ECON 120 Final Study Guide

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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


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