Econ 101 Test Bank

How does a lower price alleviate the problem of excess supply?

A lower price decreases the number of potential sellers and increases the number of potential buyers.

For which pair of goods below would an increase in income have the same effect on both goods?

A normal good and a luxury good.

Which of the following is an example of a profit-maximizing business?

An accountant who makes her living preparing tax returns for other people

If the price of gasoline rises, buyers will probably

Spend more on gasoline since the demand for gasoline is probably inelastic.

Stricter loan standards in the mortgage lending sector could cause

a demand shift to the left in the housing market.

Output divided by the number of hours worked or by the number of workers is called

average product.

The technology or knowledge necessary for a production process is called

business know-how.

The difference between long-term and short-term profit maximization is that, in the short term,

businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.

A demand shift affects

buyers' willingness to purchase at various prices.

Government action can cause a shift in

either supply or demand.

Many times, technology is ________the equipment a company buys.

embodied in

On the basic supply-demand graph, the point at which the demand curve and the supply curve intersect is located at

equilibrium price and equilibrium quantity.

Inferior goods are characterized by _____ demand as a result of increased income.

lower

In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?

Average product would rise, and marginal product would rise.

The selling prices of houses from 2003 to 2006 reflected which market condition?

Excess demand

What word describes the goods and services that are used to produce outputs for a business?

Inputs

What is the difference between revenue and cost?

Profit

Which of the following formulas is correct?

Profit = Revenue −Cost

An increase in supply is shown graphically as a ________ shift of the supply curve, and as a result of an increase in supply, equilibrium price will ________.

rightward; decrease

Marginal cost generally ________ quantity produced.

rises with

In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.

short-term cost function

Variable costs are also known as

short-term costs.

Variable costs are relevant for

short-term everyday decision making.

innovation

something new, a change; the act of introducing a new method, idea, device, etc.

Between 2000 and 2007, many more furniture companies started producing furniture more cheaply in China. As a result, the

supply curve for furniture shifted to the right.

If a new major oil field is discovered in Africa, the world __________ curve for oil would shift to the __________.

supply; right

in the process of long-term profit maximization, the business makes decisions under the assumption that it can

vary all the inputs

To determine whether a particular good is a normal good, a luxury good, or an inferior good, you would want to observe what happens to demand for the good when __________ changes

income.

The goods or services purchased by a business for immediate use in the production process are known as

intermediate inputs.

The price of labor per unit times the amount of labor used is called

labor cost.

The added expense of producing one more unit of output is called the

marginal cost.

A profit-maximizing business will increase production as long as

marginal revenue exceeds marginal cost

The additional money a business gets from producing and selling one more unit of output is

marginal revenue.

If more and more states legalize casino gambling in the future, what will likely happen to the market for casino gambling in the states where it is currently legal?

The demand curve will shift to the left.

Higher interest rates can cause the ________ curve for new cars to ________.

demand; shift to the left.

Movies delivered over the Internet might have what effect on the market for movies in movie theaters?

A demand shift to the left

Which is NOT an example of inelastic supply

Bottled water

How might a government cause a demand shift to the right?

By requiring consumers to purchase certain products

Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?

It must be less than 18

Marginal ________ is the added revenue from producing and selling one more unit of output

Revenue

What word describes the money that customers pay for the output of a business?

Revenue

Suppose a local food truck, representing a small part of an overall very large market, can sell 20 hamburgers for $100 total and can sell 30 hamburgers for $150 total. Which of the following is NOT true?

The total revenue of the 20th hamburger is $5.

Inputs to production do NOT include

average product

The price at which the quantity supplied equals quantity demanded is the

equilibrium price.

The price at which the quantity supplied equals the quantity demanded is the

equilibrium price.

If the supply of a good increases, the equilibrium price of that good

falls while quantity demanded rises.

The short-term cost function assumes that

fixed costs can't be changed.

One strategy for long-term profit maximization is

innovation

Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the

production function.

The main objective of a business in a market economy is

profit maximization

Market equilibrium is the point where quantity supplied and ________ are reasonably in balance.

quantity demanded

An increase in oil prices may cause

a reduction in the quantity of oil demanded.