Chapter 5-8 Study Guide Microeconomics

Which of the following statements best captures the concept of consumer surplus?

"I was willing to pay $30 for a dozen roses, but I bought them for $20."

A production decision involves choosing

A rate of output and is a short-run decision.

If demand is elastic, then

An increase in price will reduce total revenue.

The productivity of workers will increase in response to

An increase in the amount of physical capital per worker

Implicit Costs

Are the value of resources used for which no direct payment is made

Which of the following is likely to have the most inelastic price elasticity of demand?

Automobiles.

In the short run, the law of diminishing returns

Can be observed in every production process.

Entrepreneurship

Can result in economic losses

In the In the News article "The Lure of Catfish" production of catfish has skyrocketed in the United States from 16 million pounds in 1975 to an expected 340 million pounds in 1989. The business is growing among farmers in Alabama, Arkansas, and Louisiana. Which of the following is the motive that enticed many farmers to give up the production of row crops to produce catfish?

Catfish is relatively more profitable than row crops.

Airline companies engage in price discrimination by

Charging higher prices to customers who must travel on short notice.

Which of the following would most likely have a price elasticity coefficient less than 1?

Coffee

Graphically, as a consumer buys more of a good, the marginal utility line will

Continuously decline if diminishing returns are present.

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

Dad says her cost is $31,000 and Mom says her cost is $47,600.

Sociopsychiatric explanations of consumer behavior include the

Desire for ego and status.

If diminishing returns exist, then

Each unit produced will cost incrementally more.

Accounting costs and economic costs differ because

Economic costs include implicit costs and accounting costs do not.

One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general. Such profits are most likely the result of

Economies of scale

Which of the following is a factor of production for the Little Biscuit Bread Company? 1) Bread 2) Productivity 3) Money 4) Flour

Flour

Which of the following is most likely an inferior good? 1) A custom-built mansion 2) Nike running shoes 3) Generic canned food 4) Rolex watches

Generic canned food

When a producer can control the market price for the good it sells, the producer

Has marker power

If Josh's income increases, then

His entire budget constraint will shift away from the origin.

A demand curve that is completely elastic is

Horizontal

As compared to sociologists and psychologists, economists accept consumer tastes as given and instead focus on

How price will affect actual consumer purchases.

If a good is inferior, its

Income elasticity of demand is negative.

The creation of the Internet has contributed to all of the following except 1) Increased productivity 2) Reduced transaction costs 3) Reduced information costs 4) Increased marginal costs

Increased marginal costs

As more satisfaction is achieved from consuming a good with diminishing marginal utility, then total utility

Increases at a decreasing rate.

A competitive firm

Is a price taker.

Proft

Is the difference between total revenue and total cost.

The marginal cost curve

Is the short-run supply curve for a competitive firm at prices above the AVC curve. Correct

If an individual demands a good, it means that he or she

Is willing and able to purchase the good at some price.

In the short run, which of the following is most likely a variable cost?

Labor and raw material costs

The perfectly competitive market structure includes all of the following EXCEPT 1) Large advertising budgets 2) Low entry barriers 3) Many firms 4) Identical products

Large advertising budgets

The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the

Law of diminishing marginal utility.

Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will beco

Less positive (move closer to zero).

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to

Lower his price to increase revenue.

A competitive firm should always continue to operate in the short run as long as

MR > AVC

The average total cost (ATC) curve will be downward sloping so long as

Marginal cost is less than average total cost.

Ceteris paribus, the longer the time period, the

More elastic the demand for the good.

Smart phones and apps are complementary goods. The cross price elasticity of demand between smart phones and apps is expected to be.

Negative

The most desired goods and services that are foregone in order to obtain something else are the

Opportunity costs

The mix of consumer purchases that maximizes the utility attainable from available income is called the

Optimal consumption.

A perfectly competitive firm should expand out when

P > MC

When demand is price-inelastic, ceteris paribus, an increase in

Price leads to greater total revenue.

A firm;s total revenue can be determined by

Price times quantity

Economic explanations of consumer behavior take into consideration

Prices and income

When price exceeds average variable cost but not average total cost, the firm should, in the short run,

Produce at the rate of output where MR = MC.

The demand for normal goods

Rises when incomes rise

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

Sell an additional pound of walnuts at $4.99. Correct

Car dealers can easily price discriminate because

Sellers negotiate a separate price agreement with each individual buyer.

Which of these examples is an example of price discrimination? 1) Goods are marked down on sale 2) Wholesale prices differ from retail prices 3)Seniors pay one price at the movies and adults pay more 4)Cereal manufacturers put discount coupons inside their cereal boxes.

Seniors pay one price at the movie theater and adults pay more.

Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by

Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated.

The market price for any good or service sold in a perfectly competitive market is determined by

Supply and demand

Which of the following is not a determinant of the price elasticity of demand?

The amount of income the consumer has.

Which of the following is always downward-sloping?

The average total cost curve when it is above the marginal cost curve.

An In the News article discusses "Too Many Sellers: The Woes of T-Shirt Shops." If T-shirt shops are perfectly competitive firms, then

The barriers to entry are low

The marginal utility for a good is computed as

The change in total utility divided by the change in quantity.

Evaluating a supply and a demand curve independently, if the equilibrium price rises,

The consumer surplus will fall.

In the article "After iPhone Price Cut, Sales Are Up by 200 Percent,"

The demand for iPhones is highly elastic.

A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?

The demand for salt is inelastic.

If the price elasticity of demand for cigarettes is 0.4,

The demand is inelastic

Consumer surplus measures

The difference between the maximum price a consumer is willing to pay and the price actually paid.

Total revenue is equal to

The income from sales.

The best measure of the economic cost of doing your homework is

The most valuable opportunity you give up when you do your homework

If two goods are substitute goods,

The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.

A perfectly competitive firm is a price taker because

The price of the product is determined by many buyers and sellers

According to the law of demand, ceteris paribus,

The quantity demanded increases at lower prices.

Supply is very elastic when

The quantity supplied has a large increase in response to an increase in price.

Which of the following should NOT be included when calculating accounting profit? 1) The cost of rent 2)The cost of utilities 3) The return on the next best alternative investment opportunity 4) The cost of taxes

The return on the next best alternative investment opportunity

Diseconomies of scale are reflected in

The upward-sloping segment of the long-run average total cost curve.

Perfect competition is a situation in which

There are many firms and no buyer or seller has market power.

A firm maximizes profit when

Total revenue exceeds total cost by the greatest amount

A price change will have no effect on total revenue if demand is

Unitary elastic

If the price elasticity of demand is equal to 2, the good has _____ demand.

elastic

The shape of the marginal cost curve reflects the

law of diminishing returns

Average total cost is equal to

the total cost divided by the quantity produced