Econ Final

Ceteris paribus, if the price of a digital camera rises, then we can expect a. a decrease in the demand for digital cameras. b. an increase in the demand for digital cameras. c. an increase in the quantity demanded of digital cameras. d. a decrease in the quantity demanded of digital cameras.

a decrease in the quantity demanded of digital cameras. Changes to the price of a good or service represent a movement along an existing demand curve; there is no shift in the demand curve.

Because farm products have a low elasticity of demand, a small change in output will have an indeterminate effect on price. no effect on price. a smaller effect on price. a larger effect on price.

a larger effect on price The price elasticity of food demand is low. As a consequence, when harvests are good, farmers must reduce prices a lot to induce a substantial increase in the quantity of food demanded.

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus? a. a lower price and more firms b. a higher price and more firms c. a higher price and fewer firms d. a lower price and fewer firms

a lower price and more firms If economic profits exist in an industry, more firms will want to enter it. As they do, the market supply curve will shift to the right and cause the market price to drop until the profits are normal.

Which of the following is a common barrier to entry in a monopoly market? economic profits greater than zero for the monopolist a rising long-run average total cost curve a patent on a new product a vertical supply curve

a patent on a new product Examples of barriers to entry include patents, monopoly franchises, regulation, economies of scale, and control of key inputs.

During the past 100 years, the United States has transformed into primarily a manufacturing economy. a closed economy with little foreign trade. an agricultural economy. a service economy.

a service economy. Once households have enough food, they begin to demand more consumption items with an increasing percentage being services.

High profits in a particular industry indicate that a. consumers want less of that industry's goods. b. consumers are satisfied with the level of production of that industry's goods. c. producers are satisfied with the level of production of that industry's goods. d. consumers want more of that industry's goods.

consumers want more of that industry's goods. High profits in a particular industry indicate that consumers want a different mix of output (more of that particular industry's goods).

In making a production decision, an entrepreneur a. determines plants and equipment. b. decides what level of output will maximize profits. c. decides whether to enter or exit the market. d. can change both fixed and variable inputs.

decides what level of output will maximize profits. A firm's production decision is the selection of the short-run rate of output that maximizes profits.

Ceteris paribus, a leftward shift of the market demand curve for HDTVs causes the equilibrium price to a. decrease and equilibrium quantity to decrease. b. increase and equilibrium quantity to decrease. c. increase and equilibrium quantity to increase. d. decrease and equilibrium quantity to increase.

decrease and equilibrium quantity to decrease A decrease in demand causes the equilibrium price and equilibrium quantity to decrease.

From an economic standpoint, government intervention may be justified a. when the private sector is larger than public sector. b. if the market mechanism fails to achieve the optimal mix of output. c. because the government can increase the level of market power of private businesses. d. because the government can encourage the production of private goods.

if the market mechanism fails to achieve the optimal mix of output. The government may be able to push market outcomes closer to the ideal when the market fails to yield optimal outcomes.

The study of microeconomic theory focuses on a.the operation of the entire economy. b.the interaction of international trade and domestic production of goods and services. c.individual behavior in the economy d.the role of the banking system in the economy.

individual behavior in the economy Individual choices and analyses of specific markets are topics discussed in microeconomics.

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces a. the same output and charges the same price as the competitive industry. b. more output and charges a higher price than the competitive industry. c. less output and charges a lower price than the competitive industry. d. less output and charges a higher price than the competitive industry.

less output and charges a higher price than the competitive industry. When compared to a competitive market, monopolists tend to charge a higher price and produce a lower level of output.

The term transfer payments refers to federal income taxes. money that is transferred between savings and checking accounts. payments to individuals that are not in exchange for current goods and services being produced. additional profits transferred to monopolies because of their market power.

payments to individuals that are not in exchange for current goods and services being produced. Transfer payments are payments to individuals for which no current goods or services are exchanged.

Which of the following would definitely not be used by any unregulated monopolist? marginal cost pricing the profit-maximizing rule price discrimination economies of scale

marginal cost pricing A competitive firm can maximize profits by producing at that rate of output where marginal cost equals price (marginal cost pricing). This special adaptation of the profit-maximizing rule does not work for a monopolist. The demand curve facing a monopolist is downward-sloping; therefore, marginal revenue is not equal to price for a monopolist—it is actually less than price. The monopolist will want to charge a price greater than MC

Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at a. percentage change in GDP. b. population. c.per capita GDP d.GDP

per capita GDP. Per capita GDP indicates the average income per person in an economy and so is used to assess relative standards of living across economies.

Sky-High Skywriters raises its price, and the other four firms in the industry raise their prices in response. Coordination in this industry is accomplished by predatory pricing. price leadership. price-fixing. retaliation.

price leadership. Price leadership is a subtle (not explicit) pricing pattern that allows one firm to establish the (market) price for all firms in the industry.

External costs occur because private costs do not reflect the full costs to society. government failure increases costs for the firm. all costs are absorbed by the firm. firms make a choice other than the most cost-efficient production method.

private costs do not reflect the full costs to society. External cost is a cost of a market incurred by a third party.

The result of government intervention in the market is that society is always better off. the production possibilities curve always shifts outward. society could be made better or worse off. society is always worse off.

society could be made better or worse off. Government intervention might lead to government failure simply replacing a market —failure, leaving society no better off, and possibly even worse off.

The principal mechanism for redistributing incomes is a. antitrust policy. b. market power. c. the production of public goods. d. the tax-and-transfer system.

the tax-and-transfer system. The tax-and-transfer system is the principal mechanism for redistributing incomes.

If there are many firms in an industry producing goods that are similar but slightly different, this is an example of perfect competition. monopolistic competition. oligopoly. monopoly.

monopolistic competition. Monopolistic competition is a market in which many firms produce similar but somewhat differentiated goods or services, and therefore each maintains some independent control of its own price

If the actual market price were fixed at $6 per unit, then there would be a surplus of 40 units. there would be a surplus of 20 units. there would be a shortage of 40 units. there would be a shortage of 20 units.

there would be a shortage of 20 units. At a price of $6, quantity demanded will be 40 units and quantity supplied will be 20 units, which will result in a shortage of 20 units (40 − 20).

Which of the following is not one of the three core economic issues that must be resolved? a. how to produce the goods and services we select b.what to produce with unlimited resources c.what to produce with limited resources d.who should get the goods and services we produce

what to produce with unlimited resources The basic questions of economics revolve around what to produce with limited resources, how to produce using those resources, and who should receive the resulting goods produced.

Which of the following statements best captures the concept of consumer surplus? I saw a sale for flowers, so I bought four bundles." "I was willing to pay $30 for a dozen roses, but I bought them for $20." "I was willing to pay $30 for roses, but they are selling for $35, so I did not buy." "I paid $35 for roses last week and just saw them for sale now at $25."

"I was willing to pay $30 for a dozen roses, but I bought them for $20." Consumer surplus is the difference between the maximum a consumer was willing to pay for a good and the actual price paid.

(Table 21.5) Total fixed costs of 2 units of output are equal to $60. $0 because the problem involves the long run. $30. $15.

$15. The total fixed cost is $15 at any unit of output because total cost is $15 at 0 units of output.

(Figure 23.1) A perfectly competitive firm should shut down in the short run if the market price is below $20. $10. $15. $5.

$5. A firm should shut down only if the losses from continuing production exceed fixed costs. This happens when the price is less than the minimum average variable cost ($5).

igure 21.1) The marginal physical product of the third unit of labor is 40.0 units per day. 12.0 units per day. 13.3 units per day. 4.0 units per day.

12 UNITS PER DAY The marginal physical product is the difference in total output associated with one additional unit of input, which is 12 (= 40 - 28)

If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is 0.2. 2. 20 percent. 2 percent.

2 The formula for the price elasticity of demand is the absolute value (drop the negative sign) of the percentage change in quantity demanded divided by the percentage change in price, that is, 20 / 10 = 2.

If the price of furniture increases by 5 percent and the quantity demanded falls by 10 percent, then the price elasticity of demand in absolute value is a. 0.2. b. 20 percent. c. 2 percent d. 2.

2. The formula for the price elasticity of demand is the absolute value (drop the negative sign) of the percentage change in quantity demanded divided by the percentage change in price, that is, 10 / 5 = 2.

Table 19.2) The total utility when two units are consumed is 6. 9. 24. 15.

24. The total utility when one unit is consumed is 15 and the second unit adds 9 additional utils, which causes total utility to increase to 24.

The total cost of 3 units of output is $30. $15. $23. $38.

30 Total cost is equal to fixed cost plus variable cost, which is $30

(Figure 21.4) A firm that produces between 600 and 800 units per period should choose a plant with a short-run average total cost function of ATC2 only. ATC1 only. ATC3 only. ATC2 or ATC3.

ATC2 only. In the long run, the firm would choose the plant that yielded the lowest average cost for any desired rate of output.

A firm that produces over 800 units of output should choose a plant with which short-run average total cost function? ATC3 only ATC1 only ATC2 only either ATC2 or ATC3

ATC3 only In the long run, the firm would choose the plant that yielded the lowest average cost for any desired rate of output.

Adam is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year, he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit? Accounting profit = $75,000; economic profit = $0. Accounting profit = $175,000; economic profit = $75,000. Accounting profit = $75,000; economic profit = negative $100,000. Accounting profit = $0; economic profit = negative $75,000.

Accounting profit = $75,000; economic profit = $0 Accounting profit is equal to revenue ($250,000) minus explicit costs ($175,000), which is $75,000. Economic profit is equal to accounting profit ($75,000) minus implicit costs ($75,000); therefore, his economic profit is $0.

Assume that pens and pencils are substitutes. In the market for pens, what would we expect to happen if the price of pencils rises? An increase in the demand for pens. A decrease in the demand for pens. An increase in the supply of pens. A decrease in the supply of pens.

An increase in the demand for pens. If the price of a substitute rises, consumers will buy more of the cheaper good or service, while if the price of a complement rises, consumers will purchase less because they enjoy consuming those goods together. Changes to input prices in production, on the other hand, affect the supply curve rather than demand.

Figure 3.1) Choose the letter of the diagram that best describes the type of shift that would occur in the candy bar market if people become more health-conscious and prefer vegetables instead of candy bars. A B C D

C A change in tastes and preferences away from candy bars causes demand to decrease.

(Figure 23.2) A perfectly competitive firm will maximize profits by producing the level of output that corresponds to point A. B. C. D.

C A competitive firm maximizes total profit at the output rate where MR is equal to MC, which is point C.

(Figure 22.2) For a perfectly competitive firm, the profit-maximizing quantity of output is B. D. E. C.

D. A firm will maximize profit at a quantity where marginal revenue is equal to marginal cost.

Which of the following explains why flood control is a public good? a. The private sector usually produces flood control projects. b. It is not divisible and therefore cannot be kept from people who do not pay. c. There are external benefits associated with its consumption. d. Flood control is paid for by taxpayers.

It is not divisible and therefore cannot be kept from people who do not pay. A public good is a good or service whose consumption by one person does not exclude consumption by others. One person cannot prevent others from benefiting from flood control.

A profit-maximizing monopolist produces the rate of output where MR = MC and determines the price based on the demand curve. MR = MC and determines the price based on ATC. Price = MC. MR = MC and can set the price at any amount it chooses.

MR = MC and determines the price based on the demand curve. A firm maximizes total profit at the output rate where MR is equal to MC. If MC is less than MR, the firm can increase profits by producing more. If MC exceeds MR, the firm should reduce output.

(Figure 27.1) If regulation of the firm called for it to earn only a normal profit or rate of return, the regulatory agency should set the price at P1. P2. P3. P0.

P3 Demand (price) is equal to ATC at P3.

(Figure 27.1) If regulation of the natural monopolist called for marginal cost pricing, the regulatory agency should set the price at P3. P2. P0. P4.

P4 Demand (price) is equal to MC at P4.

Figure 26.1) For a monopolistically competitive firm, the profit-maximizing output and price combination for this firm in the short run is Q1, P1. Q2, P4. Q2, P1. Q4, P3.

Q2, P4 Profit is maximized at the output level where the MR is equal to MC, at an output level of Q2 and a price of P4.

Rosa is willing to pay $200 for the iPhone, but the actual price is $400. This means a. Rosa will buy this product but will not receive any consumer surplus. b. Rosa will not buy an iPhone. c. the iPhone is overpriced. d. Rosa will enjoy a consumer surplus of $200 if she buys the iPhone.

Rosa will not buy an iPhone. Rosa will not purchase the iPhone because she is not willing to pay the $400 price. If she were willing to pay $500 for the iPhone, she would buy it and enjoy $100 of consumer surplus.

Which of the following scenarios would support the theory of public choice? The governor of the state vetoes a highway bill even though the highway would enhance the value of property they own. The local police chief fails to give the mayor a speeding ticket because the mayor might fire them. The president of Colombia goes after drug traffickers despite death threats and the offer of bribes that could make them rich. A college president eliminates wasteful departments and programs even though this will shorten their tenure and possible political future.

The local police chief fails to give the mayor a speeding ticket because the mayor might fire them. Public choice is the theory of public sector behavior emphasizing rational self-interest of decision makers and voters.

(Figure 3.2) If the government required the actual market price to be fixed at $6 per unit, then a. a nonbinding or noneffective price ceiling would result. b. a binding or effective price floor would result. c. a binding or effective price ceiling would result. d. the market would reach equilibrium.

a binding or effective price ceiling would result. A price ceiling will occur when the maximum price is below the equilibrium price and it will cause a shortage.

If bagels and doughnuts are substitutes, then a decrease in the price of doughnuts will result in a. an increase in the demand for bagels. b. a decrease in the demand for bagels. c. a decrease in the demand for doughnuts. d. an increase in the demand for doughnuts.

a decrease in the demand for bagels. Consumers will substitute the relatively cheaper doughnuts when the price of doughnuts falls, thereby causing the demand for bagels to decrease.

If a firm adopts a production process that is costly in order to reduce pollution, the result is a decrease in the firm's MC curve and a decrease in the firm's profits. an increase in the firm's ATC curve and an increase in the firm's profits. a decrease in the profit-maximizing rate of output and a decrease in the firm's profits. a decrease in the firm's ATC curve and an increase in the firm's profits.

a decrease in the profit-maximizing rate of output and a decrease in the firm's profits Pollution abatement will increase the costs to the firm, shifting the MC curve upward (supply curve leftward), resulting in lower output, higher prices, and lower profits. The ATC will shift up, not down.

Supply restrictions in the farming industry occur in the form of price supports. acreage set-asides. countercyclical payments. direct income support.

acreage set-asides Supply restrictions in the farming industry occur in the form of acreage set-asides, marketing orders, and import quotas.

If price is greater than marginal cost, a perfectly competitive firm should increase output because marginal costs are increasing. additional units of output will add to the firm's profits (or reduce losses). the price it receives for its product is increasing. total revenues would increase.

additional units of output will add to the firm's profits (or reduce losses). If an extra unit brings in more revenue than it costs to produce, it would add to the total profit. Hence a competitive firm should expand the rate of production whenever price exceeds MC.

If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm a. is maximizing profit. b. can increase its profit by decreasing output. c. can increase its profit by increasing output. d. must have an economic loss.

can increase its profit by decreasing output. If MC exceeds price, a firm is spending more to produce that extra unit than it is getting back, and total profits will decline. Hence a firm will want to decrease production whenever price is less than MC.

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market cannot sell additional walnuts unless the firm lowers its price. cannot sell additional walnuts at any price because the market is at equilibrium. can sell an additional pound of walnuts at $4.99. can sell more only by increasing its advertising budget.

can sell an additional pound of walnuts at $4.99. An individual firm in a perfectly competitive market is so small relative to the entire market that it confronts a horizontal demand curve (perfectly elastic demand) for its output. It does not need to lower its price to sell more; it can sell as much as it can produce at the market price.

Airline companies engage in price discrimination by charging unrestricted fares. giving a temporary price cut. charging higher prices to customers who must travel on short notice. engaging in price-fixing.

charging higher prices to customers who must travel on short notice. Price discrimination occurs when sellers charge different prices to different individuals. Airlines engage in price discrimination when they charge business travelers who have to fly tomorrow a higher price than vacation travelers who have more time to book their travel.

Assigning prices to environmental damage is relatively easy because of current scientific techniques. easy because all items have a market value. difficult because many items have intangible benefits and thus do not have a market price. easy because the government has the legislative authority to assign prices.

difficult because many items have intangible benefits and thus do not have a market price. It may be easy to assign values to environmental damage in some cases, such as the increases in cancer and heart attacks, the rate at which buildings decay or forests and lakes die, and so on. However, it is much more difficult to assign value to intangible losses like polluted vistas, endangered wildlife, and lost recreation opportunities.

Accounting costs and economic costs differ because a. accounting costs exceed economic costs whenever any factor is not paid an explicit wage. b. accounting costs include explicit costs, and economic costs do not. c. accounting costs include implicit costs, and economic costs do not. d. economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays. Accounting costs refer to the explicit dollar outlays made by a producer. Economic costs, in contrast, refer to the value of all costs, both explicit and implicit.

For a competitive market in the long run, a. economic profit is positive. b. accounting profit is zero. c. economic profits induce firms to enter until profits are normal. d. economic losses induce firms to shut down.

economic profits induce firms to enter until profits are normal. If economic profits exist in an industry, more firms will want to enter it. As they do, the market supply curve will shift to the right and cause the market price to drop until profits are normal.

Economies of scale explain why average variable and average total costs decline in the short run. explain why average total costs decline as output increases in the long run. explain why average total costs increase as output increases in the long run. exist in both the short run and the long run.

explain why average total costs decline as output increases in the long run. Economies of scale (or increasing returns to scale) exist when all inputs double but output more than doubles, which implies that the average costs have decreased.

Firms in Colorado dump waste into the Colorado River and as a result, people in California and Mexico cannot use the water. What type of market failure is most likely involved? inequity public goods externalities market power

externalities Externalities are costs of a market activity (firms dumping waste at little or no cost to themselves) borne by a third party.

Which of the following contains the two sectors whose percentage contribution to the real GDP has declined since 1800? a. manufacturing and exports b. farming and manufacturing c. farming and services d.services and exports

farming and manufacturing Farming and manufacturing are less important in the overall economy today compared to the service sector.

As a nation's average education level increases, the nation's level of productivity increases, and the production possibilities curve shifts outward. decreases, and the nation's production possibilities curve shifts inward. increases, and the nation moves to a new point on the same production possibilities curve. decreases, and the nation moves to a new point on the same production possibilities curve.

increases, and the production possibilities curve shifts outward. Human and physical capital increase the productivity of a nation's workers and therefore shift the production possibilities curve outward.

When a firm minimizes its losses in the short run, a. it continues to produce only if the price exceeds the average variable cost. b. the firm enters or exits from the market. c. the firm makes an investment decision. d. it continues to produce only if the price exceeds the marginal revenue.

it continues to produce only if the price exceeds the average variable cost. If the price (or MR) is less than ATC but greater than AVC, then a perfectly competitive firm is losing less than its fixed costs and should continue producing in the short run in order to minimize its losses.

In cost-benefit analysis, regulatory intervention can be justified if the marginal benefit of regulation exceeds its marginal cost. value of government failure exceeds the value of market failure. economic cost of regulation exceeds the value of the improvements in government intervention. intervention improves market outcomes, regardless of costs.

marginal benefit of regulation exceeds its marginal cost. Assuming regulation improves market outcomes, its use is appropriate only if the anticipated improvements in market outcomes outweigh the economic cost of regulation.

The average total cost (ATC) curve will be downward sloping so long as the a. average variable cost is less than average total cost. b. marginal cost is greater than average total cost. c. marginal cost is less than average total cost. d. average fixed cost is less than average total cost.

marginal cost is less than average total cost. If the marginal cost is less than the average total cost, the average total cost must be decreasing. For instance, if you have a 3.5 GPA (grade point average) and get only a 3.0 in your last (marginal) accounting class, your GPA will fall.

The demand curve will be kinked if rival oligopolists match price increases but not price reductions. match price reductions but not price increases. match both price increase and price reductions. do not match price changes at all.

match price reductions but not price increases. The demand curve will be kinked if rival oligopolists match price reductions but not price increases.

The correct ranking of degree of market power (from highest to lowest) is monopoly, monopolistic competition, perfect competition, oligopoly monopoly, monopolistic competition, oligopoly, perfect competition monopoly, oligopoly, monopolistic competition, perfect competition oligopoly, monopoly, monopolistic competition, perfect competition

monopoly, oligopoly, monopolistic competition, perfect competition The number of firms in an industry is a key characteristic of market structure. Although the amount of market power the firms possess depends on several factors, the ranking of market power from highest to lowest is monopoly, oligopoly, monopolistic competition, and then perfect competition.

Ceteris paribus, the longer the time period, the smaller the income elasticity for the good. less elastic the demand for the good. more unitary elastic the demand for the good. more elastic the demand for the good.

more elastic the demand for the good The long-run price elasticity of demand is higher than the short-run elasticity.

Ceteris paribus, the longer the time period, the a. smaller the income elasticity for the good. b.less elastic the demand for the good. c. more elastic the demand for the good. d. more unitary elastic the demand for the good.

more elastic the demand for the good. The long-run price elasticity of demand is higher than the short-run elasticity.

Smart phones and apps are complementary goods. The cross-price elasticity of demand between smart phones and apps is expected to be a. negative. b. positive. c. equal to zero. d. undefined.

negative. The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. The cross-price elasticity of demand will be negative for complements because a decrease in the price of smart phones will cause an increase in demand for apps.

Even if a market is not competitive, the firms in the market may behave competitively if potential competition exists. there are economies of scale. a natural monopoly exists. the market is regulated.

potential competition exists In contestable markets, markets are subject to potential entry if prices or profits increase, and monopoly behavior may be restrained by potential competition.

Profit regulation occurs when regulation requires the natural monopolist to set price equal to marginal cost. price equal to average variable cost. price equal to average total cost. marginal revenue equal to average total cost.

price equal to average total cost. Profit regulation must permit a natural monopoly to charge a price high enough to cover all its costs, including a normal profit. Normal profit is achieved at the output level where the price is equal to the average total cost.

The market will overproduce goods that have external costs because producers experience lower costs than society. producers experience higher costs than society. the government is not able to produce these goods. producers cannot keep these goods from consumers who do not pay, so they have to produce greater amounts

producers experience lower costs than society. If a product generates external costs, the social demand is less than the market demand.

If North Korea is currently producing at efficiency and it proceeds to increase the size of its military, then, if nothing else changes, production possibilities curve will shift outward. production possibilities curve will shift inward. production of nonmilitary goods will increase. production of nonmilitary goods will decrease.

production of nonmilitary goods will decrease. When producing along a production possibilities curve, the only way to expand production of one good or service would be to reduce production of an alternative.

An advantage of set-aside programs over price support programs is that they reduce the price of agricultural goods. transfer more income to farmers. raise the price of agricultural production but do not lead to a surplus of output. affect the demand side as well as the supply side of the farm problem.

raise the price of agricultural production but do not lead to a surplus of output. Set-asides reduce the production of food and are the easiest way to increase farm prices without creating a surplus. Congress does this by paying farmers for voluntary reductions in crop acreage.

If peanut butter and jelly are complementary goods, an increase in the price of peanut butter will, ceteris paribus, increase the quantity demanded of jelly. increase the quantity demanded of peanut butter. reduce the demand for jelly. increase the demand for jelly.

reduce the demand for jelly. Complementary goods are frequently consumed in combination; when the price of DVDs rises, fewer will be purchased and therefore the demand for DVD players will fall.

The entry of firms into a market increases the equilibrium price. reduces the profits of existing firms in the market. shifts the market supply curve to the left. shifts the market demand curve to the left.

reduces the profits of existing firms in the market. As more firms enter a market, the market supply curve will shift to the right and cause the market price to drop along with profits

The Social Security tax is a progressive tax. regressive tax. proportional tax. proportional tax at low income levels and a progressive tax at higher income levels.

regressive tax. Social Security taxes are only levied on wage earnings and are not levied on income above the ceiling. As a result, workers with income from nonwage sources or workers with salaries above the ceiling pay a smaller fraction of their total incomes to Social Security.

Suppose that if your income is $50,000, your tax is $5,000, but if your income is $100,000, your tax is $8,000. Such a tax is a.progressive. b. regressive. c. proportional. d. an excise tax.

regressive. At an income of $50,000, 10% (5,000/50,000) is paid in taxes, but at income of $100,000, 8% (8,000/100,000) is paid in taxes. Because the percentage decreases with income, this is a regressive tax

If a firm finds that its marginal cost is greater than its price, it a. should reduce production. b. is maximizing its total revenue. c. is maximizing its profit. d. should increase production.

should reduce production. If MC exceeds price, a firm is spending more to produce that extra unit than it is getting back in revenue; total profits will decline. Hence a firm should decrease production whenever the price is less than MC.

Normal profit implies that a. economic profit must be positive. b. the factors employed are earning as much as they could in the best alternative employment. c. economic profit must be negative. d. firms will expand their scale of production

the factors employed are earning as much as they could in the best alternative employment. Normal profit is the profit made that covers all explicit costs and implicit costs but does not include any profit above and beyond what could have been made with those resources used elsewhere.

Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because the price of the fourth plate is too high. he has reached the point of increasing marginal utility. the marginal utility of the fourth plate would no longer be positive. his total utility would increase with the fourth plate of food.

the marginal utility of the fourth plate would no longer be positive. As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative or zero, consumption of one more good will decrease total utility or not add to utility at all.

Supply is very inelastic when the quantity supplied changes little when the price increases. the quantity supplied changes a lot when price increases. the quantity supplied does not change at all when price increases. the quantity supplied changes only when demand changes.

the quantity supplied changes little when the price increases. Inelastic supply means that the quantity supplied by producers will change little when the price increases. For example, if natural gas prices rise, it may take producers a while to produce more if labor or equipment is scarce.

A payoff matrix shows the risks and rewards of alternative decision options. the payoffs of one firm always choosing to price low. what companies will do no matter what the other firm does. the losses from strategic decisions of two countries.

the risks and rewards of alternative decision options. A payoff matrix shows either the profit or the loss for one firm given the choices of another firm.

The goal of the consumer in a market economy is to use their limited income to buy a. the goods and services that maximize profits for businesses. b. the greatest number of goods and services possible. c.those goods and services with the lowest prices. d.the set of goods and services that maximizes the consumer's total utility.

the set of goods and services that maximizes the consumer's total utility. Consumers are motivated by their desire to maximize their utility, or satisfaction.

The goal of most business firms in a market economy is to maximize total profits total sales. total utility. total welfare.

total profits Most businesses are motivated by profits.

(Figure 23.5) If a perfectly competitive firm produces the level of output corresponding to point B in the short run, it will earn a. a profit, although not the maximum profit possible. b. a loss. c. zero economic profit. d. the maximum accounting profit possible.

zero economic profit. Firms will make zero economic profits when the profit per unit is zero (P = ATC).

What is the marginal cost of the 120th unit of output? $1.20 $200.00 $208.00 $288.00

288 According to the graph, marginal cost is equal to $288 at the quantity 120.

On average, U.S. output has grown by roughly ____ percent per year since 1900. 9 6 3 1

3 Living standards can rise when real GDP is growing at a greater percentage than population.

Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two firms has sales of $25 million. The Herfindahl-Hirschman Index (HHI) of this industry is 2,500. 3,750. 2,550. 3,125.

3,750. The HHI is equal to the sum of the scares of the market share of each firm in the industry. Therefore, if you take the square of 50 percent and add it to the square of 25 percent multiplied by 2 (because there are 2 firms with 25 percent market share), you will get an HHI of 3,750.

Table 19.3) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. The marginal utility per dollar of the third pretzel is Michael's Utility Schedule 4. 5. 6. 1

4 The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the third pretzel is 16 and the price of a unit of pretzel is $4. So 16 / 4 = 4.

(Figure 24.2) The profit-maximizing level of output is between 2 and 3 units. between 4 and 5 units. 4 units. between 5 and 6 units.

4 units. Profit is maximized at the output level where MR is equal to MC, at an output level of 4.

(Table 19.3) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. The marginal utility per dollar of the second cola is Michael's Utility Schedule 4. 10. 6. 12.

4. The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the second cola is 32, so the marginal utility per dollar is 32 / 8 = 4.

(Table 19.1) Josh is eating pizza at his favorite Italian restaurant. The marginal utility Josh enjoys from the fourth slice of pizza is 0 utils. 54 utils. 20 utils. 5 utils.

5 utils. Marginal utility is the change in total utility as a buyer consumes more units of a good. The change in marginal utility from the third to the fourth slice of pizza is 59 − 54 = 5.

(Figure 1.1) At which point might society be able to produce if new resources were discovered but cannot produce with current resources? A B C D

A Production points inside the production possibilities curve are possible for an economy to achieve but represent inefficient outcomes. Points along the curve indicate possibilities that utilize all resources efficiently while points outside the curve are not possible with current resources and technology.

The effect of a bumper wheat crop in the Midwest is best represented in panel a b c d

B The supply of wheat increases when a there is a bumper crop, causing the supply curve to shift to the right.

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her. Dad says her cost is $9,000, and Mom says her cost is $2,400. Dad says her cost is $31,000, and Mom says her cost is $35,000. Dad says her cost is $25,000, and Mom says her cost is $16,600. Dad says her cost is $31,000, and Mom says her cost is $47,600.

Dad says her cost is $31,000, and Mom says her cost is $47,600. Profit is equal to revenue minus costs. An accountant will consider only explicit costs, whereas an economist will consider economic costs, which include explicit and implicit costs.

Which of these scenarios is an example of price discrimination? a. Cereal manufacturers put discount coupons inside their cereal boxes. b. Wholesale prices differ from retail prices. c. Senior citizens pay one price at the movie theater while other adults pay more. d. Goods are marked down on sale.

Senior citizens pay one price at the movie theater while other adults pay more. If senior citizens pay one price at the movie theater, and other adults pay a different price, this is an example of price discrimination. Price discrimination occurs when individuals pay different prices for the same good.

How will a decrease in technology from a natural disaster such as a hurricane, ceteris paribus, affect an economy's production possibilities curve? a. There will be a movement along the curve. b.There will be a movement from a point inside the curve to a point on the curve. c. The curve will shift the curve inward. d.The curve will shift the curve outward.

The curve will shift the curve inward. Ceteris paribus, if there is a power outage or infrastructure decay, the production possibilities curve will shift inward.

Suppose both the demand for and supply of salsa increase (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of salsa? a. Both the equilibrium price and equilibrium quantity decrease. b. Both the equilibrium price and equilibrium quantity increase. c. The equilibrium quantity increases, but the change in the equilibrium price cannot be determined. d. The equilibrium price increases, but the change in the equilibrium quantity cannot be determined.

The equilibrium quantity increases, but the change in the equilibrium price cannot be determined. An increase in demand causes the equilibrium price and equilibrium quantity to increase. An increase in supply causes the equilibrium price to decrease and equilibrium quantity to increase. Therefore, it is certain that the quantity will increase, but the change in price is indeterminate.

When the average total cost curve is rising, the marginal cost curve will be below the average fixed cost curve falling with greater output. above the average total cost curve. below the average total cost curve.

above the average total cost curve. If the marginal cost is greater than the average total cost, the average total cost must be increasing. For instance, if you have a 3.5 GPA (grade point average) and get a 4.0 in your last (marginal) economics class, your GPA will rise.

The most common form of nonprice competition is collusion. advertising patents. predatory pricing.

advertising. The goal of nonprice competition is to influence demand. Advertising is an effective way to enhance market power by changing consumer tastes.

The "guns versus butter" dilemma that all nations confront is that: a. only guns and butter can be produced in developing economies. b. an increase in national defense implies more sacrifices of civilian goods and services. c. guns and butter can be produced using the same resources at the same time. d. an increase in national defense is possible only if we produce more butter.

an increase in national defense implies more sacrifices of civilian goods and services. This dilemma is an analogy that highlights how societies often face a trade-off between military goods and civilian goods.

If demand is elastic, then a. an increase in price will reduce total revenue. b. an increase in price will increase total revenue. c. a decrease in price will reduce total revenue. d. a decrease in price will have no effect on total revenue.

an increase in price will reduce total revenue. Total revenue equals price times quantity. With elastic demand, an increase in price will cause a large fall in quantity demanded that is greater than the price increase. The result is that total revenue will fall as the price rises if the demand is elastic.

If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is a. a normal good. b. an inferior good. c. an irregular good. d. a substandard good.

an inferior good. If sales of a particular vehicle fall when incomes increase, the vehicle is an inferior good.

Table 3.1) If the price is $4, the market will Table 3.1 Individual Demand and Supply Schedules be in equilibrium. experience a surplus of 30 units. experience a shortage of 22 units. experience a surplus of 56 units.

be in equilibrium. Refer to Table 3.1. Quantity demanded (30) is equal to quantity supplied (30) at a price of $4.

If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that the sign on the cross-price elasticity will be negative .both goods are normal goods. both goods are substitute goods because the cross-price elasticity is +0.5. both goods are substitute goods because the cross-price elasticity is +2.

both goods are substitute goods because the cross-price elasticity is +2 The formula for cross-price elasticity is the percentage change in the quantity demanded for Pepsi, divided by the percentage change in the price of Coke. So, +10 / +5 = +2, and the two goods are substitutes.

Product differentiation occurs when a completely new process is used to produce a familiar product. one firm produces many varieties of a product. buyers perceive differences in the products of several companies. sellers perceive differences in the products of several companies.

buyers perceive differences in the products of several companies. Product differentiation, a characteristic of monopolistic competition, occurs when one product is different (actually or perceived) from competing products in the same market by consumers.

Which of the following is not an example of price discrimination by the only movie theater in town? a. charging a lower price for people over the age of 65 b. charging one price at all times for all customers c. charging a lower price for matinees d. charging a lower price for children under the age of 12

charging one price at all times for all customers Price discrimination occurs when a producer sells a good to different customers at different prices; therefore, charging one price at all times for all customers certainly is not an example of price discrimination.

Externalities measure: only costs of a market activity borne by a third party. only benefits of a market activity borne by a third party. either costs or benefits of a market activity borne by a third party. the size of markets external to an economy.

either costs or benefits of a market activity borne by a third party Externalities are benefits received or costs paid indirectly by third parties to a market transaction. Externalities are by-products of a market transaction affecting bystanders.

The theory of public choice a. explains the selfless pursuit of public goals by public servants. b. examines how a policy of laissez-faire works to allocate resources. c. examines why the public rejects so many bond referendums. d. emphasizes the self-interest of decision makers and voters.

emphasizes the self-interest of decision makers and voters. Public choice is the theory of public sector behavior emphasizing rational self-interest of decision makers and voters.

The demand curve confronting a competitive firm a. equals the marginal revenue curve. b. slopes downward, and the marginal revenue curve is below it. c. is horizontal, as is the market demand curve. d. slopes downward, while the market demand curve is horizontal.

equals the marginal revenue curve. Because a competitive firm can sell all its output at the prevailing price, the marginal revenue will always be equal to price, and the MR curve will be equal to the demand curve.

In long-run perfectly competitive equilibrium, marginal cost a. is greater than ATC. b. Equals the minimum of the AVC. c. equals the minimum of the ATC. d. is less than ATC.

equals the minimum of the ATC. Competition drives costs down to their bare minimum, the hallmark of economic efficiency. This is illustrated by the tendency of perfectly competitive firms' prices to be driven down to the level of minimum average costs.

Farm price support programs most often take the form of price ceilings, which cause shortages. floors, which cause shortages. ceilings, which cause surpluses. floors, which cause surpluses.

floors, which cause surpluses. Price supports have always been the primary focus of U.S. farm policy. As early as 1926, Congress decreed that farm products should sell at a fair price. By "fair," Congress meant a price higher than the market equilibrium. A price floor creates a market surplus

The income distribution of the United States is basically the nation's answer to the a. for whom question. b.how question. c.what, how, and for whom questions. d.what question.

for whom question. Who ultimately gets the goods and services will shape the income distribution in a nation.

Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls, good X is an inferior good and good Y is a normal good. good X is a normal good and good Y is an inferior good. goods X and Y are substitute goods. goods X and Y are complementary goods.

good X is a normal good and good Y is an inferior good. A normal good is a good for which demand increases when income rises, while an inferior good is a good for which demand falls when income rises.

A rightward shift in a demand curve and a leftward shift in a supply curve both result in a lower equilibrium price. lower equilibrium quantity. higher equilibrium price.

higher equilibrium price. An increase in demand causes the equilibrium price and equilibrium quantity to increase. A decrease in supply causes the equilibrium price to increase and equilibrium quantity to decrease.

Greater labor productivity means lower output per labor-hour. higher labor cost per unit of output.lower output per worker. higher output per worker.

higher output per worker When labor productivity increases, it means that each worker can add more to the total output than before.

Elasticity of supply tells us a. how much sellers will change their price as their quantity supplied changes. b.how much supply responds to a change in quantity demanded. c.how much producers will increase production with changes in consumers' income. d. how much sellers will increase production in response to a change in price

how much sellers will increase production in response to a change in price. Elasticity of supply looks at how responsive suppliers are to changes in price.

According to the law of increasing opportunity costs, a. the more one is willing to pay for resources; the smaller will be the possible level of production. b. prices will always increase as production levels rise. c. in order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods. d. increasing the production of a particular good will cause the price of the good to remain constant.

in order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods. A production possibilities curve's slope indicates opportunity costs, so increasing opportunity costs would be represented with a bowed line. As production of one good increases, the line would indicate that the economy would need to sacrifice greater amounts of alternative goods.

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should increase the price of its coffee. decrease the price of its coffee. keep the price constant since a price increase or decrease will cause total revenue to fall. advertise since this is the only option that will increase total revenue.

increase the price of its coffee. Higher prices result in higher total revenue only if the price elasticity of demand is inelastic (price elasticity is less than 1).

Which of the following would cause a firm's production function to shift upward? a. an increase in production by the firm b. increased training for the firm's workers c. hiring more workers d. an increase in factor costs

increased training for the firm's workers Advances in technological or managerial knowledge and human or physical capital increase our productive capability and therefore cause the production function to shift upward.

According to the law of demand, during a given period of time, the quantity of a good demanded increases as its price rises, ceteris paribus. increases as its price falls, ceteris paribus. decreases as its price falls, ceteris paribus. does not change when price changes.

increases as its price falls, ceteris paribus. Quantity demanded of an item and price of the same item are inversely related.

If profit regulation is used to control a natural monopolist, the monopolist is likely to attempt to reduce the costs of production. inflate or pad the costs of production. increase the quality of its product in an effort to increase sales. reduce the maintenance of plants and equipment.

inflate or pad the costs of production If a firm is permitted a specific profit rate (or rate of return), it has no incentive to limit costs. On the contrary, higher costs imply higher profits. If the firm is permitted to charge 10 percent over unit costs, a monopolist may be better off with average costs of $6 rather than only $5. The higher costs translate into 60 cents of profit per unit rather than only 50 cents, even though the profit rate is the same

A natural monopoly is a desirable market structure because it allows the producer to earn greater profit than is possible under competition. it allows the producer to deliver a higher-quality product to the market. it allows the producer to deliver products to the market at the lowest possible cost. the jobs it creates pay higher wages than those in a competitive industry.

it allows the producer to deliver products to the market at the lowest possible cost. A natural monopoly is a desirable market structure because it generates pervasive economies of scale. Because of these scale economies, a natural monopoly can produce some products for consumers more efficiently than if more than one firm existed.

If an economy is producing inside the production possibilities curve, then there is full employment of resources. it is operating efficiently. it can produce more of one good without giving up some of another good. there are not enough resources available to produce more output.

it can produce more of one good without giving up some of another good. A production possibilities curve shows the possible combinations of goods and services an economy can efficiently produce, given its available resources and technology. Points along the curve indicate resources are being used efficiently, while those inside indicate that the economy is utilizing resources inefficiently.

According to the text, one argument in favor of concentration of market power is that a. market power results in higher prices and lower quantities. b. market power always increases incentives for innovation and invention. c. the exercise of market power provides a more desirable mix of output. d. large firms can sometimes produce more efficiently than small firms because of economies of scale in production.

large firms can sometimes produce more efficiently than small firms because of economies of scale in production. A large firm with economies of scale can produce goods at a lower unit (average) cost than a small firm. If such economies of scale exist, we could attain greater efficiency (higher productivity) by permitting firms to grow to market-dominating size.

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces the same output and charges the same price as the competitive industry. more output and charges a higher price than the competitive industry. less output and charges a lower price than the competitive industry. less output and charges a higher price than the competitive industrY.

less output and charges a higher price than the competitive industry. When compared to a competitive market, monopolists tend to charge a higher price and produce a lower level of output.

Economic profit is greater than accounting profit by the amount of implicit cost. greater than accounting profit by the amount of explicit cost. less than accounting profit by the amount of implicit cost. less than accounting profit by the amount of explicit cost.

less than accounting profit by the amount of implicit cost. Accounting profit refers to revenue minus explicit dollar outlays made by a producer. Economic profit, in contrast, refers to revenue minus the value of all costs, both explicit and implicit. Therefore, economic profit will be less than accounting profit when implicit costs exist

A monopolist will find that its marginal revenue curve a. lies above its demand curve and is flatter than its demand curve. b. lies below its demand curve and is steeper than its demand curve. c. lies below its demand curve and has the same slope as its demand curve. d. is the same as its demand curve.

lies below its demand curve and is steeper than its demand curve. If a firm must lower its price to sell additional output, marginal the revenue is less than the price. For example, if the price is $5 when the quantity is 1 and the price falls to $4 when the quantity is 2, the MR of the second unit is $3 ($8 − $5), which is less than the price of $4.

A monopolistically competitive industry is characterized by ________ concentration ratios and ________ entry barriers high; high high; low low; high low; low

low; low Monopolistically competitive markets have low barriers to entry and low or modest concentration ratios.

If a firm that pollutes wants to maximize its profits, it will produce where the social value of production equals the social cost of production. private and social costs are equal. marginal revenue and private marginal cost are equal. social benefits exceed social costs.

marginal revenue and private marginal cost are equal. Society maximizes total welfare at the output rate where social marginal benefit is equal to social marginal cost. If the social marginal cost is less than the social marginal benefit, society can increase its welfare by producing more. If the social marginal cost exceeds the social marginal benefit, society should reduce its output.

In monopoly and perfect competition, a firm should expand production when a. marginal revenue is below marginal cost. b. marginal revenue is above marginal cost. c. price is below marginal cost. d. price is above marginal cost.

marginal revenue is above marginal cost. If an extra unit brings in more revenue than it costs to produce (MR - MC), it is adding to total profit. Hence a firm will want to expand its rate of production whenever MR exceeds MC.

Regulation is appropriate if government failure exists. market failure exists and the benefits of regulation exceed the costs. it improves market outcomes regardless of costs. an economic profit is being earned.

market failure exists and the benefits of regulation exceed the costs. Assuming regulation improves market outcomes, its use is appropriate only if the anticipated improvements in market outcomes outweigh the economic cost of regulation.

In the short run, a monopolistically competitive firm may make economic profits, but it fails to make economic profits in the long run because of the entry of new firms. may make profits just as it does in the long run because firms can enter easily. produces at a rate at which long-run average cost equals price, but not at which long-run marginal cost equals marginal revenue. makes profits just as it does in the long run because entry is blocked.

may make economic profits, but it fails to make economic profits in the long run because of the entry of new firms Given the ease of entry and exit in perfect and monopolistic competition markets, as long as firms are making a profit or losing money, firms will enter or exit the market and the disappearance of economic profits (losses) is inevitable. This means that firms will produce where MR = MC and where price = ATC.

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because the demand for its product is typically very price-elastic. its demand curve is horizontal. of product differentiation and brand loyalty. of the gap in its marginal revenue curve.

of product differentiation and brand loyalty A monopolistically competitive firm confronts a downward-sloping demand curve for its output because of brand loyalty and product differentiation. So when a company increases the price of its product, it loses some customers, but not all or even most of them.

The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is monopolistic competition. monopoly. oligopoly. perfect competition.

oligopoly. Because an oligopoly is a market that includes only a few firms, strategy is very important

Given that resources are scarce a "free lunch" is possible, but only for a limited number of people. opportunity costs are experienced whenever choices are made. poor countries must make choices, but rich countries with abundant resources do not have to make choices. some choices involve opportunity costs while other choices do not.

opportunity costs are experienced whenever choices are made. Because resources are limited, we must always make choices about how best to use them. Whenever we do, we give up the opportunity to use those resources differently and these represent opportunity costs

(Figure 21.1) The marginal physical product of labor is negative for the fifth worker. third worker. fourth worker. sixth worker.

sixth worker. If total output decreases with the addition of a new worker, the marginal physical product is not only diminishing but is actually negative.

The opportunity cost of studying for an economics test is negative because it may improve your grade. zero because you knew when you registered for the class that studying would be required. the money you spent on tuition for the class. the activity that is the best alternative use of your time.

the activity that is the best alternative use of your time. Because resources are limited, we must always make choices about how best to use them. Whenever we do, we give up the opportunity to use those resources differently and these represent opportunity costs

Per capita GDP is the sum of consumer goods, investment goods, government services, and net exports. a dollar measure of the economic growth rate of a country. the value of the factors of production used to produce output in a country. the dollar value of GDP divided by total population.

the dollar value of GDP divided by total population. Per capita GDP is an important measure of economic well-being because it describes how much income per person an economy generates.

A natural monopoly occurs because of legal restrictions preventing entry into the industry. the existence of economies of scale. low fixed costs. high marginal costs

the existence of economies of scale. A combination of high fixed costs and very low marginal costs of a natural monopoly generates a unique, downward-sloping ATC curve (economies of scale) over the entire range of relevant output.

If someone invents a more cost-effective way to produce frozen pizzas, then the market supply curve for frozen pizzas will shift to the right. the market supply curve for frozen pizzas will shift to the left. there will be a movement up along the market supply curve for frozen pizzas. there will be a movement down along the market supply curve for frozen pizzas.

the market supply curve for frozen pizzas will shift to the right. Technological improvements that reduce the cost of production will improve profit margins at every price level, which will increase supply.

Suppose the government allows these two firms to trade pollution permits. The most efficient transaction would result in zero pollution. the steel plant reducing its emissions. the paper plant reducing its emissions. both plants reducing their emissions.

the paper plant reducing its emissions Because the paper plant can reduce its first and second tons at a lower cost than the steel plant can its first ton, the paper plant will reduce its pollution by two tons and the steel plant will pay the paper plant for assuming the added abatement responsibility.

If population growth is less than output growth for a country, real GDP has decreased. average living standards will decrease. GDP must have fallen at a rapid rate. the per capita living standard will increase.

the per capita living standard will increase If the percentage change in the numerator (real GDP) increases faster than the percentage change in the denominator (population), per capita living standards will increase.

If the demand for a product is elastic, then the percentage change in quantity demanded is greater than the percentage in price. the percentage change in price is greater than the percentage change in quantity demanded. the change in the quantity demanded is greater than the change in income. buyers are not very sensitive to a change in price.

the percentage change in quantity demanded is greater than the percentage in price When demand for a product is elastic, the percentage change in quantity demanded is greater than the percentage change in price

In a perfectly competitive industry, economic profit can persist in the long run because of barriers to entry. can persist in the long run because of homogeneous products. will approach zero in the long run as prices are driven to zero. will approach zero in the long run as prices are driven to the level of average production costs.

will approach zero in the long run as prices are driven to the level of average production costs. If economic profits exist in an industry, more firms will want to enter it. As they do, the market supply curve will shift to the right and cause the market price to drop until the profits are normal.