Econ Test 2

Which of the following capture the conditions under which firms will shut down?(two reasons)

1. if price is less than average variable cost even when the firm produces at the level of output that maximizes average variable cost 2. if the firm's revenue is less than the firm's variable cost at all levels of output

supply curves are upward sloping in part because(2 reasons)

1. individual suppliers already in the market will be wiling to turn to more costly production techniques to supply more of the product 2. firms with a higher opportunity cost of producing the product will be willing to start supplying the product

If market equilibrium is efficient then: (2 things)

1. its not possible to find a transaction that will make some people better off without harming others 2. economic surplus is maximized, enabling society to more easily achieve its goals

Consider a market for surfboards in which there are 5 potential buyers. The first has a reservation price(RP) pf 100 the second has an RP of 200 the third has an RP of 300 the fourth has an RP of 400 and the fifth has an RP of 500. If surfboards sell for 350 and if each potential buyer only wants one, what will be the total consumer surplus in this market?

200

Firms in perfectly competitive markets face demand curves that are A. perfectly inelastic B. unit elastic C. perfectly elastic

C. Perfectly elastic

If pasta is a normal good, and the price of pasta increases, then the income effect will lead to

a decrease in the quantity of pasta demanded

Average variable cost is

a firm's variable cost divided by total output

The demand curve facing a firm in a perfectly competitive market is:

a horizontal line at the equilibrium price

normal profit=

accounting profit- economic profit

Technological innovations in production process tend to increase supply because they _________ marginal cost

decrease

The rationing function of price is to

distribute scarce goods to those consumers who value them most highly

If a firm's economic loss is $10,000 then its ________ is -$10,000

economic profit

A firm's profit maximizing level of output will not change when the firm's ______ cost changes

fixed

If the marginal cost of producing an additional unit of a good is less than the price if that good, then the firm should

increase production

The affordable combination of goods that yields the highest total utility for a customer

is the optimal combination of goods for a consumer

As output changes from one level to another, the change in total cost divided by the corresponding change in output is the firm's _____ cost

marginal

If all firms in a market earn zero economic profit, then we would expect

neither entry into nor exit from the market

The prices listed on the menu at your favorite restaurant are _______ prices

nominal

The dollar price of a good relative to the average dollar price of all other goods is the ______ of a good

nominal price

If the marginal cost of producing the 500th unit of a good is a greater than price of a that good, then the firm should

not produce the 500th unit

The theory of the invisible hand states that the actions of independent self-interested buyers and sellers will ________ result in the most efficient allocation of resources

often

Firms in a perfectly competitive markets face demand curves that are (elasticity)

perfectly elastic

The party of the payment for a factor of production that is greater than the owners reservation price is called economic _______

rent

In the short run, a profit maximizing firm will not produce anything if

the firm's revenue is less than its variable cost at all levels of production

Normal profit is equal to

the opportunity costs of the resources supplied by the firms owners

The total amount of that consumers would be willing to pay, in the aggregate, for the right to participate in a market in

total consumer surplus in that market

The total amount that consumers would be willing to pay, in the aggregate, for the right price to participate in a market is

total consumer surplus in that market

If the marginal utility gained from the last dollar spent on one good is higher than the marginal utility spend on another good then spending should be reallocated ______ the good for which the marginal utility from the last dollar spent is the highest.

toward

The process whereby people allocate their income between different goods and services in order to maximize their total satisfaction is known as

utility maximization

The Equilibrium Principle States

when the market is in equilibrium, there are no further opportunities for gain available to individuals