Econ 224 Exam 2

When the additional satisfaction from a good declines as more of it is consumed, this illustrates the law of:

Diminishing marginal utility.

If more of an input factor is used, while holding other inputs constant, a firm will eventually experience:

Diminishing returns.

In the perfectly competitive catfish market, the market demand curve is:

Downward sloping.

In a perfectly competitive industry, firms are likely to:

Enter when there are economic profits.

A profit-maximizing competitive firm wants to _____ the rate of output when price _____ marginal cost.

Expand; exceeds

In defining costs, economists recognize:

Explicit and implicit costs while accountants recognize only explicit costs.

57.) If a firm can change market prices by altering its output then it:

Has market power.

True Statement:

If marginal utility is greater than zero, total utility is increasing.

What is true about demand?

In order to demand a good, a person must be willing and able to buy the good.

The main difference to an economist between "short-run" and "long-run" is that:

In the long-run all resources are variable where as in the short-run at least one resource is fixed.

If quantity demanded rises only slightly following a moderate price cut, then demand is:

Inelastic.

People find it difficult to get along without necessities, therefore demand for necessities:

Is relatively inelastic.

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

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

A producer tries to maximize profits by operating at an output where:

MC equals price.

56.) What is an example of perfect competition?

Many small firms all produce the same good

The change in total output that results from one additional unit of input is the:

Marginal physical product.

An industry in which many firms produce similar products but each firm has significant brand loyalty is known as:

Monopolistic competition.

Which list has market structures in the correct order from the most to the least market power?

Monopoly, oligopoly, monopolistic competition, perfect competition

If quantity demanded rises significantly following a moderate price cut, then demand is:

Most likely elastic.

In a competitive market, in the long run, economic profits will cause:

New firms to enter the market.

55.) In a perfectly competitive market:

No seller has market power.

The law of diminishing returns indicates that the marginal physical product of a factor declines as more:

Of the factor is used, holding other inputs constant.

The price elasticity of demand is defined as the:

Percentage change in quantity demanded divided by the percentage change in price.

The law of demand states that:

Price and quantity demanded are inversely related.

The response of quantity demanded to price changes is shown by:

Price elasticity of demand.

Price elasticity of demand indicates the consumer response to changes in:

Price.

53.) An individual competitive firm:

Produces a small portion of output relative to the market.

The limits to the production of any good are reflected in the:

Production function.

If marginal cost equals price, then _____ is at a maximum.

Profit

Total revenue minus total cost equals:

Profit.

During the short run:

Some inputs are fixed.

What is true about the short run?

Some inputs are fixed.

The market demand curve is calculated by:

Summing the quantities demanded from individual demand curves.

What is not a determinant of demand?

The cost of factors of production.

Which of the following does not influence the price elasticity of demand?

The costs of production.

Javier goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. Which of the following explains why the third plate of food does not provide as much satisfaction as the second plate?

The law of diminishing marginal utility.

Assume a toy company hires an additional worker to assemble toys, and the size of the factory and amount of equipment remain constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of:

The law of diminishing returns.

Which of the following is not true for a competitive firm?

The marginal cost curve is horizontal at the equilibrium price.

The difference between total utility and marginal utility is that:

Total utility is the complete satisfaction from consuming a good while marginal utility is the satisfaction.

The pleasure or satisfaction obtained from goods and services is known as:

Utility.

What refers to the satisfaction a consumer receives from the consumption of a good?

Utility.

What is the marginal physical product of the fourth unit of labor in Table 5.1?

9

If Pepsi and Coke are the only two soft drink producers, they could be considered:

A duopoly.

What does not characterize a competitive market

A few firms.

Which of the following causes demand to be more elastic with respect to price?

A higher ratio of price to income.

What characterizes a perfectly competitive market?

A selling price at the market-established equilibrium price.

Which of the following causes the price elasticity of demand for a good to be more inelastic?

A shorter period of time to adjust to a change in price.

If price is greater than marginal cost, a competitive firm should increase output because additional units of output will:

Add to the firm's profits (or reduce losses).

What does not characterize a competitive market?

Advertising by individual firms

If there are only four companies that produce tennis balls, the market could be considered:

An oligopoly.

Explicit costs:

Are the sum of actual monetary payments made for resources used to produce a good.

The equilibrium price for a perfectly competitive firm always occurs:

At the intersection of market supply and market demand.

54.) A perfectly competitive firm:

Can sell all of its output at the prevailing price.

What is a determinant of demand for a good?

Consumer income.

Table 5.1—Labor and output data 0 0 1 14 2 30 3 42 4 51

14

Assume a price elasticity of demand of 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will:

(10 x 0.5)= Increase by 5 percent.

If the price elasticity of demand is 1.5, and a firm raises its price by 20 percent, the quantity sold by the firm will, ceteris paribus:

(20 x 1.5)= Fall by 30.0 percent.

If the price elasticity of demand is 1.8 then a 30 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded.

(30 x 1.8)= 54.00

If the price elasticity of demand is 2.5, then a 40 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded.

(40 x 2.5)= 100.00

As more labor is hired in the short run, diminishing returns are observed because:

The new workers have less capital and land to work with.

What causes the market demand curve for a good to shift?

The number of buyers in the market.

Economic cost is:

The value of all resources used to produce a good or service.