ECON TEST 2
The marginal cost curve intersects the minimum of the curve representing
ATC
When income falls, the demand for an inferior goods
increases
MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be
negative
A good is normal if the sign on the income elasticity formula is
positive
If the elasticity of demand is 3, and the price rises by 15 percent, then
quanity demanded will fall by 45 percent
At any given rate of output, the difference between total cost and fixed cost is
variable cost
Changes in short-run total costs result from changes in
variable costs
A demand curve that is perfectly inelastic is
vertical
fixed costs do not change
when the rate of output is change
If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will b
.5
Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is
.5
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
1.29
If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is
1.33
If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to
3.5
For product XYZ, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by
3.5 percent for each 1 percent decrease in price, ceteris paribus.
Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
6.3
Diminishing returns occur because
A firm increases the amount of a variable input without changing a fixed input.
Which of the following causes demand to be more elastic with respect to price?
A high ratio of price to income.
Suppose income falls 5 percent in a year, and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information, housing starts are
A normal good.
Which of the following statements is not true regarding the production function and the production possibilities curve?
A production function tells us the maximum amount of output attainable from the use of all resources.
If demand is elastic, then
An increase in price will reduce total revenue.
Higher prices will increase total revenue if
Demand is inelastic.
Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,
Fall by 3.5 percent.
A U-shaped average total cost curve implies
First marginal cost below average total cost, and then marginal cost above average total cost.
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 a normal good and good Y is an inferior good.
Cross-price elasticity refers to
How responsive consumers of one good are to a change in the price of another good.
Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?
In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.
Economic cost
Includes both implicit and explicit costs.
Which of the following is the best measure of the effects of a recession?
Income elasticity of demand.
If the elasticity of demand for cigarettes is 0.4, a seller should
Increase price to increase total revenue.
Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become
Less positive (move closer to zero)
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
Lower his price to increase revenue.
Ceteris paribus, the law of diminishing returns states that beyond some point, the
Marginal physical product of a factor of production diminishes as more of that factor is used.
Ceteris paribus, the longer the time period, the
More elastic the demand for the good.
If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,
New cars are a normal good, and the income elasticity is +2.0
Ceteris paribus, as the number of substitutes for a good increases, the
Price elasticity of demand should become larger.
The total revenue effect of a movement along a demand curve can best be predicted using the
Price elasticity of demand.
the total revenue effect of a movement along a demand curve can best be predicted using the
Price elasticity of demand.
Total revenue is
Price x Quantity
Price elasticity of demand shows how
Responsive the quantity demanded is to a change in price.
Marginal cost
Rises as a direct result of diminishing returns.
The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired for a full stadium, so assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to
Set the price of tickets at the unitary elasticity price.
Which of the following is not a determinant of the price elasticity of demand?
The amount of income the consumer has.
To find the average percentage change in price,
The change in price is divided by the average price.
To find the average percentage change in quantity demanded,
The change in quantity demanded is divided by the average quantity.
If demand is price-elastic, then
The elasticity number E is greater than 1.
Which of the following is the slope of the production function with respect to an input?
The marginal physical product of the input
The basic formula for price elasticity is
The percentage change in quantity demanded divided by the percentage change in price
If the demand for a product is elastic, then
The percentage change in quantity demanded is greater than the percentage in price.
formula for cross-price elasticity of demand
The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
If the marginal cost curve is rising, which of the following must be true?
Total costs must be rising.
A price change will have no effect on total revenue if demand is
Unitary.
Technically the elasticity number is negative because
When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
The short-run period
a period in which the quantity of some input cannot be changed
Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______.
fall; fall
average fixed cost
fixed cost divided by the quantity of output, always declines as Q increases, never touches horizontal axis.
If a good is inferior, its
income elasticity of demand is negative
If a good is normal, its
income elasticity of demand is positive
Total revenue is equal to
income from sales
The demand for normal goods
rise when income rise
When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore
subsitutes
A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?
the demand for salt is inelastic.
the law of diminishing returns suggest that at some point
the marginal physical product of an input declines as more is used