ECO 201 Final
Consider the Production Possibilities Curve below. A. What does it mean to be on the curve (point A)? B. What does it mean to be inside the curve (point B)? C. What does it mean to be outside the curve (point C)? D. Can we ever get to point C if so how, and if not why not?
A. it means you are producing to your max potential B. you are under producing and not taking advantage of all of your resources C. you are using more than the resources that you have available D. Yes we can, with the arrival of a new form of technology it is possible to gain more work potential
Assume that a serious infection of the E-coli bacteria strikes the US severely restricting the supply of hamburger in this country. A. What do we expect to happen to the equilibrium price of hamburger in this country? B. What happens to the demand for Turkey-burger? C. What happens to the equilibrium price of Turkey-burger? D. What happens to the equilibrium quantity of Turkey-burger sold?
A. it will increase B. it will increase C. it will decrease D. it will increase
True false or uncertain and why: It is possible for a firm in perfect competition to earn long run economic profit.
False Everything evens out in the long run making it impossible to gain any economic profit
What do we assume is true about adding labor to fixed capital in the short-run?
Get the economically efficient result, marginal costs decrease and then increase.
Give an example of an inferior good. If the price of an inferior good were to go up, what would happen to demand for that good and why?
raman noodles the demand would decrease because people buy it because of its low price
What is opportunity cost, and give an example?
Opportunity cost: The next most valuable thing or activity we give up to get what we want or do what we do. giving up studying for a final exam to go hang out with friends
16) A self-interested person: a) Can consider others but only as far as it affects them b) Is not rational because they don't care about others c) Is selfish because they care only for themselves d) All of the above e) None of the above
a
19) The market for all goods start in equilibrium, Good A has an income elasticity of 2.5. What do we expect to happen to the equilibrium quantity for good A if income rises for workers? a) Increase b) Decrease c) Stay the same d) We can't tell
a
2) A government wants to increase ridership on pubic transpiration such as buses by 10% The elasticity of demand is -0.5. The government must _______ the bus fare by _______. a) lower; 20.0% b) raise; 20% c) raise; 10% d) lower;10% e) None of these
a
22. A Master Chef in a large urban center who buys her beef from a local farmer in the country is an example of a. Absolute Advantage b. Comparative advantage c. Decreasing opportunity cost d. Technological change e. None of these
a
26. Economics can best be defined as the study of how a. individuals decide to use scarce resources in an attempt to satisfy unlimited wants b. to make money c. the governments should deal with unemployment and inflation d. to eliminate the problem of scarce resources e. None of these are correct.
a
For Questions 1 and 5, assume that the gasoline market is in equilibrium. Assume that Saudi Arabia decides to restrict its sales in the crude oil market pushing up the price of oil which the the main input in gasoline. 5. Demand in the SUV automobile market will a. Increase b. Decrease c. Stay the same d. We can't tell
b
10. Which of the following is not considered labor? a. A person working in a managerial position b. A person working as skilled labor. c. A salaried employee d. An employee who cannot earn overtime e. All of these are forms of labor
e
20) The market for all goods start in equilibrium, Good A has a cross price elasticity of 2.5 with good B. How are goods A and B related? a) They are close complements b) They are not close complements c) They are both inferior goods d) They are both normal goods e) None of these are correct.
e
22) A price ceiling can be expected to: a) Increase producers' surplus b) Lower the price to all customers and increase output. c) Create a surplus of supply d) All of these e) None of these
e
24. For good X, if a Surplus in supply at a particular price existed in the market, the equilibrium price would be achieved through market forces by: a. a decrease in the price which would decrease quantity supplied and increase quantity demanded. b. an increase in the price which would increase quantity demanded and decreases quantity supplied. c. an increase in demand which would induce firms to increase production. d. a decrease in supply, caused by firms lowering the price to rid themselves of unwanted inventories. e. none of the above
e
27) The firm always want to operate where price elasticity is equal to 1 because this is where they are always able to maximize profits. a) True in all cases b) True only if the good is normal c) False in all cases d) False if the good is normal e) False if costs are non-zero
e
28. Why is the Production Possibilities Curve bowed out? a. An increase in the price of one of the goods. b. An increase in the demand of one of the goods. c. An increase in resources d. Resources are equally productive in the production of both goods. e. None of these.
e
30. Determinants of demand include a. Change in price b. Change in technology c. Producers bringing more good to market d. a. and c. e. None of these
e
31) Assume that the equilibrium price of Corn is $4 per bushel. Government puts a price floor on at $3 per bushel. We should expect a) Increase producers' surplus b) A change in price to all customers and increase output. c) Create a surplus of supply d) All of these e) None of these
e
9. True or false: Computers are not technology: a. True, technology is a resource and computers are capital. b. False, it is more efficient to use technology than capital as they are complements c. True, computers are capital and technology is another form or resource. d. False, technology is the same thing as computers. e. None of these are correct.
e
For questions 28- 30 assume that for quantity of 160 units, price elasticity of demand for a good is -0.25. At that point the slope of the demand curve is -4. 28) What is the price of the good at that point a) $1 b) $5 c) $200 d) We cannot determine with this information e) None of the above
e
If marginal cost begins below average cost and is everywhere increasing, what is true about the shape of the average cost cover?
it is linear
Do economists consider money on hand (or stocks and bonds) as part of capital? Carefully explain your answer.
no because capital is resources and machinery. You use capital to make products and you cannot use money to do that
Carefully explain why it is incorrect to suggest that the value of a bag of potato chips is price that they put on it at Kroger's
value does not have to do with price. the value of a product is the MAX amount that you were WILLING to pay for a product.
Explain why the full cost of your decision to come to school is not equal to the cost of Tuition, Fees and room and board.
the cost for the tuition, fees, and room are all payed for at face value and are valued at that price. Coming to school is much more valuable because of what you get out of it. You get education, knowledge, experience, which leads to a job, money, and success.
Define fixed costs and variable costs. How do we determine average total cost?
-Fixed costs - costs that stay constant no matter the quantity produced -Variable costs - costs that have variation depending on the quantity produced -Average total cost is AVC + AFC
What is the supply curve for a firm in perfect competition in the long run?
-Long run cost curve -Horizontal -Shows that in the long run the costs even out and do not change
What is the marginal productivity of Labor?
-Marginal productivity - a change in output based off a change in units of that factor, holding everything else constant -marginal product of labor is then the change in output (Y) per unit change in labor (L)
What is the difference between the short-run and the long-run?
-Short run - has one fixed cost and the rest are variable -Long run - all of it's costs are variable
What is the firm's supply curve and how is this related to the market supply curve?
-The portion of the marginal cost curve that is above the AVC -As the market price rises the firm will supply more of its goods
True, false or uncertain, and explain your answer: It is possible for a firm in a perfectly competitive industry to earn positive economics profit.
-Yes it is possible -Marginal revenue has to be equal to marginal costs
Define Price Elasticity of Demand and explain what it means for demand to be elastic or inelastic.
-how sensitive the demand for a good is when influence by other economic factors -elastic - a small or large increase in price leads to a small increase in quantity demanded -inelastic - any increase in price leads to a large decrease in quantity demanded
What are the assumptions underlying perfectly competitive markets?
-many sellers -many buyers -perfect information (know all info from other companies) -easy enter/exit market -product homogeneity (all products are the same)
For a firm in a perfectly competitive market, show a situation of economic profits. What do we expect this profit to cause in the long run?
1. Market of oranges 2. It is found that oranges cure cancer 3. Increase in demand and price goes up 4. Entry into the market increases 5. More sellers and then the price comes back down
7) Which is not an opportunity cost of my decision to go to the beach in North Carolina? a) Going to Florida. b) The cost of the gas to get there. c) Reading a book at home d) Staying in Oxford grading ECO201 quizzes. e) None of the above.
A
Assume that the price of Wireless Xbox controllers, which run on AA batteries, go on sale for 50% off. A. What happens to the demand for AA batteries? Does it increase or decrease? B. What happens to the equilibrium price in the AA battery market? C. What happens to the equilibrium quantity in the AA battery market? D. Are the two good complements or substitutes?
A. Increase B. Increases C. Increases D. Complements - demand for one goes up, so does the demand for the other
International efforts to reduce Greenhouse Gases emissions are found to be successful, maybe too successful and the temperature in Oxford in July falls by 20 degrees (F). A. What do we expect to happen to demand for swimming suits in Oxford? B. What do we expect to happen to the equilibrium price of swimming suits in Oxford? C. What do we expect to happen to the equilibrium quantity of swimming suits in Oxford? D. If at the same time there was labor agreement in the swimsuit industry that increased wage, how would this change your answers in A-C?
A. decrease B. decrease C. decrease D. they would all still decrease, most likely by more
Assume that teachers at Miami University decide that they are willing to take a cut in pay. A. What do we expect to happen to the supply courses at Miami? B. What do we expect to happen to the demand for courses at Miami? C. What do we expect to happen to the equilibrium quantity of courses at Miami? D. What do we expect to happen to the equilibrium tuition (price) at Miami? E. What do we expect to happen to the demand in for classes at University of Cincinnati?
A. there will be more courses offered at Miami B. stays the same C. increases D. Increases E. increases because they will be cheaper than at Miami
Explain why ticket scalping might occur for a very popular concert or sporting event.
Because people are very desperate to go last minute and they will pay any cost because all other options to buy tickets are gone
In a graph of average costs (AVC and ATC), why is it not necessary to also include a graph of AFC?
Because they have already been paid and do not have any further influence on the total costs of the production
What is entrepreneurship and is it a resource?
Bringing together land, labor, and capital to create a good Some consider it a resource, others do not
Explain the difference between comparative and absolute advantage.
Comparative Advantage - the ability for a producer to create a product more efficiently than they can produce another product (make tires better than they can make bread) Absolute advantage - the ability for a producer to create a product better than another consumer (producer 1 can make tires better than producer 2)
Define marginal cost.
Increase in total cost due to a one unit increase in output
Name the three resources and what each is paid.
Land - rent Labor - wages Capital - intrest
The bowed out shape of the production possibilities frontier is caused by what economic phenomenon?
Specialization of inputs • Some inputs are better suited to the production of one good or another
What is marginal revenue?
The additional revenue generated by increasing product sales by one unit
economics
The study of the allocation of limited resources across unlimited wants and desires. Economics is about what people do, how we decide who gets what in a market, why is it the way that it is
11. Which statement best describes the production possibilities curve between candy bars and video game consoles: a. The possible maximum combinations of video game consoles and candy bars that the society can produce today. b. A graph that shows all the combinations of candy bars and video game consoles that makes society happiest. c. The maximum quantities of candy bars and video game consoles that society can produce across a set time interval. d. All of these e. None of these
a
12) If demand for this good was inelastic relative to supply we would expect a) The impact or incidence of the tax to fall more on consumers b) The impact or incidence of the tax to fall more on producers c) The impact or incidence of the tax to completely on consumers d) The impact or incidence of the tax would be completely on producers e) Can't tell with this information,
a
13) Demand is inelastic if a) The percentage change in price is greater that the percentage change in quantity demanded b) The percentage change in price is less than the percentage change in quantity demanded c) The percentage change in price is equal the percentage change in quantity demanded d) The value of price elasticity is equal to 1 e) The value of price elasticity is greater than 1
a
15) Suppose Herb consumes three pizza slices at a fast food store one evening. He figured the last slice was just worth the price he paid for it. If the pizza slices he buys have a price of $1, then a) he may have earned consumer surplus on the first two slices b) he earned no consumer surplus c) he earned $1 consumer surplus on the third slice alone d) he would have earned consumer surplus if he had eaten one more pizza slice e) he is irrational
a
32) Economic profit is less than accounting profit because a) Economic costs are greater than accounting costs as economic costs include opportunity cost. b) Accounting costs are greater than Economic costs as accounting costs include opportunity cost c) Accounting costs are greater than Economic costs as economic cost do not include visible costs d) Accounting costs are less than Economic costs as accounting cost do not include visible costs e) None of these things.
a
4) Producer surplus can be described as a) The difference between the price that the producer receives and their costs of production. b) The difference between the maximum the consumers are willing to pay for a particular quantity of a good and the cost to the producer to provide the good. c) The amount by which quantity supplied exceeds quantity demanded at the current market price. d) The amount by which quantity demanded exceeds quantity supplied at the current market price.
a
6) A price floor will always reduce consumer surplus a) True b) False c) Will only make consumer worse off if the dead weight loss of consumer surplus is greater than the transfer of consumer surplus to producers. d) Will only make consumer worse off if the dead weight loss of consumer surplus is greater than the smaller than the transfer of producer surplus to consumers
a
For Questions 1 and 5, assume that the gasoline market is in equilibrium. Assume that Saudi Arabia decides to restrict its sales in the crude oil market pushing up the price of oil which the the main input in gasoline. 3. Equilibrium price in the gasoline market a. Increases b. Decreases c. Stayed the same d. We can't tell
a
For questions 28- 30 assume that for quantity of 160 units, price elasticity of demand for a good is -0.25. At that point the slope of the demand curve is -4. 30) If we assume that demand for this good is linear (the slope remains constant at -4) we know that a(n) ___________in price will lead to a(n) _____________ in revenue. a) Increase, increase b) Decrease, increase c) Increase, no change d) Decrease, uncertain e) None of the above.
a
1) If elasticity of supply is inelastic we know that a 1% change in price leads to a ___________ change in quantity supplied a) Greater than 1% b) Less than 1% c) 1% d) we cannot tell with this information e) none of the above.
b
12. If income increases and demand for a good increases the good is called: a. A complement. b. A normal good. c. A substitute. d. A inferior good. e. None of these
b
14) If a consumer allocates income between goods x and y, consumer equilibrium occurs where a) the indifference curve nearest from the origin is reached b) MUx/Px = MUy/Py and the budget is exhausted c) Marginal utility is maximized d) MUx - MUy for the last unit consumed of each good e) consumer surplus equals 0
b
20. A Master Chef in a large urban center who purchases her dessert pastries from a bakery down the street is an example of: a. Absolute advantage b. Comparative advantage c. Decreasing opportunity cost d. Technological change e. None of these
b
24) I get more enjoyment out of the first piece of candy I eat than the last piece I eat because of: a) Diminishing marginal cost b) Diminishing marginal utility c) Increasing total utility d) The elasticity of demand for cookies is greater than on 1 e) None of these
b
25) If the at a price of $1 demand for a good is 10 unites, and the elasticity of demand is unit elastic, we know the slope is: a) 10 b) -10 c) 100 d) -100 e) None of these
b
27. The market for bubble gum is competitive with a current price of 50 cents and quantity of 100,000 units. Which of the following events would lead to a new equilibrium price of 75 cents and a new quantity of 125,000 units a. an increase in the price of the ingredients used to make bubble gum b. an increase in the price of other kinds of gum and candy c. an agreement by workers in the bubble gum industry to work for lower wages d. a decrease in income.
b
29. A decrease in demand is caused by a. A decrease the demand of a substitute b. An increase in income for an inferior good. c. An increase in the price of a complement good. d. An increase in the income if the good is normal good. e. None of these
b
5) Economic rationality means a) We are self-interested b) We will not do things we think will make us worse off. c) All of the above d) None of these
b
For Questions 1 and 5, assume that the gasoline market is in equilibrium. Assume that Saudi Arabia decides to restrict its sales in the crude oil market pushing up the price of oil which the the main input in gasoline. 2. In this case a. Supply of gasoline increases b. Supply of gasoline decreases c. Supply of gasoline stays the same d. Any change in supply is unknown
b
For Questions 1 and 5, assume that the gasoline market is in equilibrium. Assume that Saudi Arabia decides to restrict its sales in the crude oil market pushing up the price of oil which the the main input in gasoline. 4. Equilibrium quantity in the gasoline market a. Increases b. Decreases c. Stayed the same d. We can't tell
b
For questions 28- 30 assume that for quantity of 160 units, price elasticity of demand for a good is -0.25. At that point the slope of the demand curve is -4. 29) At this point we know demand is: a) Inelastic as a 1% change in quantity demanded will lead to a 0.25% change in price b) Inelastic as a 1% change in price will lead to a 0.25% change in quantity demanded. c) Elastic as a 1% change in quantity demanded will lead to a 0.25% change in price d) Elastic as a 1% change in price will lead to a 0.25% change in quantity demanded.
b
Why would the US and the EU trade when by and large they have the same resources and can produce the same goods?
because one can produce better and more efficiently than the other, so each focuses on what they can do best to maximize profit and quantities
13. An surplus of goods in the market occurs when: a. the market supply and demand curves intersect. b. the price in the market is below equilibrium and there is less supply than demand. c. the price in the market is above equilibrium and there is more supply than demand. d. both supply and demand are shifting out. e. None of these
c
14. A movement along the production possibilities curve would imply that: a. The labor force has grown. b. Productivity has increased. c. Society has chosen a different set of outputs. d. Productivity has declined. e. None of these
c
17) If we consider ordinal utility, if Person A has utility of 12 for good X and Person B has utility 6 for good X we can say a) Person B likes X twice as much as person A, b) Person B likes X more than person A c) Person A likes X more that person B d) Person A likes X twice as much as person B
c
19. Positive economic analysis involves a. normative analysis b. value judgment c. objective descriptions of the way things are. d. None of these is true.
c
21) It is possible to increase social welfare from that achieved at the equilibrium price and quantity a) True, which a price ceiling. b) True with a price floor. c) False d) It depends on the nature of the good.
c
21. Which of the following is NOT an example of land? a. A glacier supplying water to a town b. Crude oil pumped from the ground c. A dirt road d. A river e. All of these are land.
c
23. When supply of a product falls, this implies that a. an increase in the price of the product b. an improvement in the technology for producing the good. c. an increase in the price of a resource used in the good's production d. answers a. and c. e. none of these
c
25. Suppose goods A and B are substitutes goods, and the cost of resources used in the production of A increases. Then: a. the price of A will rise, and the price of B will fall. b. the price of A will fall, and the price of B will rise. c. the prices of both A and B will rise. d. the prices of both A and B will fall. e. None of these are correct
c
26) In the question above, an increase in the price of the good will lead to ________ revenue. a) Increasing b) Decreasing c) Constant d) We can't tell
c
3) A firm earning positive accounting profit will choose to operate a) True. They are covering all their visible costs and their opportunity cost. b) False, they are covering their opportunity costs but not visible cost. c) Uncertain. To operate a firm must cover all its accounting cost plus the the opportunity costs. d) True, accounting profits consider all relevant revenue ands costs. e) None of these
c
33) The elasticity of supply can be defined as: a) The percentage change in supply given a percentage change in price of a good. b) The change in supply given a change in the price of the good. c) The percentage change in quantity supplied given a percentage change in the price of the good. d) The change in the quantity supplied of a good given a change in the price of the good. e) None of these.
c
For Questions 1 and 5, assume that the gasoline market is in equilibrium. Assume that Saudi Arabia decides to restrict its sales in the crude oil market pushing up the price of oil which the the main input in gasoline. 1. In this case a. Demand for gasoline will increase b. Demand for gasoline will decrease c. Demand for gasoline stays the same d. Any change in demand is unknown
c
18) Marginal utility is the a) Average satisfaction obtained from consuming a good b) The change in satisfaction obtained from consuming 1% more of a good c) Overall satisfaction obtained from consuming a good d) Additional satisfaction obtained from consuming one more unit of the good e) Additional cost of one more unit of a good.
d
23) The reason that the price elasticity of demand for fresh green beans is greater than 1 is likely that: a) There are many other vegetables other than green beans. b) There are many other forms of green beans such as frozen or canned. c) Green beans are a small part of most people's budgets d) All of the above e) None of these
d
34) The long run in economics is a) Approximately 6 months. b) Depend on the amount of capital used. c) Depends on the amount of labor used d) Depends on how long the amount of one input may be fixed e) None of these
d
35) In a world without prices and income we will consume until: a) We are full b) Our marginal utility is 0 c) Marginal utility is negative d) a) and b) e) none of the above
d
7) The demand curve for a good that has many perfect substitutes in consumption is likely to be a) upward sloped b) steep c) highly inelastic d) nearly horizontal e) nearly vertical
d
What is technology?
the recipe by which we bring together resources to produce a good
