microeconomics

Suppose that when the price of good Y increases from $800 to $850, the quantity demanded of good X increases from 65 to 70. The cross price elasticity of demand is about _____, and X and Y are _____. 0.1; substitutes. -0.1; complements. -1.2; complements. 1.2; substitutes.

1.2; substitutes.

Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Therefore, Jim's income elasticity of demand is _____ and Jim regards tickets to sporting events as _____. 2.33, normal goods. 0.43, normal goods. 0.43, inferior goods. 2.33, inferior goods.

2.33, normal goods.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. The price elasticity of demand in this price range is _____ and demand is _____. 0.43; inelastic. 2.33; elastic. 2.33; inelastic. 0.43; elastic.

2.33; elastic.

A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t-shirt maker would be willing to supply 100 t-shirts. The price elasticity of supply for t-shirts is about _____ and supply is _____. 0.37; elastic. 2.71; inelastic. 2.71; elastic. 0.37; inelastic.

2.71; elastic.

Accounting profit is equal to total revenue minus total explicit costs. In this case, total explicit costs are the sum of the wholesale cost and wages and utility bills. Therefore, you can compute accounting profit in the following way: On the other hand, economic profit is equal to total revenue minus total cost (which is the sum of explicit costs and implicit costs). In this case, total cost is the sum of the wholesale cost, wages and utility bills, forgone salary income, and forgone rental income. Therefore, you can compute economic profit in the following way:

Accounting Profit 33,000 Economic Profit 11,000

Brian lives in Dallas and runs a business that sells pianos. In an average year, he receives $723,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $423,000; he also pays wages and utility bills totaling $267,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Brian does not operate this piano business, he can work as a financial advisor, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $2,000 per year rate. No other costs are incurred in running this piano business.

EXPLICIT: The wages and utility bills that Brian pays The wholesale cost for the pianos that Brian pays the manufacturer IMPLICIT: The salary Brian could earn if he worked as a financial advisor The rental income Brian could receive if he chose to rent out his showroom

Your cousin Vinnie owns a painting company with fixed costs of $150 and the following schedule for variable costs:

The efficient scale is 5 houses.

Which of the following is likely to have the most price elastic demand? All three would have the same elasticity of demand because they are all related. Tommy Hilfiger jeans clothing blue jeans

Tommy Hilfiger jeans

A worker costs $120 a day, and the firm has fixed costs of $180. Use this information to fill in the column for total cost in the previous table.

When marginal product is rising, marginal cost is falling. Marginal cost declines at first, then rises.

1. The overriding reason why households and societies face many decisions is that a. resources are scarce. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. people, by nature, tend to disagree.

a

13. If the price of orange juice rises, the demand for grapefruit juice will a. increase because the two goods are substitutes b. increase because it is a complement c. decrease because the two goods are substitutes d. decrease because the two goods are complements

a

15. If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will a. not change, and the price received by sellers will not change. b. not change, and the price received by sellers will decrease. c. decrease, and the price received by sellers will not change. d. decrease, and the price received by sellers will decrease.

a

16. If a tax is imposed on a market with inelastic demand and elastic supply, then a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared.

a

3. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of a corporate job increased. d. benefit of a corporate job decreased.

a

5. The flatter the demand curve through a given point, the a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point. c. closer the price elasticity of demand will be to the slope of the curve. d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

a

8. Suppose that when the price of good Y falls from $10 to $8, the quantity demanded of good X rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is a. -1.0, and X and Y are complements. b. -1.0, and X and Y are substitutes. c. 1.0, and X and Y are complements. d. 1.0, and X and Y are substitutes.

a

13. The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5 for 10,000 widgets. At that level of output, the firm's average total costs equal a. $10 b. $15 c. $100 d. $150

b

16. When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling.

b

18. Consider the market for portable air conditioners in equilibrium. When a heat wave strikes the equilibrium price a. and quantity both decrease. b. and quantity both increase. c. increases, and the equilibrium quantity decreases. d. decreases, and the equilibrium quantity increases.

b

18. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to a. decrease by $3. b. increase by $2. c. decrease by $1. d. increase by $6.

b

19. Firms may experience diseconomies of scale when a. they are too small to take advantage of specialization. b. large management structures are bureaucratic and inefficient. c. there are too few employees, and managers do not have enough to do. d. average fixed costs begin to rise again.

b

20. Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. None of the above is correct.

b

4. Jose has one evening in which to prepare for two exams and can employ one of two possible strategies: Strategy Score in Economics Score in Statistics A 94 79 B 77 90 The opportunity cost of receiving a 90 on the statistics exam is ___________ points on the economics exam. a. 79 b. 17 c. 11 d. 90

b

5. Refer to Figure 2-6. Efficient production is represented by which point(s)? a. F and J b. F, I, H, and J c. F, I, H, J, and K d. F, I, H, J, and G

b

6. Refer to Figure 2-6. Unemployment could cause this economy to produce at which point(s)? a. G b. K c. F and J d. F, I, H, and J

b

7. Refer to Figure 2-6. The opportunity cost of this economy moving from point I to point H is a. 120 pillows. b. 120 blankets. c. 120 blankets and 120 pillows. d. 200 blankets.

b

7. Suppose the marginal utility (MU) of the last paperback book purchased is 40 utils. While the MU of the last notebook purchased is 20 utils. If paperbacks cost $5 and notebooks cost $4. Will consumer equilibrium be attained? a. Yes, so there is no need to change. b. No. You need to buy more books and fewer notebooks. c. No. You need to buy more notebooks and fewer books. d. There is not enough information to answer the question.

b

7. Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is a. 2.33, and hot dogs are a normal good. b. -2.33, and hot dogs are an inferior good. c. 0.43, and hot dogs are a normal good. d. -0.43, and hot dogs are an inferior good.

b

9. Generally, a firm is more willing and able to increase quantity supplied in response to a price change when a. the relevant time period is short rather than long. b. the relevant time period is long rather than short. c. supply is inelastic. d. the firm is experiencing capacity problems.

b

9. Refer to Figure 2-6. As more and more pillows are produced the opportunity cost of producing an additional pillow a. decreases. b. increases. c. decreases and then increases. d. remains constant.

b

Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $125,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $50,000 per year. 10. Refer to Situation 22-4. What are Joe's economic profits? a. $0 b. $25,000 c. $40,000 d. $75,000

b

Suppose that the demand for picture frames is highly inelastic, and the supply of 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 less than $0.50. $0.50. $1. between $0.50 and $1.

between $0.50 and $1.

1. "The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement? a. The marginal utility of the second glass is negative. b. The marginal utility of the second glass is less than the marginal utility of the first glass. c. The marginal utility of the second glass is positive. d. The water is free.

c

10. Refer to Exhibit 2-6B. Which graph depicts a technological breakthrough in the production of good X only? a. (1) b. (2) c. (3) d. (4)

c

11. Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then a. consumers of wheat would buy more wheat. b. wheat farmers would suffer a reduction in their total revenue. c. wheat farmers would experience an increase in their total revenue. d. the demand for wheat would decrease.

c

12. According to the law of supply, a decrease in the price of ice cream would lead to a. an increased supply of ice cream. b. a decreased supply of ice cream. c. a decrease in quantity supplied of ice cream. d. an increase in quantity supplied of ice cream.

c

12. Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal a. $2. b. $4. c. $1,000. d. $2,000.

c

15. Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase.

c

15. The fundamental reason that marginal cost eventually rises as output increases is because of a. economies of scale. b. diseconomies of scale. c. diminishing marginal product. d. rising average fixed cost.

c

17. The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.

c

19. How would a decrease in the price of the feed grains used to feed cattle affect the market for beef? a. Price increases, quantity increases. b. Price increases, quantity decreases. c. Price decreases, quantity increases. d. Price decreases, quantity decreases.

c

19. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price received by sellers to a. decrease by $3. b. increase by $2. c. decrease by $1. d. increase by $6.

c

2. Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is a. the $60 she earns working. b. the $60 minus the enjoyment she would have received from going to the park. c. the enjoyment she would have received had she gone to the park. d. nothing, since she would have received less than $60 worth of enjoyment from going to the park.

c

2. Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. The price elasticity of demand is _____ and demand is _____.

c

6. The local bakery makes such great cinnamon rolls that price elasticity of demand for cinnamon rolls is 0.7. If the owner is only interested in increasing revenue, she should a. lower the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. raise the price of the cinnamon rolls. d. reduce costs.

c

8. Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business? a. $300 b. $400 c. $700 d. $1,650

c

1. If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a a. 0.5 percent decrease in the quantity demanded. b. 2 percent decrease in the quantity demanded. c. 5 percent decrease in the quantity demanded. d. 50 percent decrease in the quantity demanded.

d

11. According to the law of demand, an increase in the price of a good will a. increase demand. b. decrease demand. c. increase quantity demanded. d. decrease quantity demanded.

d

14. If the price of ground beef falls, the demand for hamburger buns will a. increase because the two goods are substitutes b. decrease because the two goods are complements c. decrease because the two goods are substitutes d. increase because the two goods are complements

d

14. Rent control a. is an example of a price ceiling. b. leads to a larger shortage of apartments in the long run than in the short run. c. leads to lower rents and, in the long run, to lower-quality housing. d. All of the above are correct.

d

17. If a government tax has as its purpose the raising of revenue, it would be best to place the tax on a product which: a. is a non-essential. b. has a highly elastic demand. c. has many good substitutes. d. has a highly inelastic demand. e. has a unit elastic demand curve.

d

18. In the long run, a firm that produces and sells textbooks gets to choose a. how many workers to hire. b. the size of its factories. c. which short-run average-total-cost curve to use. d. All of the above are correct.

d

20. 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 _____. (a) diseconomies of scale (b) constant returns to scale (c) diminishing marginal product (d) economies of scale

d

20. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is a. $7.50. b. $15.00. c. $22.50. d. $45.00.

d

3. The demand for Godiva mint chocolates is likely quite elastic because a. there are many close substitutes. b. this particular type of chocolate is viewed as a luxury by many chocolate lovers. c. the market is narrowly defined. d. All of the above are correct.

d

4. Which of the following is likely to have the most price inelastic demand? a. lattés b. a cruise vacation c. candy d. milk

d

8. Refer to Figure 2-6. The opportunity cost of this economy moving from point K to point H is a. 60 pillows. b. 120 blankets. c. 120 blankets and 60 pillows. d. zero.

d

Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $125,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $50,000 per year. 9. Refer to Situation 22-4. What are Joe's accounting profits? a. -$75,000 b. -$25,000 c. $25,000 d. $75,000

d

Over time, housing shortages caused by rent control _____, because the demand for and supply of housing are _____ elastic in the long run. decrease; more. increase; more. increase; less. decrease; less.

increase; more.

Which of the following is likely to have the most price inelastic demand? protein powder gym memberships prescription medicine yoga mats

prescription medicine

You can think of the result in any one game as being Ginny's marginal free-throw percentage. Based on your previous answer, you can deduce that when Ginny's marginal free-throw percentage is above the average, the average must be

rising

The less responsive buyers are to a change in price, the closer to the vertical axis the demand curve will sit. steeper the demand curve will be. flatter the demand curve will be. further to the right the demand curve will sit.

steeper the demand curve will be.

A key determinant of the price elasticity of supply is the price elasticity of demand. time horizon. importance of the good in a consumer's budget. income of consumers.

time horizon.

Steve is indelicately breaking up with his girlfriend, Jane. They have been going out for two weeks. Jane says to him: "Do you regret ever going out with me? Was our relationship not worth it?" Steve replies: "The __________utility I got from the relationship was much more than what I gave up. But you know, the first week—that was fantastic. I had much more fun going out with you than I would have had playing video games. The second week was a little less so. Now, I think I'd rather just spend time playing video games than going out with you." Steve's use of the word "utility" rang a bell for Jane, who had taken an economics class. "So what you're basically saying is that you're breaking up with me because the___________ utility you would receive from continuing to go out with me isn't worth the price you pay in terms of time spent at home playing video games?!" Steve replies: "Absolutely! It's nothing personal. It's just the law of ____________________ ." Jane promptly walks away from the conversation, chalking up the two weeks with Steve as a sunk cost. Close Explanation Explanation:

total, marginal, diminishing utility.Marginal utility is the additional utility you get from consuming an additional unit of a good—in this case, an additional week of dating. Total utility is equal to the overall utility you get from all the units of a good you consume. In other words, assuming you receive no utility from consuming no units of a good, your total utility is the sum of the marginal utilities of each unit of a good that you consume—in this case, the total happiness Steve and Jane got from their entire relationship. The law of diminishing marginal utility states that, in general, the first units of a good you consume give you more additional utility, or pleasure, than later units. In this case, Steve says he gets less and less additional utility from each successive week of their relationship.

Suppose you are in charge of setting prices at a local ice cream shop. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. To increase total revenue you should keep the price of ice cream the same. More than one of the above could be correct. increase the price of ice cream. decrease the price of ice cream.

increase the price of ice cream.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will _____ price and ____ total revenues.

lower both price and total revenues

The price elasticity of demand for a given good is 2.3. This implies that if price rises by 20 percent quantity demanded falls _____. 46 percent. 2.3 percent. 23 percent. 20 percent.

46 percent.