Economics, Econ Analysis & Business Decisions - Chapter 7 MC, ECON 325 Test 2, Chapter 8, Chapter 6, Chapter 4, Chapter 3, Chapter 1, Chapter 2, Econ Chapter 3,4,6,7 Review 1, Econ Chapter 3, Econ Chapter 4, Managerial Economics Exam

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to: 0. 1. infinity. the quantity.

0.

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to: 0.05. 0.5. 2. 5.

0.5

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to: A. 0.05. B. 0.5. C. 2. D. 5.

0.5.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Cathy of making a cake? A. 2/3 of a pie. B. 1 pie. C. 1.5 pies. D. 1.33 pies.

1.5 pies.

If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand? ½. 2. 10. 20.

2

If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand? A. ½. B. 2. C. 10. D. 20.

2.

Assume point A on a linear production possibilities curve represents the combination of 12 coffees and 3 cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and cappuccinos are on the horizontal axis. The absolute value of the slope of the production possibilities curve between points A and B equals: A. 6 B. 4 C. 3 D. 1/3

3

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______. A. 2/3; elastic B. 2/3; inelastic C. 3/2; elastic D. 3/2; inelastic

3/2; elastic

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______. 2; elastic 2; inelastic 4/3; elastic 3/4; inelastic

3/4; inelastic

Which of the following cost functions will exhibit both decreasing and increasing marginal costs? A) a cubic cost function B) a quadratic cost function C) a linear cost function D) All of the above

A) a cubic cost function

The method of estimating long-run costs in which knowledgeable professionals familiar with production facilities and processes calculate optimal combination of inputs to produce given quantities and then estimate costs is known as A) engineering cost estimating. B) the survivorship method. C) regression analysis. D) None of the above

A) engineering cost estimating.

Assuming the existence of economies of scale, if a firm finds that it can reduce its unit cost by decreasing its scale of production, it means that A) it has too much production capacity relative to its demand. B) it should try to produce less. C) the law of diminishing returns has not taken effect. D) it has too much fixed overhead relative to its variable cost.

A) it has too much production capacity relative to its demand.

Which level indicates the point of maximum economic efficiency? A) lowest point on AC curve B) lowest point on AVC curve C) lowest point on MC curve D) None of the above

A) lowest point on AC curve

The main factor that explains the difference between accounting cost and economic cost is A) opportunity cost. B) fixed cost. C) variable cost. D) All of the above help to explain the difference.

A) opportunity cost.

Which of the following is a relevant cost? A) replacement cost B) sunk cost C) historical cost D) fixed cost E) All of the above are relevant.

A) replacement cost

Short-run cost functions are estimated using A) time-series regression analysis. B) cross-sectional regression analysis. C) nominal cost data. D) present value cost data.

A) time-series regression analysis.

Changes in the short-run total costs result from changes in only A) variable costs. B) fixed costs. C) zero. D) total fixed costs.

A) variable costs.

Indifference Curve

All combinations of two goods that show same level of utility.

The major advantage of using cross-sectional analysis for long-run costs studies includes A) the inclusion in the sample of different plants of different sizes. B) the avoidance of having to adjust for inflationary trends. C) the avoidance of having to account for interregional cost differences. D) All of the above E) A and B above

E) A and B above

The demand for a product is likely to be more elastic

In the long run but less elastic in the short run

In the short run, the firm

Increases output by adding larger quantities of variable inputs to some fixed inputs

If the elasticity of demand for a particular good is 0.7, we would say that the demand for that good is:

Inelastic

When Detroit's bus fare increased from 40 to 60 cents, the number of riders decreased from 800 per week. Over the price range given, the demand curve for bus service in Detroit is

Inelastic 150/800 / 20/40 = 45

Points that lie beneath the production possibilities curve are: A. unattainable and inefficient B. unattainable but efficient C. attainable but inefficient D. attainable and efficient

attainable but inefficient

Any combination of goods that can be produced with currently available resources is an: A. attainable point. B. efficient point. C. inefficient point. D. attainable and efficient point

attainable point.

When the price of a good is below its equilibrium value, A. consumers will bid the price up. B. excess supply will occur. C. it will tend to stay below the equilibrium value. D. suppliers will notice their inventories are growing.

consumers will bid the price up.

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are: substitutes. normal goods. complements. inferior goods.

complements.

If the cross-price elasticity of demand between two goods is -1.2, then the two goods are: inferior. elastically demanded. complements. substitutes.

complements.

In a free market economy, the decisions of buyers and sellers are: random. motivated by custom and tradition. coordinated by the government. guided by prices.

guided by prices.

In general, when the supply curve shifts to the left and demand is constant then: the market cannot reestablish an equilibrium. the equilibrium price will fall. the equilibrium quantity will rise. the equilibrium price will rise.

the equilibrium price will rise.

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that A. the wage for teachers at those schools is higher than at other schools in the state. B. the wage for teachers at those schools is lower than the equilibrium wage. C. there is an excess supply of teachers. D. the reservation price among teachers is lower than for other professions.

the wage for teachers at those schools is lower than the equilibrium wage.

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests: students do not have good nutritional information. soda purchases represent a large fraction of students' budgets. there are few other places to purchase soda on campus. the price elasticity of demand for soda is equal to 1.

there are few other places to purchase soda on campus.

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that: A. there are fewer substitutes for Tyson chicken than for chicken generally. B. it takes a lot of time to adjust to a substitute brand of chicken. C. the share of income spent on "chicken" is larger than spent on "Tyson Chicken". D. there are fewer substitutes for chicken generally than for Tyson chicken.

there are fewer substitutes for chicken generally than for Tyson chicken.

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that: there are fewer substitutes for Tyson chicken than for chicken generally. it takes a lot of time to adjust to a substitute brand of chicken. the share of income spent on "chicken" is larger than spent on "Tyson Chicken". there are fewer substitutes for chicken generally than for Tyson chicken.

there are fewer substitutes for chicken generally than for Tyson chicken.

The use of economic models, like the cost-benefit principle, means economists believe that A. this is exactly how people choose between alternatives. B. this is a reasonable abstraction of how people choose between alternatives. C. those who explicitly make decisions this way are smarter. D. with enough education, all people will start to explicitly make decisions this way.

this is a reasonable abstraction of how people choose between alternatives.

Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be _______ because not all of the _________ are accounted for in the marketplace. too high; benefits too low; benefits too high; costs too low; costs

too low; costs

In perfect competition, if firms enter the market in the long run

total supply will increase causing market price to decrease

Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______. A. efficient; inefficient B. inefficient; efficient C. unattainable; attainable D. attainable; unattainable

unattainable; attainable

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is: elastic. inelastic. unit elastic. perfectly inelastic.

unit elastic.

Whether studying the size of the U.S. economy or the number of children a couple will choose to have, the unifying concept is that wants are A. limited, resources are limited, and thus tradeoffs must be made. B. unlimited, resources are limited, and thus tradeoffs must be made. C. unlimited, resources are limited to some but not to others and thus some people must make tradeoffs. D. unlimited, resources are limited, and thus government needs to do more.

unlimited, resources are limited, and thus tradeoffs must be made.

One concern regarding the North American Free Trade Agreement (NAFTA) was that it would lead: A. the total value of goods and services produced by the United States to fall. B. wages in Mexico to rise. C. highly skilled workers in the United States to lose their jobs. D. unskilled workers in the United States to lose their jobs.

unskilled workers in the United States to lose their jobs.

Supply curves are generally _______ sloping because _______________. downward; more consumers will buy the good if the price falls. upward; of the principle of increasing opportunity costs. downward; it is less expensive to mass-produce goods. upward; of inflation.

upward; of the principle of increasing opportunity costs.

Janie must either mow the lawn or wash clothes, earning her a benefit of $30 or $45, respectively. She dislikes both equally and they both take the same amount of time. Janie will therefore choose to _________ because the economic surplus is ________. A. mow; greater B. wash; greater C. mow; smaller D. wash; smaller

wash; greater

Marginal Utility

"The change" in total utility that results from consuming one more unit of a good.

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. The opportunity cost of attending State College is A. $30,000 B. $20,000 C. $15,000 D. $10,000

$15,000

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. The opportunity cost of attending Elite U is A. $50,000 B. $10,000 C. $20,000 D. $15,000

$20,000

Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dogsitting job that pays $30. The cost of seeing the movie is A. $7. B. $30. C. $37. D. $37 minus the benefit of seeing the movie.

$37.

If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be: $10 $7.50 $5 $6.25

$5

Suppose the most you would be willing to pay for a plane ticket home is $250, but you buy one online for $175. The economic surplus of buying the online ticket is: A. $175. B. $250. C. $75. D. $0.

$75.

Which of the following cost relationships is not true? A) AFC = AC - MC B) TVC = TC - TFC C) The change in TVC/the change in Q = MC D) The change in TC/ the change in Q = MC

A) AFC = AC - MC

When a firm increased its output by one unit, its AC decreased. This implies that A) MC < AC. B) MC = AC. C) MC < AFC. D) the law of diminishing returns has not yet taken effect.

A) MC < AC.

Average fixed cost is A) AC minus AVC. B) TC divided by Q. C) AVC minus MC. D) TC minus TVC.

A) AC minus AVC.

Which of the following is NOT a characteristic of a market in equilibrium? Excess supply is zero. All consumers are able to purchase an amount equal to their quantity demanded. Excess demand is zero. The equilibrium price is stable, i.e., there is no pressure for it to change.

All consumers are able to purchase an amount equal to their quantity demanded.

Which of the following is NOT a characteristic of a market in equilibrium? A. Excess supply is zero. B. All consumers are able to purchase as much as they wish. C. Excess demand is zero. D. The equilibrium price is stable, i.e., there is no pressure for it to change.

All consumers are able to purchase as much as they wish.

Law of Diminishing Marginal Utility

As people consume more of a good, eventually marginal utility falls.

When a firm's MC curve shifts to the right, it implies that A) new firms are entering the market. B) labor productivity is decreasing. C) labor productivity is increasing. D) the firm's overhead costs are decreasing.

C) labor productivity is increasing.

You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be? At the original price, the quantity demanded was greater than the quantity supplied. At the original price, there was a shortage of bakery products. The original price was an equilibrium price because it was established in a free market. At the original price, quantity supplied was greater than quantity demanded.

At the original price, quantity supplied was greater than quantity demanded.

Which of the following relationships implies that a firm's short-run cost function is linear? A) MC = AC B) MC = AVC C) AC = AFC + AVC D) MC > AC

B) MC = AVC

Which of the following statements best represents a difference between short-run and long-run cost? A) Less than one year is considered the short run; more than one year the long run. B) There are no fixed costs in the long run. C) In the short-run labor must always be considered the variable input and capital the fixed input. D) All of the above are true.

B) There are no fixed costs in the long run.

Diseconomies of scale can be caused by A) the law of diminishing returns. B) bureaucratic inefficiencies. C) increasing advertising and promotional costs. D) All of the above

B) bureaucratic inefficiencies.

Long-run cost functions are estimated using A) time-series regression analysis. B) cross-sectional regression analysis. C) cost accounting data. D) None of the above

B) cross-sectional regression analysis.

As a firm attempts to increase its production, its long-run average costs eventually rise because of A) the law of diminishing returns. B) diseconomies of scale. C) fixed capital. D) insufficient demand.

B) diseconomies of scale.

Which of the following distinctions helps to explain the difference between relevant and irrelevant cost? A) accounting cost vs. direct cost B) historical cost vs. replacement cost C) sunk cost vs. fixed cost D) variable cost vs. incremental cost

B) historical cost vs. replacement cost

Economic profit equals accounting profit minus A) explicit costs. B) implicit costs. C) fixed costs. D) variable costs.

B) implicit costs.

The law of diminishing returns begins first to affect a firm's short-run cost structure when A) average variable cost begins to increase. B) marginal cost begins to increase. C) average cost begins to increase. D) average fixed cost begins to decrease.

B) marginal cost begins to increase.

The learning curve indicates that A) economies of scale are taking effect. B) repetition of various production tasks cause unit costs to decrease. C) workers must learn new skills in order to improve. D) it takes time to learn a new skill.

B) repetition of various production tasks cause unit costs to decrease.

Suppose that MUx/Px exceeds MUy/Py. To maximize his utility the consumer should:

Buy more of X and less of Y

Which of the following is the best example of economies of scope? A) Coca-Cola expands its global operations to sub-Sahara Africa. B) Alcohol for car fuel is produced from corn. C) Amazon.com decides to rent out its Web site to independent e-commerce companies. D) A company reduces its cost by getting bigger discounts for bulk purchases.

C) Amazon.com decides to rent out its Web site to independent e-commerce companies.

Which of the following is a reason for economies of scale? A) Fixed costs are spread out as volume increases. B) The law of diminishing returns does not take effect. C) Input productivity increases as a result of greater specialization. D) There is greater savings in transportation costs.

C) Input productivity increases as a result of greater specialization.

If a firm's rent increases, it will affect its cost structure in which of the following ways? A) AVC will increase. B) MC will increase. C) TFC will increase. D) All of the above will increase.

C) TFC will increase.

A short-run total cost function, TC = 100 + 32Q - 4Q2 + 0.4Q3, indicates the existence of A) a linear total cost curve. B) a constant average variable cost curve. C) a U-shaped average variable cost curve. D) a constant marginal cost curve.

C) a U-shaped average variable cost curve.

When the survivorship method of cost estimating is used, an increase, over time, in the proportion of industry product produced by medium size firms indicates the existence of A) continuing economies of scale. B) continuing diseconomies of scale. C) a U-shaped long-run average cost curve. D) large technological changes.

C) a U-shaped long-run average cost curve.

The results of many empirical studies of short-run cost functions have shown that total costs conform to A) a quadratic total cost function. B) a power cost function. C) a linear cost function. D) a cubic cost function.

C) a linear cost function.

The marginal cost will intersect the average variable cost curve A) when the average variable cost curve is rising. B) where average variable cost curve equals price. C) at the minimum point of the average variable cost curve. D) The two will never intersect.

C) at the minimum point of the average variable cost curve.

Economies of scale are indicated by A) declining long-run AVC. B) declining long-run AFC. C) declining long-run AC. D) declining long-run TC.

C) declining long-run AC.

To an economist, total costs include A) explicit, but not implicit costs. B) implicit, but not explicit costs. C) explicit and implicit costs. D) neither explicit nor implicit costs.

C) explicit and implicit costs.

Average fixed cost A) does not change as total output increases or decreases. B) varies directly with total output. C) falls continuously as total output expands. D) rises as the output is expanded.

C) falls continuously as total output expands.

When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is A) $5. B) between $45 and $50. C) greater than $50. D) Cannot be determined from the above information

C) greater than $50.

Economists consider which of the following costs to be irrelevant to a short-run business decision? A) opportunity cost B) out-of-pocket cost C) historical cost D) replacement cost

C) historical cost

The learning curve A) is really no different from a marginal cost curve. B) calculates average cost at a particular point in time. C) shows the decrease in unit cost as more of the same product is produced over time. D) None of the above

C) shows the decrease in unit cost as more of the same product is produced over time.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change? A. Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank. B. Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening. C. Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening. D. Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.

Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct? A. Cathy should specialize in both pies and cakes. B. There are no gains from specialization and trade. C. Lewis should specialize in pies, and Cathy should specialize in cakes. D. Cathy should specialize in pies, and Lewis should specialize in cakes

Cathy should specialize in pies, and Lewis should specialize in cakes

Which of the following statements is true? A. Absolute advantage implies comparative advantage. B. Comparative advantage does not require absolute advantage. C. Absolute advantage requires comparative advantage. D. Comparative advantage requires absolute advantage.

Comparative advantage does not require absolute advantage.

The elasticity of demand indicates

Consumer responsiveness to price change

In the short run a firm should shutdown if it cannot

Cover its variable cost

Among the problems encountered when time series analysis is used to estimate cost functions is A) that technological changes may have occurred. B) that accounting changes may have occurred during the period analyzed. C) that some costs are recorded on the books of account at a time other than when they are incurred. D) All of the above

D) All of the above

In estimating short-run cost functions, one must adjust for A) price level changes. B) accounting procedure changes. C) product heterogeneity. D) All of the above

D) All of the above

If total cost equals $2,000 and quantity produced is 100 units, then A) fixed cost is $200 and average variable cost is $18. B) fixed cost is $600 and average variable cost is $14. C) fixed cost is $500 and marginal cost is $15. D) Either A or B can be correct.

D) Either A or B can be correct.

The distinction between sunk and incremental costs is most helpful in answering which question? A) How many more people should be added to the production process? B) What is the correct price to charge? C) Should we begin to build a new factory? D) Should we continue developing a new software application that we began last year?

D) Should we continue developing a new software application that we began last year?

Which of the following relationships is correct? A) When marginal product starts to decrease, marginal cost starts to decrease. B) When marginal cost starts to increase, average cost starts to increase. C) When marginal cost starts to increase, average variable cost starts to increase. D) When marginal product starts to decrease, marginal cost starts to increase.

D) When marginal product starts to decrease, marginal cost starts to increase.

In the long run A) fixed costs tend to be greater than variable costs. B) variable costs tend to be greater than fixed costs. C) all costs are fixed costs. D) all costs are variable costs.

D) all costs are variable costs.

Economies of scale are created by greater efficiency of capital and by A) longer chains of command in management. B) better wages for labor. C) smaller plant sizes. D) increased specialization of labor.

D) increased specialization of labor.

When a firm experiences increasing returns to scale A) its AFC will decrease. B) its AFC will increase. C) its AC will increase. D) its AC will decrease.

D) its AC will decrease.

Which of the following distinctions does not help to explain the difference between relevant and irrelevant cost? A) historical vs. replacement cost B) sunk vs. incremental cost C) variable vs. fixed cost D) out-of-pocket vs. opportunity cost E) All help to explain the difference.

D) out-of-pocket vs. opportunity cost

Which of the following actions has the best potential for experiencing economies of scope? A) producing a product that has appeal to a wider segment of the market B) producing computers and software C) producing spaghetti and soft drinks D) producing cars and trucks

D) producing cars and trucks

Which of the following is most likely a fixed cost? A) expenditures for raw materials B) wages for unskilled labor C) fuel cost D) property taxes

D) property taxes

When a firm increased its output by one unit, its AFC decreased. This is an indication that A) the law of diminishing returns has taken effect. B) MC < AFC. C) AVC < AFC. D) the firm is spreading out its total fixed cost.

D) the firm is spreading out its total fixed cost.

MC increases because A) MC naturally increases as the firm nears capacity. B) labor is paid overtime wages when volume increases. C) in the short run, MC always increases. D) the law of diminishing returns takes effect.

D) the law of diminishing returns takes effect.

Costs of production that change with the rate of output are A) sunk costs. B) opportunity costs. C) fixed costs. D) variable costs.

D) variable costs.

The relationship between MC and AC can best be described as A) when AC increases, MC starts to increase. B) when MC increases, AC starts to increase. C) when MC decreases, AC decreases. D) when MC exceeds AC, AC increases.

D) when MC exceeds AC, AC increases.

A feature of a perfect competition is

Standardized products

If price rises from $80 to $90 and quantity demanded falls from 250 to 200, then

Elasticity is greater than one. 50/200 / 1/8 = 2

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. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen? Everyone will start to charge 50 cents to maximize revenue. A price war will break out, and all of the kids will lower their prices. Each kid will keep his or her price at the original amount. Eventually prices will equalize across all three lemonade stands.

Eventually prices will equalize across all three lemonade stands.

For which of the following products is demand likely to be least elastic with respect to price? A. Food B. Vegetables C. Green vegetables D. Green beans

Food

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore: Gertie should not buy the jeans because they will be of lower quality than she expected. Gertie should not buy the jeans because the price is not equal to her reservation price. Gertie should buy the jeans because the price is less than her reservation price. Gertie should buy the jeans because the price is more than her reservation price.

Gertie should buy the jeans because the price is less than her reservation price.

Which of the following represents the relation between marginal cost and average total cost?

If MC is greater than ATC, the ATC is rising

The demand for a product is likely to be inelastic

If it has no substitutes

The demand for a product is likely to be inelastic

If there are no good substitutes available

The vertical distance between the ATC curve and the AVC curve

Is equal to AFC

Marginal cost

Is inversely related to marginal product

One determinant of elasticity of supply of a product

Is the elasticity of supply of inputs used to produce that product.

As a firm adds more variable inputs to fixed inputs

It experiences increasing and then diminishing returns

Which of following is NOT true of an equilibrium price? Consumers who are willing to pay the equilibrium price can acquire the good. It measures the value of the last unit sold to consumers. It is always a fair and just price. Firms who are willing to accept the equilibrium price can sell what they produce.

It is always a fair and just price.

Which of following is not true of an equilibrium price? A. Consumers who are willing to pay the equilibrium price can acquire the good. B. It measures the value of the last unit sold to consumers. C. It is always a fair and just price. D. Firms who are willing to accept the equilibrium price can sell what they produce.

It is always a fair and just price.

Which of the following is NOT true of a demand curve? A. It has negative slope. B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. C. It relates the price of an item to the quantity demanded of that item. D. It shows how an increase in price leads to an increase in quantity demanded of a good.

It shows how an increase in price leads to an increase in quantity demanded of a good.

Which of the following is NOT true of a demand curve? It has negative slope. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. It relates the price of an item to the quantity demanded of that item. It shows how an increase in price leads to an increase in quantity demanded of a good.

It shows how an increase in price leads to an increase in quantity demanded of a good.

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decided to stay home and work on the paper. According to the scarcity principle, the reason Josh didn't go to the game is that A. Josh prefers schoolwork to football games. B. writing the paper is easier than going to the game. C. Josh doesn't have enough time for writing the paper and going to the game. D. it's too expensive to go to the game.

Josh doesn't have enough time for writing the paper and going to the game.

A firm that seeks to maximize its revenue is most likely to adhere to which of the following

MR=0

Diminishing returns refers to the decrease in

Marginal product that results from increases in plant size

According to the textbook, NAFTA was expected to help which country exploit its comparative advantage in the production of goods made by unskilled labor? A. Canada B. Cuba C. Mexico D. The U.S.A

Mexico

Which of the following is not considered as a factor of production?

Money

List the characteristics of indifference curves:

Negative Slope Convex Are everywhere dense Ind. curves further from the origin have higher utility than those close to the origin Can't intercept other indifference curves

A good example of central planning at work in the USA would be A. Burger King's value meal price control. B. McDonald's fries being the same everywhere in the USA. C. union wages. D. New York City's rent control.

New York City's rent control.

Which is a required characteristic of of a perfectly competitive industry There are few firms so that none can influence the market price Products are highly differentiated Barriers to entry are high

None of the above

When a firm has the power to establish its price

P>MR

Total expenditures of a product will decrease when

The elasticity is 2.4 and the market price increases

Demand facing an individual, perfectly competitive firm is

Perfectly elastic at the price at the price determined by the market forces

In which of the following instances will total revenue increase?

Price falls and demand is elastic

In which of the following instances will total revenue decline?

Price falls and demand is inelastic

In which of the following instances will total receipts decline?

Price rises and demand is elastic

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his surplus by attending A. Elite U, because $60,000 is greater than the benefit at the other schools. B. State College, because the difference between the benefit and cost is greatest there. C. NoName U, because Larry has a full scholarship there. D. Elite U, because the opportunity costs of attending Elite U are the lowest.

State College, because the difference between the benefit and cost is greatest there.

The Principle of Increasing Opportunity Costs states that: A. productive people do the hardest tasks first. B. The Principle of Increasing C. when increasing production, resources with the lowest opportunity costs should be used last. D. opportunity costs increase when too little is produced.

The Principle of Increasing

Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause: A. Nepal's production possibilities curve to shift outward faster than the U.S.'s. B. The U.S.'s production possibilities curve to shift inward faster than Nepal's. C. The U.S.'s production possibilities curve to shift outward faster than Nepal's. D. Nepal's production possibilities curve to shift inward faster than the U.S.'s

The U.S.'s production possibilities curve to shift outward faster than Nepal's.

Which of the following is not true for a straight line downward sloping demand curve?

The elasticity is equal to one at the price intercept As you move down along the curve, the elasticity falls and then rises All expenditures remain constant as price falls and quantity rises The elasticity is equal to zero at the midpoint

Total expenditures on a product will increase when:

The elasticity of demand is .4 and the price increases

Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur? The equilibrium price of sugar will rise. The equilibrium quantity of sugar will rise. The equilibrium price of sugar will fall. The equilibrium quantity of sugar will fall.

The equilibrium price of sugar will fall.

Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur? The equilibrium price of bagels will rise. The equilibrium quantity of bagels will rise. The equilibrium price of bagels will fall. The equilibrium quantity of bagels will fall.

The equilibrium quantity of bagels will rise.

Which of the following is the most likely to be a variable factor of production at an university? A. The number of librarians. B. The size of the football stadium. C. The size of the student union. D. The location of the university

The number of librarians.

If supply is inelastic, then:

The percent change in price is greater than the percent change in quantity supplied

If you could choose the price of basketball tickets and you wanted to maximize total revenues, which price would you charge?

The price at which the elasticity of demand equals one.

If you could choose the price of OPEC oil and you wanted to maximize total revenues, which price would you charge?

The price at which there is unitary elasticity of demand

Which of the following determines whether a firm will earn higher revenues when it raises its price? A. The cost of the firm's inputs. B. Government regulation of the industry. C. The price elasticity of demand. D. None of the above, because companies always earn higher revenues when they increase price

The price elasticity of demand.

Which of the following would cause an increase in quantity supplied of wheat? The price farmers receive for their wheat rises. The price of fertilizer farmers' use in their fields decreases. The price firms pay for liability insurance falls. New, better technology for farming is introduced.

The price farmers receive for their wheat rises.

The major determinant of the elasticity of demand for a product or service is

The price of complementary goods

Which of the following is NOT a determinant of demand for gasoline? Consumers' incomes. The price of diesel. The price of automobiles. The quantity of gasoline supplied.

The quantity of gasoline supplied.

Which of the following would not be included in the calculation of accounting profit? The wages paid to the company's workers. The salary the owner could have earned working elsewhere. The rent paid by the owner for the use of a building. The medical insurance coverage for the company's workers.

The salary the owner could have earned working elsewhere.

When MR=MC

Total profit is maximized

Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers were selling tickets in the same seating area as yours for $25. What is probably true? A. There is excess demand for this concert at the Ticketmaster price. B. The ticket you bought was under-priced for the market. C. There is an excess supply of tickets for this concert at the Ticketmaster price. D. The Ticketmaster price is an equilibrium price.

There is an excess supply of tickets for this concert at the Ticketmaster price.

Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers (individuals who re-sell tickets at the event) were selling tickets in the same seating area as yours for $25. What is probably true? There is excess demand for this concert at the Ticketmaster price. The ticket you bought was under-priced for the market. There is an excess supply of tickets for this concert at the Ticketmaster price. The Ticketmaster price is an equilibrium price.

There is an excess supply of tickets for this concert at the Ticketmaster price.

which of the following characteristics is most important in differentiating between perfect competition and all other types of markets

Whether or not firms are price takers

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so? A. Winter is longer than summer, and price elasticity is lower over longer time horizons. B. Summer is longer than winter, and price elasticity is higher over longer time horizons. C. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. D. People take more vacations in the summer and so use less water at home.

Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so? Winter is longer than summer, and price elasticity is lower over longer time horizons. Summer is longer than winter, and price elasticity is higher over longer time horizons. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. People take more vacations in the summer and so use less water at home.

Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.

A movement along a demand curve from one price-quantity combination to another is called: a change in quantity demanded. a shift in the demand curve. a change in demand. a change in quantity supplied.

a change in quantity demanded.

Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is: a decrease in demand for ketchup with no change in supply. an increase in demand for ketchup with no change in supply. an increase in demand for ketchup and a decrease in the supply of ketchup. an increase in the supply of ketchup with no change in demand.

a decrease in demand for ketchup with no change in supply.

The entire group of buyers and sellers of a particular good or service makes up: only the demand curve. only the supply curve. a market. the equilibrium.

a market

The entire group of buyers and sellers of a particular good or service makes up A. only the demand curve. B. only the supply curve. C. a market. D. equilibrium.

a market.

Minimum wage laws are an example of: mandated equilibrium wages. a price ceiling. a regulated price. comparative advantage for unskilled workers.

a regulated price.

The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then: there will be no transaction since $200 is greater than $100. a transaction will occur, and the price paid for the factor of production will be $150. a transaction will occur, and the price paid for the factor of production will be $200. a transaction will occur, and the price paid for the factor of production will be $100.

a transaction will occur, and the price paid for the factor of production will be $200.

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC= 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______. a. 300; 10 b. 300/Q; 30 c. 300; 10Q d. 300/Q; 10

a. 300; 10

Perfect competition is socially efficient and monopoly is not because under perfect competition price is ______ while under monopoly price is ______. a. equal to MC; greater than MC b. less than MR; equal toMR c. equal to MR; less than MR d. equal to MC; less than MC

a. equal to MC; greater than MC

Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is A. not rational. B. an application of the cost-benefit principle. C. an application of the scarcity principle. D. the relevant opportunity cost.

an application of the cost-benefit principle.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. This is A. not an economic problem, because neither one costs money. B. not an economic problem, because it's an hour that is wasted no matter what Chris does. C. an economic problem because the tuition Chris pays covers both the gym and the library. D. an economic problem, because the one-hour time limit means Chris must make a choice.

an economic problem, because the one-hour time limit means Chris must make a choice

Suppose that the technology used to manufacture laptops has improved. The likely result would be: an increase in supply of laptops. an increase in quantity supplied of laptops. a decrease in supply of laptops. a decrease in quantity supplied of laptops.

an increase in supply of laptops.

An increase in the demand for GM automobiles results in: a lower equilibrium price for GM automobiles. an increase in the quantity supplied of GM automobiles. an increase in the supply of GM automobiles. a lower equilibrium quantity of GM automobiles.

an increase in the quantity supplied of GM automobiles.

A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because A. price will never change. B. quantity will never change. C. demand will never change. D. at any price other than equilibrium, forces in the market move price towards the equilibrium.

at any price other than equilibrium, forces in the market move price towards the equilibrium.

A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because: price will never change. quantity will never change. demand will never change. at any price other than equilibrium, forces in the market move price towards the equilibrium.

at any price other than equilibrium, forces in the market move price towards the equilibrium.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Moe's reservation price for a slice of pizza must be: less than $1.75. at least $1.75 but less than $2. exactly $1.75. exactly $2.00.

at least $1.75 but less than $2.

The United States was unable to maintain its dominance in the production of televisions because: A. the highly technical skills necessary to produce televisions are greater in other countries. B. the raw materials necessary to build televisions became scarce in the United States. C. the product designs evolved too rapidly for engineers in the United States to keep up. D. automated techniques allowed production to be outsourced to countries with less-skilled workers.

automated techniques allowed production to be outsourced to countries with less-skilled workers.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing:TC= 100 + 3Q. Generic Industries:TC= 500 + 3Q. Suppose that Acme and Generic face the same demand curve. If each firm produces its profit-maximizing level of output and earns a positive economic profit, then which of the following statements is true? a. Acme will produce more output than Generic. b. Generic will produce more output than Acme. c. Acme and Generic will produce the same quantity and will have the same profits. d. Acme and Generic will produce the same quantity, but Acme will have higher profits.

b. Generic will produce more output than Acme.

If a natural monopoly decreases the quantity of output it produces, then: a. its average cost will decrease. b. its average cost will increase. c. it will have to decrease its price. d. its profit will increase.

b. its average cost will increase.

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______. a. increasing b. low c. high d. decreasing

b. low

Airlines that charge higher prices for seats in the first class cabin are: a. not price discriminating because the product is not the same. b. price discriminating because all passengers on the plane are traveling the same route. c. perfect price discriminators. d. using the hurdle method of price discrimination.

b. price discriminating because all passengers on the plane are traveling the same route.

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by: a. the average cost of making the product. b. the demand curve facing the firm. c. the marginal cost of making the product. d. the firm's marginal revenue curve.

b. the demand curve facing the firm.

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that: a. the marginal benefit from selling an additional unit of output is $5 for both firms. b. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. c. the marginal benefit from selling an additional unit of output is less than $5 for both firms. d. the competitive firm is charging too much, and the monopolist is charging too little.

b. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

When the price of an item increases, buyers tend to purchase less of that item: solely because of the substitution effect. solely because of the income effect. because of both the substitution and the income effects. only if the substitution effect and the income effect do not cancel out each other.

because of both the substitution and the income effects.

As price increases, firms find that it is: A. beneficial to produce more units of output. B. more difficult to sell their product. C. beneficial to produce fewer units of output. D. easier to sell their product.

beneficial to produce more units of output.

The equilibrium price and quantity of any good or service is established by A. only demanders. B. only suppliers. C. government regulations. D. both demanders and suppliers.

both demanders and suppliers.

Given the total cost function TC= 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______. a. $2; $2 b. $4; $2 c. $4; $2,000 d. $4,000; $2,000

c. $4; $2,000

A perfectly price discriminating monopolist charges each buyer: a. exactly his or her marginal cost. b. more than his or her reservation price. c. exactly his or her reservation price. d. the perfectly competitive equilibrium price.

c. exactly his or her reservation price.

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must: a. increase its advertising. b. increase the value of its product. c. lower its price. d. lower its quality.

c. lower its price.

Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that producer: A. cannot produce more of one good without giving up some of the other good. B. can produce more of one good without producing less of the other good. C. must be at an unattainable point on the production possibilities curve. D. must be specializing in activities for which it has a comparative advantage.

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

An individual has an absolute advantage in producing pizzas if that individual: A. has a lower opportunity cost of producing pizzas than anyone else. B. can produce more pizzas in a given amount of time than anyone else. C. has a higher opportunity cost of producing pizzas than anyone else. D. charges the lowest price for pizzas.

can produce more pizzas in a given amount of time than anyone else.

In an industry with free entry and exit, positive economic profit: indicates a market failure. can never occur. cannot be sustained indefinitely. can be sustained indefinitely.

cannot be sustained indefinitely.

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas: A. does not affect you. B. causes companies to charge a lower price, thus benefiting you. C. causes the price you pay for gas to increase. D. does not change the price you pay, but reduces the quantity of gas supplied.

causes the price you pay for gas to increase.

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas: does not affect you. causes companies to charge a lower price, thus benefiting you. causes the price you pay for gas to increase. does not change the price you pay, but reduces the quantity of gas supplied.

causes the price you pay for gas to increase.

In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories. Therefore, Cuba is an example of a A. centralized economy. B. capitalist economy. C. mixed economy. D. pure free-market economy.

centralized economy.

Economic questions always deal with A. financial matters. B. political matters. C. insufficient resources. D. choice in the face of limited resources.

choice in the face of limited resources

The Governor of your state has cut the budget for the University and increased spending on Medicaid. This is an example of A. the pitfall of considering average costs instead of marginal costs. B. poor normative economic decision making. C. poor positive economic decision making. D. choice in the face of limited resources.

choice in the face of limited resources.

The logical implication of the scarcity principle is that A. one will never be satisfied with what one has. B. as wealth increases, making tradeoffs becomes less necessary. C. as wealth decreases, making tradeoffs becomes less necessary. D. choices must be made.

choices must be made

The scarcity principle indicates that __________ and the cost-benefit principle indicates __________. A. choices must be made; how to make the choices B. choices must be made; the costs can never outweigh the benefits of the choices C. rare goods are expensive; the costs should outweigh the benefits of the choices D. rare goods are expensive; the costs can never outweigh the benefits of the choices

choices must be made; how to make the choices

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the: price elasticity of demand. income elasticity of demand. price elasticity of supply. cross-price elasticity of demand.

cross-price elasticity of demand.

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC= 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______. a. $3 b. $10 c. $3.10 d. $13

d. $13

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. The beneficiaries of this deal is/are _______. a. the students at State U b. State U c. State U and CheapFizz d. CheapFizz

d. CheapFizz

An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______. a. perfectly inelastic; downward sloping b. horizontal; downward sloping c. perfectly inelastic; perfectly elastic d. downward sloping; perfectly elastic

d. downward sloping; perfectly elastic

A natural monopoly is a monopoly that arises from: a. having an exclusive right to operate in a national park. b. having exclusive control over the natural resources used to produce a good. c. a firm's natural desire to maximize its profit. d. economies of scale.

d. economies of scale.

The primary objective of an imperfectly competitive firm is to: a. charge the highest possible price. b. maximize total revenue. c. minimize total cost. d. maximize profit.

d. maximize profit.

One problem with antitrust laws is that they: a. are too recent to be understood by most lawyers. b. encourage too many mergers. c. blunt firms' incentives to cut costs. d. may prevent companies from achieving economies of scale.

d. may prevent companies from achieving economies of scale.

The reason economists consider monopoly to be socially undesirable is that monopolists: a. earn too much economic profit. b. can charge any price they want. c. exploit the inelastic nature of demand. d. produce less than the socially optimal level of output.

d. produce less than the socially optimal level of output.

Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ______ and its profit will ______. a. fall; rise b. fall; fall c. rise; fall d. rise; rise

d. rise; rise

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would: increase by 0.33%. decrease by 0.33%. increase by 3%. decrease by 3%.

decrease by 3%.

As the price of flour (an input into the cookie production process) increases, firms that produce cookies will: increase the supply of cookies. increase the quantity of cookies supplied. decrease the supply of cookies. decrease the quantity of cookies supplied.

decrease the supply of cookies.

When the supply of a good decreases, consumers will eventually: decrease their demand. increase their preferences for the good. decrease their quantity demanded. increase their quantity demanded.

decrease their quantity demanded.

Suppose that two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the: quantity demanded of high-fiber foods will fall. demand for high-fiber foods will decrease. supply of high-fiber foods will increase. price of high-fiber foods will rise.

demand for high-fiber foods will decrease.

In a free market, if the price of a good is below the equilibrium price, then A. government needs to set a higher price. B. suppliers, dissatisfied with growing inventories, will raise the price. C. demanders, to acquire the good, will bid the price higher. D. suppliers, dissatisfied with growing inventories, will lower the price.

demanders, to acquire the good, will bid the price higher.

In a free market, if the price of a good is below the equilibrium price, then; government needs to set a higher price. suppliers, dissatisfied with growing inventories, will raise the price. demanders, to acquire the good, will bid the price higher. suppliers, dissatisfied with growing inventories, will lower the price.

demanders, to acquire the good, will bid the price higher.

A demand curve is ________ sloping because __________________. A. downward; of increasing opportunity costs B. upward; people prefer to purchase high-quality consumer goods C. downward; reservation prices tend to fall over time D. downward; fewer people are willing to buy the item at higher prices

downward; fewer people are willing to buy the item at higher prices

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. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if: A. all of the kids advertise heavily. B. each stand tries to get more customers by offering different varieties of lemonade and snacks. C. each lemonade stand sells the same kind of lemonade. D. some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.

each lemonade stand sells the same kind of lemonade.

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. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if: all of the kids advertise heavily. each stand tries to get more customers by offering different varieties of lemonade and snacks. each lemonade stand sells the same kind of lemonade. some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.

each lemonade stand sells the same kind of lemonade.

Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm's fixed cost increases from $200 to $300, the firm will: A. reduce its output. B. raise its price. C. earn a greater profit. D. earn a smaller profit

earn a smaller profit

Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will: A. expand its output. B. lower its price. C. earn greater profits or larger losses D. earn smaller profits or larger losses.

earn greater profits or larger losses

A firm earns a normal profit when its: accounting profit is positive. economic profit is positive. economic profit is zero. accounting profit is zero.

economic profit is zero.

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck, but she finds one for $12,000. Her __________ is __________. A. benefit; $12,000 B. cost; $15,000 C. economic surplus; $3,000 D. economic surplus; $12,000

economic surplus; $3,000

A market in disequilibrium would feature A. a stable price. B. consumers able to purchase all they wish at the market price. C. a stable quantity. D. either excess supply or excess demand

either excess supply or excess demand

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is: perfectly elastic. elastic. unit elastic. inelastic.

elastic.

If the price elasticity of demand for a good is greater than one, then the demand for that good is: A. elastic. B. inelastic. C. unit elastic. D. perfectly elastic.

elastic.

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is: elastic. inelastic. unit elastic. perfectly elastic.

elastic.

To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price. elastic; unit elastic; inelastic inelastic; elastic unit; inelastic

elastic; inelastic

In long-run equilibrium a perfectly competitive firm will operate where the price is

equal to MR, MC, and minimum to ATC

At the midpoint of a straight-line demand curve, the price elasticity of demand is: greater than one. less than one. equal to one. zero.

equal to one.

The demand for a good is unit elastic with respect to price if the price elasticity of demand is: A. equal to one. B. greater than one. C. less than one. D. greater than negative one.

equal to one.

The demand for a good is unit elastic with respect to price if the price elasticity of demand is: equal to one. greater than one. less than one. greater than negative one.

equal to one.

The principle of scarcity applies to A. the poor exclusively. B. all consumers. C. all firms. D. everyone; consumers, firms, governments, and nations.

everyone; consumers, firms, governments, and nations

To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is: producing in the long run. experiencing diminishing returns. not using any fixed factors of production. experiencing negative returns

experiencing diminishing returns.

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that: firms must earn positive economic profits in the long run. firms will produce the quantity that minimizes average variable costs in the short run. firms will produce the quantity that minimizes average total costs in the long run. market demand is completely elastic.

firms will produce the quantity that minimizes average total costs in the long run.

When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra costs, that person is A. violating the cost-benefit principle. B. following the scarcity principle. C. following the cost-benefit principle. D. pursuing the activity too long.

following the cost-benefit principle.

Larry has a comparative advantage over his classmates in writing term papers if he: A. can write term papers faster than his classmates. B. has an absolute advantage in writing term papers. C. always earns an A on his term papers. D. has a lower opportunity cost of writing term papers than his classmates.

has a lower opportunity cost of writing term papers than his classmates.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will: A. not affect the salaries of orthopedic surgeons. B. have no impact on the number of people who decide to become orthopedic surgeons. C. lead to a large increase in the number of orthopedic surgeons. D. have little effect on the number of trained orthopedic surgeons.

have little effect on the number of trained orthopedic surgeons.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will: not affect the salaries of orthopedic surgeons. have no impact on the number of people who decide to become orthopedic surgeons. lead to a large increase in the number of orthopedic surgeons. have little effect on the number of trained orthopedic surgeons.

have little effect on the number of trained orthopedic surgeons.

Shelly purchases a leather purse for $400. One can infer that A. she paid too much. B. her reservation price was at least $400. C. her reservation price was exactly $400. D. her reservation price was less than $400.

her reservation price was at least $400.

The best definition of economics is

how choices are made under conditions of scarcity.

Economics is best defined as the study of A. prices and quantities. B. inflation and interest rates. C. how people make choices under the conditions of scarcity and the results of the choices. D. wages and incomes.

how people make choices under the conditions of scarcity and the results of choices

The cost-benefit principle indicates that an action should be taken A. if the total benefits exceed the total costs. B. if the average benefits exceed the average costs. C. if the net benefit (benefit minus cost) is zero. D. if the extra benefit is greater than or equal to the extra costs.

if the extra benefit is greater than or equal to the extra costs.

All else equal, the price elasticity of demand for a good tends to be lower: if the good has few close substitutes. if the good represents a large share of a consumer's budget. in the long run. if the good has many close substitutes.

if the good has few close substitutes.

The No Cash on the Table Principle asserts that: in equilibrium, a few unexploited opportunities exist. sometimes tips aren't picked up. in disequilibrium, no opportunities exist. in equilibrium, all opportunities have been exploited.

in equilibrium, all opportunities have been exploited.

You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you get to the restaurant, you find out the price for Double Cheeseburger has increased from $2.50 to $2.99. You decide to have two single Cheeseburgers for lunch. This is best described as a(n) A. substitution effect. B. income effect. C. buyer's reservation price. D. seller's reservation price.

income effect.

As the differences in opportunity costs between the U.S. and its trading partners increase, the potential gains from specialization and trade ______. A. increase B. decrease C. stay the same D. become unpredictable

increase

Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will: increase because the Internet offers more substitutes. decrease because the Internet offers more substitutes. remain the same, but the quantity demanded will decrease as more people shop online. remain the same, but the demand will decrease as more people shop online.

increase because the Internet offers more substitutes.

A decrease in the price of pizza will cause a(n): increase in demand. increase in quantity demanded. decrease in quantity demanded. decrease in the number of consumers.

increase in quantity demanded.

The situation described in the book as "Smart for One, Dumb for All" occurs when: individuals, when acting rationally, benefit society as a whole. individuals make better decisions when acting alone than when in groups. individuals, when acting rationally, fail to take advantage of all opportunities for social benefit. a market is in equilibrium.

individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be: elastic. inelastic. unit elastic. perfectly elastic.

inelastic.

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is A. elastic. B. inelastic. C. unit elastic. D. perfectly inelastic.

inelastic.

If demand is ______ with respect to price, a price increase will ______ total revenue. elastic; increase inelastic; increase unit elastic; decrease inelastic; decrease

inelastic; increase

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to: A. 0. B. 1. C. infinity. D. the quantity.

infinity.

The price elasticity of demand is typically expressed as a positive number because: A. price and quantity move in the same direction. B. the demand curve has a positive slope. C. it's convenient to use absolute values. D. both the numerator and the denominator are negative, so the formula yields a positive number.

it's convenient to use absolute values.

A profit-maximizing firm will only produce a positive amount of output if: A. its total revenue is greater than its total cost. B. its total revenue is greater than its fixed cost. C. its total revenue equals its total cost. D. its total revenue is greater than or equal to its variable cost.

its total revenue is greater than or equal to its variable cost.

In general, rational decision making requires one to choose the actions that yield the A. largest total benefit. B. smallest total cost. C. smallest net benefit. D. largest economic surplus.

largest economic surplus.

Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should: A. leave production unchanged. B. increase price to increase profits. C. increase production to increase profits. D. decrease production to lower losses.

leave production unchanged.

According to the textbook, government price controls fail because: they are not enforced. legislation cannot repeal basic economic motives. bureaucrats lack accurate market data. firms ignore the restrictions.

legislation cannot repeal basic economic motives.

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store. less than equal to greater than the reciprocal of

less than

A profit-maximizing firm will shut down if, at the firm's profit maximizing level of output, its total revenue is ______ A. less than its total cost. B. less than its variable cost. C. less than its average total cost. D. less than its average variable cost.

less than its variable cost.

You would expect the price elasticity of demand for transportation generally to be: A. the same as price elasticity of the demand for bus tickets. B. greater than price elasticity of the demand for bus tickets. C. less than price elasticity of the demand for bus tickets. D. greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.

less than price elasticity of the demand for bus tickets.

You would expect the price elasticity of demand for transportation generally to be: the same as price elasticity of the demand for bus tickets. greater than price elasticity of the demand for bus tickets. less than price elasticity of the demand for bus tickets. greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.

less than price elasticity of the demand for bus tickets.

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is: A. close to zero. B. greater than zero, but less than one. C. greater than one. D. less than zero.

less than zero.

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs. A. higher B. lower C. very high D. the same

lower

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______. higher more variable the same lower

lower

For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short run than in the long run. A. higher B. lower C. the same D. more variable

lower

If the demand for a good is highly elastic, that good is likely to have: A. many close complements. B. few close complements. C. many close substitutes. D. few close substitutes

many close substitutes.

In general, perfectly competitive firms maximize profit if they produce a level of output at which: A. average cost is minimized. B. total cost is minimized. C. average cost equals price. D. marginal cost equals price.

marginal cost equals price.

According to the equilibrium principle: unregulated markets tend to reach equilibrium prices and quantities without government regulation. once a market has reached equilibrium, price will not change. collective action cannot improve on individual action. market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.

market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.

Buyers and sellers of a particular good comprise the A. market for the good. B. demand for the good. C. supply for the good. D. production possibilities curve for the good.

market for the good.

Buyers and sellers of a particular good comprise the: market for the good. demand for the good. supply for the good. production possibilities curve for the good.

market for the good.

The primary objective of most private firms is to: A. maximize revenue. B. maximize profit. C. minimize cost. D. maximize output.

maximize profit.

The primary objective of most private firms is to: maximize revenue. maximize profit. minimize cost. maximize output.

maximize profit.

The buyer's reservation price of a particular good or service is the A. minimum amount one would be willing to pay for it. B. same as the market price. C. maximum amount one would be willing to pay for it. D. price one must pay to ensure one gets it.

maximum amount one would be willing to pay for it.

On a given linear demand curve, as price increases demand becomes ______ A. more elastic. B. less elastic. C. more negative. D. more variable.

more elastic.

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones. less price elastic more price elastic higher lower

more price elastic

Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping. A. goods; not B. more; downward C. less; upward D. more; upward

more; upward

If a given production combination is efficient, then it must be: A. above the production possibilities curve. B. on the production possibilities curve. C. either an attainable or unattainable point. D. below the production possibilities curve.

on the production possibilities curve.

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______. equal to 1; inelastic zero; inferior negative; substitutes negative; complements

negative; complements

If the demand for a good decreases as income decreases, it is a(n): complementary good. normal good. inferior good. substitute good.

normal good.

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are: A. substitutes. B. normal goods. D. complements. D. inferior goods.

normal goods.

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are: substitutes. normal goods. complements. inferior goods.

normal goods.

If most consumer goods and services are ______, then most income elasticities are ______. normal; negative inferior; positive normal; greater than one normal; positive

normal; positive

If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will: decrease the quantity demanded. increase the quantity demanded. lead the quantity demanded to fall to zero. not change the quantity demanded.

not change the quantity demanded.

According to the textbook, the evidence indicates that NAFTA has: A. reduced the wages of skilled workers in the United States. B. reduced the employment of unskilled workers in the United States significantly. C. stopped illegal immigration from Mexico. D. not significantly reduced the employment of unskilled workers in the United States

not significantly reduced the employment of unskilled workers in the United States

Adam Smith believed that the individual pursuit of self-interest: is impossible in a perfectly competitive market. should usually be discouraged. always leads to an efficient outcome. often promotes the broader interests of society.

often promotes the broader interests of society.

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry has decided to go to Elite U. He must have A. calculated his surplus from each choice and picked the one with the highest surplus. B. underestimated the benefits of attending NoName. C. overestimated the benefits of attending Elite U. D. determined the opportunity cost of each choice and picked the one with the lowest opportunity cost.

overestimated the benefits of attending Elite U.

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that: peanut butter and jelly are complements. peanut butter and jelly are substitutes. peanut butter and jelly are normal goods. peanut butter and jelly are inferior goods.

peanut butter and jelly are substitutes.

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as: inelastic. perfectly inelastic. unit elastic. perfectly elastic.

perfectly inelastic.

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is A. elastic. B. perfectly inelastic. C. unit elastic. D. perfectly elastic.

perfectly inelastic.

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is elastic. perfectly inelastic. unit elastic. perfectly elastic.

perfectly inelastic.

One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that: firms will have to spend money on advertising. positive economic profit is only possible in the short run. firms will compete on the basis of better service rather than lower prices. a long-run equilibrium cannot be achieved.

positive economic profit is only possible in the short run.

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically: A. greater than one. B. positive. C. less than one. D. negative.

positive.

A rational person is one who A. is reasonable. B. makes choices that are easily understood. C. possesses well-defined goals and seeks to achieve them. D. is highly cynical.

possesses well-defined goals and seeks to achieve them.

The percentage change in quantity supplied that results from a 1 percent change in price is known as the: cross-price elasticity of supply. slope of the supply curve. price elasticity of supply. cross-price elasticity of demand.

price elasticity of supply.

If an industry could be organized either perfectly competitive or monopoly, a monopoly would

produce less input produce where p>MC Charge higher prices

If price is above the equilibrium value, then A. producers will hope that buyers want more in the future. B. buyers are unhappy because they are unable to find the good for sale. C. producers find their inventories growing and will start to cut price. D. government must enforce a price control.

producers find their inventories growing and will start to cut price.

In order to understand how the price of a good is determined in the free market, one must account for the desires of: A. purchasers exclusively. B. sellers exclusively. C. governmental agencies exclusively. D. purchasers and sellers.

purchasers and sellers.

A shortage occurs when A. demand is greater than supply. B. the equilibrium price is too high. C. quantity demanded exceeds quantity supplied. D. quantity supplied exceeds quantity demanded.

quantity demanded exceeds quantity supplied.

The price elasticity of demand for a good measures the responsiveness of: demand to a one percent change in price of that good. price to a one percent change in the demand for that good. quantity demanded to a one percent change in price of that good. price to a one percent change in the quantity demanded of that good.

quantity demanded to a one percent change in price of that good.

If the market for Sport Utility Vehicles has excess supply, then one can say that A. supply is greater than demand. B. quantity supplied is greater than quantity demanded. C. demand is greater than supply. D. quantity demanded is greater than quantity supplied.

quantity supplied is greater than quantity demanded.

If the market for sport utility vehicles has excess supply, then one can say that: supply is greater than demand. quantity supplied is greater than quantity demanded. demand is greater than supply. quantity demanded is greater than quantity supplied.

quantity supplied is greater than quantity demanded.

An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the number of firms producing espresso will lead to a(n) ______. A. quantity supplied; decrease in supply B. supply; increase in quantity supplied C. quantity supplied; increase in supply D. supply; decrease in supply

quantity supplied; increase in supply

If the demand for electricity is inelastic, then if the local utility wants to increase its total revenue, it should _______ its price. lower raise not change frequently change

raise

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that: A. there is excess demand for ramen noodles. B. the equilibrium price for ramen noodles is too high. C. college graduates have a high reservation price for ramen noodles. D. ramen noodles are an inferior good.

ramen noodles are an inferior good.

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that: there is excess demand for ramen noodles. the equilibrium price for ramen noodles is too high. college graduates have a high reservation price for ramen noodles. ramen noodles are an inferior good.

ramen noodles are an inferior good.

You are the Minister of Trade for a small island country with the above annual PPC: You are negotiating a trade agreement with a neighboring island with the above annual PPC: If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will: A. accept their offer because you do not have the comparative advantage in fish. B. refuse their offer because the opportunity cost to you of a coconut is more than 2 fish. C. accept their offer because you do not have an absolute advantage in fish. D. refuse their offer because the opportunity cost to you of a coconut is less than 2 fish.

refuse their offer because the opportunity cost to you of a coconut is more than 2 fish.

Outsourcing is a term increasingly used to refer to the act of: A. hiring illegal immigrants. B. importing raw materials into the United States from other countries. C. exporting final goods to other countries. D. replacing relatively expensive American workers with low-wage workers overseas.

replacing relatively expensive American workers with low-wage workers overseas.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her A. marginal revenue. B. equilibrium price. C. reservation price. D. producers surplus.

reservation price.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her: marginal revenue. equilibrium price. reservation price. producers surplus.

reservation price.

The central concern of economics is A. poverty. B. scarcity. C. wealth accumulation. D. overconsumption.

scarcity

Assume that the production technology required to produce goods X and Y are very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will: intensify its production of good X. shift into producing good Y. anticipate a price increase for good X. charge a higher price for good X.

shift into producing good Y.

Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm: A. should shut down. B. should not shut down if its total variable cost is less than $750. C. is not maximizing its profit. D. should produce more than 500 units a day.

should not shut down if its total variable cost is less than $750.

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should: shut down. raise its price. increase output. continue to produce 1000 units.

shut down.

If cross-price elasticity of demand between two goods is positive, the two goods are: substitutes. inferior. complements. normal.

substitutes.

The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n) A. substitution effect of a price change. B. income effect of a price change. C. decrease in buyer's reservation price. D. increase in buyer's reservation price.

substitution effect of a price change.

The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n): substitution effect of a price change. income effect of a price change. decrease in buyer's reservation price. increase in buyer's reservation price.

substitution effect of a price change.

In a free market, if the price of a good is above the equilibrium price, then A. suppliers, dissatisfied with growing inventories, will raise the price. B. demanders, wanting to ensure they acquire the good, will bid the price lower. C. government needs to set a lower price. D. suppliers, dissatisfied with growing inventories, will lower the price.

suppliers, dissatisfied with growing inventories, will lower the price.

In the market for coffee, for many consumers: tea is a substitute. non-dairy creamer is a substitute. cola beverages are complements. coffee mugs are substitutes.

tea is a substitute.

The demand curve illustrates the fact that consumers: tend to purchase more of a good as its price rises. purchase name brand products more frequently than generic products. tend to purchase more of a good as its price falls. purchase more of a good as their incomes rise.

tend to purchase more of a good as its price falls.

The price elasticity of demand is a measure of: the change in quantity demanded of a good that results from a change in its price. the change in price of a good that results from a change in its quantity demanded. the demand for a good. how consumers respond to excess demand.

the change in quantity demanded of a good that results from a change in its price.

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that: plane tickets are an inferior good. the cross-price elasticity between plane tickets and train tickets is positive. the cross-price elasticity between plane tickets and train tickets is negative. plane tickets and train tickets are complements.

the cross-price elasticity between plane tickets and train tickets is positive.

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying A. the demand curve. B. an increase in demand. C. the supply curve. D. a decrease in the demand curve

the demand curve.

When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that: the demand for Taylor's earrings at the original price was elastic. there are many other boutiques competing with Taylor. there was excess demand for earrings at the original price. the demand for Taylor's earrings at the original price was inelastic.

the demand for Taylor's earrings at the original price was inelastic.

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that: pizza lovers act irrationally. the demand for her large pizzas is elastic with respect to price. there are few good substitutes for a large pizza. the demand for her large pizzas is inelastic with respect to price.

the demand for her large pizzas is elastic with respect to price.

Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases: the demand for train tickets will increase. the demand for rental cars will increase. the demand for train tickets will decrease. the demand for rental cars will decrease.

the demand for rental cars will increase.

Economic surplus is A. the benefit gained by taking an action. B. the price paid to take an action. C. the difference between the benefit gained and the cost incurred of taking an action. D. the wage someone would have to earn in order to take an action.

the difference between the benefit gained and the cost incurred of taking an action.

When a market is not in equilibrium A. government intervention is required to achieve equilibrium. B. firms will increase contributions to political action committees. C. the economic motives of sellers and buyers will move the market to its equilibrium. D. it will simply stay in a state of disequilibrium.

the economic motives of sellers and buyers will move the market to its equilibrium.

Dean decided to play golf rather than prepare for his exam in economics that is the day after tomorrow. One can infer that A. Dean has made an irrational choice. B. Dean is doing poorly in his economics class. C. the economic surplus from playing golf exceeded the surplus from studying. D. the cost of studying was less than the cost of golfing.

the economic surplus from playing golf exceeded the surplus from studying.

The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor) are also used to produce cookies, cakes, muffins, pies and many other goods. This suggests that: the supply curve for cupcakes is downward sloping. the elasticity of supply of cupcakes is relatively high. the elasticity of supply of cupcakes is relatively low. cupcakes are a normal good.

the elasticity of supply of cupcakes is relatively high.

When the price of a perfectly competitive firm's output rises: A. the firm will produce more. B. the firm's marginal cost curve will shift to the right. C. the firm will produce less. D. the firm's marginal cost curve will shift to the left.

the firm will produce more.

When more firms enter an industry: the amount produced by each of the new firms will be greater than the amount produced by each of the original firms. the industry supply curve will shift left. the amount produced by each of the new firms will be less than the amount produced by each of the original firms. the industry supply curve will shift right.

the industry supply curve will shift right.

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. The opportunity cost of going to the beach is: A. the $12 she spent on the umbrella, food and drinks. B. only $2 because she would have spent the money on food and drinks whether or not she went to the beach. C. the movie she missed seeing. D. the movie she missed seeing plus the $12 she spent on the umbrella, food and drinks.

the movie she missed seeing.

The opportunity cost of an activity is the value of A. an alternative forgone. B. the next-best alternative forgone. C. the least-best alternative forgone. D. the difference between the chosen activity and the next-best alternative forgone.

the next-best alternative forgone.

The price elasticity of supply at a point is: A. the percentage change in quantity supplied divided by the percentage change in price. B. the percentage change in price divided by the percentage change in quantity supplied. C. the change in quantity supplied divided by the change in price. D. the change in price divided by the change in quantity supplied.

the percentage change in quantity supplied divided by the percentage change in price.

The price elasticity of supply at a point is: the percentage change in quantity supplied divided by the percentage change in price. the percentage change in price divided by the percentage change in quantity supplied. the change in quantity supplied divided by the change in price. the change in price divided by the change in quantity supplied.

the percentage change in quantity supplied divided by the percentage change in price.

Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect: the supply of doughnuts to decrease. the quantity supplied of doughnuts to decrease. the supply of doughnut-holes to increase. the quantity supplied of doughnut-holes to increase.

the quantity supplied of doughnuts to decrease.

Forest is a mountain man living in complete isolation in Montana. He is completely self-sufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer A. the scarcity principle does not apply to Forest. B. Forest is not required to make choices. C. the scarcity principle still applies because more hunting means less fishing and farming. D. Forest is very satisfied.

the scarcity principle still applies because more hunting means less fishing and farming

A seller's reservation price is generally equal to: the buyer's reservation price. the seller's opportunity cost. the seller's marginal benefit. the market price.

the seller's opportunity cost.

Efficiency occurs when: a market is in equilibrium. the socially optimal quantity of goods and services is being produced. the individually rational quantity of goods and services is being produced. the government does not interfere with market prices.

the socially optimal quantity of goods and services is being produced.

As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called: the income effect. the change in equilibrium. the substitution effect. a shift in the demand curve

the substitution effect.

As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called A. the income effect. B. the change in equilibrium. C. the substitution effect. D. a shift in the demand curve.

the substitution effect.

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community, A. the supply of water is perfectly inelastic because it is a finite resource. B. water production is characterized by increasing opportunity costs. C. markets cannot reach equilibrium because there is a persistent shortage of water. D. higher water prices can reduce quantity demanded but cannot increase quantity supplied.

water production is characterized by increasing opportunity costs.

Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that: people don't like to live in your neighborhood anymore. when housing prices rose, they started to exceed some of your neighbors' reservation prices. the demand curve for housing in your town has shifted to the left while supply remained constant. the supply curve for housing in your town has shifted to the right while demand has remained constant.

when housing prices rose, they started to exceed some of your neighbors' reservation prices.

For two goods X and Y to be classified as substitutes, it must be the case that: X and Y are identical. consumers tend to purchase both items. when the price of X rises, the demand for Y decreases. when the price of X rises, the demand for Y increases.

when the price of X rises, the demand for Y increases.

For a demand curve that is horizontal, the marginal revenue curve

will be the same as the demand curve

A regulated maximum price that is above the equilibrium price: will lead to black markets. will have no effect on the market. will lead to excess supply in the market. will lead to excess demand in the market.

will have no effect on the market.

The scarcity principle indicates that A. no matter how much one has, it is never enough. B. compared to 100 years ago, individuals have less time today. C. with limited resources, having more of "this" means having less of "that." D. because tradeoffs must be made, resources are therefore scarce.

with limited resources, having more of "this" means having less of "that"

If the slope of a demand curve is infinite, then the price elasticity of demand is: zero. infinite. one. equal to the price of the good.

zero