ECONOMICS(MICRO)
In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s)
2 and 4.
The marginal cost curve would intersect the average variable cost curve at about
4 units of output.
Refer to the data for a nondiscriminating monopolist. This firm will maximize its profit by producing
4 units.
Which of the following is a distinguishing feature of laissez-faire capitalism?
?a circular flow of goods, resources, and money
Which of the following best expresses the law of diminishing returns?
As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
Which is one of the five fundamental questions that need to be dealt with in any economic system?
How will goods and services be produced?
Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
The total revenue received by producers equals the total cost of production.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Which of the following is a distinguishing feature of a command system?
central planning
The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of
diminishing marginal utility.
Total fixed cost (TFC)
does not change as total output increases or decreases.
Refer to the diagram for a purely competitive producer. If product price is P3,
economic profits will be zero.
Barter
entails the exchange of goods for goods.
To the economist, total cost includes
explicit and implicit costs.
Economic resources are also called
factors of production.
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the
income effect.
The fact that most medical care purchases are financed through insurance
increases the amount of health care consumed by reducing the price of additional units of care.
Refer to the long-run cost curve for a firm. If the firm produces output Q1 at an average total cost of ATC1, then the firm is
incurring X-inefficiency and is failing to realize all existing economies of scale.
A demand curve
indicates the quantity demanded at each price in a series of prices.
Refer to the diagram. A decrease in quantity demanded is depicted by a
move from point y to point x.
Refer to the diagram. An increase in quantity supplied is depicted by a
move from point y to point x.
Which of the following is a land resource?
natural gas
In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.
product; resource
Which of the following is a fundamental characteristic of the market system?
property rights
Which of the following is not a basic characteristic of monopolistic competition?
recognized mutual interdependence
Production costs to an economist
reflect opportunity costs.
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is
relatively elastic.
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
relatively inelastic.
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
relatively price elastic.
The pursuit through government for special benefits at someone else's expense refers to
rent-seeking behavior.
Market failures
result in overproduction or underproduction of a good.
Long-run competitive equilibrium
results in zero economic profits.
A production possibilities curve illustrates
scarcity
Price discrimination refers to
the selling of a given product to different customers at different prices that do not reflect cost differences.
The concept of price elasticity of demand measures
the sensitivity of consumer purchases to price changes.
When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes
the substitution effect.
Supply curves tend to be
more elastic in the long run because there is time for firms to enter or leave the industry.
The market system's answer to the fundamental question "What will be produced?" is essentially
"Goods and services that are profitable."
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially
"In ways that minimize the cost per unit of output."
Refer to the diagram. The equilibrium price and quantity in this market will be
$1.00 and 200.
Refer to the diagram. A surplus of 160 units would be encountered if the price was
$1.60.
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be
$16.
Economics involves marginal analysis because
most decisions involve changes from the present situation.
If the firm closed down in the short run and produced zero units of output, its total cost would be
$50.
Total fixed cost is
$50.00.
Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is
$60.
Which of the diagrams correctly portrays a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves?
B
If a firm wanted to know how much it would save by producing one less unit of output, it would look to
MC.
Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?
Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.
Allocative efficiency is achieved when the production of a good occurs where
P = MC.
Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is
P2.
In which of the following cases will total revenue increase?
Price rises and demand is inelastic.
In the long run,
all costs are variable costs.
What does "there is no such thing as a free lunch" mean in economics?
Scarce resources are used up to provide "freebies" and giveaways.
A purely competitive seller is
a "price taker."
Which of the following is a labor resource?
a computer programmer
If two goods are complements,
a decrease in the price of one will increase the demand for the other.
Microeconomics is concerned with
a detailed examination of specific economic units that make up the economic system.
An explicit cost is
a money payment made for resources not owned by the firm itself.
The phrase "other things equal" means that
a number of relevant variables are assumed to be constant.
Refer to the two diagrams for individual firms. Figure 1 pertains to __________, while Figure 2 refers to ________.
a purely competitive firm; an imperfectly competitive firm
Pure monopoly refers to
a single firm producing a product for which there are no close substitutes.
Refer to the diagram. A price of $60 in this market will result in
a surplus of 100 units.
Nonprice competition refers to
advertising, product promotion, and changes in the real or perceived characteristics of a product.
The main determinant of elasticity of supply is the
amount of time the producer has to adjust inputs in response to a price change.
Suppose the U.S. House of Representatives is debating a bill to fund construction and maintenance for the nation's highway system. Representative Sandy Shady adds a provision to the bill that would fund a new public art museum in her district. The authorization of expenditure for the museum would be an example of
an earmark.
Economists would describe the U.S. automobile industry as
an oligopoly.
Fixed cost is
any cost that does not change when the firm changes its output.
Economic profits and losses
are essential to the reallocation of resources from less desired to more desired goods.
"Earmarks" refer to
authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation.
The law of diminishing marginal utility explains why
demand curves slope downward.
Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices
between P2 and P3.
The law of diminishing marginal utility states that
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that
bicycles are normal goods.
If for a firm P = minimum ATC = MC, then
both allocative efficiency and productive efficiency are being achieved.
The law of increasing opportunity costs is reflected in a production possibilities curve that is
bowed out from the origin.
The price elasticity of demand coefficient measures
buyer responsiveness to price changes.
A perfectly inelastic demand schedule
can be represented by a line parallel to the vertical axis.
A perfectly elastic demand curve implies that the firm
can sell as much output as it chooses at the existing price.
Marginal cost is the
change in total cost that results from producing one more unit of output.
Marginal utility is the
change in total utility obtained by consuming one more unit of a good.
The study of economics is primarily concerned with
choices that are made in seeking the best use of resources
The point on the production possibilities curve that is most desirable can be found by
comparing marginal benefits and marginal costs.
The main mechanism that regulates the market system is
competition.
Market failure is said to occur whenever
competitive markets do not allocate resources in the most economically desirable way.
Blu-ray players and Blu-ray discs are
complementary goods
When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reflects the
concept of limited and bundled choices.
Refer to the diagram. Flow 4 represents
consumer expenditures
The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of
consumer sovereignty.
An increase in the price of a product will reduce the amount of it purchased because
consumers will substitute other products for the one whose price has risen.
The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of
creative destruction.
A positive statement is one that
focuses on facts, descriptions, and theoretical relationships.
The "coincidence of wants" problem associated with barter refers to the fact that
for exchange to occur, each seller must have a product that some buyer wants.
Refer to the diagram. Flow 3 represents
goods and services.
Accounting profits are typically
greater than economic profits because the former do not take implicit costs into account.
If demand for a product is elastic, the value of the price elasticity coefficient is
greater than one.
Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth
has a higher "marginal utility-to-price ratio" for the hockey game than for the play.
College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are
inferior goods.
Entrepreneurs in purely competitive industries
innovate to lower operating costs and generate short-run economic profits.
A normative statement is one that
is based on value judgments.
"Vote for my special local project and I will vote for yours." This political technique
is called "logrolling."
Consumer surplus
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it.
If this demand schedule were graphed, we would find that
its slope is constant throughout.
Refer to the diagram. Flow 2 represents
land, labor, capital, and entrepreneurial ability
The four factors of production are
land, labor, capital, and entrepreneurial ability
The French term "laissez-faire" means
let it be
A natural monopoly occurs when
long-run average costs decline continuously through the range of demand.
Refer to the diagram. Which one of the following might shift the marginal benefit curve from MB1 to MB2?
major new studies strongly linking cancer to pollution
Monopolistic competition means
many firms producing differentiated products.
To maximize profit, a pure monopolist must
maximize the difference between total revenue and total cost.
Marginal product
may initially increase, then diminish, and ultimately become negative.
The restaurant, legal assistance, and clothing industries are each illustrations of
monopolistic competition
An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of
oligopoly.
The Latin term "ceteris paribus" means
other things equal
The unlawful misdirection of governmental resources for personal gain is known as
political corruption.
If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its
price and output would increase.
The law of demand states that, other things equal,
price and quantity demanded are inversely related.
The demand curve shows the relationship between
price and quantity demanded.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is
price.
A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
produce because the resulting loss is less than its TFC.
Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by
producing Q2 units and charging a price of P2.
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
product differentiation.
Which of the following is a capital resource?
software used by a firm
Macroeconomics can best be described as the
study of the large aggregates of the economy or the economy as a whole.
Any point inside the production possibilities curve indicates
that more output could be produced with the available resources.
A positive externality or spillover benefit occurs when
the benefits associated with a product exceed those accruing to people who consume it.
Allocative efficiency occurs only at that output where
the combined amounts of consumer surplus and producer surplus are maximized.
Opportunity costs exist because
the decision to engage in one activity means forgoing some other activity.
Normal profit is
the return to the entrepreneur when economic profits are zero.
If the four-firm concentration ratio for industry X is 80,
the four largest firms account for 80 percent of total sales.
If an industry evolves from oligopoly to monopolistic competition, we would expect
the four-firm concentration ratio to decrease.
When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes
the income effect.
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes
the law of diminishing returns.
Producer surplus is the difference between
the minimum prices producers are willing to accept for a product and the higher equilibrium price.
The economizing problem is
the need to make choices because economic wants exceed economic means
The term productive efficiency refers to
the production of a good at the lowest average total cost.
Competition means that
there are independently acting buyers and sellers in each market.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
use of savings to pay operating expenses instead of generating interest income
Which of the following is most likely to be an inferior good?
used clothing
Refer to the diagram. Flow 1 represents
wage, rent, interest, and profit income
(Consider This) Government loan subsidies for mohair production illustrate
why special-interest effects are often characterized by concentrated benefits and diffuse costs.
Economies and diseconomies of scale explain
why the firm's long-run average total cost curve is U-shaped.