Econ Final Test Review

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

An imperfectly competitive firm is one that

has at least some influence over the market price.

An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:

anchoring and adjustment.

Refer to the accompanying table. The law of diminishing marginal utility:

applies to both Good A and Good B.

It is impossible for total utility to be ______ when marginal utility is ______.

decreasing; positive

Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that:

wants are unlimited and resources are scarce, so trade-offs have to be made.

Traditional economic models _______ the fact that people sometimes regret making decisions with perfectly predictable consequences.

cannot explain

One problem with antitrust laws is that they:

may prevent companies from achieving economies of scale.

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n):

perfect competitor.

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

perfectly elastic.

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output.

Total revenue minus both explicit and implicit costs defines a firm's:

profit.

The phenomenon that unusual events are likely to be followed by more nearly normal is known as:

regression to the mean.

The goal of utility maximization is to allocate your ______ in order to maximize your ______

resources; satisfaction

The law of demand indicates that as the cost of an activity:

rises, less of the activity will occur.

An increase in an economy's productive resources will lead the production possibilities curve to:

shift outward.

The tendency for marginal utility to decline as consumption increases beyond some point is called:

the law of diminishing marginal utility.

An increase in the quantity of tea demanded occurs if:

the price of the tea falls.

When it comes to enacting policy changes, loss aversion often leads to status quo bias because:

the resistance from those who stand to lose from the policy often overwhelms the support from those who stand to gain.

A prisoner's dilemma illustrates situations in which:

there is a conflict between the narrow self-interest of individuals and the broader interests of a group.

A commitment problem exists when people cannot achieve their goals because:

they cannot make credible threats or promises.

When marginal revenue is zero:

total revenue is maximized.

If marginal utility is positive, then as consumption increases:

total utility will increase.

The _______ is a game in which the first player has the power to confront the second player with a take-it-or-leave-it offer.

ultimatum bargaining game

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs.

The accompanying table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. What's the average benefit of 4 car washes per month?

$14

You save $10 on gas every week because you take the bus to school. You have class 5 days a week. What is your average benefit per day of taking the bus to school?

$2

If country A can produce more of practically everything than can country B, then which of the following statements is true?

Trade can benefit both countries.

The _______ assumes that people choose efficient means to achieve their ends, but it regards goals as objects of choice that are subject to a similar efficiency requirement.

adaptive rationality standard

The profit maximizing rule MR = MC applies to:

all firms

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:

an application of the Cost-Benefit Principle.

The price of bananas will increase in response to:

an excess demand for bananas.

Cartel agreements are difficult to sustain because

it's a dominant strategy for each cartel member to cheat on the cartel agreement.

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

its exclusive ownership of South African diamond mines.

The use of psychological incentives to solve commitment problems would be least effective in games played:

once between strangers

The ______ combination of goods is the combination that yields the highest total utility given a consumer's income.

optimal

If Doug has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will:

overestimate the dangers of air travel

The monopolist's total revenue from selling 3 units is ______, and the monopolist's marginal revenue from selling the 3rd unit is ______.

$24; 6

Which of the following is NOT a characteristic of a perfectly competitive market?

Each firm in the market sells a somewhat different variant of the good.

Shelter for homeless people is an example of:

need

After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as:

"wants."

Refer to the accompanying table below. The marginal cost of the 3rd unit of this activity is:

$20

Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is:

90

Refer to the accompanying figure. The marginal utility of the 7th pizza is

-5

Refer to the accompanying figure. The marginal utility of the 5th apple is:

-5.

Refer to the accompanying table. The marginal utility of the 4th dinner out per week is:

15.

Refer to the accompanying table. The total utility of consuming two dinners out per week is:

175.

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Dusty can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter.

20; 10

Refer to the accompanying figure. If this restaurant makes 75 salads in one hour, then what's the maximum number of pizzas it can make in that same hour?

30

Refer to the accompanying figure. The marginal utility of the 6th pizza is:

5

Refer to the accompanying figure. Moving from point C to point B, the opportunity cost of 25 more salads is:

5 pizzas.

Refer to the accompanying figure. The total utility of consuming two pizzas a week is

55

Refer to the accompanying table. The marginal utility of the 3rd dinner is:

60.

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product.

Which of the following statements is true?

Comparative advantage does not require absolute advantage.

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Joe is shopping for a new computer. A computer can be delivered to Joe's home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer?

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200.

_______ is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude:

Loss aversion

Blair has vast riches and consumes thousands of dollars' worth of consumer goods each week, yet she is never satisfied. Why not?

People's wants are unlimited.

The downward slope of the production possibilities curve illustrates the:

Scarcity Principle.

_______ is the general resistance to change, often stemming from loss aversion.

Status quo bias

Which of the following is the most likely to be a fixed factor of production at a farm?

The land on which the farm is located

Office workers and word processing programs are complements if:

a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.

Two goods are complements if:

an increase in the price of one good leads to a decrease in demand for the other.

Fungibility is the property of an entity whose individual units

are interchangeable

Suppose a cup of tea costs $0.60 and a scone costs $1.20. If Edith spends all of her income on these two goods, and at her current level of consumption, she receives a marginal utility of 6 utils from the last cup of tea she buys and a marginal utility of 24 utils from the last scone she buys, then Edith should:

buy less tea and more scones.

A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers.

higher than

If a monopolist's marginal revenue is $25 and its marginal cost is $19, then the monopolist should:

increase its output.

Economies of scale arise from:

increasing returns to scale.

Cory gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Cory:

is experiencing diminishing marginal utility.

In some countries, medical care is provided free-of-charge to citizens and is paid for by the government. In those countries, medical care:

is rationed by some non-monetary method.

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the first pie than from eating the third pie.

more

The slope of a production possibilities curve is ______ because ______.

negative; producing more of one good requires producing less of the other

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price.

According to the textbook, the owners of restaurants encourage tipping in order to:

solve a commitment problem with their wait staff.

In sequential games, the player who moves first:

sometimes has an advantage and sometimes has a disadvantage.

The ultimatum bargaining game is a game in which:

the first player confronts the second player with a take-it-or-leave-it offer.

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

the value she places on seeing the movie.

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. What is the opportunity cost of going to the concert?

$36

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?

$4

What might cause a demand curve to shift to the right?

An increase in the price of a substitute

Which of the following would be considered a factor of production in the provision of bus service?

Bus drivers

Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:

MUc/Pc will fall.

The long run is best defined as:

a period of time sufficiently long that all factors of production are variable.

The short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed.

A pure monopoly exists when

a single firm produces a good with no close substitutes.

Traditional economic models assume that people care about:

absolute consumption.

Any combination of goods that can be produced with currently available resources is an:

attainable point.

Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that producer:

can produce more of one good without producing less of the other good.

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:

consumer at the electronics store and a seller on e-Bay.

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to:

decrease.

In the realm of public policy, loss aversion makes it:

difficult to enact policy changes.

One reason the demand curve slopes ______ is that as prices fall ______.

downward; more people find that the price is now less than their reservation price.

A natural monopoly is a monopoly that arises from:

economies of scale

Refer to the accompanying figure. As Jeff watches more movies, his marginal utility:

gets smaller

The most important challenge facing a firm in a perfectly competitive market is deciding:

how much to produce.

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. As the market price of this good increases, the quantity produced by this seller will ______.

increase

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ______ with the first three pies you ate

increased

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

keeps the price of her lemonade the same and increases the output.

If Terry's total utility is maximized when he owns 10 pairs of shoes, then Terry's total utility from owning 7 pairs of shoes is ______ Terry's total utility from owning 8 pairs

less than

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost.

For all firms, the additional revenue collected from the sale of one additional unit of output is termed

marginal revenue.

The additional utility gained from consuming an additional unit of a good is called:

marginal utility.

The primary objective of most private firms is to:

maximize profit.

If a consumer buys two different goods, the rational spending rule requires that the:

ratio of marginal utility to price be equal for the two goods.

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

start-up costs; variable costs

Typically, when people use anchoring and adjustment to estimate something, the importance of _______ in influencing their assessment is too large.

the anchor

Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect:

the demand curve to shift to D(B) in anticipation of higher future prices.

The following accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The marginal benefit of upgrading from a 2.0GHz computer to a 2.5GHz computer is:

$400.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. What is John's opportunity cost of cleaning windows for an hour? The first hour John spends cleaning windows costs him ______ that he could have earned in the grocery store. How many hours a day should John spend cleaning windows? If we plot John's opportunity cost per window on the vertical axis and the number of windows cleaned each day on the horizontal axis, we will have John's ______ curve for window-cleaning services.

1. $7 2. $7 3. 2 4. supply

Refer to the accompanying figure. At a price of $3, there will be

an excess demand of 5 units.

In most markets, scarce goods or services are rationed among competing users using:

monetary prices.

If a country is producing at point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an:

efficient point.

The rational spending rule is derived from the consumer's desire to:

maximize utility.

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit.

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. Point Y is ______, and point V is ______.

efficient; efficient

Joaquin's marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3.00, then Joaquin:

should reallocate his spending towards pecan pie and away from pumpkin pie.