Micro Final
Minimum-wage laws dictate
a minimum wage that firms may pay workers
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
a one-unit increase in output will increase the firm's profit
An example of an opportunity cost that is also an implicit cost is
all the value of the business owner's time
Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?
$0
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 Scenario 13-13 Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual economic profit of her cooker jar business?
$29,950
Refer to Table 14-10 This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to
$7
Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are
$7,500
Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be
-$3,875
The incidence of a tax falls more heavily on
-consumers than producers if demand is more inelastic than supply -producers than consumers if supply is more inelastic than demand -consumers than producers if supply is more elastic than demand (All of the above)
Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,
-the larger is the decrease in quantity demanded as a result of the tax -the smaller is the tax burden on buyers relative to the tax burden on sellers - the larger is the deadweight loss of the tax
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is
1/6 table for Ken and 1/3 table for Traci
Suppose the price of a bag of tortilla chips decreases from $3 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
2.20
Refer to Table 14-8 The firm should not produce an output level beyond
5 units
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is
6 chairs for Ken and 3 chairs for Traci
Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?
Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling
Which of the following statements about comparative advantage is not true?
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources
Refer to Table 7-2 If the price of Vanilla Coke is $6.90, who will purchase the good?
David and Laura
Which of the following events must cause equilibrium price to fall?
Demand decreases and supply increases
Which of the following is not a characteristic of a perfectly competitive market?
Different sellers sell identical products; there are many sellers; sellers must accept the price the market determines (all of the above)
Which of the following is not a characteristic of a competitive market?
Entry is limited
Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?
The number of firms selling laptop computers decreases
In a free, competitive market, what is the rationing mechanism?
Price
Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3% interest. He also borrowed $20,000 from his brother, whom he pays 2% interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?
Sebastian's total explicit costs are $15,400
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
The effective price received by sellers is $.40 per bottle less than it was before the tax
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that
Traci has an absolute advantage in chairs
Suppose a tax is imposed on the sellers of fast-food French Fries. The burden of the tax will
be shared by the buyers and the sellers of fast-food french fries but not necessarily equally
Producer surplus is the area
below the price and above the supply curve
Suppose that the demand for picture frames is highly inelastic, and the supply of the picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by
between $.50 and $1
A shortage results when a
binding price ceiling is imposed on a market
In economics, capital refers to
buildings and machines used in the production process
When a tax is placed on the buyers of lemonade, the
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal
Economic models
can be useful, even if they are not particularly realistic
When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country
cannot affect world prices by trading with other countries
The imposition of a binding price floor on a market
causes quantity demanded to be less than quantity supplied
A legal maximum on the price at which a good can be sold is called a price
ceiling
Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should a. shut down her business, and in the long run she should exit the industry. b. continue to operate her business, but in the long run she should exit the industry. c. continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. continue to operate her business, and she is also in long-run equilibrium.
continue to operate her business, but in the long run she will probably face competition from newly entering firms
The decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
A higher price for batteries would result in a
decrease in the demand for flashlights
Both tariffs and import quotas
decrease the quantity of imports and raise the domestic price of the good
When a country allows trade and becomes an exporter of a good
domestic producers gain and domestic consumers lose
A decrease in the size of a tax is most likely to increase tax revenue in a market with
elastic demand and elastic supply
The size of the deadweight loss generated from a tax is affected by the
elasticities of both supply and demand
When new firms enter a perfectly competitive market,
existing firms may see their costs rise if more firms compete for limited resources
The law of demand states that, other things equal, when the price of a good
falls, the quantity demanded of the good rises
Pizza is a normal good if the demand
for pizza rises when income rises
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade
Economists normally assume that the goal of a firm is to
ii and iii only
If the government removes a tax on a good, then the quantity of the good sold will
increase
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by less than $1,000
If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in an
increase in the demand for Kindles
Suppose the government increases the size of a tax by 20%. The deadweight loss from that tax
increases by more than 20%
When the price of candy bars is $1, the quantity demanded is 500 per day. When the price falls to $.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic
A firm has market power if it can
influence the market price of the good it sells
A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton
is equal to 1
According to many economists, government restrictions on ticket scalping do all of the following expect
keep the cost of tickets to all consumers low
An example of an explicit cost of production would be the
lease payments for the land on which a firm's factory stands
Economists make assumptions to
make a complex world easier to understand
Another term for equilibrium price is
market-clearing price
Goods with many close substitutes tend to have
more elastic demands
When a tax is places on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax
A decrease in the price of oranges would to a
movement down and to the left along the supply curve for oranges
When a profit-maximizing firms in competitive markets are earning profits,
new firms will enter the market
Inefficiency exists in an economy when a good is
not being consumed by buyers who value it most highly.
What must be given up to obtain an item is called
opportunity cost
The term price takers refers to buyers and sellers in
perfectly competitive markets
A profit-maximizing firm will shut down in the short run when
price is less than average variable cost
When supply and demand both increase, equilibrium
price may increase, decrease, or remain unchanged
When government imposes a price ceiling or a price floor on a market,
price no longer serves as a rationing device
A tax imposed on the sellers of a good will raise the
price paid by buyers and lower the equilibrium quantity
Total revenue equals
price x quantity
When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
producer surplus increases and total surplus decreases in the market for that good
The price elasticity of demand measures how much
quantity demanded responds to a change in price
If a nonbinding price ceiling is imposed on a market, then the
quantity sold in the market will stay the same
Moving production from a high-cost producer to a low-cost producer will
raise total surplus
The North American Free Trade Agreement
reduced trade restrictions among Canada, Mexico, and the United States
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls
A supply curve can be used to measure producer surplus because it reflects
sellers' costs
When quantity demanded decreases at every possible price, the demand curve has
shifted to the left
When quantity supplied decreases at every possible price, we know that the supply curve has
shifted to the left
Externalities are
side effects passed on to a party other than the buyers and sellers in the market
Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the
supply of flour to increase
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the
supply of the product is more elastic than the demand for the product
A tax on an imported good is called a
tariff
A major difference between tariffs and import quotas is that
tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import
Consumer surplus is
the amount a buyer is willing the pay for a good minus the amount the buyer actually pays for it
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,
the country will be an importer of the good
A surplus exists in a market if
the current price is above its equilibrium price
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes
The Laffer curve relates
the tax rate to tax revenue raised by the tax
Years ago, thousands of country music fans risked their lives by rushing to buy tickets for a Willie Nelson concert at Carnegie Hall. This behavior indicates
the ticket price was below the equilibrium price
Refer to Table 14-9 If the firm produces 3 units of output,
total revenue is greater than variable cost
Profit is defined as
total revenue minus total cost
Economists typically measure efficiency using
total surplus
Trade enhances the economic well-being of a nation in the sense that
trade results in an increase in total surplus
A key lesson from the payroll tax is that the
true burden of a tax cannot be legislated
A $2 tax levied on the sellers of birdhouses will shift the supply curve
upward by exactly $2
A binding price floor will reduce a firm's total revenue
when demand is elastic