Econ222

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11 and 0.29 for products W, X, Y and Z. A 1% decrease in price will increase total revenue in the case of

W and Y

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan was $30. Jennifer experiences

a consumer surplus of $9 and Nathan experiences a producer surplus of $3

An explicit cost is

a money payment made for resources not owned by the firm itself

A purely competitive seller is

a price taker

When the percentage change in price is greater than the resulting percentage change in quantity demanded

an increase in price will increase total revenue

Economists would describe the US automobile industry as

an oligopoly

Fixed cost is

any cost that does not change when the firm changes it output

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

If X is a normal good, a rise in money income will shift the

demand curve for X to the right

The law of diminishing marginal utility explains why

demand curves slope downward

If a competitive industry is neither expanding nor contracting, we would expect

economic profits to be zero

The price elasticity of demand of a straight-line demand curve is

elastic in high-price ranges and inelastic in low-price ranges

A producers minimum acceptable price for a particular unit of a good

equals the marginal cost of producing that particular unit

If competitive industry Z is making substantial economic profit, output will

expand in industry Z as more resources will move to that industry

To the economist, total (economic) cost includes

explicit and implicit costs

Assume product A is an input in the production of product B. In turn, product B is a complement to Product C. We can expect a decrease in the price of A to

increase the supply of B and increase the demand for C

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from 3 Pepsi's is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer

If the demand for product X is inelastic, a 4% increase in the price of X will

decrease the quantity of X demanded by less than 4%

Where total utility is at a max, marginal utility is

zero

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were zero

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firms total fixed costs are

$5,000

In which of the following cases will total revenue increase?

Price rises and demand is inelastic

In moving along a supply curve, which of the following is not held constant?

The price of the product for which the supply curve is relevant

One can say with certainty that equilibrium price will decline when supply

increases and demand decreases

College students living off campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed mac and cheese are

inferior goods

The price of product X is reduced from $100 to $90 and as a result the quantity demanded increases from 50 to 60 unites. Therefore, demand for X in this price range

is elastic

An efficiency loss (or deadweight loss)

is measured as the combined loss of consumer surplus and producer surplus

Assume the XYZ corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

is realizing an economic profit of $40

Consumer Surplus

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price

The utility of a good or service

is the satisfaction or pleasure one gets from consuming it

If a purely competitive firm shuts down in the short run

it will realize a loss equal to its total fixed costs

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

price

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

price and minimum average variable cost

The Law of Demand states that, other things equal

price and quantity demanded are inversely related

Other things equal, if the price of a key resource used to produce product X falls, the

product supply curve of X will shift to the right

An industry comprised of a very large number of sellers producing a standardized product is known as

pure competition

An increase in product price will cause

quantity demanded to decrease

The term "quantity demanded"

refers to the amount of a product that will be purchased at some specific price

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

relatively elastic

The demand schedules for such products as eggs, bread, and electricity tend to be

relatively price inelastic

An effective price floor will

result in a product surplus

A demand curve

indicates the quantity demanded at each price in a series of prices

Average Total Cost is

TFC + TVC / Q

The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, would be consistent with consumer equilibrium?

$6 and $4

Assume the price of product Y (vertical axis) is $15 and the price of product X (horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

1/5

Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10%, the quantity demanded will increase by

2% and total expenditures on bread will fall

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16% increase in sales implies a

20% reduction in price

The total output of a firm will be at a max where

MP is zero

An economist for a bicycle company predicts that other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

bicycles are normal goods

Suppose you find that the price of your product is less than minimum AVC. You should

close down because by producing your losses will exceed your total fixed costs

If competitive industry Y is incurring substantial losses, output will

contract as resources move away from industry Y

An indifference map implies that

curves farther from the origin yield higher levels of total utility

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) form or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the prices of resources used to produce X will

decrease S, increase P, and decrease Q

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20% increase in the price of beef will cause the quantity of beef demanded to

decrease by about 12%

A perfectly inelastic demand curve

graphs as a line parallel to the vertical axis

Accounting profits are typically

greater than economic profits because the former do not take implicit costs into account

To economists., the main difference between short run and the long run is that

in the long run all resources are variable, and in the short run at least one resource is fixed

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) form or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. If X is an inferior good, a decrease in income will

increase D, increase P, and increase Q

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) form or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a close substitute for X will

increase D, increase P, and increase Q

The equilibrium price and quantity in a market usually produce allocative efficiency because

marginal benefit and marginal cost are equal at that point

In the short run, the individual competitive firms supply curve is that segment of the

marginal cost curve lying above the average variable cost curve

The demand curve in a purely competitive industry is ________, while the demand curve to a single firm in that industry is _____

marginal revenue and marginal cost

An increase in quantity supplied is depicted by a

move from y to x- up from y to x

Assume that a 3% increase in income across the economy produces a 1% decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

negative and there X is an inferior good

Suppose that a 20% increase in the price of normal good Y causes a 10% decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

negative and therefore these goods are complements

The price elasticity of demand is generally

negative, but the minus sign is ignored

An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

oligopoly

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic

Assume that a 4% increase in income across the economy produces an 8% increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

positive and there X is a normal good

An improvement in production technology will

shift the supply curve to the right

A leftward shift of a product supply curve might be caused by

some firms leaving an industry

in 2007, the price of oil increases, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are

substitute goods and the higher price for oil increased the demand for natural gas

The income and substitution effects account for

the downward sloping demand curve

Which of the following is not a characteristic of the demand for a commodity that is elastic?

the elasticity coefficient is less than one

The more time consumers have to adjust to a change in price

the greater will be the price elasticity of demand

When the price of a product falls, the purchasing power of our money income rides and thus permits consumers to purchases more of the product. This statement describes

the income effect

Marginal product is

the increase in total output attributable to the employment of one more worker

At the output where the combined amounts of consumer and producer surplus are largest

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output

Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that

the price elasticity of demand for farm products is less than 1

The diamond water paradox occurs because

the price of a product is related to its marginal utility, not its total utility

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product

The MR=MC rule applies

to firms in all types of industries

A firm reaches a break even point (normal profit position) where

total revenue and total cost are equal

The theory of consumer behavior assumes that consumers attempt to maximize

total utility

The equilibrium price and quantity for a market will be

where the demand and supply curve meet

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5