Econ 1010 Final
Suppose the government introduces a ceiling on the fees that lawyers are permitted to charge. This fee ceiling
results in an efficient use of resources when the ceiling is above the equilibrium fee
If the cross elasticity of demand between two goods is -0.50, then a fall in the price of one god leads to a _____ shift of the _____ curve of the other good
rightward; demand
Refer to Table 11.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. Economic profit is maximized when the firm produces _____ units of output.
6
All of the following statements are true except:
All externalities create overproduction
A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference curves for these two goods look like?
L-shaped
When the price of a t-shirt is $9, the quantity supplied is 9,500. When the price of a t-shirt is $11, the quantity supplied is 10,500. At the price of $10 a t-shirt, the
supply of t-shirts is inelastic
Refer to Figure 11.4.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market
supply will decrease
In a perfectly competitive market, a technological advance brings _______ economic profit for producers and _______ lower prices for consumers
temporary; permanent
A given percentage rise in the price of a good is likely to result in a larger percentage decrease in the quantity of the good demanded
the larger the proportion of income spent on it.
Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. In an unregulated market,
there is no teenage unemployment and the wage rate is $15 per hour
Economic profit equals
total revenue minus total cost
Suppose a firm is trying to decide whether to temporarily shut down to minimize total loss. If price equals average variable cost and the firm continues to produce,
Total revenue equals total variable cost, and the loss equals total fixed cost
If production is not an efficient level, which of the following must be true?
Total surplus is not maximized
If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a level of output where
average total cost is greater than marginal cost
Diseconomies of scale are present when
average total cost rises as output increases
A firm's efficient scale is the quantity at which ______ is a minimum. A firm has excess capacity if it produces _______ its efficient scale.
average total cost; below
The shutdown point occurs at the point of minimum
average variable cost
If the ATC curve is rising then the MC curve must be
below ATC
In the short run, a firm in a perfectly competitive market
can make an economic profit, incur an economic loss, or break even
A monopoly
can raise the price it charges only if it decreases the quantity that it sells
In monopolistic competition, advertising costs
can results in the firm producing an amount of output such that its average total cost is lower than if it did not advertise
A monopoly ______ make positive economic profit in the long run because ________
can; barriers to entry prevent other firms from entering the market and sharing the profit
When a firm is a "price taker", the firm
cannot influence the market price of the good that it sells
One factor that distinguishes a monopoly from monopolistic competition is that
close substitutes are available in monopolistic competition
If the demand for a good is perfectly inelastic, then a tax on the good will be paid:;
completely by the buyers
Refer to Table 12.2.1. Minnie's Mineral Springs, a single-price monopoly, faces the market demand schedule given in the table. Minnie will not produce a quantity at which the market demand for water is inelastic because when demand is inelastic she can _______ the quantity produced, which _______
decrease; increases total revenue, decreases total cost, and increases economic profit
With higher fuel costs, airlines raise their average fare from $0.50 to $1.50 per passenger kilometre and the number of passenger kilometres decreases from 2.5 million a day to 1.5 million a day. When the price is $1 per passenger kilometre, the demand for air travel is
inelastic
Suppose your annual income is $65,000 and you pay $30 a year for your favourite magazine. Your demand for the magazine is likely to be
inelastic
When Erika's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3 percent. Erika's demand for tickets is income ______. For Erika, hockey tickets are _______ good
inelastic; a normal
Marginal cost _____ as the quantity produced increases
initially decreases and then increases
Refer to Figure 11.1.1. The firm competes in a perfectly competitive market. The total revenue curve is a straight line because the firm
is a price taker
Refer to Figure 13.2.2. This firm in monopolistic competition
is in long-run equilibrium
Marginal cost
is the minimum price that producers must receive in induce them to offer one more unit of a good or service for sale
Rent seeking
is the pursuit of wealth by capturing economic rent
The four-firm concentration ratio tells us the percentage of _____ for the four largest firms in an industry
is the value of sales
When a monopoly practices price discrimination
it changes different prices to different consumers and transfer some of the consumer surplus to economic profit
Refer to Table 4.2.2. All of the following statements regarding Jolt are true except
it has a negative cross elasticity of demand with respect to the price of cola
Total revenue from the sale of a good decreases if
its price rises and demand is elastic
The maximum loss a firm will experience in the short run equals
its total fixed cost
If the government imposes a maximum rent for housing that is above the equilibrium rent, then the
law will have no effect in the rental market
Goods that can be produced using rare productive resources have a _____ elasticity of supply. The greater the amount of time available after a price change, the ______ is the elasticity of supply
low; greater
Suppose the Lethbridge Computer Company decides to increase the quantity of computers it sells by 6 percent. If the price elasticity of demand is 3.0, the company must
lower the price of a computer by 2.0 percent
Fact 11.4.1 Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50. Refer to Fact 11.4.1. If the price of fiddleheads last month was $15 per bag, Franklin
made zero economic profit
Refer to Table 11.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. If the firm produces 3 units of output, it will
make an economic profit of $4.
Refer to Figure 11.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. The firm is
making an economic profit
One reason for diseconomies of scale is that as output becomes larger,
management systems can become more complex and inefficient
Sal likes to eat pizza. The _____ is the maximum amount that Sal is willing to pay for more than one slice of pizza.
marginal benefit
The decision to undertake product development in monopolistic competition is made by comparing the
marginal benefit of product development to the marginal cost of product development
A perfectly competitive firm is maximizing profit or minimizing loss if it is producing the quantity at which
marginal cost equals price and price is not below minimum average variable cost
As soon as diminishing returns set in, a firm's
marginal cost increases
A firm is producing the profit-maximizing amount of output when it is producing where its ______ curve intersects its _____ curve
marginal cost; marginal revenue
A firm maximizes profit by producing the output at which marginal cost equals
marginal revenue
One difference between perfectly competitive markets and a single-price monopoly is that
marginal revenue equals price for perfectly competitive firms, but not for single-price monopolists
If the demand for its good or service is elastic, a monopoly's
marginal revenue is positive
As a method of resource allocation, force
plays a crucial role for both good and ill
Consumer surplus
plus producer surplus is maximized when resources are used efficiently
Refer to Figure 11.2.2, which shows a perfectly competitive firm's economic profit and loss. The firm is incurring a loss at
point A
The concept used by economists to indicate the responsiveness of the quantity demanded of a good to a change in its price is the
price elasticity of demand
Refer to Figure 12.3.1. If this market is a single-price monopoly, then
price is greater than the marginal cost and the outcome is inefficient
In 2017, a severe drought led to an increase in the price of corn. Farmer Lyle was not affected by the drought. In 2016 there was no drought. In 2017, Farmer Lyle's
producer surplus increased
A monopoly is a market with a single firm that
produces a good or service for which no close substitutes exists and which is protected by a barrier that prevents other firms from selling that good or service
In the long run, the firm in monopolistic competition
produces less than the quantity at minimum ATC
Firefox, Internet Explorer, and Google Chrome browsers are an example of
product differentiation
The key feature of monopolistic competition that distinguishes it from perfect competition is
product differentiation
The income elasticity of demand equals the percentage change in ______, other things remaining the same
quantity demanded divided by the percentage change in income
A budget line is drawn with the
quantity of one good on the vertical axis and the quantity of the second good on the horizontal axis
Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to
raise the price of electricity by 12.5 perfect
If a profit-maximizing monopoly is producing an output at which marginal cost exceeds marginal revenue, it
raises the price and decreases output to increase economic profit
Refer to table 4.1.3. Thee table shows the demand schedule for comptuer chips. As the price rises from $200 a chip to $300 a chip, total revenue ______. So at a price of $250 a chip, demand is _______.
rises; inelastic
Refer to Figure 11.1.1. The firm competes in a perfectly competitive market. If price decreases, the total revenue curve
rotates downward and becomes flatter
If income increases, the budget line
shifts rightward and parallel to the original budget line
When the demand for electricity peaks during the hottest days of summers, Hydro One can generate more electricity by using more fuel and increasing the working hours of many of its employees. The company cannot, however, increase electric power production by building additional generating capacity. This means that the company is operating in the
short run
In monopolistic competition, firms can make an economic profit in
the short run but not in the long run
A change in the price of the good measured on the vertical axis changes _____ of the budget line
the slope and y-intercept
Marginal utility equals
the slope of the total utility care
Product differentiation exists within an industry when
there are close but not perfect substitutes for the product
Business owners are speaking about the price elasticity of demand without using the actual term. Which one of the following statements describes a good with a price elastic demand?
"My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store, and sales are booming."
Refer to Figure 5.3.1. The efficient quantity is
150 units
Which one of the following illustrates an inelastic demand?
A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.
Advise Sarah how to maximize her utility if MUa = 8, MUb = 20, Pa = 4, and Pb= 5
Consume more of good B and less of good A
Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would tax revenue be the highest?
D
Which one the following does not occur when firms in a perfectly competitive market make an economic profit?
Each firm increases production
Consider Figure 12.3.3. In a single-price monopoly, which area indicates producer surplus?
IEAC
Which of the following ideas describes the concept of "utilitarianism"? I. Utilitarianism was introduced in the 1930s II. Utilitarians believed that a society could strive to make as many people happy as possible. III. Utilitarians claimed that taking money from rich people and giving it to poorer people would not make an economy better off.
II only
Consider Figure 12.3.3. If this is a single-price monopoly, which area indicates consumer surplus?
KEA
For perfect competition to arise, it is necessary that market demand be
Large relative to the minimum efficient scale of a single firm
A firm in a perfectly competitive industry is maximizing its economic profit by producing 500 units of output. At 500 units of output, which one of the following must be false?
MC < AVC
In which one of the following situations will a perfectly competitive firm make an economic profit?
MR > ATC
Which one of the following statements describes a market that is monopolistically competitive?
Many firms compete by making similar but slightly different products
A consumer will buy a good when
Marginal benefit is greater than or equal to the price
A perfectly competitive market is characterized by
No restrictions on entry into the market
Technological change
brings only temporary gains to producers
Which one of the following need not be satisfied to achieve allocative efficiency?
Only high-quality goods are produced
What is marginal utility?
The additional satisfaction received from consuming one more unit of a good
Refer to Table 6.3.2. You are in the business of producing and selling hamburgers, French fries, pizza, and ice cream. The mayor of your city plans to impose a sales tax on one of these products. Based on the elasticities in the table, on which of these goods would your customers least like to be taxed?
Pizza
Marginal cost
decreases at low outputs and increases at high outputs
Refer to Figure 10.4.2, which illustrates the short-run average total cost curves for four different plant sizes. Which plant has the lowest average total cost for an output rate 5 sweaters a day?
Plant A
Which of the following is a characteristic of a single-price monopoly?
Price exceeds marginal revenue
At the best affordable point, what is the relationship between the indifference curve and the budget line?
The slope of the indifference curve equals the slope of the budget line
Which of the following is least likely to be a natural monopoly?
Taxicab service
When a scarce resource is allocated to someone who is the winner, the method of resource allocation is
a contest
If two consumption points on different indifference curves, then one point is
preferred to the other
The price elasticity of demand depends on
neither the units used to measure price nor the units used to measure quantity
In monopolistic competition, long-run economic profit is zero because of
no barriers to entry
Which one of the following statements is false?
A minimum wage is a price ceiling in the labour market
Refer to Figure 12.1.1. The quantity demanded by the market is 8 million cubic meters a month. This market is
A natural monopoly
Which area in Figure 12.4.5 indicates the consumer surplus from a perfect price-discriminating monopoly?
A perfect price-discriminating monopoly does not have a consumer surplis
Suppose Swiss Chalet in Moncton knows that the demand for their half-chicken meals is elastic. If the manager wants to increase total revenue from half-chicken meal sales, he should
lower the price of a half-chicken meal
Rent seeking
increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity
Total utility is always
increasing when marginal utility is positive
The cross elasticity of demand between any two goods is defined as the
percentage change in the quantity demanded of one good divided by the percentage change in the price of the other good
Suppose the demand curve for good X is horizontal. The demand for good X is
perfectly elastic
A sudden, end-of-summer heat wave increases the demand for air conditioners and catches suppliers with no reserve inventories. The momentary supply for air conditioners is
perfectly inelastic
Suppose that the Hot Dog House can produce hotdogs at a constant cost of $0.25 each. If the Hot Dog House sells hotdogs for $0.50 each, then the Hot Dog House
receives a producer surplus
If a firm produces one more bottle of water,
the firm incurs a marginal cost
A lottery allocates housing to those
who are lucky
If a perfectly competitive firm's marginal revenue is less than its marginal cost, the firm
will decrease its output to increase economic profit
Refer to Figure 6.3.2. The buyers' share of the tax is
$0.50
With higher fuel costs, airlines raise their average fare from $0.50 to $1.50 per passenger kilometre and the number of passenger kilometres decreases from 2.5 million in a day to 1.5 million a day. What is the price elasticity of demand for air travel when the price is $1 per passenger kilometre?
0.5
Fred's income increases from $800 per week to $1,200 per week. As a result, he decides to purchase 40 percent more bubble gum each week. The income elasticity of Fred's demand for bubble gum is
1.0
Figure 5.2.4 shows Leo's demand curve for pizza in the left graph and Kate's demand curve in the right graph. Leo and Kate are the only two consumers in the market. If the market price is $3 a slice, what is the quantity demanded in the market?
20 slices
Refer to Figure 5.3.2. If the level of output is 150 units, the consumer surplus area is
ACH
The marginal cost (MC) curve intersects
ATC and AVC curves at their minimum points
In a perfectly competitive market, which of the following increases the price that the firms charge in the short run?
An increase in market demand
Tonya, who is wealthy, and Jerome, who is not, both buy orange juice and croissants for lunch at the student cafeteria. Their budget lines are drawn with orange juice on the vertical axis and croissants on the horizontal axis. Choose the correct statement.
Both of these budget lines have the same slopes
Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller pay the highest portion of the tax?
C
Social interest theory predicts that the political process will seek to minimize
Deadweight loss
The demand for orange juice is price elastic. A severe frost, which destroys large quantities of oranges,
Decreases the equilibrium quantity and decreases total consumer spending on juice
An effective minimum wage _____ the firm's surplus ______ the workers' surplus
Decreases; decreases
The elasticity of supply for airplane travel one year in advance of the departure date is most likely to be
greater than 1
A consumer's best affordable point occurs
on the budget line
In a perfectly competitive market, each firm maximizes its profit by choosing only the quantity to produce. Regardless of whether the firm makes an economic profit or incurs an economic loss, the short-run equilibrium is efficient. This statement is
The firm is a price taker so it choose only the quantity to produce. The market is efficient because at the short-run equilibrium, marginal social benefit equals marginal social cost
Suppose a minimum wage of $15 an hour is in force, resulting in unemployment of 10 million hours. Then the demand for labour increases such that supply and demand curves intersect at a wage rate of $17 an hour. What will happen to the equilibrium wage rate and employment?
The wage rate is $17 an hour and there will be no unemployment
Which one of the following does not occur in perfect competition?
There are significant restrictions on entry into the market
Which type of cost does not change as the quantity of output produced changes?
Total fixed cost
Marginal utility theory predicts that a rise in the price of a banana results in
a movement upward along the demand curve for bananas
A market demand curve is constructed by
adding the quantities demanded by all individuals at each price
Complete the following sentence. A price floor set below the equilibrium price results in
an equilibrium price
Perfect competition occurs in a market where there are many firms, each selling
an identical product
Mrs. Smith's bakery shop is a firm in monopolistic competition. She is currently selling a box of bread for $16. The firm's marginal cost is $7 and marginal revenue is $7. To maximize economic profit Mrs. Smith
continues to produce the same level of output
Fact 9.3.3 Jim has made his best affordable choice of muffins and coffee. He spends all of his income on 10 muffins at $1 each and 20 cups of coffee at $2 each. Muffins and coffee are ordinary goods. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup. Refer to Fact 9.3.3. When the price of a muffin rises to $1.50 and the price of coffee falls to $1.76 a cup, Jim
does not continue to buy this combination because the marginal rate of substitution has changed
An idea of fairness that emphasizes equality of opportunity is
fair rules
Demand will be more inelastic the
fewer substitutes for the good that are available
When firms in monopolistic competition incur an economic loss,
firms exit the industry, and demand increases for the products of the firms that remain
One big problem with the utilitarian ideal is that it
ignores the costs of making income transfer
A horizontal supply curve
implies an elasticity of supply equal to infinity
The paradox of value
is resolved by an appeal to the difference between marginal utility and total utility
In the long run, all firms in an industry that is monopolistically competitive
make zero economic profit
Given the relationship shown in Figure 4.1.3 between total revenue from the sale of a good and the quantity of the good sold, then
the price elasticity of demand is one
When the 7th worker is hired, output increases from 100 units per week to 110 units per week. When the 8th worker is hired, output increases from 110 units to 118 units. This is an example
diminishing marginal returns
The fact that your fourth slice of pizza does not generate as much satisfaction as your third slice is an example of
diminishing marginal utility
Refer to Table 10.4.1, which represents Swanky's production possibilities as the firm varies the quantities of knitting machines and workers per day. If Swanky increases the number of knitting machines from 2 to 3 and increases the number of workers employed from 2 to 3, the factory experiences
diseconomies of scale
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. On each frisbee, the buyers' share of the tax is
$0.60
Flora's Flowers bought a new van last year for $10,000. It can now sell the van for $8,500. To buy this year's model it would have to pay $11,000. Flora's also had to take out a $9,000 loan to buy the van which had to be paid back in yearly installments of $3,300 per year over three years. What is the implicit rental rate of the first year's use of the van?
$1,800
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. The tax on each frisbee is
$1.00
Refer to Table 11.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The average fixed cost of producing the 4th balloon is
$1.00
Refer to Table 6.3.1. Suppose a sales tax of $2 a unit is imposed on the good described in the table. The buyers' share of the tax
$1.00
Refers to Table 6.3.1. Suppose a sales tax of $2 a unit is imposed on the good described in the table. The sellers' share of the tax is
$1.00
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. Government revenue from the tax is
$4,000
Charlene is willing to pay $5.00 for a sandwich. If the price of a sandwich is ______, Charlene _______.
$4.00; receives a consumer surplus of $1
Refer to Table 11.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is
$4.80
If a 12 percent fail in price results in an 8 percent increase in quantity demanded, the price elasticity of demand equals
0.67
Suppose the quantity of gasoline is measured in litres and the price of gasoline is measured in dollars. The price elasticity of demand is 0.67. If the price of gasoline is then measured in cents rather than in dollars, the price elasticity of demand would be
0.67
Fred's income increases from $840 per week to $1,160 per week. As a result, he decides to purchase 24 percent more bubble gum each week. The income elasticity of Fred's demand for bubble gum is
0.75
In 2003, when music downloading first took off, Universal Music slashed the average price of a CD from $21 to $15. The company expected the price cut to boost the quantity of CDs sold by 30 percent, other things remaining the same. What was Universal Music's estimate of the price elasticity of demand for CDs?
0.9
If the supply curve passes through the origin, then the price elasticity of supply is
1
Sally's Ski Shoppe maximizes total revenue when the price elasticity of demand for skis is
1
Refer to Table 10.2.1 which gives Tania's Teapots' total product schedule. Marginal product of labour reaches its maximum when the number of workers increases from
1 to 2
Refer to Figure 6.1.1. If the demand for rental housing increases and the demand curve shifts rightward from D0 to D1, and the market is unregulated, the number of rooms rented is
1,750 and the rent rises to $175 a month
Refer to Table 4.1.4. The demand for hotel room is ______ because ________
Unit elastic; a price cut leaves total revenue unchanged. Total revenue never reaches a maximum
Which one of the following is not an assumption of marginal utility theory?
Utility can be measured
In the price range below minimum average variable cost, a perfectly competitive firm's supply curve is
Vertical at zero output
Refer to Figure 11.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,
firms that remain in the market will expand production
Monopolistically competitive firms engaging in advertising will definitely achieve which of the following?
an increase in total cost
Firms in monopolistic competition constantly develop new products in an effort to _____
increase the demand for their product
According to the principle of diminishing marginal utility, as consumption of a good increases, total utility
increases at a decreasing rate
The price of gasoline rises by 25 percent and remains fixed at the new higher level. Choose the correct statement.
initially after the price change, the demand for gasoline will be less elastic than it will be a few years after the price change
Average variable cost is at a minimum at the same output at which
average product is at a minimum
For a regulated natural monopoly, an average cost pricing rule sets price equal to
average total cost
If a large percentage drop in the price level results in a small percentage increase in the quantity demanded,
demand is inelastic
Figure 4.1.1 illustrates a linear demand curve. Comparing the price elasticity when price is $3 with the price elasticity when price is $8, we can conclude that
demand is more elastic when price is $8
Ron starts out in consumer equilibrium, consuming two goods, X and Y. Ron's income rises. At this point, we can definitely conclude that
none of the above
The budget line
shows the limits to a household's consumption choices
Karen consumes chocolate and candles. When Karen is at her best affordable point, she is
on her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles
If price falls below minimum average variable cost, the best a firm can do is
stop production and incur a loss equal to total fixed cost
When the price of a good changes, the change in consumption that leaves the consumer indifferent between the two choices is called the
substitution effect
Only 1 percent of the world supply of water is fit for human consumption. Some places have more water than they can use; some could use much more than they have. The 1 percent available would be sufficient if only it were in the right place. Refer to Fact 5.3.1. If there was a global market in water like there is in oil,
supply and demand would determine the price of water and those who are willing to pay the equilibrium price would get the water
If firms in a perfectly competitive market are incurring an economic loss, some firms will exist. This exit shifts the market
supply curve leftward, and the market price rises
If a 10 percent increase in price increases the quantity supplied by 9 percent,
supply is inelastic
If a large percentage falls in the price of good A results in a small percentage decrease in the quantity supplied, then
supply is inelastic
Refer to Figure 11.4.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive. In the long run, market
supply will increase
Plant refers to those factors of production
that are fixed in the short run
The buyer pays most of a tax if demand is relatively inelastic because
the buyer cannot easily substitute to other markets
An example of a perfectly competitive industry is the
wheat industry
Fact 9.3.1. Marc has an income of $20 and spends it on two goods, root beer (measured on the vertical axis) and chips (measured on the horizontal axis). The price of root beer is $1 a can. The price of chips is $0.50 a bag. Initially, Marc chooses to consume 10 cans of root beer and 20 bags of chips. Then the price of root beer rises to $1.50 per can and the price of chips falls to $0.25 a bag Refer to Fact 9.3.1. When the price of a bag of chips falls, Marc
will consume less beer, more chips and be better off
If the price of an inferior good rises, the income effect
will increase consumption of the good and the substitution effect will decrease consumption
Long-run supply is
more elastic than both momentary and short-run supply
Short-run supply is
more elastic than momentary supply but less elastic than long-run supply
If the price elasticity of demand for peaches is 1.8 and the price of elasticity of demand for apples is 1.6, then consumers are
more sensitive to a change in the price of peaches than they are to a change in the price of apples
The output of a (not perfect) price-discriminating monopoly
more than a single-price monopoly but less than a perfectly competitive industry
A single price monopoly is a firm that ______ each unit of its output ______. A ______ monopoly sells different units of a good or service for different prices.
must sell; for the same price to all its customers; price-discriminating
If good A is a complement of good B, then the cross elasticity of demand for good B with respect to the price of good A is
negative
When the quantity of coal is measured in kilograms instead of pounds, the demand for coal becomes
neither more nor less elastic
Firms in monopolistic competition have rivals that
set their price according to the demand they face
A price-taking firm faces a
Perfectly elastic demand
The price elasticity of demand for purses
has no units
As more of a good is consumed, its
marginal utility decreases
Fact 13.3.3 Suppose that Root's marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets, and its profit-maximizing number of jackets sold jumps to 70 a day. Refer to Fact 13.3.3. In the long run, Roots' economic profit is
zero
Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 12.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If Prime Pharmaceuticals can perfectly price discriminate, then consumer surplus is
zero
When a good has a vertical demand curve, the price elasticity of demand for the good is
zero
When demand is perfectly elastic, consumer surplus is
zero
The demand for a good is price inelastic if
a rise in price increases total revenue
A preference map is
a series of indifference curve
Supply is elastic if
a small percentage change in price results in a large percentage change in quantity supplied.
Fact 12.5.1 Cascade Springs Inc. is a natural monopoly that bottles water from a spring high in the Rocky Mountains. The total fixed cost it incurs is $80,000, and its marginal cost is 10 cents a bottle. The demand curve for Cascade Springs bottled water is shown in the following figure:
$0.20
The marginal cost of producing one more hot dog is $1.00. The price of a hot dog is $1.50. The producer surplus from selling one more hotdog is
$0.50
Which of the following quotes best illustrates the idea of marginal product?
"If I add an 11th worker, I can produce 1 extra table a day"
Which of the following quotes best illustrates the idea of total product?
"If I have 10 workers on my assembly line, I can produce 13 tables a day"
Which of the following quotes best illustrates the idea of fixed cost?
"My primary source of overheard cost is the cost of running of head office"
The marginal cost of producing an additional basket of tomatoes is $5.00. The consumer is willing to pay a maximum of $9.00 for an additional basket. A farmer sells a basket of tomatoes for $6.00 each. The farmer receives a producer surplus from selling an additional basket of tomatoes equal to
$1.00
Refer to Figure 6.3.2. The seller's share of the tax is
$1.50
Refer to Table 11.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm. If Chip shuts down in the short run, his total cost is
$10 an hour
Refer to Table 11.4.1. The top table shows the market demand schedule for paper. The market is perfectly competitive and there is 1,000 firms that produce paper. Each firm has the costs shown in the bottom table when it uses its least-cost plant. The market price in the long run is ______ a box and the equilibrium quantity produced in the long run is ______ boxes a week
$10.00; 300,000
Refer to Figure 6.3.2. The deadweight loss from the sales tax is
$100
A firm's total fixed cost is $100. If total cost is $200 for one unit of output and $310 for two units, what is the marginal cost of the second unit?
$110
Consider the demand curve in Figure 5.2.1. If the price of the good is $4 a unit, what is the consumer surplus?
$12.50
Figure 4.1.4 shows the demand curve for pizza. At what price is the price elasticity of demand equal to 1?
$12.50
Refer to Table 11.2.5. Archibald's Tattoos is a perfectly competitive firm. The firm's total costs are shown in the table. The price at Archibald's shut-down point is
$12.50
Refer to Table 11.1.1 which gives the demand schedule for a perfectly competitive firm. If the firm sells 6 units of output, marginal revenue is
$15
Refer to Figure 5.3.1. At the efficient quantity, the price is
$15 a unit
Refer to Table 11.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal cost of increasing production from 4 units to 5 units is
$16
Table 12.4.1 shows the demand schedule faced by a perfect price-discriminating monopoly. If 3 units are sold, total revenue is
$18.00
A new car has a sticker price of $24,000. Fred decides that he will pay no more than $23,000 for this car. He bought the car for $21,000. Fred obtains a consumer surplus of
$2,000
Refer to Figure 6.3.2. The amount of the tax per unit is
$2.00
Figure 5.2.6 shows the supply curve of DVD rentals for Morgan's Marvelous Movies. If the price of a rental is $5, what is Morgan's producer surplus?
$2.25
Refer to Figure 6.1.2. What would the maximum black market price of the good if the price ceiling is set at $10 a unit?
$20
Refer to Figure 6.1.1. Suppose the demand for rental housing is shown by demand curve D1, and there is a rent ceiling of $150 per room. What is the highest rent that would be charged in a black market?
$200 a month
Refer to Figure 12.2.4. Grannie's is the only cake bakery on Coastal Island. The graph shows Grannie's demand curve, marginal revenue curve, and marginal cost curve. Grannie's profit-maximizing price is ______ a cake and its profit-maximizing output is _____ cakes a week
$28; 12
Consider Figure 5.2.1. When the price is $4 a unit, what is the consumer surplus from the second unit of the good?
$3
Refer to Figure 12.2.3. Assume this firm is a single-price monopoly. What is the profit maximizing price to charge for the tickets?
$3.50
Table 5.2.4 shows the demand schedules for pizza for Abby and Barry who are the only buyers in the market. What is the marginal social benefit from the 45th slice of pizza?
$3.50
Refer to Table 11.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal revenue received from the sale of the 4th unit of output is
$30
Refer to Figure 6.3.2. Government revenue from the tax is
$400
Consider the single-price monopoly illustrated in Figure 12.2.2. What is this monopoly's maximum economic profit?
$6
Refer to Figure 6.2.1. Suppose a $10 per hour minimum wage is in force. What is the lowest wage per hour an unemployed person would be willing to accept?
$6
Prime Pharmaceuticals has developed a new asthma inhaler, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 12.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If Prime Pharmaceuticals can perfectly discriminate, producer surplus is
$64 million
Refer to Figure 13.2.3. Assume this firm faces demand curve D2. To maximize economic profit, this firm in monopolistic competition will charge a price of ____ and produce an output of ______ units.
$70; 100
Consider Figure 12.3.2. The light grey area shows consumer surplus, and the dark grey area shows producer surplus. Which graph illustrates a single-price monopoly?
(b)
Refer to Table 11.1.1, which gives the demand schedule for a perfectly competitive firm. If the firm sells 5 units of output, total revenue is
$75
Refer to Figure 6.1.1. Suppose the demand for rental housing is shown by demand curve D1, and there is a rent ceiling of $150 per form. What is the potential loss from housing search?
$75,000
Consider the demand curve in Figure 5.2.1. What is the value of the first unit of the good?
$8
Refer to Figure 6.2.1. What is the equilibrium wage per hour in an unregulated market?
$8
Consider the demand curve in Figure 5.2.2. What is the consumer surplus when the price is $4 a unit?
$98
A technological advance will shift (1) TP, AP, and MP curves up (2) TP, AP, and MP down (3) TC, ATC, and MC curves (4) TC, ATC, and MC curves down
(1) and (4)
The burden of tax on sellers is greater the more (1) elastic is demand (2) inelastic is demand (3) elastic is supply (4) inelastic is supply
(1) and (4)
The burden of the tax on buyers is greater the more (1) elastic is demand (2) inelastic is demand (3) elastic is supply (4) inelastic is supply
(2) and (3)
Which of the following are correct? According to the law of diminishing returns, (1) marginal product eventually rises (2) marginal product eventually falls (3) marginal cost eventually rises (4) marginal cost eventually falls
(2) and (3)
Consider Figure 12.3.2. The light grey area shows consumer surplus, and the dark grey area shows producer surplus. Which graph illustrates a perfectly competitive market?
(a)
Refer to Figure 9.3.4. Which graphs show the case where good Y is an inferior good?
(a) and (b)
Refer to Table 11.2.5. Archibald's Tattoos is a perfectly competitive firm. The firm's total costs are shown in the table. If the price of a tattoo is $12.50, Archibald's economic profit is
-$10.00 an hour
Suppose a fall from $110 to $90 in the price of playing golf on a public golf course increases the quantity of golf balls demanded from 9,950 units to 10,050 units. The cross elasticity of demand is playing golf with respect to the price of golf balls is
-0.05
Refer to Table 4.2.2. The income elasticity of demand for Jolt is
-1.5
Consider the information in Table 4.2.1. The income elasticity of demand is
-2.5
If Mr. Brown's income increases by 12 percent and his quantity demanded of music downloads increases by 4 percent, Mr. Brown's income elasticity of demand for music downloads is
0.33
Suppose that a 20 percent increase in income increases the quantity of good A demanded from 19,200 to 20,800 units. The income elasticity of demand for good A is
0.4
When price rises from $1.50 to $2.50 a unit, the quantity supplied increases from 9,000 to 11,000 units. What is the elasticity of supply when the price is $2 a unit?
0.4
If a 10 percent increase in income results in a 5 percent increase in quantity demanded, what is the income elasticity of demand?
0.5
If the quantity of chicken demanded increases by 1.25 percent when the price of beef increases by 2.5 percent, the cross elasticity of demand between chicken and beef is
0.5
When the price of gas is $1.00 a litre, the quantity demanded is 1,750 litres. When the price of gas is $2.00 a litre, the quantity demanded is 1,250 litres. Calculate the price elasticity of demand when the price is $1.50 a litre.
0.5
If the demand for salmon in Cape Breton, Nova Scotia, is unit elastic, the price elasticity of demand for salmon equals
1.0
When the price of good A rises from $100 to $120 a unit, the quantity supplied increases from 10,000 to 12,000 units. The elasticity of supply at a price of $110 a unit is
1.0
Sara's income is $12 a week. The price of popcorn is $3 a bag, and the price of a smoothie is $3. The opportunity cost of a smoothie is
1.0 bag of popcorn
Refer to Table 4.2.2. The cross elasticity of demand for Jolt with respect to the price of Coke is
1.5
David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is the relative price of a bus ticket in terms of movie tickets?
1/3 movie ticket
Sarah can consume either pizzas or hamburgers. The price of a hamburger is $1 and the price of a pizza is $5. Let MUh be the marginal utility of hamburgers and MUp be the marginal utility of pizzas. In consumer equilibrium, what must the ratio MUh/MUp equal?
1/5
A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is $2,400 a day. Its average variable cost and marginal cost is a constant $20 per book. If the firm spends $1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the publishers advertises, its profit maximizing level of output is
120 books a day
Refer to Figure 13.2.3. Assume this firm faces demand curve D2. When the firm produces the efficient quantity, it produces
140 units
Junkfood Jill spends all of her income on jellybeans and Jolt cola. Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2. Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?
2 bags of jellybeans and 8 bottles of Jolt
Refer to Table 11.2.2, which gives the total cost schedule for Chip's Pizza Palace, a perfectly competitive firm. If the price of a pizza is $7, what is Chip's profit-maximizing output per hour?
3 pizzas
If a market is shared equally by four firms, the Herfindahl-Hirschman Index is
2,500
Refer to Table 4.1.1. The price elasticity of demand when the price is $6 is
2.0
When the price of a DVD is $9, the quantity supplied 4,000. When the price of a DVD is $11, the quantity supplied is 6,000. What is the elasticity of supply when the price of a DVD is $10?
2.0
When the price of a box of cereal is $5, the quantity demanded is 800 boxes. When the price of a box of cereal is $7, the quantity demanded is 400 boxes. Calculate the price elasticity of demand when the price of a box of cereal is $6.
2.0
Figure 5.2.5 shows the supply curve for Pizza House's pizzas in the left graph and the supply curve for Pizza Club's pizzas in the right graph. If the price of a pizza is $20, what is the quantity supplied by the market if Pizza House and Pizza Club are the only firms?
25
A good has an income elasticity of +0.5. An increase in income from $15,000 to $25,000 will lead to a
25 percent increase in the quantity demanded of the good
Refer to Table 8.1.1. The value of C is
3
Refer to Figure 11.3.5, which shows the cost curves and the marginal revenue curve for a perfectly competitive firm. To maximize profit, the firms produces _____ units of output and the price is ______ a unit.
30; $40
A 3 percent rise in the price of orange juice decreases the quantity of orange juice demanded by 9 percent and increases the quantity of apple juice demanded by 15 percent. The price elasticity of demand for orange juice is _____. The cross elasticity of demand for apple juice with respect to the price of orange juice is______
3; 5
Refer to Table 8.2.3. If income is $13, then utility is maximized when consumption is
4 units of X and 5 units of Y
Figure 4.1.4 shows the demand curve for pizza. What is the price elasticity of demand when the price of a pizza is $20?
4.0
If the cross elasticity of demand between beef and bison is 1.5, then a 3 percent increase in the price of beef will lead to a _____ in the quantity of bison demanded.
4.5 percent increase
Consider the budget line and indifference curve in Figure 9.3.1. At the best affordable point, the marginal rate of substitution is
4/3
Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. Suppose the Genoa City Council sets a minimum wage of $16 per hour. Teenage unemployment is ______ hours a week
400
Refer to Table 10.2.4. The table gives the total product schedule of woks who harvest corn. Diminishing marginal returns begin when the _____ is hired
4th
Refer to Table 12.4.1. If a perfect price-discriminating monopoly faces the demand schedule shown in Table 12.4.1 and if marginal cost is constant at $3, output is
5 units
Which one of the following situations gives a price elasticity of demand of 5.0? A 10 percent rise in price is accompanied by a
50 percent decrease in quantity demanded
If the total product of three workers is 214 units and the total product of four workers is 221 units, then the marginal product of the fourth worker is
7 units
Fact 12.1.1 The following statements gives some information about seven markets 1. Coca-Cola cuts its price below that of Pepsi-Cola in an attempt to increase its market share 2. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes 3. A barrier to entry exits, but the good has some close substitutes. 4. A firm offers discounts to students and seniors 5. A firm can sell any quantity it chooses at the going price 6. The government issues Nike an exclusive license to produce golf balls 7. A firm experiences economies of scale even when it produces the quantity that meets the entire market demand. Refer to Fact 12.1.1. The firm described is statement _____ is a natural monopoly. The firm described in statement ____ is a legal monopoly.
7; 6
Refer to Table 13.1.1. The four-firm concentration ratio for the pizza sellers is
80 percent
Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. Suppose a new fast food restaurant opens and increases the quantity demanded of teenage labour by 400 hours per week at each wage rate. If the teenage labour market is unregulated, there is an increase in teenage employment to
800 hours per week and a wage of $16 per hour
If an increase in the supply of good A increases the demand for good B, then
A and B are complements
If the cross elasticity of demand between goods A and B is negative, then
A and B are complements
If the cross elasticity of demand between goods A and B is positive, then
A and B are substitutes
If a rise in the price of good B increases the demand for good A, then
A and B are substitutes and the cross elasticity of demand for good A with respect to the price of good B is positive
Refer to Figure 12.4.2. Assume this monopoly practices perfect price discrimination. Choose the correct statement.
A different price can be charged to each buyer
Which area in Figure 12.4.1 indicates the deadweight loss from a perfect price-discriminating monopoly?
A perfect price-discriminating monopoly does not have a deadweight loss
Consider Figure 12.3.3. If the market is perfectly competitive, which area indicates the deadweight loss?
A perfectly competitive market does not have a deadweight loss.
Normal profit is the ______. Normal profit _____ part of a firm's opportunity cost.
A return that an entrepreneur can except to receive on average; is
Consider Figure 12.3.3. Which area indicates the deadweight loss from a single-price monopoly?
ACD
Consider the natural monopoly depicted in Figure 12.3.4. What area in the graph represents the deadweight loss arising from an unregulated monopoly?
ACF
For a single-price monopoly, the demand curve is
Above the marginal revenue curve
Which of the following barriers to rational choices are studied by behavioral economics?
All of the above
Which one of the following barriers to rational choices are studied by behavioral economics? - bounded rationality - bounded self-interest - the endowment effect - bounded willpower - all of the above
All of the above
Refer to Figure 11.2.1, which shows a perfectly competitive firm's total revenue and total cost curves. Which one of the following statements is false?
At an output of Q2 units a day, the firm incurs an economic loss
A perfectly competitive firm's supply curve is the same as its marginal cost curve at all prices above minimum
Average variable cost
Refer to Figure 5.2.3. If the price falls from P1 to P0, what area on the graph indicates the change in consumer surplus?
B plus C
John and Sally have identical preferences except Sally's utility units are exactly 10 times that of John's. Both have the same income and face the same prices. Choose the best response.
Both will consume the same amount of all goods
Which of the indifference curves in Figure 9.2.1 illustrates perfect complements?
C
Canada Post has a monopoly on residental mail delivery. Pfizer Inc. makes Lipitor, a prescription drug that lower cholesterol. Rogers Communications is the sole provider of cable television service in some parts of Ontario. The monopolies which profit from price discrimination are
Canada Post, Pfizer, and Rogers Communication
An oil painting has an opportunity cost of $1,000. The painting is purchased for $1,500. How much consumer surplus does the buyer obtain?
Cannot be determined from the information given.
Refer to figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the buyer pay the highest portion of the tax?
D
Refer to Figure 5.3.2. If the level of output is 200 units, the deadweight loss is area
DCE
Consider the natural monopoly depicted in Figure 12.5.2. What are in the graph represents the deadweight loss arising from an average cost pricing rule?
DEF
Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. There is a minimum wage set at $16 per hour. Suppose a new fast food restaurant opens and increases the quantity demanded of teenage labour by 400 hours per week at each wage rate. The result is
Elimination of teenage unemployment, but the wage rate remains at $16 per hour
Which on the following characteristics is not shared by single-price monopoly and monopolistic competition?
Firms make an economic profit in the long runn
At the Stratford Festival Theatre no reservations are accepted on the day of the performance; at matinees, reservations are accepted; at opening night performances reservations are essential. On the day of the performance, Stratford Festival allocates seats by ______; at matinees, it allocates seats by ________; at opening night performances, it allocates seats by _______.
First come, first served; first-come, first-served; first-come, first-served
The market for strawberries is perfectly competitive. Joe and Haley each purchase 3 boxes of strawberries. Joe's demand is much more elastic than Haley's. Which statement is true?
Haley's consumer surplus exceeds Joe's.
Refer to Table 6.3.2. You are in the business of producing and selling hamburgers. French fries, pizza, and ice cream. The mayor of your city plans to impose a sales tax on one of these products. Based on the elasticities in the table, on which of these goods would your customers prefer to be taxed?
Hamburgers
Geneva is not at her consumer equilibrium for movies and music downloads. Why?
Her marginal utility per dollar from the last movie she attended does not equal her marginal utility per dollar from her last music download
Firms in a perfectly competitive industry are in long-equilibrium. A new technology becomes available that lowers production costs. CHoose the statement that is incorrect.
In the long run, price is equal to average variable cost
Choose the correct statement.
In the short run, the firm's plant is fixed
Refer to Table 11.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. If the firm produces 2 units of output, it
Incurs an economic loss of $9
For which one of the following is demand likely to be most price elastic?
Insulin for a diabetic
If a perfectly competitive firm is producing an output at which price is equal to minimum average total cost, the firm
Is breaking even
Jay has an income of $10 to buy peanuts and popcorn. The price of peanuts is $1 a bag and the price of popcorn is $2 a bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice?
It is not the best affordable choice. He should consume more peanuts, more popcorn, or more of both
Which of the following statements is true?
It is possible to derive the law of demand - that a higher price decreases the quantity demanded - using marginal utility theory
The two big approaches to thinking about fairness are
It's not fair if the result isn't fair and it's not fair if the rules aren't fair
A perfectly competitive market is in short-run equilibrium with price below average total cost. Which one of the following is not a prediction of the long-run consequences of such a situation?
Market output will increase
Martha and Sarah have the same preferences, face the same prices, and have the same income. Sarah's utility is measured in units while Martha's is measured in units squared. Select the best response.
Martha and Sarah will choose to consume the same set of goods
Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid
Mostly by buyers
Fact 11.4.1 Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50 Refer to Fact 11.4.1. Suppose the price of fiddleheads is expected to stay at $10 per bag for the foreseeable future, and Franklin's production and cost figures are expected to stay the same. His total fixed cost consists entirely of rent on land, and his five-year lease on the land runs out at the end of the month. Should Franklin renew the lease?
No, because total revenue must cover all costs for factors of production to remain in fiddlehead farming in the long run
Refer to Figure 5.2.3. If the price is P0, then the value of the last unit consumed is
P0
Consider the natural monopoly depicted in Figure 12.5.2. If a regulatory agency sets a price just sufficient for the firm to make zero economic profit, and if the firm inflates its costs as much as possible, the regulated price will be
P3
Refer to Figure 13.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. What price does the firm charge per unit?
P4
Consider the natural monopoly depicted in Figure 12.5.2. If a regulatory agency sets a price just sufficient for the firm to make zero economic, what output will it produce?
Q2
Refer to Figure 13.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. What is the firm's level of output?
Q2
In a perfectly competitive market, the market price is $8. An individual firm is producing the output at which MC = $8. AVC at that output is $10. What should the firm do to maximize its economic profit in the short run?
Shut down
Refer to Figure 11.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market
Supply will decrease
Bill and Ted each consume 15 chocolate bars at the current price. If Bill's demand for chocolate bars is more elastic than Ted's demand, then
Ted's consumer surplus is greater than Bill's
In a perfectly competitive market, the short-run supply curve is
The horizontal sum of the supply curves of all the individual firms
Which one of the following is false?
The marginal cost curve intersects the average variable cost curve and the average total cost curve at their maximum points
Refer to Table 6.1.1, which gives the demand schedule and the supply schedule for an apartment market in Anytown, Alberta. If a rent ceiling of $300 is imposed in the apartment market, then
The maximum amount someone is willing to pay for an apartment in the black market is $500.
Choose the correct statement about firms in monopolistic competition.
The price is always greater than the marginal cost
The paradox of value asks why
The price of water is low and the price of a diamond is high, but water is essential to life while diamonds are not
When speaking of the price of the good measured on the horizontal axis relative to the price of the good measured on the vertical axis, which statement is true?
The steeper the slope of the budget line, the greater the relative price of the good measured on the horizontal axis
A technological advance occurs in a perfectly competitive market. Which of the following statements is incorrect?
The technological advance brings permanent gains to producers and temporary gains to consumers
Refer to Figure 10.3.1. Which one of the following statements is false?
The vertical gap between curves B and C is equal to total variable cost
Consider a monopolistcally competitive industry in long-run equilibrium. Suppose there is a large increase in wages that raises the costs for all firms. What happens within each firm in the short run?
They will decrease production and produce the quantity at which marginal revenue equals the new (higher) marginal cost
The demand for good A is unit elastic if
a 5 percent rise in the price of A results in a 5 percent decrease in the quantity of A demanded
Which of the following will have the most elastic demand?
a banana split with Nestle strawberry and chocolate ice cream
An illegal market in which the equilibrium price exceeds the price ceiling is
a black market
Which one of the following is likely to be the outcome of a rent ceiling imposed below the equilibrium rent?
a black market for rent-controlled housing
Demand is unit elastic when
a change in price does not change total revenue
An indifference curve is
a curve that shows combinations of goods among which a consumer is indifferent
Refer to Figure 5.3.1. If the quantity produced is 200
a deadweight loss exists
The government sets a price floor for corn, which is above the equilibrium price of corn. As a result
a deadweight loss is created
The demand for a good is price elastic if
a rise in price decreases total revenue
The cross elasticity of demand for good A with respect to the price of good B is -1.5. A 10 percent rise in the price of good B will lead to
a decrease of 15 percent in the quantity of A demanded
In a perfectly competitive market, the market demand curve is illustrated by
a downward-sloping curve
Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line. As Leah moves towards her best affordable point, she will move to
a higher indifference curve
A four-firm concentration ratio that exceeds 60 percent indicates
a market that is highly concentrated and dominated by a few firms
What is a distinguishing characteristic of an inferior good?
a negative income effect
If the income elasticity of demand for chocolate chip cookies is 1.5, then chocolate chip cookies are
a normal good and income elastic
If the demand curve for a good is a horizontal line, then the good has
a perfectly elastic demand
All normal goods have
a positive income elasticity of demand
Economists tend to
agree about efficiency but disagree about fairness
When a perfectly competitive market is in long-run equilibrium,
all firms make zero economic profits
An efficient allocation is achieved when
all of the above
Firms will stop exiting a market only when
all remaining firms are making zero economic profit
Demand is perfectly inelastic when
an increase in supply does not change the equilibrium quantity
The marginal revenue curve for a single-price monopoly
below its demand curve
A firm shuts down if price is
below minimum average variable cost
Refer to Figure 13.2.5. The figure shows the situation facing Smart Digit, Inc., a firm monopolistic competition that produces calculators. What is the firm's economic profit per day?
between $1 and $700
When 2,000 hamburgers a day are produced, the marginal social benefit from the 2000th hamburger is $1.50 and its marginal social cost is $1.00. And when 7,500 hamburgers a day are produced, the marginal social benefit from the 7,500th hamburger is $1.00 and its marginal social cost is $1.50. The efficient quantity of hamburgers is _____ a day.
between 2,000 and 7,500
The elasticity of supply for airplane travel one day in advance of the departure date is most likely to be
between zero and 1
The price elasticity of demand for airplane travel one week in advance of the departure is most likely to be
between zero and 1
A behavioural economist will explain Tom's donation to charity by saying that Tom is displaying
bounded self-interest
Marginal utility theory predicts that when a consumer's income decreases, the consumer
buys fewer normal goods
Harold can consume either pens or milkshakes. The price of a pen is $1, and the price of a milkshake is $1. Harold knows that when his income is spent, his marginal utility from pens will be 10 and his marginal utility from milkshakes will be 8. Harold is better off
by consuming more pens and fewer milkshakes
Fact 13.3.2 Suppose that Tommy Hilfiger's marginal cost of a jacket is $100 (a constant marginal cost) and at one of the firm's shops, total fixed cost is $2,000 a day. The profit-maximizing number of jackets sold in this shop is 20 a day. Then the shops nearby start to advertise their jackets. The Tommy Hilfiger shop now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day. Refer to Fact 13.3.2. Tommy Hilfiger uses advertising as a signal because ___
by spending large sums of advertising Tommy Hilfiger is signalling that its jackets are high quality
The price of an apple falls by 5 percent and quantity of apples demanded increases by 6 percent. The demand for apples is
elastic
The average product of labour is
calculated as total product divided by the total quantity of labour employed
A price taker is a firm that
cannot influence the market price
When the iPhone 10 was introduced, the demand for iPhone 10 protective cases increased. This information tells us that the iPhone 10 and iPhone 10 protective cases are
complements and their indifference curves are close to L-shaped
A 3 cents per-unit tax on bread leads to no change in the quantity bought and sold. The tax is paid
completely by either the sellers or the buyers; we cannot tell without more information
If the supply of a good is perfectly elastic, then a tax on the good will be paid
completely by the buyers
If the demand for a good is perfectly elastic, then a tax on the good will be paid:
completely by the sellers
The relative price of beer to bacon is 2:1. If Bob's current consumption is at a level where MUbeer/MU bacon is 1:2, then to maximize total utility Bob must
consume less beer and more bacon
The amount of time elapsed since a price change influences the price elasticity of demand because as more time passes
consumers find more substitutes and the price elasticity of demand for the original good increases
When Kathryn is at her consumer equilibrium, she is
consuming a combination of goods such that the marginal utility from good X divided by the marginal utility from the good Y equals the price of good X divided by the price of good Y
A negative value for
cross elasticity of demand implies that the goods are complements
Fact 13.3.1 Suppose that at one of the Talbot shops, marginal cost of a coat is constant at $150, and total fixed cost is $3000 a day. The shop maximizes its profit by selling 15 coats a day at $500 per coat. Then the shops nearby increase their advertising. The Talbots shop responds by spending $1500 a day more on advertising its coats. As a result, its profit-maximizing number of coats sold increases to 25 a day at $400 per coat. Refer to Fact 13.3.1. As a result of increased advertising, Talbot's markup
decreases by $100
Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, his quantity of ice cream demanded
decreases by 20 percent
When the price elasticity of demand is 2 and the price increases by 10 percent, the quantity demanded
decreases by 20 percent
An effective rent ceiling
decreases producer surplus
An efficient rent ceiling
decreases producer surplus
Other things remaining the same, marginal utility theory implies that a rise in the price of a good
decreases the consumer surplus
Refer to Figure 13.2.3. Which demand curve does this monopolistically competitive firm face in the long run?
demand curve D2
Demand for a good is unit elastic. When price rises by 5 percent, total revenue
does not change
Fact 11.2.1 General Motors will temporarily idle five U.S. assembly plants that build sedans and coupes, such as the Chevrolet Cruze, Cadillac CTS, and Chevy Camaro, as American motorists by the millions shift from passenger cars to utility vehicles and other light trucks. Refer to Fact 11.2.1. The shutdown decision ______ total fixed cost and ______ total variable cost
does not change; decreases
The price elasticity of demand for oranges _____ if the quantity is measured in pounds instead of kilograms and ______ if the price is measured in dollars instead of cents.
does not change; does not change
Assume that the leather market is a perfectly competitive market. The market demand curve for leather is ______ and each individual leather producer's demand curve is ______.
downward sloping; horizontal
Which one of the following is included in the implicit rental rate of capital?
economic depreciation
Long-run equilibrium occurs in a competitive market when
economic profit and economic loss have been eliminated
Refer to Figure 10.4.3 which shows a firm's long-run average total cost curve. When production increases from Q1 to Q2 sweaters per day, the firm experiences
economies of scale
A cut in the price increases total revenue. Demand is
elastic
As a result of a poor growing season, the supply of apples decreases and total revenue falls. The demand for apples is
elastic
Refer to Figure 6.3.1 showing the market for frisbess before and after a tax is imposed. At a quantity of 4,500 frisbees, supply is
elastic
When the price of peanut butter rises by 4 percent, total revenue decreases by 8 percent. The demand for peanut butter is
elastic
Suppose that the price elasticity of demand for bottled water in Sackville, New Brunswick is 1.5, and the price elasticity of demand for bottled water in Price Albert, Saskatchewan is 0.8. The demand for bottled water is Sackville is ______ and demand for bottled water in Price Albert is ______
elastic; inelastic
If the Canucks lower thicket prices and total ticket revenue does not change, then the price elasticity of demand for tickets is
equal to 1
When the price elasticity of demand is _____, demand for the good is unit elastic.
equal to 1
The slope of a perfectly competitive firm's demand curve is
equal to zero
Refer to Table 4.1.2. The price elasticity of demand for Jolt
equals 3.0
A price ceiling set below the equilibrium price will result in
excess demand
Suppose that Root's marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets, and its profit-maximizing number of jackets sold jumps to 70 a day Refer to Fact 13.3.3. If the nearby firms' advertising decreases the demand for Roots' jackets and makes the demand more elastic, the price of a Roots' jacket ______. If Roots' advertising increases the demand for Roots' jackets and makes the demand less elastic, the price of a Roots' jacket _____.
falls; rises
All of the following statements are true except
firms get the most vale out of their resources at every point along a consumer's demand curve
Refer to Figure 11.4.2, which shows the cost curves and marginal revenuee curve of a firm in a perfectly competitive market. In the long run,
firms that remain in the market will decrease production
To prevent monopoly from arising, there must be
freedom of entry into the market
Consider a downward-sloping curve. Consumer surplus is
greater on the first unit sold than on the last unit sold
Luxury goods tend to have income elasticities of demand that are
greater than 1
The price elasticity of demand for airplane travel one year in advance of the departure date is most likely to be
greater than 1
A decrease in tuition fees decreases the university's total revenue if the price elasticity of demand for university education is
greater than zero but less than 1
Donna owns the only dog grooming salon on Lonely Island. If Donna can price discriminate between dog owners who are seniors and those who are not, her economic profit will be ______ than if she does not price discriminate and the number of dog groomings will be ______ if she does not price discriminate.
greater; more than
When a given income and prices of goods, Marcus is in consumer equilibrium when
he maximizes total utility
If Katie purchases two slices of pizza and six breadsticks to maximize her total utility, then
her marginal utility from the second slice of pizza divided by the price of a slice of pizza is equal to her marginal utility from the sixth breadstick divided by the price of a breadstick
A vertical supply curve
implies an elasticity of supply equals to zero
Refer to Figure 11.4.4, which shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price is $16 per unit,
in the long run, the price will fall as new firms enter the market
Fred's income increases from $1,950 per week to $2,050 per week. As a result, he decides to increase the number of movies he attends each month by 10 percent. Fred's demand for movies is
income elastic
If the quantity of carrots demanded increases by a large percentage when income increases by a small amount, the demand for carrots is
income elastic
A perfectly competitive firm is producing at the point at which marginal cost equals marginal revenue. If the firm increases production, total revenue _____ and economic profit _____.
increases; decreases
Refer to Figure 11.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. In the short run, the firm will
incur an economic loss if price is greater than average variable cost
Refer to Figure 11.3.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. The firm is
incurring an economic loss
Refer to Figure 11.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. Firms are incurring
incurring an economic loss, and some firms leave the market. Market supply decreases
Refer to Figure 13.2.3. Assume this firm faces demand curve D2. If the firm produces the efficient quantity, it
incurs an economic loss
Under a marginal cost pricing rule, a regulated natural monopoly
incurs an economic loss with no deadweight loss
If two goods are perfect substitutes, then their
indifference curves are negatively-sloped straight lines
A decrease in demand brings all of the following except
inefficiency
If Saudi Arabia argues that an increase in the supply of will decrease total revenue, then Saudi Arabia believes the demand for oil is
inelastic
An external cost
is a cost that affects someone other than the seller
When the price of a good increases by 6 percent, the quantity demanded decreases by 3 percent. Most likely, this good ______ and ______.
is a necessity; has poor substitutes
Suppose a rise of 8 percent in the price of bison meat in Saskatchewan reduces the consumption of bison meat by 24 percent. Following the price
less of their income on bison
Refer to Figure 11.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. In the short run, if the market price of the good is $10, the firm produces _____ units of output and ______.
less than 10; incurs an economic loss of less than $20
Demand will be more elastic the
longer the passage of time after a price increase
Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue does not price discriminate. For Sue's Surfboards, the change in the total revenue from each additional surfboard rented is her
marginal revenue, which is less than the rental price of a surfboard
In a competitive market, the market demand curve measures the _____ if ______ exist. In a competitive market, the market supply curve measures the _______ if ______ exist
marginal social benefits; no external benefits; marginal social cost; no external costs
In consumer equilibrium, a consumer equates the
marginal utility per dollar on each good
In an unregulated housing market with no rent ceiling, the rent is determined by the
market
Fact 11.1.1 Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price. Refer to Fact 11.1.1. The price of gasoline is determined by _____. The marginal revenue from gasoline equals _____.
market demand and market supply; price
Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms, and there is free entry in the fortune cookie market. Buyers and sellers are well informed about prices. The price of a fortune cookie is determined by ________. The marginal revenue of a fortune cookie equals ______.
market demand and market supply; price
In a perfectly competitive market, a firm maximizes its profit by producing the quantity of output at which
market price equals marginal cost
If firms exit a market, the
market supply curve shifts leftward
A firm's goal is to
maximize profit
A single-price monopolist
maximizes economic profit by producing the quantity at which marginal revenue equals marginal cost
A monopoly leads to
maximizing of consumer surplus
The total product curve is a graph that shows the
maximum output that a given quantity of labour can produce
Consumer surplus
may be low or high for any type of good, expensive or inexpensive, depending on the characteristics of demannd
Excess capacity and high advertising expenditures are encountered in
monopolistic competition
At a price of $15, Jack's quantity demanded of good A is the same as when the price rises to $16. Jack's demand for good A is
perfectly inelastic
If the price elasticity of demand is zero, then demand is
perfectly inelastic
The price of good A falls by 10 percent and quantity of good A demanded does not change. The demand for good A is
perfectly inelastic
The cross elasticity of demand between Coca-Cola and Pepsi-Cola is _____. Coke and pepsi are _______.
positive; substitutes
To determine consumer equilibrium we need to know only
prices, income, and marginal utility
The elasticity of supply is a units-free measure of the responsiveness of the
quantity supplied to a change in price
The magnitude of the slope of the budget line is the
relative price of the good measured on the horizontal axis
The demand for corn increases. As a result, the price of corn _____, and the less elastic the supply of corn, the ______ will be the effect on the price
rises; greater
Marginal revenue is
the change in total revenue that results from a one-unit increase in the quantity sold
A firm's opportunity cost includes
the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner
Firms in monopolistic competition make zero economic profit in the long run because
the demand they face decreases as rival firms offer slightly differentiated products for sale in the same market
According to a behavioral economist, a person who is unwilling to sell the last kilogram of rice he purchased for the same price that he paid for it is displaying
the endowment effect
When a deadweight loss occurs in a market, we can be certain that
the entire economy experiences a loss
If a rent ceiling imposed by the government is greater than the equilibrium rent for housing, then
the equilibrium rent will prevail as long as all else remains constant
The first-come, first-served method of resource allocation allocates resources to
the first in line
The symmetry principle is based on
the idea that people in similar situations should be treated similarly
If a 10 percent increase in income results in a 10 percent decrease in the consumption of widgets, then
the income elasticity of demand for widgets is negative
Marginal cost is equal to
the increase in total cost divided by the increase
Suppose the price of a television set rises by 10 percent. Which one of the following would we expect to be the most elastic following such a price change?
the long-run supply of television sets
As the quantity of hot dogs demanded increases,
the marginal social benefit from a hot dog decreases
If income falls, then in the new consumer equilibrium
the marginal utility from normal goods increases
If the price of a good rises, then in the new consumer equilibrium all of the following are true except
the marginal utility from the good equals its new higher price
For a consumer to maximize utility from a given income,
the marginal utility per dollar from all goods and services consumed must be equal
Refer to Figure 6.1.1. If the demand for rental housing increases and the demand curve shifts rightward from D0 to D1, and there is a strictly enforced rent ceiling of $150 per room,
the number of rooms rented is $1500
The average variable cost curve will shift upward if
the price of the variable input increases
When a price ceiling is set below the equilibrium price:
the quantity demanded exceeds the quantity supplied
In the nation of Transporta, the income elasticity of demand for used cars is -2.66. If income in this nation increase by 10 percent,
the quantity of used cars demanded decrease by 26.6 percent
Rate of return regulation can end up serving the self-interest of the firm if
the regulated firm overstates its costs of production
A perfect price-discriminating monopoly produces
the same amount as a perfectly competitive industry
In the price range above minimum average variable cost, a perfectly competitive firm's supply curve is
the same as its marginal cost curve
Refer to Table 6.1.1, which gives the demand schedule and the supply schedule for the apartment market in Anytown, Alberta. If a rent ceiling of $300 is imposed in the apartment market, then
there is a shortage of 40 apartments
Governments tend to tax items with inelastic demand because
these goods yield the most tax revenues
Lotteries allocate resources to
those who come up lucky in a gaming system
Only 1 percent of the world supply of water is fit for human consumption. Some places have more water than they can use; some could use much more than they have. The 1 percent available would be sufficient if only it were in the right place. Refer to Fact 5.3.1. The major problem is achieving an efficient use of the world's water is
to get it from the places where it is most abundant to the place in which it has the most valuable uses
A firm that temporarily shuts down and produces no output incurs a loss equal to its
total fixed cost
The average product of labour equals
total product divided by the quantity of labour employed
Figure 4.1.2 illustrates a linear demand curve. if the price falls from $4 to $2,
total revenue decreases
Figure 4.1.2 illustrates a linear demand curve. If the price falls from $13 to $11
total revenue increases
If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then
total utility is maximized
A firm will shut down temporarily when the price is so low that total revenue is insufficient to cover the
total variable cost of production
Suppose the market for diamonds is a monopoly. We can expect
underproduction of diamonds
When a minimum wage is set above the equilibrium wage rate,
unemployment increases
The quantity of apples demanded decreases by 8 percent when the price of an apple rises by 8 percent. The demand for apples is
unit elastic
In the Canadian economy, the command system is
used extensively inside firms and government departments
If the demand for good Z is perfectly inelastic, then the demand curve for good Z is
vertical
Refer to Table 13.2.1. Sara is a dot.com entrepreneur who sells sweatshirts. She pays $1,000 a week for her Web server and Internet connection. She pays the firm that makes the sweatshirts $20 a sweatshirt. Sara has no other costs. The table sets out the demand schedule for Sara's sweatshirts. Other firms ______ enter the Web sweatshirt business and compete with Sara. In the long run, the demand for Sara's sweatshirts _____ and her economic profit ______.
will; decreases; falls to zero
If energy (E) is the only input used to produce output (Q), what is the formula for marginal product of energy?
ΔQ/ΔE
