macro final study guide ortiz
Refer to Figure 6-1. The price ceiling shown in panel (b)
creates shortage
Diminishing marginal productivity implies decreasing total product.
False
According to the law of demand, when price increases the quantity demanded of a good
decreases
All else equal, an increase in demand will always increase consumer surplus.
false
Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.
false
A CPA recently has come to expect higher prices for expert tax advice in the near future. We would except
The CPA to supply less expert tax than she was supplying previously.
a key determinant of the price elasticity of supply is
The ability of sellers to change the amount of the good they produce.
Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in this market listed experience a dramatic decline in sales, but the firm in the second market listed would not?
#2 lead pencils and college television
Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of _____ and an economic profit of ____.
$50, $10
The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.
True
Does a change in the price in a market result in a shift of the demand curve or in a movement along the demand curve?
a movement along the demand curve
Refer to Figure 7-3. When the price is P1, consumer surplus is
A+B+C
An entrepreneur's motivation to start a business arises from
All of the above could be correct
When economists speak of a firm's costs, they are usually excluding the opportunity costs.
false
a binding price floor causes quantity supplied to be less than quantity demanded
false
a movement upward and to the left along a given demand curve is called a decrease is demand.
false
a reduction in an input price will cause a change in quantity supplied but not a change in supply.
false
Consumer surplus
is the amount a consumer is willing to pay minus the amount the consumer actually pays
When studying how some event or policy affects a market, elasticity provides information on the
magnitude of the effect on the market
A group of buyers and sellers of a particular good or service is called a
market
a group of buyers and sellers of a particular good or service is called a(n)
market
Which of the following industries is least likely to exhibit the characteristic of free enrty?
municipal water and sewer
a competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
Free entry means that
no legal barriers prevent a firm from entering an industry
Refer to Figure 6-13. If the government imposes a price floor of $3 on this market, then there will be
no surplus
Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of the good at the price ceiling?
panel (b) only
if two goods are substitutes, their cross-price elasticity will be
positive
Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuit is
positive, and dog biscuits are a normal good
When markets fail, public policy can
potentially remedy the problem and increase economic efficiency
Refer to Figure 13-1. Suppose the production function shifts from TP1 to TP2. Such a shift in the total product curve is most likely due to an increase in the firm's
productivity
Economists assume that the goal of the firm is to maximize total
profits
a production function is a relationship between inputs and
quantity of output
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to
remain unchanged
a monopoly is a market with one
seller, and that seller sets the price
Externalities are
side effects passed on to a party other than the buyers and sellers in the market
Market failure is the inability of
some unregulated markets to allocate resources efficiently.
Refer to Figure 7-4. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?
BCGD
Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $250. His consumer surplus is
$150
Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic?
$16 to $40
Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic?
$220 to $430
Refer to Figure 6-18. The price that buyers pay after the tax is imposed is
$24
Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are
$25
Refer to Figure 7-19. If the government imposes a price ceiling of $55 in this market, then total surplus will be
$250.00
Refer to Figure 7-24. At equilibrium, producer surplus is
$36
Refer to Figure 7-1. If the price of the good is $250, then consumer surplus amounts to
$50
Refer to Figure 7-22. The efficient price is
$70, and the efficient quantity is 100.
Refer to Figure 7-22. If the price decreases from $80 to $70 due to a sgift in the supply curve, consumer surplus increases by
$750
Refer to Figure 6-18. The per-unit burden of the tax on buyers is
$8
Economists normally assume that the goal of a firm is to
(i) and (ii) only
a binding price floor
(i) and (iii) only
If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about
1.33, and supply is elastic.
A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about
1.63
Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product?
2 houses
Area below the demand curve and above the price.
Area below the demand curve and above the price.
firm that wants to achieve economies of scale could do so by
Assigning limited tasks to its employees, so they can master those tasks.
All else equal, what happens to consumer surplus if the price of a good decreases?
Consumer surplus increases.
Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will
Decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dog
Refer to Figure 7-3. When the price rises from P1 to P2, consumer surplus
Decreases by an amount equal to B+C.
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits
Economies of scale because average total cost is falling as output rises.
a tax imposed on the buyers of a good will lower the
Effective price received by sellers and lower the equilibrium quantity.
How long does it take a firm to go from the short run to the long run?
It depends on the nature of the firm
a binding price ceiling
II and IV only
If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the
Income elasticity of demand is negative.
The total cost to the firm of producing zero units of output is
Its fixed cost in the short run and zero in the long run.
Refer to Figure 7-20. Total surplus can be measured as the area
JNL
a decrease in demand is represented by a
Leftward shift of a demand curve.
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
Marginal cost is $8, and average total cost is $5.
Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?
One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on the sellers
Total revenue equals
Price x Quantity
A tax burden falls more heavily on the side of the market that
Raise the price buyers pay and lower the effective price sellers receive.
When consumers face rising gasoline prices, they typically
Reduce their quantity demanded more in the long run than in the short run.
a decrease in quantity supplied
Results in a movement downward and to the left along a fixed supply curve.
Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?
S3
in a market economy
Supply and demand determine prices and prices, in turn, allocate the economy's scarce resources
Refer to Table 5-9. Which of the three supply curves represents the least elastic supply?
Supply curve A
Refer to Figure 5-19. Which of the following statements is correct?
Supply curve C is more inelastic than supply curve D.
A $0.10 tax levied on the sellers of chocolate bars will cause the
Supply curve for chocolate bars to shift up by $0.10.
diminishing marginal product explains why, as a firm's output increases,
The production function gets flatter, while the total-cost curve gets steeper.
in a market, the marginal buyer is the buyer
Who would be the first to leave the market if the price were any higher.
Which of the following firms is the closest to being a perfectly competitive firm?
a hot dog vendor in New York
a decrease in supply is represented by a
a leftward shift of the supply curve
Refer to Figure 6-13. If the government imposes a price ceiling of $4 on this market, then there will be
a shortage of 10 units
As we move downward and to the right along a linear, downward-sloping demand curve
a slope remains constant but elasticity changes
a price floor is binding when it is set
above the equilibrium price, causing a surplus.
For a construction company that builds houses, which of the following costs would be a fixed cost?
all of the above are correct
If a binding price ceiling is imposed on the baby formula market, then
all of the above are correct
If a binding price floor is imposed on the market for eBooks, then
all of the above are correct
In a market economy, supply and demand are important because they
all of the above are correct
The value of a business owner's time is an example of
an opportunity cost
Fixed costs can be defined as costs that
are incurred even if nothing is produced
Refer to Table 14-1. Over which range of output is average revenue equal to price?
average revenue is equal to price over the entire range of output
The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
average total cost and average fixed cost
a firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If it were to increase production to 21 units, which of the following must occur?
average total cost would increase
As price elasticity of supply increases, the supply curve
becomes flatter
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage
for which of the following goods is the income elasticity of demand likely highest?
boats
a likely example of complementary goods for most people would be
canoes and paddles
Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a
competitive market
a $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve
downward by exactly $1.50
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
economies, falling
Refer to Figure 5-1. Between point A and point B on the graph, demand is
elastic but not perfectly elastic
How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept
Which of the following is not a characteristic of a competitive market?
entry is limited
For any competitive market, the supply curve is closely related to the
firms' costs of production in that market
Demand is elastic if the price elasticity of demand is
greater than 1
A firm has market power if it can
influence the market price of the good it sells
The forces that make market economies work are
supply and demand
if sellers do not adjust their quantities supplied at all in response to a change in price,
supply is perfectly inelastic
if income rises in the market for a normal good, will the demand curve for the normal good shift to the right or to the left
the demand curve will shift to the right
Which of these assumptions is often realistic for a firm in the short run?
the firm can vary the number of works it employs but not the size of its factory
"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded is referred to as
the law of demand
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized
a decrease in the number of sellers in the market causes
the supply curve to shift to the left
The nature of a firm's cost (fixed or variable) depends on the
time horizon under consideration
A binding price ceiling causes a shortage in the market.
true
An example of an explicit cost would be the wages that a business owner pays her employees.
true
market's equilibrium is the point at which the supply and demand curves intersect.
true
If a firm produces nothing, which of the following costs will be zero?
variable cost
Economies of scale arise when
workers are able to specialize in a particular task