Econ 244 Online

Business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?

"My customers are real shoppers. After I cut my prices just a few cents below those my competitors charge, customers have been flocking to my store and sales are booming."

The question "should cds or dvds be produced?" is an example of the

"what" question

Jane is willing to pay $4 for the first cup of coffee a day, $2.50 for the second cup, and $1 for the third cup, after which she won't buy any coffee. The price of a cup of coffee is $2.40. Jane's consumer surplus is $________ per day.

$1.70

Kedran is indifferent between option A, which gives her $10,000 for sure, and option B, which gives her $5,000 with probability 0.4 or $15,000 with probability 0.6. Kedran's cost of risk for option B is

$5000

Elasticity of supply

%change in quantity supplied/%change in price

The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. Corn production is a constant-cost industry. In the new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at ________ per bushel.

250,000; $2.50

If a fall in the price of good A increases the quantity demanded of good B,

A and B are complements

If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers of peanut butter by 4 percent, the demand for peanut butter

is elastic

A share of stock issued by a firm

is not a factor of production

Beth reads two magazines this afternoon. The marginal benefit that Beth gets from the second magazine is the

maximum amount she is willing to pay for the second magazine

Compared to a single-price monopoly, a perfectly competitive industry with the same costs produces ________ output and has a ________ price.

more; lower

Concentration ratios are generally computed for ________ markets.

national

"Prices rise more in countries with rapid growth in the money supply"

normative statement

Wjen the government chooses to use resources to build a dam, these sources are no longer available to build a highway. This choice illustrates the concept of

opportunity cost

When we say demand increases, we mean that there is a

rightward shift of the demand curve

As output moves from point a to point b to point c along the PPF in the above figure, the opportunity cost of one more unit of good B

rises. The opportunity cost of one more unit of good A falls.

The most fundamental economic problem is

scarcity

An increase in the nation's capital stock will

shift the PPF outward

An increase in the cost of the machinery used to produce X

shifts the supply curve for good X leftward

After the initial decrease in supply, as part of the long-run adjustment of the housing market following the San Francisco earthquake, the

short-run supply curve shifted rightward.

When the elasticity of supple is zero

supply curve is vertical

The price of jet fuel falls. This fall shifts the

supply curve of airplane trips rightward.

Economic growth is the result of

technological change, capital accumulation, investment in human capital... not opportunity cost

When a firm is experiencing diseconomies of scale,

the LRAC curve has a positive slope.

The market for lawn services is perfectly competitive. Larry's Lawn Service cannot increase its total revenue by raising its price because ________.

the demand for Larry's services is perfectly elastic

Laura us a manager for HP. When Laura must decide whether to produce a few additional printers, she is choosing at the margin when she compares

the extra revenue from selling a few additional printers to the extra costs of producing the printers

price elasticity

the percentage change in quantity demanded divided by a percentage change in price

A baseball player who has signed a long-term contract and then constantly says he is injured and cannot play is an example of

the principal-agent problem

People come to expect that the price of a gallon of gas will rise next week. As a result,

today's demand for gas increases

Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the ________ costs of making a purchase.

transactions

Points inside the frontier are attainable

true

Moving down along the demand curve for hot dogs the

value of hot dogs decreases

When production is efficient,

we face a tradeoff and incur an opportunity cost

When marginal product is less than average product, average product is falling.

TRUE

The long run is a time period in which

all inputs are variable.

When we cannot produce more of any one good without giving up some other good that we value more highly, we have achieved

allocative efficiency

Trading can

allow production outside of the PPF

An increase in the price of a car

alters buying plans for cars but does not shift the demand curve for cars

When economists speak of preferences as influencing demand, they are referring to

an individual's attitudes toward goods and services

A person has a comparative advantage in producing a particular good if that person

can produce it at a lower opportunity cost than anyone else can

The deadweight loss from producing an inefficient amount is a loss to the

consumers and to the producers.

Complement goods

cross elasticity is negative

Decrease in demand and increase in supply

decreases equilibrium price, quantity is uncertain

The present value of a stream of future revenues varies ________ with the future revenues and ________ with the interest rate.

directly; inversely

In the long run the supply of low-skilled labor is

elastic and is more elastic than in the short run.

An increase in supply with no change in demand

equilibrium price decreases and quantity increases

Kay's Keyboarding company rents from Dell a new computer which Kay uses for word-processing. Kay pays an ________ for its use.

explicit rental rate

Points outside the frontier are attainable

false

Consumer goods

goods produced for present consumption

Capital goods

goods that are used in producing other goods, rather than being bought by consumers.

Increases in both supply and demand

increases equilibrium quantity but equilibrium price is uncertain

An increase in demand with no change in supply

increases the equilibrium price and quantity

Intellectual Property

intangible creative work that is embodied in physical form and includes copyrights, trademarks, and patents

"The unemployment rate is too high"

is a normative statement

"Forty percent of the public believes that the unemployment rate is too high"

is a positive statement

cross elasticity

Measures the responsiveness of demand for a product following the change in the price of another product (either complement or substitute good)

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics

The study of the economy as a whole

Increasing opportunity cost graph

bows outwards