BEC Part II
The marginal revenue product when one worker is added to a team of 11 workers is Number of workers Total product units Average selling price 10 20 $50.00 11 25 49.00 12 28 47.50 (This question is CMA adapted) $42.00 $225.00 $105.00 $47.50
$105.00 The marginal revenue product is the increase in total revenue received by the addition of one worker. The total revenue from adding one additional worker to a team of 11 is equal to the difference between total revenue at 12 workers and total revenue at 11 workers, or $105 [(25 × $49) − (28 × $47.50)].
Daily costs for Kelso Manufacturing include $1,000 of fixed costs and total variable costs are shown below. Unit output 10 11 12 13 14 15 Cost $125 $250 $400 $525 $700 $825 The average total cost at an output level of 11 units is (This question is CMA adapted) $113.64 $125.00 $215.91 $250.00
$113.64 The average total cost is calculated by dividing total cost by the number of units: [($1,000 fixed cost + $250 variable cost)/11] = $113.64.
This question is based on the following information. Total units of product Average fixed cost Average variable cost Average total cost 6 $15.00 $25.00 $40.00 7 12.86 24.00 36.86 8 11.25 23.50 34.75 9 10.00 23.75 33.75 The marginal cost of producing the ninth unit is $23.50 $23.75 $25.75 $33.75
$25.75 This answer is correct. Marginal cost is the additional cost of producing one more unit. The amount may be obtained by subtracting the total cost of 9 units from the total cost of 8 units. $25.75 = ($33.75 × 9) - ($34.75 × 8).
This question is based on the following information. Total units of product Average fixed cost Average variable cost Average total cost 6 $15.00 $25.00 $40.00 7 12.86 24.00 36.86 8 11.25 23.50 34.75 9 10.00 23.75 33.75 The total cost of producing seven units is $90.02 $168.00 $258.02 $280.00
$258.02 This answer is correct. The total cost would equal the average cost multiplied by the number of units, or $258.02 (7 × $36.86).
The marginal revenue per unit when one worker is added to a team of 11 workers is Number of workers Total product units Average selling price 10 20 $50.00 11 25 49.00 12 28 47.50 (This question is CMA adapted) $105.00 $225.00 $35.00 $47.50
$35.00 The total revenue of adding one additional worker to a team of 11 is equal to the difference between total revenue at 12 workers and total revenue at 11 workers, or [(25 × $49) − (28 × $47.50)]/28 − 25 units = $105/3 units = $35 (marginal revenue per unit).
Allen has the following schedule of marginal utility for slices of pizza and bottles of beer: Slices of Pizza Marginal Utility Bottles of Beer Marginal Utility 1 100 1 60 2 80 2 50 3 60 3 30 4 50 4 20 If Allen maximizes his total utility by consuming 3 slices of pizza and 3 bottles of beer, which one of the following is the ratio of the price of a slice of pizza to the price of a bottle of beer? 1:1 1:2 2:1 2:2
2:1 Since total utility is achieve when 3 slices of pizza and 3 bottles of beer are consumed, the marginal unit per dollar must be equal at those quantities of pizza and beer. For that to be true, the price of a slice of pizza must be twice that of the price of a bottle of beer, as computed by the marginal utility of beer divided into the marginal utility of pizza. That calculation would be 60/30, which is 2:1.
The marginal physical product when one worker is added to a team of 10 workers is Number of workers Total product units Average selling price 10 20 $50.00 11 25 49.00 12 28 47.50 (This question is CMA adapted) 1 unit. 8 units. 5 units. 25 units.
5 units. The marginal physical product is the additional output obtained by adding one additional worker. When one worker is added to a team of 10, five (25 − 20) additional units are produced.
Allen buys only beer and pizza. When the price of beer is $2.00 per bottle and the price of pizza is $10.00, Allen maximizes his total utility (satisfaction) by buying 5 beers and 4 pizzas. If the marginal utility of the 5th beer is 100 utils, which one of the following would be the marginal utility of the 4th pizza? 40 utils. 100 utils. 200 utils. 500 utils.
500 utils. When total utility is maximized, the marginal utility (MU) of the last dollar spent on each and every item acquired must be the same. Thus, total utility is maximized when: MU of beers/price of beers = MU of pizza/price of pizza. Using the values given: 100 utils/$2.00 = MU of pizza/$10.00. The equation for beers = 100/$2 = 50 utils per dollar. The MU of pizza also must be 50 utils per dollar. Therefore, 50 = MU of pizza × $10 = 500 utils.
Tower Inc. sells a product that is a close substitute for a product offered by Westco. Historically, management of Tower has observed a coefficient of cross-elasticity of 1.5 between the two products. If management of Tower anticipates a 5% increase in price by Westco, how would this action by Westco's management be expected to affect the demand for Tower's product? A 5% increase. A 5% decrease. A 7.5% increase. A 7.5% decrease.
A 7.5% increase. This answer is correct. A coefficient of cross-elasticity of 1.5 would mean that a 5% increase in the price of the substitute would result in a 7.5% (5% × 1.5) increase in demand for Tower's product.
If a group of consumers decide to boycott a particular product, the expected result would be An increase in the product price to make up lost revenue. A decrease in the demand for the product. An increase in product supply because of increased availability. That demand for the product would become completely inelastic.
A decrease in the demand for the product. This answer is correct. If consumers boycott a product, demand for the product declines.
Which one of the following would not cause an increase in demand for a commodity? An increase in the number of consumers. An increase in the price of a substitute commodity. An increase in consumers' preference for the commodity. A reduction in the price of the commodity.
A reduction in the price of the commodity. A reduction in price will not cause an increase in demand for a commodity, but rather will change (increase) the quantity demanded. An increase in demand causes a shift of the demand curve (up and to the right). A change in price causes movement along a specific demand curve.
Which one of the following would cause the demand curve for a commodity to shift to the left? (This question is CMA adapted.) A rise in the price of a substitute product. A rise in average household income. A rise in the price of a complementary commodity. A rise in the population.
A rise in the price of a complementary commodity. A shift in the demand curve to the left would be indicative of a decrease in demand for the product, and an increase in the price of a complementary commodity would cause such a shift.
If the federal government regulates a product or service in a competitive market by setting a maximum price below the equilibrium price, what is the long-run effect? (This question is CMA adapted) A surplus. A shortage. A decrease in demand. No effect on the market.
A shortage. If the government mandates a maximum price below the equilibrium price, the product will be selling at an artificially low price resulting in shortages.
In microeconomics, the distinguishing characteristic of the long run on the supply side is that (This question is CMA adapted) Only supply factors determine price and output. Only demand factors determine price and output. Firms are not allowed to enter or exit the industry. All inputs are variable.
All inputs are variable. The distinguishing characteristic of the long-run production function is that all costs are variable.
If both demand and supply have traditional curves, a higher equilibrium price may be caused by which one of the following? A decrease in demand. An increase in demand. An increase in supply. A production technology innovation.
An increase in demand. A higher equilibrium price (and quantity) would be caused by an increase in demand.
Which one of the following factors would not cause an increase in the supply curve of a commodity? Improvements in related technology. A decrease in the cost of production inputs. An increase in the number of manufacturers of the commodity. An increase in the price of the commodity.
An increase in the price of the commodity. A change in price changes the quantity supplied, which is a movement along a supply curve, not a shift in the supply curve. An increase in the price of a commodity would increase the quantity supplied, but would not shift the supply curve.
If a product's demand is elastic and there is a decrease in price, the effect will be (This question is CMA adapted) A decrease in total revenue. No change in total revenue. A decrease in total revenue and the demand curve shifts to the left. An increase in total revenue.
An increase in total revenue. If a product's demand is price-elastic, a decrease in price will lead to an even larger percentage increase in quantity demanded. Therefore, total revenue will increase.
Which one of the following cost curves does not have a general "U-shape"? Average variable cost (AVC) curve. Average fixed cost (AFC) curve. Average total cost (ATC) curve. Marginal cost (MC) curve.
Average fixed cost (AFC) curve. Since, by definition, fixed costs do not change with changes in output over the relevant range of production, the more units produced, the lower the average fixed cost. Simply put, more units are being produced for a fixed cost. Therefore, the average fixed cost decreases continuously over the relevant range of production. It is not "U-shaped."
Price ceilings (This question is CMA adapted) Are illustrated by government price support programs in agriculture. Create prices greater than equilibrium prices. Create prices below equilibrium prices. Result in persistent surpluses.
Create prices below equilibrium prices. Price ceilings cause the price of a product to be artificially low resulting in decreased supply. The price is below the equilibrium price as indicated by this choice.
In the context of a two-sector, free-market model, which of the following is not correct? The cost of economic resources to business firms is equal to the compensation paid to individuals. Income of business firms is equal to the cost of goods and services to individuals. Business firms are the primary owners of the factors of production. What gets produced by business firms depends on the needs and wants of individuals who have the ability to pay for goods and services.
Business firms are the primary owners of the factors of production. Correct. This statement is not correct. In a two-sector, free-market model it is assumed that the factors of production (labor, capital, and natural resources) are owned primarily by individuals, not business firms. It is further assumed that business firms acquire those factors of production from individuals in order to produce other goods and services.
The following graph shows four curves: A-A, B-B, C-C, and D-D. Image of a graph in which straight line DD is parallel to the y-axis and BB is parallel to the x-axis. Curve AA is negatively sloped and curve CC is positively sloped. Which one of these curves could depict a total utility curve? A-A. B-B. C-C. D-D.
C-C. Total utility increases as quantity increases. The curve C-C correctly depicts a variable (total utility) on the Y axis that increases as the variable (quantity) on the X axis increases.
The movement along the demand curve from one price-quantity combination to another is called a(n) Change in demand. Shift in the demand curve. Change in the quantity demanded. Increase in demand.
Change in the quantity demanded. This answer is correct. Movement along the existing demand curve reflects an increase or decrease in the quantity demanded.
Which of the following is not likely to affect the supply of a particular good? Changes in government subsidies. Changes in technology. Changes in consumer income. Changes in production costs.
Changes in consumer income. Changes in consumer income could affect the demand for the good, but not its supply.
Which of the following will cause a shift in the supply curve of a product? (This question is CIA adapted) Changes in the price of the product. Changes in production taxes. Changes in consumer tastes. Changes in the number of buyers in the market.
Changes in production taxes. A shift in the supply curve may result from (1) changes in production technology, (2) changes or expected changes in resource prices, (3) changes in the prices of other goods, (4) changes in taxes or subsidies, (5) changes in the number of sellers in the market, and (6) expectations about the future price of the product. This item identifies changes in production taxes, which will alter the supply curve.
In the statement "quantity supplied is a function of price," are the variables quantity and price dependent or independent variables? Quantity Price Independent Independent Independent Dependent Dependent Independent Dependent Dependent
Dependent Independent The statement "quantity supplied is a function of price" means that quantity depends upon price. Therefore, quantity is the dependent variable and price is the independent variable.
In the short run, a severe hurricane creates an immediate strong increase in demand for roofers. Some roofers in other parts of the country are then attracted to the disaster area. Assume that in the long run the increase in demand still exceeds the increase in supply. Incorporating these facts in an analysis, the price for roofers in the short run increases, while in the long run the price will Decrease below the original price. Return to the original price. Decrease, but remain above the original price. Continue to increase.
Decrease, but remain above the original price. This answer is correct. If the increase in demand continues to exceed the increase in supply, price will remain above the original price.
In the long run, if all input factors to a production process are increased by 100%, but total output increases by only 75%, this indicates Increasing returns to scale. Constant returns to scale. Decreasing returns to scale. Diminishing returns.
Decreasing returns to scale. Since output increases in lesser proportion (75%) than inputs (100%), there are decreasing returns to scale; the returns from increasing the scale of operations in the long-run are less than proportionate to the inputs incurred in increasing the scale of operations. This is a long-run concept in which all inputs are considered variable and primarily result from problems (communication, coordination, etc.) associated with managing very large-scale operations.
A city ordinance that freezes rent prices may cause The demand curve for rental space to fall. The supply curve for rental space to rise. Demand for rental space to exceed supply. Supply of rental space to exceed demand.
Demand for rental space to exceed supply. This answer is correct because if prices are held artificially low, demand will exceed supply.
X and Y are substitute products. If the price of product Y increases, the immediate impact on product X is (This question is CIA adapted.) Price will increase. Demand will increase. Quantity supplied will increase. Price, demand, and quantity supplied will increase.
Demand will increase. The demand and price of substitute products are directly related. If the price of a good increases, the demand for its substitute will also increase. This statement depicts this relationship.
In the statement "quantity demanded is a function of price," are the variables quantity and price dependent or independent variables? Quantity Price Dependent Dependent Dependent Independent Independent Independent Independent Dependent
Dependent Independent Since "quantity" is a function of "price," price is an independent variable and quantity is the dependent variable. The quantity demanded of a commodity depends upon (i.e., is dependent on) the price of acquiring the commodity.
Which of the following is not a characteristic of a free-market economy? Economic decisions are made by individual decision makers. There is an interdependent relationship between individual consumers and business firms. Economic resources are unlimited. What gets produced depends on the preferences of end-use consumers.
Economic resources are unlimited. Under any economic system, economic resources--labor, capital, and natural resources--are scarce.
In the long run, a firm may experience increasing returns due to The law of diminishing returns. Opportunity costs. Comparative advantage. Economies of scale.
Economies of scale. In the long run, a firm can experience increasing returns due to economies of scale. The long-run average cost (LAC) curve is "U" shaped. Where the LAC curve is decreasing, quantity of output increases in greater proportion than the increase in all inputs, primarily due to specialization of labor and equipment. That downward-sloping section of a LAC curve reflects increasing returns to scale.
In the long run, a firm may experience increasing returns due to (This question is CMA adapted) Law of diminishing returns. Opportunity costs. Comparative advantage. Economies of scale.
Economies of scale. In the long run, firms may experience increasing returns because they operate more efficiently. With growth comes specialization of labor and related production efficiencies. This phenomenon is called economies of scale.
If the price for a good is fixed by government fiat below market equilibrium price, which one of the following will occur? Excess supply. Demand shortage. Excess demand. Actual price will be greater than equilibrium price.
Excess demand. If the price for a good is fixed by government fiat below market equilibrium price, an excess demand will result. Because the price that can be charged is limited (price ceiling), less will be supplied, such that the quantity demanded will exceed quantity supplied. There will be an excess demand.
Demand for a product tends to be price inelastic if (This question is CMA adapted) The product is considered a luxury item. People spend a large percentage of their income on the product. The population in the market area is large. Few good substitutes for the product are available.
Few good substitutes for the product are available. Price inelasticity means that the quantity demanded does not change much with price changes. This would be a characteristic of a good with few substitutes.
In a free-market economy, which of the following should be the least significant factor in determining resource allocation and use? Preferences of individuals. Availability of economic resources. Government regulation of commerce. Level of technological development.
Government regulation of commerce. In a free-market economy, government regulation of commerce should be the least significant factor (of those listed) in determining resource allocation and use.
When the federal government imposes health and safety regulations on certain products, one of the most likely results is (This question is CMA adapted) Greater consumption of the product. Lower prices for the product. Greater tax revenues for the federal government. Higher prices for the product.
Higher prices for the product. Government regulation increases the cost of the product and therefore will most likely result in higher prices.
The free-market economy flow model depicts four major interrelated flows: I . Individuals provide economic resources to business firms. II. Firms provide payment to individuals for economic resources. III. Firms provide goods and services to individuals. IV. Individuals provide payment to firms for goods and services. If financial institutions and businesses suddenly and severely restrict the availability of consumer credit, which one of the above flows would be most likely to be the first to be impacted adversely? I. II. III. IV.
IV. Initially, a sudden and severe restriction in the availability of consumer credit likely would adversely impact the ability of individuals to provide payment to firms for goods and services. The lack of credit likely would reduce consumer demand, which would then begin to impact other flows.
If a change in market variables causes a supply curve to shift inward, which one of the following will occur? The price at which the same quantity will be provided after the shift will be less than the price before the shift. At a given price, a greater quantity will be provided after the shift than the quantity provided before the shift. The supply curve after the shift will intercept the Y axis at a lower point than before the shift. In order for the same quantity to be provided after the shift as was provided before the shift, price will have to increase.
In order for the same quantity to be provided after the shift as was provided before the shift, price will have to increase. If the supply curve shifts inward (to the left), the same quantity will be provided after the shift as was provided before the shift, only at a higher price.
Concurrent with a significant downturn in the economy, the sale of Scope's high-end electronics decreased dramatically. Which of the following is the most likely direct cause of the decline in demand for Scope's products? Scope increased the price of the products. Income of market participants decreased. Scope reduced the price of its products. Market participants' preferences for electronics changes.
Income of market participants decreased. In view of the economic downturn, a decrease in the income of market participants for high-end electronics was probably the direct cause of the decline in demand for Scope's products. A decrease in income is normally associated with a decrease in demand for normal (and "above normal") goods and an increase in demand for inferior goods.
An increase in the market supply of beef would result in a(n) Increase in the price of beef. Decrease in the demand for beef. Increase in the price of pork. Increase in the quantity of beef demanded.
Increase in the quantity of beef demanded. This answer is correct. An increase in supply of beef would result in a lower equilibrium price and therefore increase the demand for beef.
As an individual acquires (or consumes) more units of a commodity over a given time period, what is the effect on the individual's total utility and marginal utility? Total Utility Marginal Utility Decreases Decreases Decreases Increases Increases Decreases Increases Increases
Increases Decreases As an individual acquires or consumes more units of a commodity, the total satisfaction or utility derived increases with each unit; however, the additional (marginal) utility derived from each additional unit acquired or consumed decreases. This is the basis of the law of diminishing utility and helps explain the negative slope of an individual's demand curve.
As a business owner you have determined that the demand for your product is inelastic. Based upon this assessment you understand that Increasing the price of your product will increase total revenue. Decreasing the price of your product will increase total revenue. Increasing the price of your product will have no effect on total revenue. Increasing the price of your product will increase competition.
Increasing the price of your product will increase total revenue. If demand is inelastic an increase in price will increase total revenue. This statement accurately states this rule.
Because of the existence of economies of scale, business firms may find that (This question is CMA adapted) Each additional unit of labor is less efficient than the previous unit. As more labor is added to a factory, increases in output will diminish in the short run. Increasing the size of a factory will result in lower average costs. Increasing the size of a factory will result in lower total costs.
Increasing the size of a factory will result in lower average costs. In the long run firms may experience increasing returns because they operate more efficiently. With growth comes specialization of labor and related production efficiencies related to the law of diminishing returns. This phenomenon is called economies of scale. This statement accurately describes this concept.
Which one of the following statements regarding periods of analysis is correct? Short-run analysis assumes that all inputs can be varied. Long-run analysis assumes that all inputs can be varied. Short-run analysis assumes that all inputs are fixed. Long-run analysis assumes that all inputs are fixed.
Long-run analysis assumes that all inputs can be varied. In the long run, it is assumed that all inputs to the production process can be varied, including the number and size of production facilities.
All of the following are complementary goods except (This question is CMA adapted.) Margarine and butter. Cameras and rolls of film. VCRs and video cassettes. Razors and razor blades.
Margarine and butter. Complementary goods are those that are used together because they enhance each other's use. Margarine and butter are substitute goods, not complementary goods.
The law of diminishing marginal utility states that Marginal utility will decline as a consumer acquires additional units of a specific product. Total utility will decline as a consumer acquires additional units of a specific product. Declining utilities cause the demand curve to slope upward. Consumers' wants diminish with the passage of time.
Marginal utility will decline as a consumer acquires additional units of a specific product. This answer is correct. The principle of diminishing marginal utility states that marginal utility declines with each additional unit the consumer receives.
If both the supply and the demand for a good increase, the market price will Rise only in the case of an inelastic supply function. Fall only in the case of an inelastic supply function. Not be predictable with only these facts. Rise only in the case of an inelastic demand function.
Not be predictable with only these facts. This answer is correct. Since the amounts of the supply and demand increase are not known, it is impossible to predict the effects.
In the pharmaceutical industry where a diabetic must have insulin no matter the cost and where there is no other substitute, the diabetic's demand curve is best described as (This question is CMA adapted) Perfectly elastic. Perfectly inelastic. Elastic. Inelastic.
Perfectly inelastic. Demand for the product is perfectly inelastic because the diabetic will purchase the product regardless of the price.
A supply curve illustrates the relationship between Price and quantity supplied. Price and consumer tastes. Price and quantity demanded. Supply and demand.
Price and quantity supplied. This answer is correct. A supply curve illustrates the quantity of a good supplied at different prices.
X and Y are complementary products. If the price of product Y increases, the immediate impact on product X is that its Price will decrease. Quantity demanded will decrease. Quantity supplied will decrease. Price, quantity demanded, and supplies will remain unchanged.
Quantity demanded will decrease. This answer is correct. If two goods are complements, an increase in the price of one tends to decrease the quantity demanded of the other. The package of goods becomes more expensive.
When maximizing utility in economics, what is being maximized? Profits. Satisfaction. Costs. Elasticity.
Satisfaction This answer is correct. Utility involves maximizing satisfaction.
A decrease in the price of a complementary good will (This question is CMA adapted.) Shift the demand curve of the joint commodity to the left. Increase the price paid for a substitute good. Shift the supply curve of the joint commodity to the left. Shift the demand curve of the joint commodity to the right.
Shift the demand curve of the joint commodity to the right. If the price of a complementary good decreases, demand for the joint commodity will increase. This is due to the fact that the total cost of using the two products decreases. If demand for a product increases, the demand curve will shift to the right.
A price ceiling that is below the market equilibrium price would be expected to result in which one of the following sets of effects on demand and supply? Supply Demand Excess Shortage Excess Excess Shortage Shortage Shortage Excess
Shortage Excess A price ceiling established below the market equilibrium price would be expected to result in a shortage in supply and an excess demand. The price ceiling will limit what can be charged for a good or service, resulting in marginal (high cost) suppliers unable to compete in the market. This will result in a shortage of supply. The shortage in supply, in turn, will result in demand for the good or service (at the "low" controlled price) exceeding what is provided, an excess demand.
Which of the following has the highest price elasticity coefficient? Milk. Macaroni and cheese. Bread. Ski boats.
Ski boats. If substitutes for a good are readily available then the demand for the good is more elastic. There are many substitutes for luxury goods
The local video store's business increased by 12% after the movie theater raised its prices from $6.50 to $7.00. Thus, relative to movie theater admissions, videos are Substitute goods. Superior goods. Complementary goods. Public goods.
Substitute goods. This answer is correct. The demand for a substitute good goes up when the primary good's price increases. This illustrates cross-elasticity of demand.
A 4% increase in the market price of Commodity X resulted in an 8% increase in the quantity of Commodity X supplied. Which one of the following statements is correct? Supply is inelastic. Supply is unitary. Supply is elastic. Supply is price neutral.
Supply is elastic. Since the percentage change in supply (8%) was greater than the percentage change in price (4%), supply is elastic.
If demand for a product is elastic, what would be the effect of a price increase and a price decrease on total revenue (TR) generated? Price Increase Price Decrease TR Increase TR Increase TR Increase TR Decrease TR Decrease TR Increase TR Decrease TR Decrease
TR Decrease TR Increase When demand is elastic (with a calculated elasticity coefficient greater than 1), the percentage change in demand is greater than the percentage change in price. Therefore, an increase in price would result in a greater than proportionate decrease in quantity, which would cause a decrease in total revenue. A decrease in price would result in a greater than proportionate increase in quantity, which would cause an increase in total revenue.
Marginal revenue is (This question is CMA adapted) Equal to price in monopolistic competition. The change in total revenue associated with increasing prices. Greater than price in pure competition. The change in total revenue associated with producing and selling one more unit.
The change in total revenue associated with producing and selling one more unit. Marginal revenue is the change in total revenue associated with the sale of one more unit of output.
Marginal revenue is Equal to price in monopolistic competition. The change in total revenue associated with increasing prices. Greater than price in pure competition. The change in total revenue associated with producing and selling one more unit.
The change in total revenue associated with producing and selling one more unit. This answer is correct. Marginal revenue is defined as the amount of additional revenue received from the sale of one additional unit.
The demand curve for a product reflects which of the following? The impact of prices on the amount of product offered. The willingness of producers to offer a product at alternative prices. The impact that price has on the amount of a product purchased. The impact that price has on the purchase amount of two related products.
The impact that price has on the amount of a product purchased. The demand curve reflects the impact that price has on the amount of a product purchased. A demand curve (or schedule) for a product shows the quantity of a commodity that will be demanded at various prices during a specified time, ceteris paribus (holding variables other than price constant).
Which of the following characteristics would indicate that an item sold would have a high price elasticity of demand? The item has many similar substitutes. The cost of the item is low compared to the total budget of the purchasers. The item is considered a necessity. Changes in the price of the item are regulated by governmental agency.
The item has many similar substitutes. This answer is correct because if an item has many substitutes, a small price increase would result in a large decrease in demand as consumers choose lower-cost substitutes.
Which of the following characteristics would indicate that an item sold would have a high price elasticity of demand? The item has many similar substitutes. The cost of the item is low compared to the total budget of the purchasers. The item is considered a necessity. Changes in the price of the item are regulated by governmental agency.
The item has many similar substitutes. When a good or service has a high price elasticity of demand the percentage change in quantity demanded is greater than the percentage change in price. When a good or service has many substitutes, a small change in price will result in a greater change in quantity demanded as consumers switch to the substitutes. So, for example, if the price of an item with many substitutes increases, consumers will switch to lower-cost substitutes, reflecting a high price elasticity of demand.
According to the law of diminishing returns, which one of the following is correct? The marginal product (output) falls as more units of a variable input are added to fixed inputs. The marginal product (output) increases as more units of a variable input are added to fixed inputs. The total product (output) falls as more units of a variable input are added to fixed inputs. Marginal utility falls as more units of goods are consumed.
The marginal product (output) falls as more units of a variable input are added to fixed inputs. According to the law of diminishing returns, as more units of a variable input are added to fixed inputs, a point is reached at which the continued addition of variable inputs results in decreasing output per unit of variable input. Generally, this diminishing return results when the increasing variable inputs overwhelm the fixed inputs, which results in inefficiencies.
What is the main factor that differentiates the short-run cost function from the long-run cost function? Nothing, the two functions are identical. The level of technology. Changes in government subsidies. The nature of the costs.
The nature of the costs. In the short run firms have fixed and variable costs, whereas in the long run all costs are variable.
The elasticity of demand is measured by The change in quantity divided by the change in price. The change in price divided by the change in quantity. The percentage change in quantity divided by the percentage change in price. The percentage change in price divided by the percentage change in quantity.
The percentage change in quantity divided by the percentage change in price. The elasticity of demand measures the percentage change in the quantity demanded of a commodity as a result of a given percentage change in the price of the commodity. The formula for a commodity is: Elasticity = Percentage change in quantity demanded Percentage change in price The percentage change in quantity demanded is computed by dividing the change in quantity by the original quantity (or the new quantity or the average of the original and new quantities). The percentage change in price is computed by dividing the change in price by the original price (or the new price or the average of the original and new prices). The absolute value of the percentage change in quantity is then divided by the absolute value of the percentage change in price. The result is expressed as a positive number. The resulting demand elasticity can be: Less than 1 = inelastic: quantity percentage change is less than the percentage change in price. Equal to 1 = unitary: quantity percentage change is the same as the percentage change in price. Greater than 1 = elastic: quantity percentage change is more than the percentage change in price.
A supply schedule (or supply curve) shows the relationship between the quantity of a commodity that will be supplied during a period of time and the cost of input factors. The level of technology. The selling price of the commodity. The demand for the commodity.
The selling price of the commodity. A supply schedule (or supply curve) shows the quantity of a commodity that will be supplied (provided) at different selling prices during a period of time. The supply curve normally is positively sloped; the quantity supplied increase along a given supply curve as the price increases. The following graph depicts a typical supply curve: Image containing a positively sloped, straight line supply curve, with price marked on the y-axis and quantity marked on the x-axis.
When the cost of input factors to the production process increases, which one of the following will occur? The demand curve will shift outward. The supply curve will shift outward. The demand curve will shift inward. The supply curve will shift inward.
The supply curve will shift inward. An increase in the cost of input factors to the production process will cause the supply curve to shift inward. An increase in input costs will cause the per-unit cost to increase and the supply curve will shift upward and to the left (inward).
Increased demand for product A increases the demand for resources used to produce product A. What is the best explanation for the increase in the demand for resources? The theory of derived demand is working. Product A is in an expanding industry. The theory of the invisible hand is working. The demand for product A is highly elastic.
The theory of derived demand is working. CORRECT! Derived demand is the demand for a good or service that results because it is an input needed in order to provide another good or service for which there is demand. The demand for a good or service is derived from the demand for another good or service. The theory of derived demand explains why an increase in product A increases the demand for resources used to produce product A.
Which of the following are considered economic resources? Labor Capital Natural resources Yes Yes Yes Yes Yes No Yes No No No Yes Yes
Yes Yes Yes Labor (human work, etc.), capital (financial and man-made), and natural resources (land, minerals, etc.) are all economic resources and they are scarce.
In a competitive market for labor in which demand is stable, if workers try to increase their wage, employment must fall. government must set a maximum wage below the equilibrium wage. firms in the industry must become smaller. product supply must decrease.
employment must fall. This answer is correct. If wages rise in a stable market, the quantity demanded for labor will decline and employment will fall. Since the wage rate is the price of labor, a change in that price would result in a change in quantity demanded for labor.
An increase in the market supply of beef would result in a/an increase in the price of beef. decrease in the demand for beef. increase in the price of pork. increase in the quantity of beef demanded.
increase in the quantity of beef demanded. An increase in the market supply of beef (with no change in demand) would result in a new supply and demand equilibrium which reflects an increase in the quantity of beef demanded and a decrease in the price of beef (a movement along the "fixed" demand for beef curve).
When a demand schedule is plotted on a graph, the resulting demand curve for a market will be positively sloped. negatively sloped. completely vertical. completely horizontal.
negatively sloped. The demand schedule of an individual or of the market shows that more units of a commodity are demanded as the price decreases. Therefore, the demand curve would be negatively sloped; the quantity demanded would be lower at higher prices and would increase as price decreases. The quantity demanded varies inversely with price along a given demand curve: Image containing a negatively sloped demand curve, with price marked on the y-axis and quantity marked on the x-axis. Thus, a demand curve has a negative slope; quantity is inversely related to price.
A city ordinance that establishes a price ceiling on rent below the equilibrium price may cause the demand curve for rental space to shift to the left. the supply curve for rental space to shift to the right. the quantity of rental space demanded to exceed the quantity supplied. the quantity of rental space supplied to exceed the quantity demanded.
the quantity of rental space demanded to exceed the quantity supplied. A city ordinance that freezes rent prices will cause the quantity of rental space demanded to exceed the quantity supplied. Specifically, a freeze in rental prices would cause the actual price charged (the controlled price) to be less than the equilibrium price, resulting in a shortage of rentable space. Since suppliers (landlords) are prevented from raising prices to an equilibrium level, they will cease to invest in rentable space, causing a shortage.
