Chapter 11, 12, 13

If an economy is producing a level of output that is on its production possibility frontier, the economy has:

no idle resources and is using resources efficiently.

For most goods, purchases tend to rise with increases in buyers' incomes and to fall with decreases in buyers' incomes. Such goods are known as:

normal.

Economists usually assume that production is subject to increasing opportunity costs because:

not all resources are equally suited to producing every good.

An increase in the fixed costs of a monopoly firm would _____ price and _____ quantity in the short run.

not change; not change

The long run is a planning period:

over which a firm can consider all inputs as variable.

Which influence does NOT shift the supply curve?

people deciding that they want to buy more of the product

The total cost curve is:

positively sloped

In perfect competition:

price and marginal revenue are the same.

Excess supply occurs when the:

price is above the equilibrium price.

The market equilibrium is found at the:

price where quantity demanded equals quantity supplied.

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit.

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost

produce more guidebooks because the next guidebook produced will increase profit by $5.

In the short run, if P > ATC, a perfectly competitive firm:

produces output and earns an economic profit.

In the short run, if P = ATC, a perfectly competitive firm:

produces output and earns zero economic profit.

Average variable cost is:

total variable cost divided by output.

Average variable cost is:

total variable cost divided by quantity.

Marginal cost is the change in _____ cost resulting from a one-unit change in _____.

total; output

Average variable cost is the ratio of:

variable cost to the quantity of output.

In the short run, the costs associated with variable inputs are _____, and the costs associated with _____ inputs are _____.

variable; fixed; fixed

Scarcity in economics means that:

we often do not have sufficient resources to achieve our objectives.

The opportunity cost of something is:

what is given up to acquire it.

Margo spends $30,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

whatever she would have purchased with the $30,000 plus whatever she would have earned had she not been in college.

The BEST measure of the opportunity cost of any choice is:

whatever you have given up to make that choice, even if no monetary costs are involved.

A fixed input is one:

whose quantity cannot be changed in the short run.

Total revenue is a firm's:

total output times the price of that output.

If a perfectly competitive firm sells 300 units of output at $1 per unit, its marginal revenue is:

$1.

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19.

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:

$200.

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220.

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is:

$30.

If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal revenue is:

$5.

In the market for corn tortilla chips, what would cause a price increase?

A fungus kills much of the corn crop in Nebraska.

When the economy suffers a downturn and the incomes of many people decrease, vacationers are more likely to take car trips than to fly. Which statement provides one possible explanation for this phenomenon?

Air travel is a normal good and travel by car is an inferior good.

Which statement illustrates the law of demand?

Consumers buy more personal computers because prices have fallen.

Which statement is TRUE?

MR = MC is a profit-maximizing rule for any firm

_____ firms have the MOST market power.

Monopoly

Which statement about the differences between monopoly and perfect competition is INCORRECT?

Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than does a comparable perfectly competitive industry.

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if:

P = ATC.

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

P > ATC.

A downward-sloping demand curve will ensure that _____ is TRUE for a monopoly.

P > MR

Consider the market for corn. What happens if there is an increased demand for corn tortillas and, at the same time, a new corn seed becomes available that dramatically increases the yield per acre?

The change in price is indeterminate; quantity increases.

Suppose that supply increases and demand decreases. What is the MOST likely effect on price and quantity?

The price will decrease, but quantity may increase, decrease, or stay the same.

Which statement is TRUE?

The profit-maximizing solution occurs where MR = MC.

Which statement is NOT characteristic of perfect competition?

There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

Which question is an example of marginal analysis?

What additional output does a family business produce when it hires one more worker?

Which statement is TRUE of an inferior good?

When income increases, demand decreases.

Which statement is TRUE of a normal good?

When income increases, the demand for the good increases.

The primary difference between a change in supply and a change in the quantity supplied is that:

a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.

Which factor would result solely in a movement along the demand curve for a particular good?

a change in the price of that good

Which factor would NOT cause the supply curve to shift?

a change in the price of the good

An announcement that smoking will harm your ability to think clearly will MOST likely result in:

a decrease in the demand for cigarettes.

Which factor will NOT cause an increase in demand for good X?

a decrease in the price of good X

Which factor would cause an INCREASE in the supply of a good?

a decrease in the price of resources used in production

A decrease in supply of good X means:

a shift to the left of the entire supply curve for good X.

If the supply and demand curves intersect at a price of $14, then any price below that would result in:

a shortage.

If the supply and demand curves intersect at a price of $47, then any price above that would result in:

a shortage.

The demand curve for a monopoly is:

above the MR curve.

Which factor ALWAYS results in an increase in price and quantity?

an increase in demand with no change in supply

Given a supply curve that is positively sloped and a demand curve for a normal good that is negatively sloped, an increase in income will result in:

an increase in equilibrium price and quantity.

Which factor would cause an INCREASE in the supply of a good?

an increase in the number of sellers

Which factor will NOT cause an increase in the supply of cornflakes?

an increase in the price of cornflakes

Which factor would cause a DECREASE in the supply of a good?

an increase in the price of goods that are used in production

Which factor will NOT cause an increase in the supply of good X?

an increase in the price of inputs used to produce good X

A decrease in the price of a good will result in:

an increase in the quantity demanded.

The demand curve for running shoes has shifted to the right. What could have caused it?

an increased enthusiasm among the population for running as exercise

If resources are scarce, it means that they:

are insufficient to provide enough goods and services to satisfy all human material wants and needs.

A choice made _____ is a choice whether to do a little more or a little less of an activity.

at the margin

If marginal cost is LESS than average total cost, then _____ cost is _____.

average total; decreasing

Variable cost divided by the quantity of output produced is _____ cost.

average variable

Conditions that keep new firms out of a monopoly market are:

barriers to entry.

The production possibility frontier will shift outward because of:

better technology that improves worker productivity

A resource is anything that:

can be used in production.

If people demand more of product A when the price of B falls, then A and B are:

complements.

If the demand for tires goes down when the price of gas goes up, then tires and gas are:

complements.

An increase in the demand for gasoline today caused by concerns that gasoline prices will be higher tomorrow is most likely attributable to a change in:

consumer expectations.

The term diminishing returns refers to a:

decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

If goods A and B are substitutes, a decrease in the price of good B will:

decrease the demand for good A.

If goods A and Z are complements, an increase in the price of good Z will:

decrease the demand for good A.

If supply is upward sloping, a decrease in demand with no change in supply will lead to a(n) _____ in equilibrium quantity and a(n) _____ in equilibrium price.

decrease; decrease

The market price of airline flights increased recently.

demand increased.

A negative relationship between quantity demanded and price is called the law of:

demand.

Which factor is NOT a barrier to entry?

diseconomies of scale

The demand curve facing a monopolist is:

downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.

In a perfectly competitive industry, the market demand curve is usually:

downward-sloping.

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a _____ demand curve, while the purely competitive firm has a _____ demand curve.

downward-sloping; perfectly elastic

Diminishing marginal returns occur when:

each additional unit of a variable factor adds less to total output than the previous unit.

The BEST example of making a choice at the margin is whether to:

eat another slice of pizza.

The difference between total revenue and total cost is:

economic profit or loss.

A farmer, in the short run, produces 100 bushels of wheat. Farmer's average total cost per bushel is $1.75, total revenue is $450, and total fixed costs are $100. Farmer's:

economic profit per bushel is $2.75.

All points on the production possibility frontier are:

efficient.

The slope of the total revenue curve is:

equal to marginal revenue and is constant under perfect competition.

Marginal revenue:

equals the market price in perfect competition.

If in a competitive market the quantity supplied exceeds the quantity demanded, we expect prices to:

fall.

Suppose the local real estate market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these two changes and assuming that real estate is a normal good, we can predict that the price of real estate will _____ and the quantity of real estate bought and sold will _____.

fall; rise or fall

Marginal analysis:

is used primarily when deciding how much of an activity should be done.

In perfectly competitive markets, if the price is _____, the firm will _____.

greater than ATC; make an economic profit

A natural monopoly exists whenever a single firm:

has economies of scale over the entire range of production that is relevant to its market.

price takers are individuals in a market who?

have no ability to affect the price of a good in a market.

Because of monopoly, consumers experience _____ than they do with perfect competition.

higher prices

The fixed cost curve is:

horizontal.

The opportunity cost of production:

is what you give up to produce the good.

If supply is upward sloping, a shift of a demand curve to the right, all other things unchanged, will:

increase equilibrium price and quantity.

Marginal cost is the:

increase in total cost when one more unit of output is produced.

An inferior good is one for which a(n) _____ in buyers' incomes causes a(n) _____.

increase; decrease in demand

The law of demand states that, other things equal, as the price:

increases, the quantity demanded will decrease.

Scarcity exists when:

individuals can have more of one good but only by giving up something else.

The assumptions of perfect competition imply that?

individuals in the market accept the market price as given.

All points inside the production possibility frontier represent:

inefficient production points.

All points outside the production possibility frontier are:

infeasible.

If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:

is above the market equilibrium price.

Price in a perfectly competitive industry:

is always equal to marginal revenue for the firm.

The marginal revenue received by a firm in a perfectly competitive market:

is equal to its average revenue.

A monopolist is likely to produce _____ and charge _____ than is a comparable perfectly competitive firm.

less; more

A planning period during which all of a firm's resources are variable is the _____ run.

long

The economic way of thinking entails:

making choices at the margin.

The curve that shows the additional cost of each additional unit of output is called the _____ curve.

marginal cost

The slope of the total cost curve is:

marginal cost.

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where _____ equals _____.

marginal cost; price

The _____ is the increase in output that is produced when a firm hires an additional worker.

marginal product

A perfectly competitive firm will maximize profits when the:

marginal revenue equals marginal cost.

For a firm in a perfectly competitive market, _____ revenue equals _____.

marginal; market price

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power.

In contrast with perfect competition, a monopolist:

may have economic profits in the long run.

A simplified version of reality that is used to clarify economic situations is called a(n):

model.

When the price of desks increases, the:

quantity supplied increases.

If the price of a commodity increases, you can usually expect the:

quantity supplied to increase.

Marginal revenue is a firm's:

ratio of the change in total revenue to the change in output.

Which topic is studied in macroeconomics?

recessions

The production possibility frontier is bowed out because:

resources are not equally suited for the production of both goods.

If marginal cost is GREATER than average total cost, then average total cost is:

rising.

When we are forced to make choices, we are facing the concept of:

scarcity.

Technological improvements will:

shift the production possibility frontier outward.

A monopoly is a market characterized by a:

single seller.

In the short run:

some inputs are fixed and some inputs are variable.

The basic concern of microeconomics is to:

study the choices people make.

The market for lemonade is in equilibrium and the price of lemons rises. In the lemonade market _____ will _____, _____ the price and _____ the quantity.

supply; decrease; increasing; decreasing

Perfect competition is characterized by:

the inability of any one firm to influence price.

The demand curve for a monopoly is:

the industry demand curve.

In economics, the short run is defined as:

the period in which some inputs are considered to be fixed in quantity.

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

Suppose the equilibrium price of good Y is $5 and the equilibrium quantity is 150 units. Supply in this market is upward sloping. If the price of good Y is $12:

there will be an excess supply of good Y.

A firm's total output times the price at which it sells that output is _____ revenue.

total

The sum of fixed and variable costs is _____ cost.

total

Average total cost is:

total cost divided by quantity.

The total product curve:

will become flatter as output increases if there are diminishing returns to the variable input.