Microeconomics Final

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the changing slope of the total cost curve reflects (curve is inc at non-linear rate: as Q cookies inc, total cost inc)

decreasing marginal product

The forces that make market economics work are...

demand and supply

If buyers are required to pay a $0.10 tax per bag on candy, the demand for candy will shift

down by $0.10 per bag

at levels of output below M, the firm experiences

economies of scale

Suppose demand for nachos inc. What will happen to producer surplus in market for nachos

it increases

which curve represents the long-run average total cost

longest curve (ATCd)

in order to sell more of its product, a monopolist must

lower its price

The sum of all individual demand curves for a product is called...

market demand

the efficient scale of the firm is the quantity of output that

minimizes average total cost

In a market, total surplus =

producer surplus + consumer surplus

A very hot summer in Atlanta will cause the demand for lemonade to...

shift to the right

When there is a shortage in a market...

there is upward pressure on price

at a production level of 4 units, which of the following is true quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82

total revenue is greater than variable cost

T / F - A market is a group of buyers and sellers of a particular product

true

T / F - Price, which is determined by all buyers and sellers as they interact in the marketplace, allocates the economy's scarce resources

true

T / F - The cost of an action is measured in terms of forgone opportunities

true

T / F - The government can potentially improve market outcomes if market inequalities or market failure exists

true

T / F - The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular price

true

T / F - a firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price

true

T / F - a firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production

true

T / F - equity refers to how the pie is divided, and efficiency refers to the size of the economic pie

true

T / F - firms in competitive markets are said to be price takers

true

T / F - the marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve

true

T / F - the marginal firm in a competitive market will earn zero economic profits in the long run

true

T / F - the quantity supplied of a good / service is the amt that sellers are willing and able to sell a t a particular price

true

T / F - the shape of the marginal cost curve tells a producer something about the marginal product of her workers

true

T / F - when average total cost rises if a producer either inc or dec production, the firm is said to be operating at efficient scale

true

T / F - when trying o understand the decision making process of different firms, economists assume that people think at the margin

true

T / F - whenever a determinant of demand other than price changes, the demand curve shifts

true

T/F The demand for Rice Krispies is more elastic than the demand for cereal

true

economies of scale arise when

workers are able to specialize in a particular task

Alice says she'll buy one banana split a day regardless of price. If she's telling the truth,

Alice's demand for banana splits is perfectly inelastic

when price is equal to P3, the profit maximizing firm will produce what level of output

Q3

the movement from D2 to D1 is called

a decrease in demand

If a surplus exists in a market we know that the actual price is...

above equilibrium price and quantity supplied is greater than quantity demanded

the movement from point A to point B on the graph shows...

an increase in demand

If a good is "normal", then an increase in income will result in...

an increase in demand for the good

the movement from S1 to S2 is called

an increase in supply

the movement from point (200,10) to (400,20) would be caused by

an increase in the price of the good

natural monopolies differ from other forms of monopoly b/c they

are generally not worried about competition eroding their monopoly position in the market

What area represents consumer surplus when price is P1

area B

What area represents producer surplus when price is P1

area C

What area represents total surplus in the market when the price is P1

areas B + C

which of the curves is most likely to represent marginal cost

black (a)

which of the curves is most likely to represent average total cost

blue (b)

If price elasticity of demand for a good is 4.0, then a 10% inc in price would result in

40% dec in quantity demanded

at which quantity of output is marginal revenue equal to marginal cost quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82

6

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?

quantity will fall and the effect on price is ambiguous

externailities are

side effects passed on to a party other than buyers and sellers in the market

When a tax is placed on the buyers of milk

size of milk market is reduced

Henry decides to spend two hours of playing golf rather than working at his job which pays $8 dollars an hour. Henry's tradeoff is...

the $16 dollars he could have earned working for two hours

An example of market power is...

the last gas station in New Mexico for 100 miles

the "invisible hand" refers to

the marketplace guiding the self interests of market participants into promoting general economic well being

the key difference b/w a competitive firm and a monopoly firm is the ability to select

the price of its output

For most students, the largest single cost of a college education is...

the wages given up to attend school

The price elasticity of demand measures

a buyer's responsiveness to a change in price of a good

which of the following statements is true

a competitive firm is a price taker and a monopoly is a price maker

If a 15% inc in price causes a 30% dec in quantity demanded, his product might be

a luxury

at a price of $7

a surplus would exist and the price would tend to fall

Which is the most accurate statement about taxes and government

all governments (federal / state / local) rely on taxes to raise revenue for public purposes

for a firm in a perfectly competitive market, the price of the good is always

equal to marginal revenue

The unique point at which the supply and demand curves intersect is called...

equilibrium

if a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will

exactly triple

if marginal cost is below average total cost, then average total cost is

falling

T / F - A movement along a supply curve is called a change in supply while a shift of the curve is called a change in quantity supplied

false

T / F - A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit

false

T / F - If a good / service only has one seller it is called an oligopoly

false

T / F - If the demand for a good falls when income falls, the item is called an inferior good

false

T / F - The law of demand states that quantity demanded of a product is positively related to price

false

T / F - a competitive market will typically experience entry and exit until all accounting profits are zero

false

T / F - a firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production

false

T / F - a market economy cannot produce a socially desirable outcome b/c individuals are motivated by their own selfish interests

false

T / F - a profit maximizing firm in a competitive market will earn zero accounting profits in the long run

false

T / F - average total cost reveals how much total cost will change as the firm alters its level of production

false

T / F - baseballs and baseball bats are sustitue goods

false

T / F - diminishing marginal product exists when the total cost curve becomes flatter as outputs inc

false

T / F - dis-economies of scale often arise b/c higher production levels allow specialization among workers

false

T / F - economics is the study of how fairly goods and services are distributed within society

false

T / F - economists normally assume that people start their own business to help society maximize its income

false

T / F - fixed costs are those costs that remain fixed no matter how long the time horizon is

false

T / F - if the marginal cost curve is rising, so is the average total cost curve

false

T / F - in a perfectly competitive market, buyers and sellers are price setters

false

T / F - the average total cost curve is unaffected by diminishing marginal product

false

T / F - the market demand is the average of all the individual demands for a particular good / service

false

T / F - the shape of the total cost curve is unrelated to the shape of the production function

false

T / F - the short run supply curve in a competitive market must be more than the long run supply curve

false

T / F - the supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost

false

T / F - when economists speak of a firm's costs, they are usually excluding opportunity costs

false

T / F - when individual firms in competitive markets inc their production, it's likely that the market price will fall

false

T / F -in competitive markets, firms that raise their prices are typically rewarded with larger profits

false

T/F Connnie can clean windows at an office for $1/window. Market price for window cleaning is $3/window. If Connie cleans 100 windows, her producer surplus is $100

false

T/F Supply is said to be inelastic if quantity supplied responds substantially to changes in price, and elastic if quantity supplied responds only slightly to price

false

T/F The flatter the demand curve that passes through a given point, the more inelastic the demand

false

T/F area above the demand curve and below price measures the consumers surplus in a market

false

T/F efficiency refers to whether a market outcome is fair while equity refers whether the max amt of output was produced from a given number of inputs

false

T/F supply tends to be more elastic in the short term and more inelastic in the long term

false

T/F total surplus in a market = consumer surplus - producer surplus

false

T/F welfare economics is the study of the welfare system

false

a long run supply curve that is flatter than a short run supply curve results from which of the following

firms can enter and exit the market more easily in the long run than in the short run

which of the following is not a characteristic of a perfectly competitive market

firms have difficulty entering a market

which of the curves is most likely to characterize the short run average total cost curve of the smallest factory

first small curve (ATCa)

firms that shut down in the short run still have to pay their

fixed costs

which of the following costs do not vary w/ the amt of output a firm produces

fixed costs

which of the curves is most likely to represent average variable cost

green (c)

in a competitive market, the actions of any single buyer or seller will

have a negligible impact on the market price

A consumer's willingness to pay measures

how much a buyer values a good

Welfare economics is the study of

how the allocation of resources affects economic well-being

the entry of new firms into a competitive market will

inc market supply and dec market prices

Prices direct economic activity in a market economy by...

influencing the actions of buyers and sellers

in the long run

inputs that were fixed in the short run become variable

Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant, you notice that the price of bananas is higher. How would your demand for vanilla pudding be affected by this?

it would decrease

the short run supply curve for a firm in a perfectly competitive market is

its marginal cost curve (above average variable cost

the amt by which total cost rises when the firm produces one additional unit of output is called

marginal cost

average total cost is increasing whenever

marginal cost is greater than average total cost

if marginal cost exceeds marginal revenue, the firm

may still be earning profit

variable cost divided by quantity produced is

none of the above

An externality is the impact of...

one person's actions on the well being of a bystander

those things that must be forgone to acquire to good are called

opportunity costs

profit maximizing firms enter a competitive market when, for existing firms in the market,

price exceeds average total cost

when a perfectly competitive firm makes a decision to shut down, it is most likely that

price is below the minimum of average variable cost

The "invisible hand" directs economic activity through...

prices

if this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to quantity total revenue total cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 0 $63 $59 0 $72 $70 0 $81 $82

$9

which of the following is an example of a barrier to entry

- a key resource is owned by a single firm - the costs of production make a single existing monopoly the exclusive right to produce the good - the government has given the existing monopoly the exclusive right to produce the good

allowing an inventor to have the exclusive rights to market her new invention will lead to

- a product that is priced higher than it would be w/out the exclusive rights - desirable behavior in the sense that inventors are encourage to invent - higher profits for the inventor

a firm will exit the market if, for all positive levels of output

- its total revenue is less than its total cost - its profit is negative - the price of the product is less than its average cost

which of the following expressions is correct for a competitive firm

- profit = total revenue - total cost - marginal revenue = (change in total revenue) / (change in quantity of output) - average revenue = total revenue / quantity of output

Approximately what percentage of the world's economies experience scarcity?

100%

Suppose demand decreases AND supply decreases. What would you expect to occur in the market for the good?

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous

T / F - quantity demanded is equal to quanity supplied at the equilibrium price

true

T / F - the DeBeers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they likely have a monopoly position to some degree

true

T / F - the amount of power that a monopoly has is a function of whether there are close substitutes for its product

true

T / F - the behavior of buyers and sellers drives markets toward equilibrium

true

T / F - the cost of producing an additional unit of a good is not the same as the average cost of the good

true

T / F - the long run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale

true

T / F - the use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are

true

T / F - variable costs usually change as the firm alters the quantity of output produced

true

T / F - when a firm experiences zero profit equilibrium, the firms revenue must be sufficient to cover all opportunity costs

true

T / F - when a profit maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production

true

T/F The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price

true

T/F each seller of a product is willing to sell as long as the price he / she can receive is > opportunity cost of producing product

true

T/F equilibrium of supply and demand in a market maximizes total benefits received by buyers and sellers

true

T/F free markets allocate supply of goods to buyers who value them most highly and the demand for good to sellers who can produce them at least cost

true

T/F producer surplus = amt seller is paid - cost of production

true

T/F the area below the price and above supply curve measures the producer surplus in a market

true

T/F willingness to pay is the max amt buyers will pay for a good and measures how much buyer values the good

true

producer surplus measures

well-being of sellers

The amount of tax imposed in this market is

$1

the average total cost of producing 1 widget is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10

$11

Belva is willing to pay $65 for shoes. She finds a pair for $48. Her consumer surplus is

$17

the average fixed cost of producing 5 widgets is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10

$2

the average variable cost of producing 4 widgets is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10

$2.5

The price buyers will pay after the tax is imposed is

$5

equilibrium price and quantity are

$5 , 20 units

Denea produces cookies. Production cost = $3 per dozen. She sells them for $8 per dozen. Her producer surplus is

$5 per dozen

The equilibrium price in market before the tax is imposed is

$6

the marginal cost of producing the 6th widget is: quantity variable total fixed 0 $x $x $10 1 $1 $x $x 2 $3 $13 $x 3 $6 $16 $x 4 $10 $x $x 5 $x $25 $x 6 $21 $x $10

$6

for a competitive firm

average revenue, marginal revenue, and the price of the good are all equal to one another

the marginal product of labor can be defined as

change in output / change in labor

People make decisions at the margin by...

comparing costs and benefits

According to the law of demand, price and quantity...

demanded are inversely related

when adding another unit of labor leads to an inc in output that is smaller than inc in output that resulted from adding previous units of labor, we have the property of

diminishing marginal product

Tax incidence refers to the

division of the tax burden b/w buyers and sellers

whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue

does not change

The main determinant of the price elasticity of supply is

time

average total cost is equal to

total cost / output

economic profit is equal to

total revenue

the amount of money that a firm receives from the sale of its output is called

total revenue

efficiency occurs when

total surplus is maximized

T / F - a firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin

true

T / F - a profit maximizing firm in a competitive market will inc production when average revenue exceeds marginal cost

true

T / F - a shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium price

true

T / F - a supply curve slopes upward b/c, all else equal, a higher price means a greater quantity supplied

true

T / F - accountants often ignore implicit costs

true

T / F - as a firm moves along its long run average cost curve, it is adjusting the size of its factory to the quantity of production

true

T / F - assume jack received all A's in his classes. If jack gets a all C's in his classes this semester, his GPA may or may not fall

true

T / F - at the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit

true

T / F - average total cost and marginal cost are merely ways to express info that is already contained in a firm's total cost

true

T / F - average variable cost is equal to total variable cost divided by quantity of output

true

T / F - b/c of the greater flexibility that firms have in the long run, all short run cost curves lie on or above the long run curve

true

T / F - by comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit maximizing level of production

true

T / F - declining average total cost w/ inc production is one of the defining characteristics of a natural monopoly

true

T / F - fixed costs are incurred even when a firm does not produce anything

true

T / F - for a firm in a competitive market, marginal revenue is always equal to average revenue

true

T / F - implicit costs are costs that do not require an outlay of money by the firm

true

T / F - in a competitive market, firms are unable to differentiate their product from that of other producers

true

T / F - in a market, the price of any good adjusts until quantity demanded equals quantity supplied

true

T / F - in some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories

true

T / F - in the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost

true

T / F - in the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market

true

T / F - market failure refers to a situation in which the market does not allocate resources efficiently

true


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