Econ 102 Exam 2

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For an inferior good, income elasticity of demand will be: Select one: a. determined by the direction of the change in income. b. positive. c. 0. d. negative.

A planning period during which all of a firm's resources are variable is the: Select one: a. long run. b. fixed run. c. short run. d. nominal run.

Assume the supply curve shifts to the right by a given amount at each price. Price in the market will decline the most if demand is more: Select one: a. price-inelastic and supply is more price-inelastic. b. price-elastic and supply is more price-elastic. c. price-elastic and supply is more price-inelastic. d. price-inelastic and supply is more price-elastic.

At the long-run quantity of output, where the LRATC curve is at its lowest point, it is tangent to the ________ of the corresponding short-run average total cost curve. Select one: a. minimum b. maximum c. right of the minimum d. left of the minimum

Economies and diseconomies of scale are associated with the: Select one: a. long-run average total cost curve and the long run. b. short-run average total cost curve and the short run. c. marginal cost curve and both the long and short run. d. average fixed cost curve and the short run.

If a 1% increase in the price of gummy bears causes gummy bear sales to decline by .4%, then the price elasticity of demand is: Select one: a. 0.4. Correct b. 4. c. 0.04. d. 2.5.

If the minimum wage is a binding price floor, then: Select one: a. the number of workers who want to work will be greater than the number of jobs available. b. the equilibrium wage will increase. c. there will be a job for everyone who is willing to work. d. business owners will hire more workers.

If the price elasticity of demand for digital cameras is 0.88, then the demand is _____ and total revenue will ______ if the price of cameras increases. Select one: a. inelastic; increase Correct b. inelastic; decrease c. elastic; increase d. elastic; decrease

If the price of a good is held above the equilibrium price: Select one: a. quantity supplied will exceed quantity demanded. Correct b. demand will decrease. c. supply will increase. d. quantity demanded will exceed quantity supplied.

In the rental housing market, landlords determine the number of units rented. If a price control is present in the market, this control must be a: Select one: a. price ceiling. b. price floor. c. quota. d. quantity control.

Inefficient allocations of goods to consumers often result from: Select one: a. price ceilings. b. producer surplus. c. equilibrium prices. d. consumer surplus.

Milk is an input in the production of cheese, and cheese and bagels are complements. A decrease in the price of milk will _________ the producer surplus in the market for bagels. Select one: a. increase Correct b. first increase and then decrease c. decrease d. not change

Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $14, what is the total consumer surplus for these three shoppers? Select one: a. $6 Correct b. 0 c. $20 d. -$8

Price ceilings may be imposed if: Select one: a. demanders can make strong moral or political arguments for lower prices. b. suppliers can make strong moral or political arguments for lower prices. c. demanders can make strong moral or political arguments for higher prices. d. suppliers can make strong moral or political arguments for higher prices.

Price elasticity of demand measures: Select one: a. how consumers respond to a change in price. Correct b. how consumers respond to a change in income. c. how sellers respond to a change in price. d. how sellers respond to a change in revenues.

The going rent in the market for 1-bedroom apartments in your neighborhood is $400. If the government imposes a price ceiling of $200 in this market total surplus in this market will: Select one: a. decrease b. not change c. decrease first, and then increase d. increase

The government decides to impose a price ceiling on a good, because it thinks the market-determined price is "too high." If the government imposes the price ceiling below the equilibrium price: Select one: a. consumers will respond to the lower price and therefore wish to purchase more of the good than at the equilibrium price. b. producers will respond to the lower price and therefore offer more units for sale. c. consumers will be able to purchase more of the good after the price ceiling is imposed. d. it will not be binding.

The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15% in a period, how will that affect total revenue from peaches in that period, all other things unchanged? Select one: a. Total revenue will rise. b. Total revenue will fall. c. Not enough information is given to answer the question. d. Total revenue will remain unchanged.

Tomatoes are an input in the production of ketchup, and ketchup and mustard are substitutes. A decrease in the price of tomatoes will _________ the total surplus in the market for mustard. Select one: a. decrease Correct b. first increase and then decrease c. not change d. increase

When a cherry orchard in Oregon adds an additional worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is: Select one: a. $40. b. $19. c. $4,000. d. $24,000.

British Petroleum (BP) is considering lowering the price of crude oil by 50%. If the price elasticity of demand of crude oil is .5, what will happen to quantity demanded? Select one: a. Quantity demanded will decrease by 50%. b. Quantity will increase by 25%. Correct c. Quantity will decrease by 100%. d. Quantity will increase by 50%.

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling: Select one: a. it is inefficient. b. we say that the transaction takes place on a black market. Correct c. there is an increase in quantity demanded. d. there is a decrease in quantity demanded.

Which of the following would you expect to have highly price elastic demand curves? Select one: a. name brand cereals, gasoline, and drugs for serious illnesses b. name brand cereals Correct c. gasoline d. drugs for serious illnesses

A factor of production whose quantity cannot be changed during a particular period is a(n): Select one: a. marginal factor of production. b. fixed factor of production. c. incremental factor of production. d. variable factor of production.

A price ceiling imposed below the equilibrium price of a good will cause: Select one: a. demand to decrease b. a supply shortage. c. a supply surplus. d. demand to increase.

An effective price floor will lead to: Select one: a. quantity demanded being greater than quantity supplied. b. a resulting excess supply or a surplus. c. the need for government to produce more of the good. d. suppliers determining the amount of the good bought and sold in the market.

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. The average product of labor is 30, and the marginal product of the twentieth worker is 12. What is the marginal cost of the last unit produced by the last worker Austin hired? Select one: a. $0.20 b. $5 Correct c. $240 d. $720

If Jakob knows the marginal cost of the first sports jersey is $21, the marginal cost of the second sports jersey is $40, and the marginal cost of the third jersey is $17, what is the total variable cost of producing three jerseys? Select one: a. $26 b. $78 c. $17 d. $61

If demand is perfectly inelastic, then a 5% increase in price will cause: Select one: a. a decrease in quantity demanded of less than 5%. b. no change in quantity demanded. Correct c. a decrease in quantity demanded of more than 5%. d. a decrease in quantity demanded of exactly 5%.

If the government imposes rent control: Select one: a. rent will be set at a price above the equilibrium price. b. it may result in some landlords leaving the business because they cannot cover costs. c. it will lead to rental units being higher in quality because landlords are guaranteed a high price. d. it will create a surplus of housing.

If the price elasticity of demand for beach towels is 1.00, then the demand is _____ and total revenue will ______ if the price of beach towels increases. Select one: a. inelastic; remain unchanged b. unit-elastic; remain unchanged. Correct c. unit-elastic; increase d. inelastic; decrease

If there is an increase in demand, total surplus: Select one: a. may change, but we can't tell how. b. will increase. c. will decrease. d. will remain the same.

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered: Select one: a. complementary goods. b. unrelated goods. Correct c. inferior goods. d. substitute goods.

Marginal cost ________ over the range of increasing marginal returns and ________ over the range of diminishing marginal returns. Select one: a. increases; falls b. falls; increases c. is constant; rises d. increases; is constant

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip is $150, Mountain River Adventures will offer ________ trips per day and will have producer surplus equal to ________. Select one: a. 2; $220 b. 3; $90 c. 3; $10 d. 4; $80

One of the consequences of increasing the minimum wage has been: Select one: a. decreased unemployment for low-skill workers. b. workers offering to work "off the books" for less than the minimum wage. c. lower production costs for small businesses. d. increased employment for high-skill workers.

Peanut butter is an inferior good. If there is an increase in income, total surplus in the peanut butter market: Select one: a. will increase. b. will decrease. c. will not change. d. may change, but we cannot determine the change without more information.

Rent controls set a price ceiling below the equilibrium price and therefore: Select one: a. quantity supplied exceeds the quantity demanded. b. quantity demanded exceeds the quantity supplied. Correct c. a surplus of rental units will result. d. poor people will obviously be helped.

Rubber is an input in the production of tires, and tires and cars are complements. An increase in the price of rubber will _________ the total surplus in the market for cars (assume that neither curve is perfectly inelastic). Select one: a. increase b. decrease c. first increase and then decrease d. not change

Supply curves tend to be more ________ the greater the time period facing the producer. Select one: a. inflexible b. price-elastic c. price-inelastic d. steeply sloped

Suppose that the quantity demanded for a product falls by 9 percent as people's incomes fall by 3 percent. What is the income elasticity for this good? Select one: a. -0.33 b. 3.00 c. -3.00 d. 0.33

Suppose you manage a convenience mart and are in charge of ordering products but do not set the price. The home office provides the prices. In your area, the income elasticity of demand for peanut butter is -0.5. Due to local factory closings, you expect local incomes to decrease by 20%, on average, in the next month. As a result, you should stock: Select one: a. 5% more peanut butter on the shelves. b. 10% more peanut butter on the shelves. c. 20% more peanut butter on the shelves. d. 10% less peanut butter on the shelves.

The current price in the market for milk is $8.00 If the government imposed a price floor of $4.00 in this market total surplus would ____________. Select one: a. decrease first, and then increase b. not change Correct c. increase d. decrease

The marginal product of labor is: Select one: a. the change in labor divided by the change in total product. b. the slope of the total product of labor curve. c. the change in average product divided by the change in the quantity of labor. d. the change in output that occurs when capital increases by one unit.

The price of coffee increases by 10%, and as a result, Alex purchases less donuts. This suggests that to Alex, coffee and donuts are: Select one: a. substitutes. b. complements. Correct c. inferior goods. d. normal goods.

When the government removes a binding price floor: Select one: a. quantity demanded would decrease and quantity supplied would increase. b. quantity demanded would increase and quantity supplied would decrease. Correct c. an excess demand would develop. d. an excess supply would develop.

When there is a bountiful harvest of grapefruit, total consumer surplus in the grapefruit market: Select one: a. may change, but we can't tell how. b. will increase. Correct c. will decrease. d. will remain the same.

Which factor is the most important in determining the price elasticity of supply? Select one: a. the number of alternative uses of the good b. the time period the producer has to adjust inputs and outputs Correct c. the intensity of the need on behalf of consumers d. the number of close substitutes

Which of the following is true when a market is in equilibrium and there is no outside intervention to change the equilibrium price? Select one: a. Total surplus is minimized. b. No mutually beneficial trades are missed. c. Some mutually beneficial trades may be missed. d. Inefficiency is maximized.

If quantity demanded rises by 60% and price falls by 20%, the price elasticity of demand is: Select one: a. 20. b. 33. c. 3. Correct d. 60.

Adie wants to take some online classes this semester. She is willing to pay $1,000 for the first class, $800 for the second, $700 for the third, and $500 for the fourth. If online classes cost $750, Adie will take ________ online classes and her consumer surplus will equal ________. Select one: a. 2; $400 b. 3; $350 c. 2; $300 d. 4; $600

Along the upper end of a linear demand curve, the price elasticity of demand will be: Select one: a. price-inelastic. b. negative. c. price-elastic. Correct d. price unit-elastic.

At quantities greater than the long-run least per-unit cost quantity of output, the long-run average total cost curve is tangent to the ________ of the corresponding short-run average total cost curve. Select one: a. minimum b. maximum c. right of the minimum d. left of the minimum

Hugo Chávez is the current president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wants to increase his popularity with the citizens of Venezuela and enacts a government policy that reduces the customer price of gasoline sold at state-owned gas stations to 50% of the pre-policy price. This policy is called a: Select one: a. price control. b. price floor. c. price ceiling. Correct d. quota.

If 2 goods have a positive cross-price elasticity of demand between them, we would say that these 2 goods are: Select one: a. complements. b. inferior. c. substitutes. Correct d. normal.

If an increase in price for cotton increases total revenue, then the price effect is ________ the quantity effect. Select one: a. not comparable to b. weaker than c. stronger than d. equal to

If an increase in the price of a good leads to an increase in total revenue, then: Select one: a. the supply curve is price elastic. b. the demand curve must be price elastic. c. the demand curve must be price inelastic. Correct d. the supply curve must be price inelastic.

If you drop a course after the refund date, the tuition that you have paid and cannot recover is: Select one: a. a fixed cost. b. a variable cost. c. a sunk cost. d. a marginal cost.

Milk is an input in the production of cheese, and cheese and humus are substitutes. A decrease in the price of milk will _________ the producer surplus in the market for humus. Select one: a. not change b. increase c. decrease Correct d. first increase and then decrease

Milk is an input in the production of cheese, and cheese and humus are substitutes. An increase in the price of milk will _________ the producer surplus in the market for humus. Select one: a. first increase and then decrease b. decrease c. increase Correct d. not change

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to: Select one: a. $20. b. $90. c. $70. d. $80.

Price ceilings that lead to shortages will impose costs on society because they: Select one: a. will eliminate long waiting lines. b. may result in black market prices, which are lower than the market-determined price would be. c. lead to a smaller quantity offered on the market. d. help businesses instead of consumers.

Rubber is an input in the production of tires, and tires and cars are complements. A decrease in the price of rubber will _________ the total surplus in the market for cars (assume that neither curve is perfectly inelastic). Select one: a. decrease b. not change c. increase Correct d. first increase and then decrease

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with 3 employees. Staci hires an additional worker and total output per week rises to 328. At four workers, marginal product is _____________ the average product, so average product is ______________. Select one: a. equal to; unchanged b. below; rising c. above; rising d. above: falling

Suppose the government of the oil-rich country of Oiland sets gasoline prices at $0.25 per gallon, when the market price is $1.50. The Oiland government's actions will: Select one: a. improve efficiency since the low prices will force producers to find cheaper production methods. b. result in gasoline surpluses even in an oil-rich country. c. cause gasoline shortages even in an oil-rich country. Correct d. improve equality between rich and poor since the poor can now afford gasoline.

The going rent in the market for 1-bedroom apartments in your neighborhood is $400. If the government imposes a price ceiling of $800 in this market: Select one: a. Less people will rent apartments. b. More people will rent apartments. c. The same number of apartments will be rented d. More people will be willing to rent apartments at every price.

The government imposes a price ceiling below the equilibrium price. The price ceiling will cause: Select one: a. quantity demanded to decrease. b. quantity supplied to increase. c. a shortage of the good. Correct d. an increase in the quality of the good.

The price elasticity of demand for a good such as water is likely to be very low because: Select one: a. the share of income spent on water is large. b. water has some good substitutes. c. the price is very low. Correct d. water is considered a luxury.

The price of a gallon of gasoline increases 10% this year. As a result, which of the following events is most likely to occur? Select one: a. Fewer people will ride bicycles, a substitute for car travel. b. Public transportation usage will decrease. c. Gasoline expenditures will increase if gasoline is an inelastic good. d. More people will drive their cars.

The total producer surplus in the Wisconsin milk market is represented by: Select one: a. the sum of all prices paid multiplied by the number of gallons of milk sold. b. the total cost of selling milk in Wisconsin. c. the sum of the individual producer surpluses in this market. d. the total revenue of the milk producers in Wisconsin.

Cindy operates Birds-R-Us, a small store manufacturing and selling 200 bird feeders per month. Cindy's monthly total fixed costs are $700, and her monthly total variable costs are $2,000. If for some reason Cindy's fixed cost increased to $1,000, then her: Select one: a. marginal costs would increase. b. average variable costs would increase. c. average fixed costs would increase. d. All of the choices are correct.

Suppose that a binding price floor is in place in a particular market. If the market is deregulated and the price floor is removed, then which of the following effects could occur? Select one: a. The quantity demanded would decrease and the quantity supplied would increase. b. An excess demand would develop. c. There would be a decrease in the quality of the good supplied. d. There would be an increase in the quality of the good supplied. Check

If a good is very inexpensive, but it is a necessity, you would predict the price elasticity of demand for the good is: Select one: a. not able to be determined without knowing the shape of the demand curve. b. elastic. c. unit-elastic. d. inelastic.

A price floor in the market for wheat that is set above the current market price: Select one: a. decreases the price received by farmers. b. does not change the price received by farmers. c. decreases the price paid by consumers. d. increases the price paid by consumers.

At 36 units of labor, a firm finds that both average product of labor and marginal product of labor equal 42. We can conclude that the average product curve at 36 units of labor is: Select one: a. upward-sloping. b. downward--sloping. c. vertical. d. horizontal.

Average total cost is equal to: Select one: a. marginal cost. b. total fixed cost divided by quantity produced. c. total variable cost divided by quantity produced. d. total cost divided by quantity produced.

Demand is inelastic when the absolute value of the price elasticity of demand is: Select one: a. 0. b. greater than 1. c. equal to 1. d. less than 1.

Each of the following is a source of inefficiency from a rent-control price ceiling except: Select one: a. inefficiently low quantity of the good exchanged. b. wasted resources of consumers searching for the good. c. inefficient allocation of the good to consumers. d. inefficiently high quality of the good being sold.

Governments continue to impose price controls. Which of the following is not a valid reason for this? Select one: a. Some people do benefit from such price controls. b. People fear that prices will change dramatically if the price controls were removed. c. It is politically expedient to enact regulations that benefit influential voting groups. d. Price controls are always effective.

If a frost destroys much of the grapefruit crop, total surplus: Select one: a. will increase. b. may change, but we cannot determine the change without more information. c. will not change. d. will decrease.

If more agricultural land is devoted to producing peanuts, total surplus in the peanut butter market: Select one: a. will not change. b. may change, but we cannot determine the change without more information. c. will decrease. d. will increase.

If the income elasticity of demand for a good is negative, the good is said to be a(n): Select one: a. negative good. b. normal good. c. positive good. d. inferior good.

If the managers of the Miami Transit Authority (MTA) raise the fare from $2.00 to $2.25 per ride and as a result total revenue increases, then we know that the demand for rides: Select one: a. is price elastic. b. is unit elastic c. has zero elasticity d. is price inelastic.

If the price increases by 100% and the quantity decreases by 50%, then the elasticity of demand is ___. Select one: a. 1 b. 2 c. negative 0.5 d. 0.5

If the total variable cost for five shoes is $50 and the total variable cost of six shoes is $80, which of the following is true? Select one: a. Total costs for the sixth shoe is $130. b. The marginal cost for the sixth shoe is $30. c. Average variable cost of the sixth shoe is $10. d. Average variable cost for the fifth shoe is $10.

If there is an increase in demand, total surplus: Select one: a. may change, but we can't tell how. b. will remain the same. c. will decrease. d. will increase.

Kayla and Jada are roommates in New York City. Both Kayla and Jada recently received raises. Kayla now buys more CDs than before, but Jada buys fewer. Kayla behaves as if CDs are ________ goods and Jada's income elasticity of demand for CDs is ________. Select one: a. inferior; negative b. normal; positive c. inferior; positive d. normal; negative

Luis is willing to sell his pool table for $600, but if he gets $840, the producer surplus Luis receives is ________. Select one: a. $600 b. $1,440 c. $840 d. $240

Maximum total surplus in the market for chocolate occurs when: Select one: a. total net gain to producers is generated from trading in the market. b. all producers are able to sell their chocolate. c. all consumers who value chocolate are able to buy chocolate. d. the market is in equilibrium.

Suppose the price of real estate increases by 37.11% in Oakland next year. If the quantity of new homes supplied does not change, this means that the price elasticity of ________ will be perfectly ________ in Oakland next year. Select one: a. supply; elastic b. demand; elastic c. demand; inelastic d. supply; inelastic

There are diminishing returns to an input when: Select one: a. less of it is needed to produce more output. b. the amount of the input cannot be varied during the production period. c. an increase in the quantity of the input used, holding other factors constant, leads to an increase in its marginal product. d. an increase in the quantity of the input used, holding other factors constant, leads to a decline in its marginal product.

When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this information implies that for Joe: Select one: a. pizza is a normal good and a necessity. b. pizza is an inferior good since his expenditure rose by less than the increase in income. c. demand for pizza is price-elastic. d. pizza is a normal good and a luxury.

When a market is in equilibrium: Select one: a. consumer surplus will be zero. b. total surplus is minimized. c. producer surplus will be zero. d. total surplus is maximized.

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input in the production function at your deli? Select one: a. loaves of bread used to make sandwiches b. employees hired to help make the food c. cans of tomato sauce used to make soups d. the dining room where customers eat their meals

Government may choose to impose a price floor if: Select one: a. demanders can make a strong moral or political argument for lower prices. b. suppliers can make strong moral or political arguments for lower prices. c. demanders can make strong moral or political arguments for higher prices. d. suppliers can make strong moral or political arguments for higher prices.

Which of the following examples represents the short run? Select one: a. Sea-Land increases the size of its cargo fleet by 20%. b. A university builds two classroom buildings. c. Wal-Mart builds another store. d. Ford asks its workers to work overtime.

Oil is an input in the production of gasoline, and gasoline and cars are complements. A decrease in the price of oil will _________ the producer surplus in the market for cars. Select one: a. increase b. decrease c. not change d. first increase and then decrease

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