zero by entry and exit
In a market with barriers to entry:
economic profit will not fall to zero in the long run
What is an assumption of perfectly competitive markets
established firms have no advantage over new firms, there are many buyers and many sellers, there is no restriction on entry
the marginal benefit of an activity is the
extra benefit associated with an extra unit of the activity
if the price of crude oil falls, the equilibrium price of gasoline__ and the equilibrium quantity___
falls: decreases
for a perfectly competitive firm, no matter how much the firm produces, price ALWAYS equals
marginal revenue
a shortage occurs when:
quantity demanded exceeds quantity supplied
if the demand for a good is elastic when the price increases the
quantity demanded will decrease by a greateer percentage than the price increased
the role that prices play in distributing scarce goods and services to those consumers who value then the most highly is known as the ___ function of price
rationing
suppose colin brews beer and makes cheese. If colin can increase his production of beer without decreasing his production of cheese, then he is producing at an
ineffieicent point
if a consumer is relatively insensitive to changes in the price of a good, then the consumers demand for the good is
inelastic
if the price elasticity of demand for airline travel is .52 in the short run and 1.46 in the long run, then the demand for airline travel is___ in the short run and ____ in the long run
inelastic and elastic
the law of demand states that other things remaining the same, the quantity demanded of any good is
inversely related to its price
copper that has not been mined falls into which factor of production
land
production possibilities curves for large economies are generally bow-shaped because
opportunity costs tend to increase with increases in production
if the quantity demanded changes by an infinitely large amount for a given change in price, then demand is
perfectly elastic
in a perfectly competitive industry, the demand for a single firm's product is
perfectly elastic
If the price of a good increases from 3-4 and the quantity demanded reamins unchanged, then the deman is
perfectly inelastic
if marginal utlity is positive but diminishing, then total utility must be ___ as consumption of the good increases
positive and rising at a decreasing rate
Which of the following are necessary conditions for successful price discrimination
an imperfectly competitive market structure; at least tow different markets with different price elasticities of demand
An oligopolistic industry is characterized by all of the following except
firsms pursuing aggressive business strategies, independent of rival's strategies
marginal cost___ as the quantity produced is increased
first decreases and then increases
a society that is on its production possibilities frontier is
fully utilizing its productive resources
a dominant strategy
is one that is best for a firm no matter what strategies other firms use
the cost benefit principle indicates that an action should be taken if:
its total benefits exceed its total costs
what are the four categories into which four economic resources are grouped
land, labor, capital, and entrepreneurship
according to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively
larger and larger quantities of the variable factors of production
If Les can produce two pairs of pants per hour while eva can produce one pair per hour, then it must be true that
les has an absolute advantage in producing pants
if the demand fora good decreases as income decreases it is a
normal good
sellers tend to offer___ for sale as price increases, and so the supply curve is ___sloping
more; upward
suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250 the total cost of its variable factors of production is $1000 and its total fixed cost is $500. This firm will ____ in the short run and will___ in the long run.
not shut down: exit the industry
interdependence of firms is most common in
oligopolistic industries
when looking at a graph producer surplus is ___ and consumer is ____
on bottom; on top
if the US surgeon general announced that increased grapefruit juice consumption could help prevent heart attacks, what would happen to the equilibrium price and quantity of grapefruit juice?
price and quantity wououlf both increase
if a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in
price discrimination
what is the long run in monopolistic competition
price exceeds marginal cost, marginal revenue equals marginal cost, the firms economic profit equals zero
____ can prevent the efficient allocation of resource
price floors
suppose all firms in a perfectly competitive industry are earning a normal profit. One would expect that, over time, the number of firms in the industry will___ and the market price will___.
rise; fall
when supply decreases, the equilibrium price___ and the eq. quantity___
rises; decreases
If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 12,000 per year, there is a ___ in the market and the price will___
shortage; rise
the short run is defined as
the period of time during which some factors of production used by the firm are fixed in size
If individuals are rational, they should choose actions that yield
the largest economic surplus
If the price elasticity of demand for a good is 0.08 then a
1 percent rise in the price leads to a 0.8 percent decrease in the quantity demanded
a perfectly competitive firm can ___ in the short run
determine what quantity to produce
subsidies are most likely to
reduce total economic surlpus
refer to the graph below. if the market for donuts is perfectly competitive then assuming this firm earn enough revenue to cover its variable cost, it should produce
the quantity of doughnuts at which marginal cost equals the market price
If lumber is used to make sawdust and the price of lumber rises, then, in the market for sawdust,
the supply curve of sawdust shifts righward
the marketing people for AT&T believe that id they lower the price of long-distance phone calls by 5 percent, their quantity demanded will increase by 15 percent. If they are correct in their belief then
the total revenue from long distance calls will increase if they lower the price
if all firms in a perfectly competitive industry are earning a normal profit then:
there is no incentive for firms to enter or exit the industry
one reason that variable factors of production tend to show diminishing returns in the short run is that
there is only so much that can be produced using additional variable inputs when some factors of production are fixed
why might a producer practice price discrimination
to maximize profits
economic growth can result from
increase in the amount of productive resources
If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7 then his or her consumer surplus from the purchase of that unit is
4
if the price of a burger decreases by 5 percent and as a result the quantity of burgers demanded increases by 8 percent the price elasticity of demand equals
1.60
Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to mae a sandwich and 12 minutes to make a smoothie. What is the opportunity cost of Dan making a sandwich
1/3 of a smoothie
the difference between a firm's total revenue and its tital economic cost (as distinguished from the accounting cost ) is the firms
economic profit
total revenue minus both explicit and implicit costs defines a firms
economic profit
a firm is producing the profit-maximizing amount of output when it is producing where its ___ curve intersects its ____ curve.
MC; MR
what would a decrease in the equalibrium price cause for producer surplus
a decrease in producer surplus
which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to:
a higher equilibrium price in the short run and entry into the market in the long run
which of the following is not a barrier to entry
a perfectly elastic demand curve
the short run is best defined as
a period of time sufficiently short that at least one factor of production is fixed
which of the following makes demand less elastic
a short time elapsing since the products price changed
a price ceiling that is set below the equilibrium price will result in:
a shortage of the good
a member of a cartel like OPEC has an incentive to
agree to a low cartel prodiction level and then produce more than its quota
which of the following is a defining characteristic of all perfectly competitive markets?
all firms sell the same standardized product
which of the following shifts the demand curve for hot dogs leftwards?
an increase in the rice of a hot dog bun
economic growth is shown in the production possibilities frontier as
an outward shift in the PPF
the study of economics
arises from the fact that our wants exceed available resources
a market comprised of a demand curve that intersects a supply curve is said to be stable because
at any price other than equilibrium, forces in the market move price towards the equilibrium
a perfectly competitive firms shutdown decision point occurs when the firms
average revenue just equal its average variable cost
when marginal cost is greater than average total cost, the
average total cost increases as output increases
a perfectly competitive firm's supply curve is the portion of its ___ cost curve that lies above its __ cost curve
average total; marginal
which of the following statements is true for both microsoft and a locally owned restaurant?
both seek to max profits
bobby consumes only chocolate ice cream and vanilla ice cream. He is spending ll of his income. His marginal utility of chocolate is 200 and his marginal utility of vanilla is 200, and the price of chocolate is 1 per scoop vs vanilla at 2 per scoop. to max utility bobby should?
buy more chocolate and less vanilla
marginal utility is the
change in satisfaction that results from a one-unit increase in the quantity of a good consumed
the marginal cost of an activity is the
change in the total cost of the activity that results from carrying out an additional unit of the activity
If a firm shuts down in the short run, then its
economic loss will equal its fixed costs
an agreement among firms to charge the same price or otherwise not to compete is called
collusion
In general, individuals and nations should specialize in producing those goods for which they have a
comparative advantage
to decide whether to go to the beach for spring break, you should
compare the marginal cost to the marginal benefit of taking the trip
a firm that can effectively price discriminate will charge a higher price to
customers who have the more inelastic demand for the product
if pete enjoys his first pancake of the morning much more than his fifth pancake of the morning, he is exhibiting
diminishing marginal utility
when long-run average cost increases as plant size increases there are
diseconomies of scale
in a perfectly competitive market
each firm takes the good's price as given to it by the market
Gertie saw a pair of jeans that she was willing to buy for 35. The price tag though said they were 29.99 therefore
gertie should buy the jeans because the price is less than her reservation price
the most important challenge facing a firm in a perfectly competitive market is deciding
how much to produce
an increase the expected future price of a good
increases its deman today
at first, as more of a good is cinsumed, total utility ____ amarginal utility____
increases; decreases
a firm's total product curve shows that at first it has
increasing marginal returns and then diminishing marginal returns
If it is possible to make a change that will help some people without harming others, then the situtation is
inefficient
what are the characteristics of monopolistic competition
many firms, product differentiation, advertising
the profit maximizing condition for a firm in monopolistic competition is to produce so that
marginal cost equals marginal revenue
In general, perfectly competitive firms maximize profit if they produce a level of output at which
marginal costs equal marginal revenue
the buyer's reservation price of a particular good or service is the
max amount the buyer would be willing to pay for it
implicit costs
measure the forgone opportunities of the firms owners
Price discrimination is possible in which of the following market structures
monopoly, oligopoly, monopolsitc ompetition
Consumer surplus is the cumalative difference between
the amount consumers are willing to pay and the price they actually pay
marginal cost is calculated as
the change in total costs divided by the change in output
the economi surplus of an action is:
the difference between the benefits and the cost of taking an action
opportunity cost is defined as
the highest valued alternative given up
If the market supply curve does not capture all of the costs to society of producing an additional unit of good then:
the market equilibrum will not be efficient
in a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption, then total economic surplus is maximized when:
the market is in equilibrium
The production possibilies curve shows
the max production of 1 good for every possible production level of the other good
the production possibilities frontier represents
the maximum levels of production that can be attained
in the long run, perfectly competitive firms earn zero economic profit. This result is due mainly due to which of the following assumptions
unrestricted entry and exit
increasing opportunity costs suggests that
various types of labor are not perfect substitutes for another one
Joe wants to allocate his income between pizza and movies. To maximize his utility he will choose
where marginal utility per dollar of both goods is equal
If you have a comparative advantage in a particular task then:
you give up less to accomplish that task than do others
