econ midterm

One reason economists have difficulty applying the scientific method is because

controlled laboratory experiments are often infeasible and sometimes impossible.

The most effective form of business organization for raising money to finance the expansion of its facilities and capabilities is a:

corporation

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

If average total cost is declining, then:

marginal cost must be less than average total cost.

Other things equal, if the prices of a firm's variable inputs were to fall:

marginal cost, average variable cost, and average total cost would all fall.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, the:

marginal product of the third worker is 9.

In pure competition, the average revenue of a firm always equals:

marginal revenue

From an economist's point of view, costs:

may or may not involve monetary outlays.

The simple circular flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through:

resource markets

An effective price floor will:

result in a product surplus.

One major advantage of limited liability is that it:

shields the personal assets of owners from liability claims.

A nation that devotes more of its resources to capital investment is likely to:

shift outward its production possibilities curve

what is the effect of a decline in the price of personal computers on the market for computer software?

shift right in demand curve

If the price of product L increases, the demand curve for close-substitute product J will:

shift to the right

The amount of calendar time associated with the long run:

varies from industry to industry

"Rivalry" in consumption means that:

when one person buys a good, it is not available for another person to buy.

If there is a shortage of product X, the price of the product

will rise.

Which is necessary to make a trade in a barter economy?

A coincidence of wants.

Which is an example of a negative externality?

Decreased property values in a neighborhood where several houses are burglarized.

Which of the following is most likely to be an implicit cost for Company X?

Depreciation charges on company-owned equipment

Which question is an illustration of a microeconomic question? Is the quantity of wine purchased in one year dependent upon the price of wine? Does government spending influence the total level of employment in the economy? Is the purchasing power of the dollar higher or lower today than it was in 2005? Is capitalism superior to socialism?

Is the quantity of wine purchased in one year dependent upon the price of wine?

What are the two characteristics that distinguish public goods from private goods?

Nonrivalry and nonexcludability.

Which is a feature of a purely competitive market?

Products are standardized or homogeneous

Under which market model are the conditions of entry into the market easiest?

Pure competition

There would be a unique product for which there are few close substitutes under which market model?

Pure monopoly

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do?

Shut down if the minimum possible average variable cost is $5.25.

Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?

What goods and services will be produced?

The economy of North Korea would best be classified as:

a command system.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

Diseconomies of scale mean that:

a firm's long-run average total cost curve is rising.

The federal income tax is consistent with the __________ principle of taxation, whereas an excise tax on sporting event tickets is consistent with the ___________ principle of taxation.

ability-to-pay; benefits-received

total cost:

add marginal costs

LRS is the long-run supply curve can be said to be:

an increasing-cost industry.

Purely competitive firms are assumed to:

be price takers

From an economic perspective, when a student decides to attend another year of college, the student has concluded that the marginal:

benefits of attending college are greater than the marginal costs.

The law of increasing opportunity cost explains why the shape of the production possibilities curve is:

bowed out (concave) from the origin of the graph.

In a circular flow model consisting of the household sector, the business sector, product markets, and resource markets:

businesses are sellers of products.

In product markets:

businesses sell goods and services to households.

Which is a factor of production?

capital

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Digital cameras and memory cards are:

complementary goods.

In 2000, McDonald's introduced the "McSalad Shaker." It turned out to be an unsuccessful product. In the marketplace for fast-food products, this lack of success is an example of:

consumer sovereignty

The term "dollar votes" means:

consumers "vote" for certain products to be produced by how they spend their incomes.

There will be a surplus of a product when:

consumers want to buy less than producers offer for sale.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

continue producing 1000 units.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. A decrease in the number of consumers of product X will:

decrease D, decrease P, and decrease Q.

Suppose an excise tax is imposed on product X. We would expect this tax to:

decrease the demand for complementary good Y and increase the demand for substitute product Z.

If there are external or spillover benefits associated with consumption and production of a product, it can be said that the:

demand curve understates the total benefit from the product and resources are underallocated to its production.

Because of free riders, the demand for a public good:

does not get expressed in the market, and the good does not get produced by private sellers.

Price is constant or "given" to the individual firm selling in a purely competitive market because:

each seller supplies a negligible fraction of total supply.

The institution of private property encourages:

easy exchange of some property because a formal title or deed exists

In a market system, well-defined property rights are important because they:

encourage economic activity.

Economic resources in the capitalist system are brought together by:

entrepreneurs

In long-run equilibrium a purely competitive firm will operate where price is:

equal to MR, MC, and minimum ATC.

If supply increases and demand decreases...

equilibrium price will fall.

In short-run equilibrium, a competitive firm cannot earn economic profits.

false

t/f: Although state and local taxes are highly progressive, federal taxation is predominantly regressive.

false

t/f: Economic efficiency entails getting the smallest amount of output from a given level of input of scarce resources.

false

t/f: Economic profit is the difference between total revenue and marginal revenue.

false

t/f: Excludability means that buyers who are willing and able to pay the market price for the product do not obtain its benefits, but those unable or unwilling to pay that price do obtain the benefits.

false

t/f: Individual property rights are the right of the government to own, use, and dispose of resources in an economy.

false

t/f: Surpluses drive market prices up; shortages drive them down.

false

Consider a society that is producing inside its production possibilities frontier. This society could best achieve efficiency in its production of output by:

fully employing all available resources

The long-run average total cost curve:

has a shape that is the inverse of the law of diminishing returns.

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

increase and profits will decrease.

An increased demand for good X may be caused by

increase in the price of complementary good Y.

As a consequence of the condition of scarcity:

individuals and communities have to make choices from among alternatives.

Price floors and price ceilings:

interfere with the rationing function of prices.

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

it is encountering constant returns to scale.

Advantages of specialization do not include: increased production of economic goods with no increase in resources. the more efficient use of scarce resources. increased ability to utilize the division of labor. less interdependence.

less interdependence

regressive tax:

negative slope

The market system is said to be characterized by "consumer sovereignty." This is because:

of the major role of consumers in determining what goods are produced.

An increase in the quantity demanded means that:

price has declined and consumers therefore want to purchase more of the product.

If a good that generates negative externalities were priced to account for spillover costs, then its:

price would increase and its output would decrease.

In a market system...

prices serve to ration goods and services to consumers.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profit or minimize losses, the firm should:

produce less than 500 units.

Legal and social rules that affect the ownership of property are:

property rights

The role of an assumption in an economic theory is to:

simplify the theory

A movement along the production possibilities curve would imply that:

society has chosen a different set of outputs.

One major feature of the economic perspective is:

the assumption of purposeful behavior by individuals.

horizontal straight line

the firm has a perfectly elastic demand curve.

Implicit and explicit costs are different in that:

the former refer to nonexpenditure costs and the latter to out-of-pocket costs.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:

the owners themselves.

Which of the following is not a central focus of the "economic perspective"? Scarcity and choice The scientific method Purposeful behavior Marginal analysis

the scientific method

Competition is more likely to exist when:

there is free entry into and exit out of industries.

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. Refer to the above information. If nothing is done to correct this situation;

there will be an overallocation of resources to the production of paper goods.

Total cost minus total variable cost equals:

total fixed cost

in a competitive market, price and quantity will move

toward the equilibrium point

t/f: A point inside the production possibilities curve illustrates that resources are not being used as efficiently as possible.

true

t/f: A vertically integrated firm is a group of plants each operating at different stages of production.

true

t/f: Consumers buy more normal goods as their incomes rise.

true

t/f: In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

true

t/f: Macroeconomics is concerned with the whole economy or its major sectors.

true

t/f: Minimum efficient scale occurs at the smallest level of output at which a firm can minimize long-run average costs.

true

t/f: Specialization in production can occur based on geographic advantages.

true

In a free-market economy, a product that entails a spillover benefit will be:

underproduced

"Cap-and-trade" programs:

use private bargaining to establish the optimal quantity of emissions.