ECON 101 Final Exam UMass Boston- Millman

(T/F) The equilibrium price is the price such that excess demand is positive and excess negative demand is negative and equal to excess demand

False

The average total cost to produce 100 cookies is $0.25 per cooking. The marginal ccost is constant at $0.10 for all cookies produced. The total cost to produce 100 cookies is

$25.00

In a constant cost competitive industry in long-run equilibrium the price always equals

. LRMC and minimum of LRAC

Camillo is offered two jobs: one pays a salary of $30,000 per year and offers four weeks of vacation, and the other job pays a salary of $32,000 per year and offers two weeks of vacation. What is the opportunity cost for Camillo of taking the job offering $32,000 per year?

2 weeks vacation per year

What statement best expresses the optimal consumption rule given a consumer's income constraint?

A consumer will maximize their utility when the marginal utilities of the last dollar spent on each and every good or service in their consumption bundle is equal

From 1970 to 1973 the price of college education increased and total enrollment increased. Which of the following would cause an unambiguous increase in the price of college education?

A shift to the left in the supply curve for college education and a shift to the right for the demand curve for college education.

From 1970 to 1993 the price of eggs decreased and the total annual consumption of eggs decreased. Which of the following would cause an unambiguous decrease in the price of eggs?

A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs

What is true regarding the difference between economic and accounting costs?

Accounting costs include only explicit costs

What is not a necessary condition for long-run equilibrium under perfect competition?

Accounting profits are zero

This year Joe's income increased by 15% while the quantity of bananas he demanded increased by 8% and the quantity of orange juice he demanded increased by 6%. Which of the following statements is true for Joe?

Bananas and orange juice are both normal goods

What happens in a perfectly competitive industry when economic profit is greater than zero

Existing firms may get larger and produce more output New firms will enter the industry Price will fall

The production of good X requires labor inputs and therefore the price of good X is directly affected by labor costs. Suppose the price of labor increases while simultaneously people's income decreases. If good X is an inferiorl good, then we know in the market for good X

IS NOT: the equilibrium price will decrease and the equilibrium quantity decrease the price may increase, decrease, or remain the same, and the quantity will increase, decrease, or remain the same the price will increase and the quantity will decrease the price will remain unchanged and the quantity will remain unchanged

The production of good X requires labor inputs and therefore the price of good X is directly affected by labor costs. Suppose the price of labor increases while simultaneously people's income decreases. If good X is an inferior good, then we know in the market for good X

IS NOT: the equilibrium price will decrease and the equilibrium quantity decrease the price may increase, decrease, or remain the same, and the quantity will increase, decrease, or remain the same the price will increase and the quantity will decrease the price will remain unchanged and the quantity will remain unchanged

In 1992, Occupational Safety and Health Authority passed the Bloodborne Pahogens Standard (BBP), a regulation concerning procedures for infection control in the dental office designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease decreased. Under what circumstances will the equilibrium level of output of dental care remain the same

If both demand and supply shift by the same magnitude.

In 1992, Occupational Safety and Health Authority passed the Bloodborne Pahogens Standard (BBP), a regulation concerning procedures for infection control in the dental office designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease decreased. Under what circumstances will the equilibrium level of output of dental care increase?

If demand shifts more than supply.

In 1992, Occupational Safety and Health Authority passed the Bloodborne Pahogens Standard (BBP), a regulation concerning procedures for infection control in the dental office designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease decreased. What is the effect of the BBP on the equilibrium price of dental care?

It unambiguously increases

If Px is equal to Py then when the consumer maximized utility,

MUx must equal MUy

describe the graphical relationship between average product and marginal product?

Marginal product cuts average product from above, at the maximum point of average product

What 2 things are not true about a monopoly?

Monopolies can charge as high a price as it likes At the profit maximizing output, price equals marginal cost.

The prices of flat-screen TVs are expected to fall next year. Which of the following statements about the market for flat-screen TVs this year are true? I. Consumers will decrease their demand for flat-screen TVs at all prices this year in anticipation of the decrease in flat-screen prices next year. II. Flat-screen TV prices today are likely to decrease due to these expectations. III. Flat-screen TV prices today are likely to increase due to these expectations

Statements I and II are true

Which of the following statements is true? I. An individual who experiences diminishing marginal utility finds that the additional satisfaction the individual gets from consuming one more unit of the good declines as the amount consumed of the good increases. II. Given diminishing marginal utility eventually the additional utility from an additional unit of the good will be negative III. When the marginal utility of the last unit consumed is zero the total utility is maximized

Statements I, II, III are all true

In 1992, Occupational Safety and Health Authority passed the Bloodborne Pahogens Standard (BBP), a regulation concerning procedures for infection control in the dental office designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease decreased. What is the effect of the BBP on the market for dental care?

Supply shifts to the left, and demand shifts to the right.

In the competitive market for candles, there is an increase in the number of people purchasing candles and a decrease in the cost of beeswax, a major ingredient in the production of candles. Which of the following statements is true?

The equilibrium price may increase, decrease, or remain the same, but the equilibrium quantity will increase

At the profit maximizing level of output what is true of the total revenue (TR) and the total cost (TC)

They must have the same slope

Consider the market for mangos. Suppose researchers discover that eating mangos generates large health benefits. What is true?

This discovery will cause the demand for mangos to shift to the right.

When the marginal cost of producing one more unit of the good is greater than the marginal benefit of producing one more unit of the good, too much of the good is being produced.

True

A function that indicates the maximum output per unit of time that a firm can produce for every combination of inputs with given technology is called

a production function

A price ceiling imposed on a competitive market will

a shortage and dead weight loss

A price floor set the price in the market

a surplus and a misallocation of resources

The short run is

a time period in which at least one input is fixed

In a constant cost industry an increase in demand will be followed by

an increase in supply that will bring the price down to the level it was before the demand shift

Consider the demand curve for automobiles. An increase in the price of automobiles due to a shift in the supply curve will:

cause a movement along the demand curve for automobiles

A market is initially composed of 100 buyers. Ceteris paribus, if an additional 100 buyers join the market, then this will

cause the market demand curve to shift to the right as the additional demand of these new consumers is added to the initial demand curve

Consider two goods: good X and good Y. Ceteris Paribus, the price of good Y increases and the demand for good X decreases. Good X and good Y are:

complements

Jamie currently consumes 4 units of tomatoes and 7 units of bread each week. The price of tomatoes is $2 per unit while the price of bread is $1 per unit. Jamie's marginal utility from the last dollar spent on tomatoes is equal to 10 utils while her marginal utility from the last dollar spent on the bread she consumes is 6 utils. Jamie should

consume more bread and less tomatoes, since currently the marginal uitlity of the last dollar spent of bread exceeds the marginal utility of her last dollar spent on tomatoes

In order to make a rational consumption decision a person should

consume such that the marginal benefit of the last unit consumed is equal to the marginal cost of the last unit consumed

Bette's Breakfast, a perfectly competitive eatery sells its "Breakfast Special" (the only thing it sells) for $5.00. The costs of waiters, cooks, power, food etc. average out to 3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

continue producing in the short run but plan to shut down in the long run

A firm employs 100 workers, each at $10 per hour, and 50 units of capital, each at $21 per hour. The marginal product of labor is 3 and the marginal product of capital is 5. The firm

could reduce the cost of producing its current output level buy employing more labor and less capital

The cross elasticity of demand between movie tickets and movie theater popcorn is -.06. Suppose movie ticket prices increased by 20% this year. The percentage change in the quantity demanded of movie theater popcorn will be a(n)

decrease of 12%

Given a linear demand curve, the value of consumer surplus

decreases as the market price increases

Ceteris paribus, Sonya's income decreases. If Sonya's demand for good X increases, then if must be the case that good X is a(n)

delicious good

Natural monopolies are due to

economies of scale

Suppose the government imposes a sales tax ( tax on each unit sold) on cigarettes which has a price elasticity of -0.1. The incidence of the tax will

fall on the sellers

Suppose the government imposes a sales tax ( tax on each unit sold) on cigaretts which has a price elasticity of -0.1. The incidence of the tax will

fall on the sellers

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a __________ price and sell a __________ quantity.

higher; smaller

The perfectly competitive firm's marginal revenue is

horizontal

The long-run supply curve in a constant cost industry is

horizontal and linear

What pair of goods are most likely to have a negative cross price elasticity of demand?

hotdogs and hot dog buns

The cost of ground beef used to produce Fast Wally's hamburgers increases. Ceteris paribus, this will result

in the supply curve shifting left creating excess demand in the market and an increase in the price of hamburgers & in the supply curve shifting right creating excess demand and the quantity supply decreasing

We observe that both the price and quantity sold of golf balls are rising over time. This is due to

increases in the number of country clubs with golf facilities

A vertical demand curve

is completely inelastic

The short-run supply curve for a competitive firm is

is upward sloping due to diminishing returns and is the MC curve above the minimum point of the AVC curve

The __________ elastic a firm's demand curve, the greater its _________

less; monopoly power

With respect to monopolies, deadweight loss refers to the

loss of net benefit due to the loss of output

When a company spends a lot of money on advertising to create brand loyalty it is trying to

make the demand for its product less elastic so it can raise the price and increase total revenue

The law of diminishing returns to diminishing

marginal product

The slope of the total product curve is the

marginal product

Every firm maximizes profit where

marginal revenue equals marginal cost

The total cost of producing a given level of output is:

minimized when the marginal product for the last dollar spent on each input is equal

The demand function shows _________________ between quantity demanded and price.

negative relationship

Which of the following inputs are variable in the long-run

plant size capital and equipment labor

The monopolist that maximizes profit

producers less than the optimal output because the selling price is above the marginal cost

Compared to a competitive widget industry, the monopolistic widget industry

produces less output at a higher price

When the current price is above the market-clearing level we would expect

quantity supplied to exceed quantity demanded

A small value (less than one) for the price elasticity of demand indicates that consumers are very price

sensitive and that a small percentage change in price will lead to a large percentage change in the quantity demanded when both changes are measured in absolute terms

Monopoly power results from the ability to

set price above marginal cost

Marginal utility is

the change in total utility generated by consuming one additional unit of a good or service.

Plastic and steel and substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect

the demand curve for steel to shift to the right.

Consumers in Mayville consider houses and apartments to be substitutes. There is an increase in the price of houses in Mayville at the same time three new apartment buildings are opened in Mayville, In the market for apartments in Mayville

the equilibrium quantity will rise relative to its level before these two events

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

the firm's output is a very small fraction of the entire industry's output

What is not a factor affecting the price elasticity of demand for a good

the income of consumers

Which of the following is not a factor affecting the price elasticity of demand for a good

the income of consumers

The more elastic the demand facing a firm

the lower its monopoly power

Individual consumer surplus is

the net gain to an individual buyer from the purchase of a good; equal to the difference between the buyer's willingness to pay and the price paid

Along any downward sloping straight-line demand curve:

the price elasticity varies, but the slope is constant

The best definition of the equilibrium price is

the price where excess supply is zero and excess demand is zero

Price elasticity of demand measures

the sensitivity of demand to changes in price

The law of diminishing returns applies to

the short run only

The production possibility frontier illustrates

the trade offs facing an economy the maximum quantity of one good that can be produced for any given quantity produced of the other the opportunity cost of producing more of one good

Suppose the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be

to decrease the consumer surplus of Japanese rice consumers

Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the market basket the marginal utility of the last dollar spent is equal. There are some goods which are affordable but do not appear in Jane's market basket. If Jane has maximized utility, the marginal utility of the last dollar spent on each of the goods that does not appear in her market basket is

too low

Ham and turkey are considered to be substitutes in the diet of many people. Ceteris paribus, if the price of ham decreases, then the demand for

turkey will shift to the left and the equilibrium price of turkey will decrease and the equilibrium quantity will decrease

Ham and turkey are considered to be substitutes in the diet of many people. Ceteris paribus, if the price of ham decreases, then the demand for

turkey will shift toe the left and the equilibrium price of turkey will decrease and the equilibrium quantity will decrease

Assume that the current market price is below the market clearing level. We would expect

upward pressure on the current market price

Ceteris paribus higher input prices result in

upward shifts of MC and reduction in ouput