AP ECON UNIT 2
If Joel buys ten floppy disks, which are worth a total of $30 to him, and he pays $1 a disk, how much consumer surplus does he derive?
$20
If Joel buys ten floppy disks, which are worth a total of $30 to him, and he pays $1 per disk, his consumer surplus is:
$20
In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?
economies of scale.
If a 5 percent increase in price leads to an 8 percent decrease in quantity demanded, demand is:
elastic
If a price reduction leads to an increase in total revenue, demand is:
elastic
If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is:
elastic
if a firm shuts down in the short run and produces no output, its total cost will be
equal to total fixed cost
In purchasing diamonds and water, a consumer would maximize utility by
equating marginal utility per dollar spent on each of those two goods
cash payments for steel to be used in production would be an example of
explicit costs
in most markets, each consumer
faces the same money price, but different time prices
all other things constant, higher implicit cost results in lower accounting profit.
false
for any given price, the more elastic the demand for a product is, the greater will be the consumer surplus
false
if marginal utility is negative, total utility is negative
false
if the marginal product of an input is negative, the total product must also be negative.
false
the demand for a particular brand of automobile is likely to be more inelastic than the demand for automobiles in general
false
the price elasticity of demand is equal to the slope of the demand curve
false
A normal good is defined as a product for which quantity demanded increases as price decreases.
false
As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.
false
Cross-price elasticity measures the responsiveness of the price of good A to a change in the price of good B.
false
Elasticity rises as price falls along a linear downward-sloping demand curve.
false
If demand is elastic, a decrease in price leads to a decrease in total revenue.
false
If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.
false
If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.
false
The ability of increasing quantity supplied in response to a higher price is identical across industries.
false
The availability of substitutes makes the demand for a good less elastic.
false
Total revenue is maximized where demand is inelastic.
false
A good that is defined broadly has:
fewer substitutes and a less elastic demand
The total revenue curve that corresponds to a downward-sloping linear demand curve:
first rises, then falls
Goods with an income elasticity of demand greater than 1 are called:
luxuries
For which of the following goods is the value of income elasticity most likely to be negative?
macaroni and cheese
A common feature of monopolistic competition, pure monopoly, and perfect competition is that _____.
the profit-maximizing condition in each market is the same
The price elasticity of demand for milk when quantity is measured in gallons will be _____ the price elasticity when quantity is measured in quarts.
the same as
along a linear demand curve,
the slope is constant, but the price elasticity varies
Which of the following does not determine a good's price elasticity of demand?
the slope of the demand curve
which of the following is not an explicit cost?
the value of a firm owner's time
Elvis values the first gravy sandwich at $5, the second at $4.50, the third at $4. If he buys three for $4 each, his consumer surplus has a value of:
$1.50
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's average revenue is ______.
$10
Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is $70,000. The lawyer finances his new business with $100,000 from his savings account, which had earned 10 percent interest. His economic profit is
$10,000
Dale is willing to pay $300 for a pair of Rollerblades and he purchases them on sale for $200. His consumer surplus is valued at:
$100
Two workers are employed in the same job by the same firm. However, they are paid different wage rates. This could be explained by differences in ________.
their marginal products due to differences in ability.
the greater the availability of close substitutes for a product, the greater the price elasticity of demand for a product
true
when marginal product is negative, the slope of the total product curve must be negative
true
Any supply curve that is a straight line passing through the graph's origin is unit elastic.
true
As price decreases along a linear demand curve, the price elasticity of demand decreases.
true
Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.
true
Necessities and luxuries are both types of normal goods.
true
Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.
true
Substitutes are pairs of goods that have a positive cross-price elasticity of demand.
true
The demand for firewood is likely to be more elastic in the summer than in the winter.
true
The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.
true
The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute.
true
Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.
true
When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.
true
If total utility can be increased by purchasing a little more milk and a little less ice cream, the:
ratio of marginal utility of milk to its price is greater than that of ice cream
A successful advertising campaign is most likely to:
reduce the price elasticity of demand by stressing upon the uniqueness of the product.
The cross-price elasticity of demand measures the:
relationship between the demand for one good and the price of another.
If Jennie spends her income on ice cream and biscuits and the price of ice cream is three times the price of biscuits, then:
she buys biscuits and ice cream until the marginal utility of ice cream is three times the marginal utility of biscuits.
According to the utility theory, in "consumer equilibrium," households have:
spent their incomes in such a way that their overall satisfaction is maximized.
Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should:
stay with his new firm because his economic profit is positive.
If a good is offered free of charge, one would:
stop consuming it when its marginal utility has declined to zero.
Total utility is the:
sum of all marginal utilities.
The consumer surplus derived from the last unit of a good purchased:
tends to be equal to zero.
Although some tastes do change over time, economists believe that tastes are relatively stable. If tastes were not stable enough, then _____.
the "other-things-constant" assumption required for demand analysis could not be made.
Marginal utility is:
the addition to total satisfaction resulting from an additional unit of consumption.
The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:
the cross-price elasticity of demand between film and cameras.
An oligopoly consists of ______.
a few interdependent firms.
the consumption of goods and services has both a money price and a time price
true
Which of the following goods will have a higher price elasticity of demand?
a good with many substitutes
A perfectly elastic demand curve is:
a horizontal straight line
which of the following probably has the shortest long run?
a law firm
which of the following is a fixed cost of preparing meals?
a microwave oven
When you throw trash out of your car window, you are creating ______.
a negative externality.
if a good is offered to you free of charge, then you
stop consuming it when its marginal utility equals 0
To achieve the minimum efficient scale in the long run, a firm must:
produce at minimum long-run average cost.
The law of demand states that:
quantity demanded is inversely related to price.
Suppose Hannah spends $3 to buy five biscuits. The marginal utility of the fifth biscuit is valued at $0.60. The total utility derived from five biscuits is valued at $4.20. Hannah's consumer surplus is valued at _____.
$1.20
Dale is willing to pay $300 for a pair of rollerblades, and he purchases them on sale for $200. His consumer surplus is valued at _______.
$1.5
A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his implicit costs?
$26,000
if Debbye is willing to pay $50 for a pair of shoes but only has to pay $20 because the shoes are on sale, then her consumer surplus on that pair of shoes is
$30
Suppose Debbie is willing to pay $50 for a pair of shoes but has to pay $20 because the shoes are on sale. Her consumer surplus is:
$30
Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is $50,000 and his materials cost $20,000, then his economic profit is
$5,000
A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?
$52,000
If variable cost rises from $60 to $100 as output increases from 15 to 20 units, the marginal cost of the twentieth unit is _____.
$8
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of the price elasticity of demand is:
-1/3
If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the value of the price elasticity of demand for Pepsi-Cola is:
-3
In many cities, garbage collectors earn more than social workers. What could explain this wage differential?
. There is a lesser supply of trash collectors.
perfectly inelastic elasticity is
0
if a tripling of price triples the quantity of a good supplied, the price elasticity of supply is
1
If an increase in price from $1 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then the value of the price elasticity of supply is:
2
If price increases from $45 to $55, the market quantity supplied increases from 20 units per week to 30 units per week. The price elasticity of supply is:
2
If the income elasticity of demand for a service is 0.6, then a 5 percent increase in income will generate a _____ in quantity demanded.
3 percent increase
if total product for each of five units of labor is 10,20,30, and 34, respectively, the marginal product of the third unit is
4
Maryann and Don want to open their own deli. To do so, Maryann must give up her job, at which she earns $20,000 per year, and Don must give up his part-time job, at which he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and expenses for such necessities as utilities, corned beef, and pickles are $35,000 annually. What is the explicit cost per year of operating the deli?
45,000
if the value of the price elasticity of demand is -0.2 this means that a
5 percent decrease in price causes a 1 percent increase in quantity demanded
an example of an uncontrollable resource that contributes to diseconomies of scale for a movie theater.
A public road congested with traffic
A new cattle feed has been found to increase the amount of milk each cow produces. Which of the following is likely to be the impact on the market for milk if this cattle feed is used by most dairies?
A rightward shift of the supply curve of milk
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be concluded about the firm's marginal revenue for this output level?
Marginal revenue is less than $10 but more than zero.
Which of the following is the effect of a decrease in the price of potato chips on the market for pretzels, a substitute good, that is initially in equilibrium?
Both the equilibrium price and equilibrium quantity of pretzels will fall.
The difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is known as:
CONSUMER SURPLUS
_____ can be used to compare the effects of different market structures, tax structures, and public programs on consumer well-being.
CONSUMER SURPLUS
Suppose Lorna buys more sweaters even if the price of sweaters rises. Other things constant, she is acting contrary to the law of _____.
DEMAND
The difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called _____.
ECONOMIC PROFIT
Opportunity cost is measurable only when prices are known.
FALSE
A utility-maximizing consumer equalizes marginal utilities across all goods.
FALSE
All other things constant, higher implicit costs result in lower accounting profit.
FALSE
As a consumer buys more of a good, the total utility from consumption of the good always increases at an increasing rate.
FALSE
Consumers must understand the economist's law of diminishing marginal utility in order to maximize their satisfaction.
FALSE
For any given price, the more elastic is the demand for a good, the greater will be the consumer surplus.
FALSE
In the short run, all costs are fixed.
FALSE
Marginal utility can be objectively measured and compared between one individual and another.
FALSE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer should maintain his or her current allocation of expenditures.
FALSE
The law of diminishing marginal utility explains why an individual's demand curve is elastic.
FALSE
The marginal utility from an additional unit of a good is positive when consumption of an extra unit of the good causes disutility.
FALSE
The short-run average fixed cost curve is a horizontal line.
FALSE
Fred truthfully tells a car dealer that the maximum amount he is willing to pay for a Ford Mustang is $20,000. The dealer says, "You're lucky; we have only one left on the lot for $20,000." Which of the following statements is true?
Fred gets no consumer surplus.
If marginal utility is positive, then total utility is:
INCREASING
Messitt and McNulty spend $50,000 each to form a law partnership. On the first day, someone trips over a potted plant in their lobby and sues them for $400,000. Which of the following is true?
If a $400,000 judgment is passed against the partnership and if McNulty cannot afford to pay any of it, then Messitt is liable for $400,000
Suppose Sally allocates her budget between two goods, A and B. She spends her entire income on a combination of A and B, for which the ratio of marginal utility of good A to its price exceeds the ratio of marginal utility of good B to its price. She can increase her total utility by buying:
MORE A AND LESS B
when income is allocated to two goods, x and y, consumer equilibrium occurs when
MUx/Py=PUx/Py, and the budget is exhausted
Suppose the government of Marina decides to pay for public radio by taxing people on the basis of the number of hours they listen to it. In order to determine the tax, it decides to conduct a survey. However, if the survey is based on voluntary self-reporting, which of the following is likely to happen?
Many individuals may understate the number of hours they listen to public radio to government in order to reduce their tax bill.
When total utility falls, marginal utility is _____.
NEGATIVE
The marginal utility of a second copy of today's New York Times is:
PRACTICALLY ZERO
Which of the following is the best example of a public good?
Police services
A perfectly competitive firm sells 200 units at a market price of $40 per unit. Its marginal cost is $50, and it incurs a variable cost of $10,000. To improve its profit or loss situation, this firm should _____.
Shut down
Which of the following is most likely to be a fixed resource for a word processing firm?
THE BUILDING
At a given rate of output, marginal cost equals the slope of the _____.
TOTAL COST CURVE
A business executive who buys a portable computer so that she can work while flying is trying to reduce the cost of traveling.
TRUE
A free good will be consumed up to the point at which its marginal utility is positive.
TRUE
Demand curves usually slope downward because of the income and substitution effects of a price change of a good and the law of diminishing marginal utility.
TRUE
Different people may have different tastes, but their tastes normally do not change rapidly over time.
TRUE
If a firm is experiencing diseconomies of scale, its long-run total cost curve is upward sloping.
TRUE
If marginal utility is negative, total utility declines, but is not necessarily negative.
TRUE
Joshua consumes pizza and cola in such a way that the marginal utility of per dollar spent on the last piece of pizza is 3 units and that of the last cola is 1.5 units. Thus, Joshua should spend more on pizza and less on cola in order to maximize his utility.
TRUE
Marginal cost indicates how much total cost increases if one more unit is produced or how much total cost drops if production declines by one unit.
TRUE
Positive marginal utility implies increasing total utility.
TRUE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer can increase utility by buying more of good x.
TRUE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer should consume more of good x and less of good y.
TRUE
The consumption of goods and services has both a money price and a time price.
TRUE
The fact that paper towels are available free of cost in a washroom suggests that the marginal utility of paper towels diminishes to zero for each individual.
TRUE
The law of diminishing marginal utility states that the marginal utility of my tenth pistachio is less than the marginal utility of my third pistachio, other things constant.
TRUE
The marginal utility of the fifth hot dog is less than the marginal utility of the second hot dog, other things constant.
TRUE
The market demand curve is the sum of individual quantities demanded at each price.
TRUE
When marginal cost is decreasing, total cost is rising.
TRUE
Which of the following is most likely to be an inferior good?
Used clothing
Which of the following statements is not true of labor supply?
The labor supply curve will slope upward if the income effect dominates the substitution effect.
Carvel advertises a football-shaped ice cream cake for $7; you can buy a second one for only $4. What does Carvel know about consumer preferences?
The marginal utility of ice cream cakes diminishes
Which of the following is not a condition for price discrimination?
The presence of strong diseconomies of scale
Mark's marginal utility of a third waffle is 10 units, and his marginal utility of a second slice of ham is 30 units. If Mark eats the third waffle, which of the following statements is true?
The price of a waffle is less than one-third the price of a slice of ham.
Which of the following is true of special-interest legislation?
The resources used by special-interest groups to persuade elected officials to create legislation to increase their wealth are unproductive to society because they do not increase real output.
One group of people uses the New York City subways only during rush hour to travel to and from work. Another group uses them only at midday for leisure activity. If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?
The rush-hour group because its demand for subway service is less elastic than that of the midday group.
A major fruit juice manufacturer fails in its attempt to engage in price discrimination between students and all other consumers of fruit juice. Which of the following explanations is most likely to account for this failure?
The students resold the juice to other customers
Which of the following is true of marginal product?
When marginal product is increasing, total product is increasing by increasing amounts.
Suppose John goes to a wedding reception where free drinks are served. He will drink until the marginal utility of an additional drink is _____.
ZERO
A production possibilities frontier can shift outward for all of the following reasons except ______.
a decrease in the size of the labor force.
A perfectly inelastic demand curve is:
a vertical straight line
marginal utility is the
additional satisfaction obtained from consuming one more unit of a good
A public good is one that is supplied to ______.
all people, regardless of whether they pay for it or not.
People who gain greater enjoyment from leisure activities ______.
allocate more time to leisure
A good that takes up a very large percentage of a consumer's budget will tend to have:
an elastic demand
The demand for a good is elastic if:
an increase in price leads to a decrease in total revenue
an implicit cost is
an opportunity cost
Individuals achieve maximum utility in the allocation of their time when ______.
any change in their use of time reduces their total satisfaction
consumer preferences
are individual evaluations of goods and services
a variable cost is one that changes
as output changes
the law of diminishing marginal returns states that
as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.
diminishing marginal utility means that
as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall
the marginal cost curve intersects the average variable cost curve (AVC)
at the AVC curve's minimum point
total fixed cost divided by the level of output yields
average fixed costs per unit
Income elasticity of demand is greater than zero for all of the following except:
beer
Demand for a necessity, such as food, is:
both income and price inelastic
A country has an absolute advantage in the production of a good if that country ________.
can produce the good using fewer resources than another country would require.
Given the proportion of a consumer's income spent on various goods, the demand for _____ is likely to be the most price inelastic.
candy bars
the marginal product of labor is the
change in output from using one more unit of labor
the difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is called
consumer surplus
if consumers paid an amount for any good that reflected the value of the total benefits they receive from consuming it, then
consumer surplus would be equal to zero
which of the following tends to make demand for a good more elastic?
consumers have a long time to adjust to a price change
The price elasticity of demand is useful because it measures the responsiveness of _____ to changes in _____.
consumers; price
A decline in market demand in a competitive industry will result in a(n) ___________.
decrease in the equilibrium quantity
if other things constant, as more bananas are consumed, marginal utility eventually
decreases at different rates for different people and for other goods
In the case of a normal good, an increase in consumers' income would shift the ______.
demand curve rightward
A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _______.
demand is inelastic
A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _____.
demand is inelastic
A university administration's decision to raise tuition in order to increase revenue will be successful if:
demand is inelastic
Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This strategy is chosen only by large firms because it results in .
economies of scale
generally, as a movie theater adds more screens its average costs fall. The movie theater can be said to experience
economies of scale
If demand is price elastic, total revenue is:
directly related to quantity demanded
as a firm expands into overseas markets, information problems and the complexity of operating within many varied cultures and economies may result in
diseconomies of scale
if a firm triples all of its inputs and its output doubles, it is said to be experiencing
diseconomies of scale
the long run is a period of time
during which all resources are variable
the short run is a period of time
during which at least one resource is fixed
the difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called
economic profit
if the money store earns a normal profit this year, its
economic profit is zero
The Toys-R-Danger-Us Toy Company can produce 500 water pistols for a total cost of $1,400. If the variable cost of producing 500 water pistols is $1,300, then
fixed cost must be $100
total cost is calculated as
fixed cost plus variable cost
The value of the price elasticity of demand for a good with no close substitutes tends to be:
greater than -1
Demand is inelastic only if the price elasticity of demand has an absolute value:
greater than 0 but less than 1
All other things constant, if a _____ proportion of a consumer's budget is spent on a good, the demand for the good will be more _____ and a consumer will purchase a substitute instead.
greater; price elastic
utility is
hard to measure because it is a subjective concept
If demand is unit elastic, a price reduction will:
have no effect on revenues
A college dean has a _____ opportunity cost of _____ than a college student working in a minimum-wage job
higher; nonmarket work
A public good, such as a community's emergency warning sirens, typically ______.
imposes both benefits and costs on many individuals
if ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180, that $20 saved is
his consumer surplus
if supply is perfectly elastic, the supply curve is
horizontal
If supply is perfectly elastic, the supply curve is:
horizontal
the opportunity cost of a resource
includes both explicit and implicit cost
as long as scarcity exists,
income and product prices must both be considered in utility maximization
Luxury goods are:
income elastic
In order to prove that macaroni is an inferior good, we could test the _____ of macaroni and get a _____.
income elasticity, negative number
If people have more time to adjust to a price change, the price elasticity of demand for that good is likely to:
increase
if a firm raises the price of its product, it's total revenue will
increase only if demand is price inelastic
when price decreases, consumer surplus
increases
when diminishing marginal returns set in, total product
increases at a decreasing rate
in the range of increasing marginal returns, total product is
increasing at an increasing rate
if an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is
inelastic
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the demand is:
inelastic
If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is:
inelastic
If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is _____.
inelastic
Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is:
inelastic
for which of the following is demand most likely to be perfectly inelastic?
insulin
For which of the following is demand most likely to be perfectly inelastic?
insulin
For which of the following products is the consumer's demand curve most likely to be vertical?
insulin, for a diabetic
in the short run, which of the following is likely to be a variable cost to a physician?
insurance forms
empirical studies of production suggest that the longest average cost curve
is U-shaped
The equilibrium wage:
is determined by the market demand for labor and the market supply of labor.
as output expands, the slope of the average total cost curve
is first negative and then positive
opportunity cost usually
is involved in calculating economic profit
if General Motors is earning only a normal profit,
it is breaking even
If a firm facing a perfectly elastic demand curve raises its price, then:
its sales will fall to zero
Suppose Ripco owns the building from which it operates. If _______
its usage of the building precludes it from renting to anyone else, there is an opportunity cost.
which of the following is a fixed cost of driving a car?
license plates
which of the following is true in the short run at the output level where average cost is at its minimum?
marginal cost equals average total cost
which of the following statements is true? If the marginal product of labor diminishes,
marginal cost rises
the law of diminishing marginal utility states that as you consume more and more of a good, other things constant,
marginal utility eventually declines
as a consumer allocates income between good A and good B, total utility is maximized when
marginal utility of A/price of A=marginal utility of B/price of B
to maximize profit in the long run, a firm must
minimize the cost of producing any given amount of output
Suppose Sally allocates her budget between two goods, A and B. She spends her entire income on a combination of A and B, for which the ratio of the marginal utility of good A to its price exceeds the ratio of the marginal utility of good B to its price. She can increase her total utility by buying ______.
more A and less B
Any movement along the production possibilities frontier involves the production of _______.
more of one good and less of the other
When a service, such as medical care, is provided free of charge,
most people do not much care about getting good value for their money
When total utility is falling, marginal utility is
negative
Inferior goods have an income elasticity of demand that is:
negative
The value of the cross-price elasticity of demand between golf balls and golf clubs is:
negative
the cross-price elasticity of demand between rifles and bullets is likely to be
negative because the goods are complements
A 5 percent increase in income leads to a 10 percent increase in the quantity demanded for a service. This service is a(n) _____ good, and the demand is _____.
normal; elastic
The Hound Dog Bus Company contemplates expanding its Virginia operations by offering services from Fairfax to Arlington. The total cost of the trip would be $120, of which $50 is the fixed cost, which it has already paid. The firm expects to earn an additional $60 in revenue from the trip. The Hound Dog Bus Company should _______.
not offer this service because the marginal revenue is less than the marginal cost.
utility is the sense
of pleasure or satisfaction derived from consuming goods and services
marginal utility is a measure
of the total utility gained from consuming an extra unit of a good
the absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always
one
If Helen can paint one room in the time it takes her to bake 40 cakes and Josh can paint one room in the time it takes him to bake 60 cakes, Josh's opportunity cost of baking one cake is ______.
painting 1/60 of the room
which of the following would not be considered a fixed cost for a law firm?
paper for the photocopy machine
The long-run supply curve for a constant-cost perfectly competitive industry is _____.
perfectly elastic
vertical line of demand
perfectly inelastic
The supply of paintings by Van Gogh is most likely to be:
perfectly inelastic because supply is limited
a firm's long-run average cost curve is also called its
planning curve
Arnold is a utility-maximizing consumer. If he thinks his last dollar spent on playing golf yields less satisfaction than the last dollar spent on movies, he should ______.
play less golf and spend more on movies
when diminishing marginal returns set in, marginal product is
positive and decreasing
The cross-price elasticity of demand between milk and soft drinks is likely to be:
positive, because the goods are substitutes.
the law of demand states that
quantity demanded is inversely related to price
Suppose a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30, and the marginal cost of producing that additional unit is $23. The firm should ______.
reduce its price and increase its output level
a successful advertising campaign would likely
reduce price elasticity of demand by stressing the uniqueness of the product
if Joe says that nothing comes close to a Pepsi, his demand for Pepsi is likely to be
relatively price inelastic
If Joe says that nothing comes close to a Pepsi, his demand for Pepsi is likely to be:
relatively price inelastic
economists assume people's tastes are
relatively stable over time
another word for elasticity is
responsiveness
Another word for elasticity is _____.
responsiveness
the price elasticity of demand helps determine the effect of price changes on a firm's
revenues
when a firm is experiencing diminishing marginal returns, marginal cost is
rising
A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that:
root beer and orange soda are substitutes
A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that:
root beer and orange soda are substitutes.
Suppose a perfectly competitive firm and industry is in long-run equilibrium. A rightward shift of the market demand curve is likely to _____.
shift the demand curve facing the firm upward and increase quantity supplied in the market.
for each size of plant a manufacturer could build, there is a different
short-run average total cost curve
If all resources are used efficiently to produce goods and services, a nation will find itself producing _______.
somewhere on its production possibilities frontier
If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then:
supply is elastic
the percentage change in the demand for film divided by the percentage change in the price of cameras indicates
the cross-price elasticity of demand between film and cameras
if General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then
the firm is experiencing diseconomies of scale
if an increase in the price of peanut butter causes a decline in the demand for jelly, then
the goods are complements
If an increase in the price of peanut butter causes a decline in the demand for jelly, then:
the goods are complements
If the cross-price elasticity of demand is −3, then:
the goods are complements
the market demand curve is
the horizontal sum of the individual demand curves for all consumers in the market
The average workweek in the United States has declined to fewer than 40 hours even though wage rates have been increasing. The best explanation for this phenomenon is that ______.
the income effect of rising wages outweighed the substitution effect.
A consumer might buy from a high-priced local hardware store instead of going to a big discount store several miles away because _______.
the local hardware store is a bargain for people who value time highly.
bart operates a lemonade stand in front of his house. His father works at the Springfield Nuclear Power plant. Which of the following is most likely to be true?
the long run is longer for the power plant than it is for the lemonade stand
newspaper vending machines illustrate that publishers believe
the marginal utility of a second identical newspaper is zero or less
The yardstick most often used to compare living standards across nations is:
the output per capita
price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price
the total revenue from selling trucks is equal to
the price of a truck times the quantity sold
Which of the following is assumed to be constant while calculating the price elasticity of demand?
the price of all other products.
which of the following is true of units of utility?
they cannot be compared across consumers
The price elasticity of demand helps determine the effect of price changes on a firm's:
total output
zipco's accounting profit is equal to its
total revenue minus explicit costs
economic profit is defined as
total revenue minus what must be paid to resources to attract them from their best alternative use
Suppose the price elasticity of demand for your economics textbook is −1. If the publisher raises the price by 5 percent:
total revenue will not change
Truck drivers usually earn more than secretaries because ________.
truckers face greater risks.
If MUx/Px > MUy/Py, the consumer can increase utility by buying less of good y, which means the MUy will rise
true
If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded
true
Joshua consumes pizza and cola so that the marginal utility per dollar spent for the last piece of pizza consumed per week is 3 while the marginal utility per dollar spent for the last cola consumed is 1.5. Joshua should spend more of his income on pizza and less on cola in order to maximize utility.
true
The law of diminishing marginal utility implies it is possible that the marginal utility of my tenth pistachio nut is less than the marginal utility of my third pistachio nut, other things constant.
true
any supply curve that is a straight line passing through the graph's origin is unit elastic
true
demand curves usually slope downward because of the income and substitution effects, and because of the law of diminishing marginal utility
true
if all my savings are invested in my consulting company, an increase in the interest rate increases my implicit costs
true
in the long run, all inputs are variable
true
in the long run, all of a firm's inputs are variable
true
marginal cost indicates how much total cost increases if one more unit is produced or how much total cost drops if production declines by one unit
true
positive marginal utility implies increasingly total utility
true
cross-price elasticity of demand is used to determine whether
two products are substitutes or complements
The cross-price elasticity of demand is used to determine whether:
two products are substitutes or complements
If the price elasticity of supply in the kiwi fruit industry equals 1, supply is:
unit elastic
John spends exactly the same dollar amount on candy bars each week, regardless of their price. John's demand curve for candy bars is:
unit elastic
A medium of exchanged must be ______.
universally acceptable in exchange for goods and services.
on a graph of production costs, the vertical distance between the fixed cost curve and the total cost curve at a specific quantity represents
variable cost
the length of time that represents the long run
varies from industry to industry
The supply curve for dorm rooms on a university campus is likely to be:
vertical
the law of diminishing marginal returns is first evident in the following table
when the third unit of labor is added
A limit on special-interest contributions to national political campaigns:
would reduce the extent of rent seeking
suppose you have spent your entire budget and, for all the goods you purchase, the marginal utilities per dollar spent are identical. Which of the following is true?
you will reduce your utility if you allocate income in any other way
If the price elasticity of demand is −0.5, then a:
1 percent decrease in price leads to a 0.5 percent increase in quantity demanded.
Which of the following is true when the price of a good is zero?
A consumer will consume additional units of the good as long as marginal utility is positive.
Which of the following people is least likely to clip discount coupons?
A high-priced consultant
Which of the following statements is not true?
A linear demand curve with a slope of −4 is a constant-elasticity demand curve.
Which of the following is an example of diminishing marginal utility?
A person eating more Twinkies but enjoying each successive Twinkie less than the previous one
Identify a statement that is true about a linear demand curve.
Along a linear demand curve, the slope is constant, but the price elasticity varies.
Amanda, age 6, opens a lemonade stand. She makes all the lemonade from a mix she found in her parents' pantry. Her stand is an old box she found in the garage. The pitcher and paper cups were taken from the kitchen. Which of the following is true?
Amanda's explicit costs are zero.
Which of the following people would least likely search the newspaper advertisements for bargains?
An attorney earning $100 per hour
Which of the following statements is not true of consumer preferences?
Arnie enjoys two cotton candies more than Pat enjoys one cotton candy.
Which of the following is true when the price of a good falls?
Consumer surplus always increases.
If Dalene's marginal benefit from consuming another cookie is greater than the price of the cookie, then _____.
Dalene will purchase more cookies as her marginal utility will increase with the additional purchase
Which of the following is true of "cabin fever"?
Each additional cold day adds disutility.
Fernando allocates his lunch money between pizza and Coke. A slice of pizza costs $1.50 and a can of Coke costs $1. The marginal utility of the last slice of pizza Fernando ate that day was 30 units, and the marginal utility of the last can of Coke was 25 units. If Fernando decides to spend all of his lunch money, then identify the correct statement.
Fernando's total utility would have been greater if he had purchased more Coke and less pizza.
Fred truthfully tells a car dealer that the maximum amount he is willing to pay for a Ford Mustang is $20,000. The dealer says, "You're lucky; we have only one left on the lot for $20,000." Which of the following statements is true?
Fred gets no consumer surplus.
Tyrell has $50 to spend on good A and good B per week. The price of good A is $5 and that of good B is $4. He buys six units of good A and five units of good B. The marginal utility of the sixth unit of A is 25 units, and the marginal utility of the fifth unit of B is 20 units. Which of the following is true?
He is maximizing his utility.
Dale spends his entire budget in such a way that the marginal utility per dollar spent on each good is identical. Which of the following is true?
He will reduce his utility if he reallocates his income.
Suppose Jason's marginal utility of the $50-per-serving caviar is 100 units and that of the $1-per-serving popcorn is 10 units. Which of the following combinations of snacks would he prefer to buy?
Irrespective of the amount of money he has, he will always buy popcorn.
Which of the following is true of the MC curve?
It intersects both the ATC and the AVC curves at their minimums.
Which of the following is true of marginal cost when marginal returns are increasing?
It is positive and decreasing.
Arthur has $7,800 dollars. He goes into an upscale men's store and buys 32 green sweaters, each costing $200. If Arthur has maximized his utility from this purchase, which of the following is the marginal utility of the thirty-third green sweater?
Less than $200
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. A utility-maximizing consumer who purchases two goods, x and y, allocates her budget in such a way that _____.
MUx/Px = MUy/Py
Carvel advertises a football-shaped ice cream cake for $7; you can buy a second one for only $4. What do they know about consumer preferences?
Marginal utility of ice cream cakes diminishes.
Annie reallocates her budget until the ratios of marginal utilities of goods equal the ratios of their prices. Which of the following is true of Annie's behavior?
She maximizes her total utility derived from the consumption of goods.
If the price of a good increases and an individual's demand is elastic, identify the correct statement about total utility (TU), marginal utility (MU), consumer surplus (CS), and total expenditure (TE).
TU decreases, MU increases, CS decreases, and TE decreases.
The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which is the exception?
The demand for pancakes and the demand for waffles are price elastic.
Which of the following illustrates the law of diminishing marginal utility?
The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant.
Suppose Enid could increase her total utility by purchasing one more book and one less DVD. Which of the following is true?
The marginal utility of per dollar spent on books exceeds that of DVDs.
"I don't feel so good; I shouldn't have had that last doughnut." Which of the following supports this statement?
The marginal utility of the last doughnut was negative.
"The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement?
The marginal utility of the second glass of water was positive.
Which of the following determines a firm's revenue when it changes the price of its product?
The price elasticity of demand for the firm's product
Mark's marginal utility of a third waffle is 10 units and marginal utility of a second slice of ham is 30 units. If Mark eats the third waffle, which of the following statements is true?
The price of a waffle is less than one-third the price of a slice of ham.
Basil maximizes his utility by allocating his budget between tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, then which of the following is true?don
The price of tea is four times the price of crumpets.
Which of the following varies along the demand curve for a good?
The price of the good itself
Which of the following is a possible reason for the price elasticity of demand for cigarettes being large for young smokers?
The proportion of income a young smoker spends on cigarettes is usually quite large.
One group of people uses New York City subways only during rush hour to travel to and from work. Another group uses them only in midday for leisure activity. If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?
The rush-hour group because its demand for subway service is less elastic than that of the midday group.
Which of the following statements is true?
The time price is usually less for low-wage workers than for high-wage workers.
Sally wants to visit Orlando during the week-long spring break. She can get there by bus in two and one-half days or fly there in four hours. The round trip by bus and plane would cost $20 and $200, respectively. Which of the following is not true?
The true cost of going to Orlando is either the time or the money she spends traveling, whichever she values more.
Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee. Jerry gets a salary equal to the value of the share that he held in the firm. In this case, which of the following statements is true?
There is no change in the economic profit of the firm.
Which of the following is true of units of utility?
They cannot be compared across consumers.
Which of the following describes a situation in which demand must be inelastic?
Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
Which of the following statements is true of utility?
Utility is a subjective measure of satisfaction an individual receives from consuming a good or service.
If the cross-price elasticity of demand between Good x and Good y is 0.4, then:
a 10 percent decrease in the price of good y leads to a 4 percent decrease in the demand for good y.
Marginal utility is the:
additional satisfaction obtained from consuming one more unit of a good.
A consumer's utility is maximized when the marginal utilities derived from additional units of goods:
are exactly proportional to their market prices.
People who use drive-through windows at restaurants and eat while on the road:
are likely to have a high opportunity cost of time.
Consumer tastes and preferences:
are relatively stable over time.
Diminishing marginal utility means that:
as one consumes more of a good, other things constant, the additional satisfaction obtained from each additional unit of the good tends to fall.
The price elasticity of demand is typically negative because:
as price decreases, quantity demanded increases.
The law of diminishing marginal returns states that:
as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.
Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning. Carol says that this pattern can be explained by the:
availability of substitutes for the TV movie.
Given the availability of California oranges, the demand for Florida oranges will:
be more elastic than if there were no California oranges.
As DVDs become popular substitutes for video cassettes, demand for video cassettes is likely to:
become more price elastic.
If medical care is provided free of charge, _____.
beneficiaries will consume it up to the point at which the marginal utility of the final unit is zero
Arnold is a utility-maximizing consumer. If he thinks his last dollar spent on playing golf yields less satisfaction than the last dollar spent on movies, he should:
play less golf and spend more on movies.
Suppose Annie allocates her income between calzones and juices and that she has not yet spent her entire income. If the marginal utility of a fourth calzone is 100 units and the marginal utility of a third glass of juice is 50 units, she will:
consider the relative prices of calzones and juices before deciding what to consume next.
As price falls along the demand curve for pretzels, _____.
consumer expenditure changes
Utility is determined by _____.
consumer tastes and preferences
In order to prove that Coca Cola and 7-Up are substitutes, one should test the _____ and get a _____.
cross-price elasticity; positive number
When agricultural production increases, the total amount paid for agricultural products tends to:
decrease because demand is price inelastic.
A decrease in price along the elastic segment of a demand curve will:
decrease marginal utility and increase total utility.
As the economy recovers from a recession, we should expect that the:
demand for inferior goods will fall and the demand for normal goods will rise.
A university administration's decision to raise tuition in order to increase revenue will be successful if:
demand is inelastic.
Consumer preferences:
determine the utility derived from goods.
According to the law of _____, the marginal utility received from each additional unit of a good consumed declines, other things constant.
diminishing marginal utility
If a shoe store earns more than a normal profit, its:
economic profit is positive.
Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This strategy is chosen only by large firms because it results in _____.
economies of scale
While purchasing diamonds and water, a consumer would maximize utility by:
equating the marginal utility per dollar spent on each good.
Demand is more elastic:
for goods with many substitutes than for goods with only a few.
All other things constant, if a _____ proportion of a consumer's budget is spent on a good, the demand for the good will be more _____ and a consumer will purchase a substitute instead.
greater; price elastic
Utility is:
hard to measure because it is a subjective concept.
Jerry consumes three hamburgers at McDonald's. He figures out that the last hamburger he ate was just worth the price he paid for it. If the price of a hamburger is $1, _____.
he has a consumer surplus on the first two hamburgers
Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180. The $20 saved is:
his consumer surplus.
If labor is a firm's only variable input, marginal cost ultimately depends on:
how much output each worker produces.
One determinant of the price elasticity of supply is:
how rapidly costs increase when a firm increases its output.
The opportunity cost of a resource:
includes both explicit and implicit cost.
As long as scarcity exists, _____.
income and product prices should both be considered for consumers' utility maximization
If a firm raises the price of its product, its total revenue will:
increase only if demand is price inelastic.
Elasticity is always _____.
independent of the units of measurement for price and quantity
The demand for flour is:
inelastic because there are few substitutes for flour and it represents a small percentage of a consumer's budget.
At a zero price, the consumer surplus of all buyers in a market:
is equal to the value of the total utility derived from the consumption of goods.
Demand for a service like medical care:
is sensitive to the time component of cost.
When consumers are required to pay a fraction of the cost of their medical treatment:
it increases the financial burden of most consumers.
The law of diminishing marginal utility states that as one consumes more and more of a good, other things constant, _____.
marginal utility eventually declines
The law of diminishing marginal utility states that:
marginal utility falls as more of a good is consumed, other things constant.
As a consumer allocates income between good A and good B, total utility is maximized when:
marginal utility of A/price of A = marginal utility of B/price of B
Newspaper vending machines illustrate the publishers' belief that the:
marginal utility of a second identical newspaper is zero or less.
Water is essential to life, while diamonds are not. However, water is cheap and diamonds are expensive. This paradox can be resolved by focusing on:
marginal utility rather than total utility.
Suppose the price of a glass of orange juice is $2 and that of a glass of soft drink is $1. A utility-maximizing consumer would buy:
more glasses of juice as a glass of juice has higher marginal utility than a glass of soft drink.
Accounting profit is:
never less than economic profit.
An inferior good is:
one that consumers buy less of as their income rises.
Demand is unit elastic whenever
price elasticity has an absolute value of 1.
Suppose consumers spent $42 million on Christmas trees last year, when the average tree cost was $30. This year they spend $42 million, when the average tree costs $25. Assume that everything else remains constant. This data suggests that:
the demand for trees is unit elastic.
Along the demand curve for a good, _____.
the dollar value of marginal utility changes
Economists distinguish between normal and inferior goods using:
the income elasticity of demand.
A common determinant of both the price elasticity of demand and the price elasticity of supply for a product is:
the length of the adjustment period considered.
A consumer might buy from a high-priced local hardware store instead of going to a big discount store several miles away because:
the local hardware store is a bargain for people who value time highly.
The reason why Diana does not drink five cups of coffee at breakfast is that:
the marginal utility derived from the fifth cup of coffee is negative.
If the price of a good falls, _____.
the marginal utility of per dollar spent on consuming a specific unit of that good rises
As price falls along the demand curve for pretzels, _____.
the marginal valuation of pretzels decreases
Consumers derive consumer surplus when:
the monetary value of total utility is greater than total expenditure.
The cost of consumption has two components, _____.
the money price and the time price
A consumer's willingness to pay additional money for time-saving goods depends primarily on:
the opportunity cost of his or her time.
Demand is inelastic if:
the percentage change in price is greater than the percentage change in quantity demanded.
The price elasticity of demand is calculated as:
the percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of demand is defined as:
the percentage change in quantity demanded divided by the percentage change in price.
Unit-elastic demand occurs when:
the price elasticity of demand is exactly 1.
The total revenue from selling trucks is equal to:
the price of a truck times the quantity sold.
In order to derive a demand curve for cheese, one would change:
the price of cheese and hold other things constant.
Suppose Shawn dines at a restaurant that serves clams at a fixed price and crab legs at a varied, market-determined price. The marginal utility of an order of crab legs is 100 units, and the marginal utility of an order of clams is 50 units. Shawn orders crab legs in one week but he orders clams in the next week. This means that in the second week:
the price of crab legs has increased more than twice that of clams.
Elasticity measures:
the responsiveness of decision makers to changes in price, income, or other variables.
Utility is:
the sense of pleasure or satisfaction derived from consuming goods and services.
The supply of a product will be more elastic if:
the time the producer has to adjust to a price change is long.
If the amount paid for a good by consumers reflected the value of the total benefits they receive from consuming it:
the value of consumer surplus would be zero.
Along a linear demand curve, as the price increases from zero:
total revenue first increases but eventually decreases.
Negative marginal utility implies that:
total utility decreases as additional units of a good are consumed.
The demand for Olin skis is likely to be:
unit elastic relative to the demand for skis in general. See 5-2: Determinants of the Price Elasticity of Demand
Consumer surplus is:
valued by the difference between the maximum price consumers are willing to pay and the amount they actually pay.
After paying the price of admission, Alan enters King's Island Amusement Park near Fujiwara. He sees boards listing the waiting times for each attraction and ride. At that point, Alan's marginal dollar cost of each attraction and ride is:
zero, so he will base his next move on the marginal time costs of each attraction or ride.