ECO Exam
Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be
$500 if she sells 25 candles.
If Brunhilda's Butcher Shop sells its product in a competitive market, then
Brunhilda's Butcher Shop's Shop's total revenue must be proportional to its quantity of output.
What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income?
Consumer surplus may increase, decrease, or remain unchanged.
Which of the following statements is not correct?
Corrective taxes require the government to set a target level of pollution.
Which of the following statements about models is correct?
Models assume away irrelevant details.
Where can an economy not produce?
Outside its production possibilities frontier
If Shawn can produce more donuts in one day than Sue can produce in one day, then
Shawn has an absolute advantage in the production of donuts.
Which of the following would not increase in response to a decrease in the price of ironing boards?
The quantity of irons supplied at each possible price of irons
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Which of the following goods is rival and excludable?
a congested toll road
cartel
a group of firms acting in unison
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
oligopoly
a market structure in which only a few sellers offer similar or identical products
You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be
a normal good.
natural monopoly
a single firm can supply a good or service to the entire market at a lower cost than could two or more firms
Nash equilibrium
a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
proportional
a tax for which high-income and low-income taxpayers pay the same fraction of income
progressive
a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
regressive
a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
lump-sum tax
a tax that is the same amount for every person
Which of the following expressions is correct?
accounting profit = economic profit + implicit costs
When a tax is placed on the sellers of cell phones, the size of the cell phone market
and the effective price received by sellers both decrease.
A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
average fixed cost is 50 cents.
Profit-maximizing firms enter a competitive market when existing firms in that market have
average total costs that are less than market price.
Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could
benefit both Celia and Ryan.
Market failure associated with the free-rider problem is a result of
benefits that accrue to those who don't pay.
The line that relates the price of a good and the quantity demanded of that good is called the demand
curve, and it usually slopes downward.
Equilibrium price must decrease when demand
decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.
Which of the following is not a result of rent control?
higher quality housing
If the cost of producing sofas decreases causing the price of sofas to decrease, consumer surplus in the sofa market will
increase
Private decisions about consumption of common resources and production of public goods usually lead to an
inefficient allocation of resources and external effects.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues.
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
The production possibilities frontier provides an illustration of the principle that
people face trade-offs
Moving production from a high-cost producer to a low-cost producer will
raise total surplus
A monopoly is a market with one
seller, and that seller sets the price.
A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,
social cost = private cost = private value < social value.
marginal tax rate
the amount by which taxes increase from an additional dollar of income
price discrimination
the business practice of selling the same good at different prices to different customers
benefits principle
the idea that people should pay taxes based on the benefits they receive from government services
ability-to-pay principle
the idea that taxes should be levied on a person according to how well that person can shoulder the burden
Vertical equity
the idea that taxpayers with a greater ability to pay taxes should pay larger amounts
Horizontal equity
the idea that taxpayers with similar abilities to pay taxes should pay the same amount
marginal product of labor
the increase in the amount of output from an additional unit of labor
factors of production
the inputs used to produce goods and services
When the quantity demanded has increased at every price, it might be because
the price of a complementary good has decreased.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
production function
the relationship between the quantity of the inputs used in production and the quantity of output from production
The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average
total cost
average tax rate
total taxes paid divided by total income
