ECON 120 Final Study Guide
The average total cost of production
equals total cost of production divided by the level of output
Refer to Figure 16-1. If the output price is $2, what is the marginal revenue product of the fifth unit of labor?
$150
If the market price is $25 in a perfectly competitive market, the marginal revenue of selling the fifth unit is
$25
All of the following will shift the labor supply curve except
an increase in the wage's rate
The most direct effect of immigration is
an increase the labor supply
The price of a factor of production that is in fixed supply is called
economic rent
If the demand for labor is unchanged , population growth will increase the supply of labor and increase the equilibrium wage.
false
If the market wage increases, a firm's labor demand curve does not shift but the labor supply curve shifts to the right.
false
The substitution effect of a wage increase is observed when
leisure's higher opportunity cost causes workers to take less leisure and work more
In general, the supply curve for a natural resource
slopes upward
In general, the labor supply curve
slopes upward because as the wage rises, the opportunity cost of leisure increases
The marginal revenue product of capital is
the change in the firm's revenue as a result of employing one more unit of capital, such as a machine
The equilibrium wage and quantity of labor in the market for skilled workers is determined by
the demand and supply of labor
At the minimum efficient scale
the firm has achieved the lowest possible average cost of production
Which of the following is not a characteristic of a perfectly competitive market structure?
there are restrictions on exit of firms
Increases in population shift the market supply curve for labor to the right.
true
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
0.5; the product is inelastic
Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.
1.22
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
1.62
Refer to Table 9-6. What is the opportunity cost to produce 1 hat in Belize?
1/2 of a clock
Refer to Figure 16-1. If the wage rate is $40, how many workers should Dale hire?
3
Refer to Figure 6-3. Using midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.
3.125
Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be
63 lbs.
A firm will make a profit when
P > ATC
Refer to Figure 6-1. A perfectly elastic demand curve is shown in
Panel B
Refer to Figure 10-7. A change in the price of candy only is shown in
Panel C
Refer to Figure 3-2. An increase in the number of firms in the market would be represented by a movement from
S1 to S2
Refer to Figure 3-2. A decrease in productivity would be represented by a movement from
S2 to S1
Refer to Figure 3-2. An increase in price of inputs would be represented by a movement from
S2 to S1
An increase in the wage rate causes
a decrease in the quantity of labor demanded
In the circular flow model, producers
hire resources sold by households in the factor market
Microeconomics is the study of
how households and firms make choices
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes
A tariff is a tax imposed by a government on
imports
Goods and services bought domestically but produced in other countries are referred to as
imports
Refer to Table 2-2. Assume that Billie's Bedroom Shop only produces pillows and blankets. A combination of 27 pillows and 14 blankets would appear
outside Billie's production possibilities frontier
____ is a situation in which a good or service is produced at the lowest possible cost
productive efficiency
Households ____ final goods and services in the ____ market.
purchase; product
Which of the following statements about scarcity is true?
scarcity refers to the situation in which unlimited wants exceed limited resources.
Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to
the income and substitution effects
When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to
the income effect
the slope of the indifference curve is referred to as
the marginal rate of substitution
Implicit costs can be defined as
the non-monetary opportunity cost of using the firm's own resources
Refer to Figure 10-10. The change in the budget constraint from BC1 to BC2 implies
the price of DVDs has increased, and the price of CDs has decreased
At a product's equilibrium price
the product's demand curve crosses the product's supply curve
An industry's long-run supply curve shows
the relationship in the long run between market price and quantity supplied
The income elasticity of demand measures
the responsiveness of quantity demanded to change in income
The ratio at which a country can trade its exports for imports from other countries is called
the terms of trade
Which of the following is a characteristic of a monopoly?
there is only one seller in the market
Which of the following costs will not change ad output changes?
total fixed cost
A sunk cost is a cost has already been paid and cannot be recovered.
true
An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for labor.
true
Chips and salsa are complements. If the price of salsa decreases, the demand for chips will increase.
true
Examining the conditions that could lead to a recession in an economy is an example of a macroeconomic topic.
true
For a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors.
true
If a firm experiences positive technological change, it is able to produce more output using the same inputs.
true
In the circular flow model, households supply resources such as labor services in the factor market.
true
Necessities tend to have more inelastic demand than luxuries.
true
The decisions Apple makes in determining production levels for its iPhone is an example of a microeconomic topic.
true
When there are few substitutes available for a good, demand tends to be relatively inelastic.
true
Refer to Figure 2-1. Point C is
unattainable with current resources
When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of pistachio nuts is $9.00 per lb. the quantity demanded 40 lbs. When the midpoint formula is used to measuer the price elasticity of demand, we can say that the demand for pistachio nuts is
unit elastic
The demand curve for a Giffen good is
upward sloping
Which of the following equations is correct?
AFC + AVC = ATC
Which of the following equations is incorrect?
ATC = AVC - AFC
Refer to Table 9-6. which country has a comparative advantage in producing hats?
Belize
Refer to Figure 3-1. An increase in the expected future price of the product would be represented by a movement from
D1 to D2
Refer to Figure 3-1. A decrease in taster or preference would be represented by a movement from
D2 to D1
Refer to Figure 3-1. If the product represented is an inferior good, an increase in income would be represented by a movement from
D2 to D1
Refer to Table 9-6. Which country has an absolute advantage in producing clocks?
Denmark
Goods with upward sloping demand curves are referred to as
Giffen goods
Suppose the value of the price elasticity of demand is -3. What does this mean?
a 1 percent increase in the price of a good causes quantity demanded to decrease by 3 percent
When Roxanne, a U.S. citizen, purchases a designer dress from Saks Fifth Avenue that was made in Milan, the purchase is
a U.S. import and an Italian export
The amount of income a consumer has to spend on goods and services is known as
a budget constraint
Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?
allocative efficiency
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
an "increase in demand is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve
A curve that shows combinations of consumption bundles that give a consumer the same utility is called
an indifference curve
A situation in which a country does not trade with other countries is called
autarky
In the long run, the entry of new firms in an industry
benefits consumers by forcing prices down to the level of average cost
Both individual buyers and sellers in perfect competition
have to take the market price as a given
Diminishing marginal product of labor occurs when adding another unit of labor
changes output by an amount smaller than the output added by the previous unit of labor
The ____ demonstrates the roles played by households and firms in the market system.
circular flow model
The concept of ____ explains how trade between two countries can make each better off.
comparative advantage
____ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
comparative advantage
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
complements
If preferences are transitive, indifference curves
do not intersect
In economics, the term "equity" means
economic benefits are distributed fairly
An outward shift of a nation's production possibilities frontier represents
economic growth
For a firm in a perfectly competitive market, price is
equal to both average revenue and marginal revenue
The law of diminishing marginal returns
explains why the average total cost and marginal cost curves are U-shaped in the short run
____ refers to reductions in a firm's costs that result from an increase in the size of an industry.
external economies
A tariff is a tax imposed by a government on its own exports
false
Behavioral economics is the study of situations in which people make rational choices.
false
The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called absolute advantage.
false
The payment received by suppliers of entrepreneurial skills is called interest.
false
The demand for gasoline in the short run is
inelastic because there are fewer good substitutes for gasoline
If a good has a negative income elasticity of demand, this indicates that the good is
inferior
Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?
it is equal to the vertical distance c to g
What does the marginal rate of substitution measure?
it measures the rate at which a consumer is willing to trade off one product for another while another while keeping utility constant
In economics, the term ____ means "additional" or "extra"
marginal
The production possibilities frontier (PPF) shows the ____ combinations of two products that can be produced in a particular time period with available resources.
maximum attainable
Exports are domestically produced goods and services
sold to other countries
Costs that have already been incurred, and which cannot be recovered, are known as
sunk costs
Allocative efficiency is achieved when firms produce goods and services
that consumers value most
Absolute advantage is
the ability to produce more of a good or service than competitors when using the same amount of resources
The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
the budget constraint
Which of the following describes the substitution effect of a price change?
the change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power
The marginal revenue product of labor is defined as
the change in the firm's revenue as a result of hiring one more worker
The demand for labor is different from the demand for final goods and services because
the demand for labor is derived from the demand for the good or service the labor is used to produce
The concept of opportunity cost is that
the economic cost of using a factor of production is the alternative use of that factor that is given up
