Econ Final

If the price elasticity of demand for hand soap is -1, the demand for hand soap is

unit elastic

A bike manufacturer spends a lot of money to produce its brand name. This promotion __________ consumers because __________.

helps; it provides a signal and information about the products the bike manufacture makes

A running shoe manufacturer spends a lot of money to promote its brand name. This promotion _________ consumers because __________.

helps; it provides a signal and information about the products the running shoe manufacture makes

Natural barriers to entry __________.

most commonly arise through economies of scale

Most municipalities and states in the northeastern United States use rock salt to "produce" ice - free roadways in the face of winter snowstorms. But using rock salt has several drawbacks: it speeds up corrosion of bridges and cars; it can choke vegetation; as runoff, it is harmful to creeks and rivers; and it is not very effective in de-icing roads at low temperatures. If the marginal and social cost of rock salt is $61 per ton and the marginal external cost of rock salt is $17 per ton, the optimal corrective tax is $_____ per ton of rock salt.

17

Which of the following would provide economic evidence that there are many substitutes to Google's search engine app that smartphone owners can use instead? A. the income elasticity for Google's app is positive. B. the demand for Google's app is elastic. C. The cross-price elasticity between Google's app and other search engines is positive and fairly large. D. The cross-price elasticity between Google's app and other search engines is negative and fairly large in absolute terms. E. The income elasticity for Google's app is negative.

C

Which of the following would cause an unambiguous decrease in the price of DVD players? A. A shift to the left in the supply curve and a shift to the right in the demand curve. B. A shift to the right in the supply curve and a shift in the right to the demand curve. C. The supply curve remains unchanged and a shift to the right in the demand curve. D. A shift to the right in the supply curve and a shift to the left in the demand curve. E. A shift to the left in the supply curve and a shift to the left in the demand curve.

D

In class we learned that, in the long run, monopolistically competitive firms earn zero profits. However, in reality there are some strategies by which a firm can avoid losing profits. Which of the following is an example for such a strategy? A. lower the price of the products to examine its market share B. find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment C. price at marginal cost to undercut competitors that charge a markup D. gradually increase the mark-up on the good produced E. identify new markets and develop products precisely for those new markets

E

Which of the following would cause an unambiguous decrease in the equilibrium quantity of DVD players? A. The supply curve remains unchanged and an upward shift of the demand curve. B. An upward shift of the supply curve and an upward shift of the demand curve. C. A downward shift of the supply curve and a downward shift of the demand curve. D. A downward shift of the supply curve and an upward shift of the demand curve. E. An upward shift of the supply curve and a downward shift of the demand curve.

E

What is a market failure?

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

If a consumer obtains 60 units of utility for the first unit consumed, 79 units of utility when she consumes two units, and 96 units of utility when she consumers three units, what is the marginal utility of consuming the second unit?

The marginal utility of the second unit equals 19.

__________ goods are non-excludable and non-rival in consumption.

Public

Assume that a combination of 5 wine and 9 cartons of milk lies on a consumer's budget constraint. If the price of one bottle of wine is $19 and the price of one carton of milk is $3.00, what is the consumer's budget?

The consumer's budget is $122.

Assume that a combination of 3 bottles of wine and 4 cartons of milk lies on a consumer's budget constraint. If the price of one bottle of wine is $17 and the price of one carton of milk is $2.00, what is the consumer's budget?

The consumer's budget is $59.

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning profits in the short run?

The demand curve will shift to the left and become more elastic throughout the relative range of prices

When the price of burritos rises 7.8 percent, the quantity demanded decreases 3.6 percent. What is the price elasticity of demand for burritos?

The price elasticity of demand for burritos equals -0.46.

When the price of sandwiches rise 1.3 percent, the quantity demanded decreases 4.5 percent. What is the price elasticity of demand for sandwiches?

The price elasticity of demand for sandwiches equals -3.46.

If the consumer obtains 30 units of utility for the first unit consumed, 20 for the second, and 12 for the third, what is the total utility of consuming two units?

The total utility of consuming two units equals 50

If the price elasticity of demand is -0.23, then this means that

a 10 percent increase in price results in a 2.3 percent decrease in quantity demanded

If the price elasticity of demand for a good is -0.92, then this means that

a 10 percent increase in price results in a 9.2 percent decrease in quantity demanded

An article in the Wall Street Journal on the market for traditional canned tuna stated the two following facts: i. Firms selling traditional canned tuna are struggling to connect with millennial and generation Z consumers, "who favor fresher, less-processed options" in the food they eat ii. Firms selling traditional canned tuna are facing competition with firms that offer tuna for sale in "pouches and kits with trendy flavors or as a healthy snack" From this information, can we conclude that falling sales of traditional cans of tuna is likely the result of a movement along the demand curve for traditional cans of tuna or a shift in the demand curve? The falling sales of traditional cans of tuna are a result of

a shift in the demand curve for tuna to the left

A perfectly competitive firm earns a profit when price is

above minimum average total cost

A differentiated product has

close but not perfect substitutes

The production of electricity creates pollution. In an unregulated market, when deciding how much electricity to buy, customers typically __________ the cost of pollution, and producers typically __________ the cost of pollution.

do not take into account; do not take into account

The demand for each seller's product in perfect competition is perfectly elastic at the market price because

each seller is too small to affect the market price

If the price elasticity of demand for hand soap is -0.12, the demand for hand soap is

inelastic

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

is incurring a loss

One key characteristic in monopolistic competition is that it has

many firms producing a slightly differentiated product

Suppose the price of a pair of jeans is $37 and the price of a shirt is $17. The consumer's budget is entirely allocated. If the marginal utility from a pair of jeans is 74 units and the marginal utility from a shirt is 51 units, the consumer's budget allocation is

not optimal and the consumer should purchase fewer jeans and more shirts

Suppose the price of a pair of jeans is $68 and the price of a shirt is $61. The consumer's budget is entirely allocated. If the marginal utility from a pair of jeans is 136 units and the marginal utility from a shirt is 183 units, the consumer's budget allocation is

not optimal and the consumer should purchase fewer jeans and more shirts

__________ goods are excludable and rival in consumption

private

Product differentiation means

products sold by different firms are slightly different.

In the long run, a perfectly competitive market will

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve

When demand is price inelastic, an increase in price causes total revenue to increase because

the increase in revenue from raising the price of all units is large enough to offset the decrease in revenue from selling fewer units

When demand is price inelastic, a fall in price causes total revenue to fall because

the increase in revenue from selling additional units is not large enough to offset the decrease in revenue from lowering the price of all units

A network externality occurs when

the value of a product increases as more consumers start to use it