Economics Exam 1 (LiLi Chen)
How does a lower price alleviate the problem of excess supply?
A lower price decreases the number of potential sellers and increases the number of potential buyers.
For which pair of goods below would an increase in income have the same effect on both goods?
A normal good and a luxury good.
Because of global warming, countries that are cooler may see ________ in the supply of grain and agricultural products.
A shift to the right
If by selling one more unit of a good, a certain business can increase revenue from $500 to $525. What is the marginal revenue in this case?
$25
If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?
$80
Which of the following is LEAST likely to be an example of a normal good?
Store-brand breakfast cereal
Hurricane Katrina caused refineries and oil rigs in New Orleans and in the Gulf of Mexico to close down. In the market for gasoline, Hurricane Katrina caused
a decrease in supply.
An increase in oil prices may cause
a reduction in the quantity of oil demanded.
Output divided by the number of hours worked or by the number of workers is called
average product.
The difference between long-term and short-term profit maximization is that, in the short term,
businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.
A demand shift affects
buyers' willingness to purchase at various prices.
The long-lived physical equipment and structures that a business uses in its production process are called
capital.
Higher interest rates can cause the ________ curve for new cars to ________.
demand; shift to the left.
If you add too many inputs, your business may experience
diminishing marginal product.
Government action can cause a shift in
either supply or demand.
Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. In this market, the equilibrium price occurs where quantity demanded and quantity supplied are both
greater than 80 but less than 100.
When necessary, a higher price will simultaneously ________ the quantity supplied and ________ the quantity demanded, thus reducing the amount of excess ________.
increase; decrease; demand
Fixed costs are also known as __________ costs because they are much harder for a business to change.
long-term
As the market price of a good rises, businesses will respond by producing more of that good because
marginal revenue exceeds marginal cost after the price increase.
A profit-maximizing business will increase production as long as
marginal revenue exceeds marginal cost.
What caused the decline in demand for red delicious apples?
Consumers found them to be tasteless.
What word describes the money that a business pays for its inputs?
Cost
If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)
Exactly $2,250.
The selling prices of houses from 2003 to 2006 reflected which market condition?
Excess demand
Suppose that in a certain market there is an increase in demand, but the market price does not quickly adjust to a new equilibrium price. What situation will exist in this market until the price adjusts?
Excess demand, because the market price is lower than the equilibrium price
What word describes the goods and services that are used to produce outputs for a business?
Inputs
What happens to the marginal product of labor if more capital is added to a production process?
More capital generally causes the marginal product of labor to rise.
In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact on output of adding an additional input in the form of a gas self-propelled mower (capital)?
Output would increase.
What name is given to the economic process of turning inputs into outputs that a business will sell to customers?
Production
What is the difference between revenue and cost?
Profit
Which of the following formulas is correct?
Profit = Revenue −Cost
If a frost suddenly destroyed a big portion of this year's crop of oranges, a good with highly elastic demand, what would be the impact on quantity demanded and price?
Quantity demanded would decrease a lot, and price would remain stable or rise slightly.
A luxury good is one whose demand ______ as income increases.
rises sharply
If a town begins requiring builders to build on one-acre lots, instead of on smaller quarter-acre lots, the supply curve for new homes will
shift to the left.
After Hurricane Katrina, the supply curve for gasoline
shifted to the left.
In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.
short-term cost function
Variable costs are also known as
short-term costs
Variable costs are relevant for
short-term everyday decision making.
If the price of gasoline rises, buyers will probably
spend more on gasoline since the demand for gasoline is probably inelastic.
In a movement along the demand curve, the demand schedule
stays the same, but the price changes
The gap between quantity supplied and quantity demanded is usually closed over time by the
market mechanism.
In response to an increase in income, a buyer's demand for a particular good
may rise or fall.
Businesses can raise their average product by investing in new equipment, by reorganizing work to be more efficient, or by
outsourcing labor.
Stricter loan standards in the mortgage lending sector could cause
a demand shift to the left in the housing market.
After Hurricane Katrina, the supply curve for oil shifted to the left, and as a result
a new equilibrium price was reached.
Higher income for buyers usually means
a rightward shift of the demand curve.
If more and more states legalize casino gambling in the future, what will likely happen to the market for casino gambling in the states where it is currently legal?
The demand curve will shift to the left.
Inputs to production do NOT include
average product
If supply is inelastic, then a demand shift will have a ____ effect on _______ than on quantity.
bigger; price
The technology or knowledge necessary for a production process is called
business know-how.
Many times, technology is ________the equipment a company buys
embodied in
The price at which the quantity supplied equals the quantity demanded is the
equilibrium price
On the basic supply-demand graph, the point at which the demand curve and the supply curve intersect is located at
equilibrium price and equilibrium quantity.
A demand shift to the right generally leads to
higher prices and higher quantities.
An example of variable costs is
hourly labor.
To determine whether a particular good is a normal good, a luxury good, or an inferior good, you would want to observe what happens to demand for the good when __________ changes.
income
In a simple grass-mowing business, the lawn mower and the labor would be
inputs.
The goods or services purchased by a business for immediate use in the production process are known as
intermediate inputs.
Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. In this market, the equilibrium price
is between $2 and $3.
The price of labor per unit times the amount of labor used is called
labor cost.
Inputs used by a business in the production process include
labor.
The hours of work supplied by various types of workers are referred to by economists as
labor.
Inferior goods are characterized by _____ demand as a result of increased income.
lower
The added expense of producing one more unit of output is called the
marginal cost.
The extra amount of output a business can generate by adding one more hour of labor is called
marginal product.
The additional money a business gets from producing and selling one more unit of output is
marginal revenue.
Economists generally assume that the main goal of most businesses in the economy is to
maximize profits.
An increase in supply is shown graphically as a ________ shift of the supply curve, and as a result of an increase in supply, equilibrium price will ________.
rightward; decrease
Marginal cost generally ________ quantity produced.
rises with
Movement along the demand curve means that the demand schedule ________ and the price ________.
stays the same; changes
Between 2000 and 2007, many more furniture companies started producing furniture more cheaply in China. As a result, the
supply curve for furniture shifted to the right.
If a new major oil field is discovered in Africa, the world __________ curve for oil would shift to the __________.
supply; right
In the process of long-term profit maximization, the business makes decisions under the assumption that it can
vary all the inputs.
Movies delivered over the Internet might have what effect on the market for movies in movie theaters?
A demand shift to the left
Refer to the figure. Which of the following is true?
At a price of $5, there would be neither excess demand for nor excess supply of pizza.
In 2004, the worldwide demand curve for cement moved to the right. What does this mean?
At any price, the quantity demanded was higher.
Which is NOT an example of inelastic supply?
Bottled water
How might a government cause a demand shift to the right?
By requiring consumers to purchase certain products
The short-term cost function assumes that
Fixed costs can't be changed.
Suppose a local food truck owner incurs a total cost of $200 per month even if he makes and sells no food, but that his total cost rises to $202 if he makes and sells one hamburger. Which of the following is true?
His fixed cost is $200, and the marginal cost of the first hamburger is $2.
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18.
The total cost of production is determined by adding the costs of which of the following?
Labor, capital, land, intermediate inputs, and business know-how
_________ is the added cost to produce one more unit of output.
Marginal cost
What word describes the money that customers pay for the output of a business?
Revenue
________ is the amount of money a company receives for selling its product or service.
Revenue
When a business expands production and increases sales, what generally happens to revenue?
Revenue rises because the business is selling more output.
______ shows the potential cost for each level of output.
The cost function
If federal financial aid were severely reduced, what would happen to the equilibrium quantity of education supplied by educational institutions?
The quantity supplied would fall.
Suppose a local food truck, representing a small part of an overall very large market, can sell 20 hamburgers for $100 total and can sell 30 hamburgers for $150 total. Which of the following is NOT true?
The total revenue of the 20th hamburger is $5.
In the long run,hotel room prices that are falling as a result of excess supply will ______ the quantity of hotel rooms supplied in a market.
decrease
If the interest rates on new car loans increase, the quantity of new cars supplied will
decrease.
When a demand curve shifts to the right
demand has increased, so equilibrium price increases, and equilibrium quantity increases.
Most markets, if left alone, will tend toward
equilibrium price.
The price at which the quantity supplied equals quantity demanded is the
equilibrium price.
Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. If the current price in this market is $2 then there is
excess demand and pressure on the price to rise
Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. If the current price in this market is $3 then there is
excess supply and pressure on the price to fal
If the supply of a good increases, the equilibrium price of that good
falls while quantity demanded rises.
In the short run, the quantity of available hotel rooms is not particularly responsive to changes in price because hotels take time to build and to destroy. This implies that the short-run supply of hotel rooms is
inelastic.
One strategy for long-term profit maximization is
innovation.
The __________ summarizes the output of the business, given the level of inputs.
production function
Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the
production function.
The main objective of a business in a market economy is
profit maximization.
Market equilibrium is the point where quantity supplied and ________ are reasonably in balance.
quantity demanded
Marginal ________ is the added revenue from producing and selling one more unit of output.
revenue
Demand is inelastic if
the quantity demanded does not change very much even if the price changes dramatically.
Refer to the figure. In the market for medium cheese pizzas, the equilibrium price is
$5.
Which of the following is an example of a profit-maximizing business?
An accountant who makes her living preparing tax returns for other people
In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?
Average product would rise, and marginal product would rise.
Quantity Total Cost 0 $0 1 $20 2 $45 3 $75 4 $110 Consider the cost function above. If the marginal revenue this business faces is $25, how much output should this business produce in order to maximize profit?
Two units
Profit is the difference between revenue and
cost.
