Eco Practice Exam 2
Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie cost $8 while each yoga class cost $3. The total utility from each of these activities is sit out in the table below. What is Kim's total utility maximizing point?
1 movie, 5 yoga classes
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3.0
Suppose that Tom purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Tom's demand curve?
4.25
In terms of microeconomic analysis, what is the function of "utils"?
A measurement of utility
Demand is said to be ____________ when the quantity demanded is very responsive to the changes in price
Elastic
Demand is said to be ____________ when the quantity demanded is not very responsive to changes in price
Inelastic
Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.
Unit Elastic
Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.
a systematic way of thinking; misguided conclusions
_________ arises when firms act together to reduce output and keep prices high
cartel
When demand is inelastic
consumers are not very responsive to changes in price.
Intellectual property law is a body of law that includes
copyright legislation, as well as all of the above
10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
cross-price elasticity of demand for iced tea is -2.
A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
cross-price elasticity of demand for soda is -3.
If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.
average
In order to determine ____________, the firm's total costs must be divided by the quantity of its
average cost
____________ tells a firm whether it can earn profits given the price in the market.
average cost
Marginal Utility can:
be positive, negative, or zero
If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, what will the result be?
abnormally high sustained profits
An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .
accounting profit; excluding opportunity cost
In the highly competitive setting in which oligopoly firms operate, which one of the following is considered to be the greatest temptation those oligopolists must face?
all of the above
____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.
an oligopoly
The most common pattern for marginal utility is ____________________.
diminishing marginal utility
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.
diminishing marginal utility
In the competitive market for figure skate blades, manufacturers offer an array of products that are
distinctly different in a particular way.
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will
do so regardless of what type of competition exists in a market.
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.
economies of scale
A price cut will increase the total revenue a firm receives if the demand for its product is:
elastic
If the supply curve for a product is vertical, then the elasticity of supply is:
equal to zero
The term "constant returns to scale" describes a situation where
expanding all inputs does not change the average cost of production.
If a perfectly competitive firm raises its price, the quantity demanded of its product _____________.
falls to zero
A firm's ____ consists of expenditures that must be made before production starts that typically, over the short run, ____ regardless of the level of production.
fixed costs; do not change
The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is:
game theory
A perfectly elastic supply curve is:
horizontal
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.
income level of each household
If the demand curve is perfectly elastic, then an increase in supply will:
increase the quantity exchanged but result in no change in the price.
The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:
increasing the price of game tickets because demand is inelastic.
The _________________ budget constraint shows the tradeoff between present and future consumption.
intertemporal choice
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output
is dictated by the forces of demand and supply.
When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:
is maximizing utility.
I the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are:
larger than the rewards from pursuing self-interest
The term _____________ is used to describe the additional cost of producing one more unit.
marginal cost
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
______________________ refers to the additional revenue gained from selling one more unit.
marginal revenue
The term _________________ refers to the additional utility provided by one additional unit of consumption.
marginal utility
A decrease in consumer preference for a product, other things being equal, will cause:
market demand to shift to the left.
Shopping malls typically lease retail space to a larger number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call________________
monopolistic competition
in economics, a firm that faces no competition
monopoly
A _________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.
natural monopoly
The price of elasticity of demand measures the :
the responsiveness of the quantity demanded to changes in price
If cola and iced tea are good substitutes for consumers, then it is likely that:
their cross price elasticities are greater than zero.
Fixed costs are important because, at least in the ___________, the firm _______________.
short run; cannot alter them
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .
shutdown point
___________ include all spending on labor, machinery, tools, and supplies purchased from other firms
total costs
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
total revenue
____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
total revenue
A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:
total revenue will decrease
In microeconomic terms, the ability of a good or a service to satisfy wants is called:
utility
______________ include all of the costs of production that increase with the quantity produced.
variable costs
if a paper mill shuts down its operations for three months so that it produces nothing. its ___ will be reduced to zero
variable costs
Perfect competition and monopoly stand at ___________________ of the spectrum of competition.
opposite ends
Assuming that firms maximize profit, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too low and it's price too high
Firms operating in a market situation that creates _____ sell their product with other firms who produce identical or extremely similar products
perfect competition
Which of the following best identifies what the concept of differentiated products is closely related to?
the degree of product variety that is available.
The use of sharp, temporary price cuts as a form of _________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.
predatory pricing
A firm that holds a monopoly position in the market place is
price maker
As a general rule, utility-maximizing choices between consumption goods occur where the:
price ratio and marginal utilities ratio of two goods is equal.
The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.
price taker
A monopolist is able to maximize its profits by
producing output where MR = MC and charging a price along the demand curve.
If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then ________.
the firm should keep expanding production.
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?
the marginal utility per dollar is the same for both goods
price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price
In order to determine the average variable cost, the firm's variable costs are divided by _______________________.
the quantity of the output
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.
diminishing marginal returns
Which of the following occurs simultaneously with an income effect?
substitution effect
Economists are able to determine total utility by:
summing up the marginal utilities of each unit consumed.
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitments to:
Match price cuts, but not price increases
The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in
Price
For a pure monopoly to exist, which statement must be true?
There is a single seller in a particular industry.
A perfectly competitive industry is a
hypothetical extreme
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:
rise and the equilibrium quantity to stay the same.
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
substitution effect