ECON Exam 1, Exam 3, ECON Exam 2
Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $3.00, what is consumer surplus for the fourth cup of tea.
$0
Refer to the graph below. When market price is $2.00, what is producer surplus from selling the 40th cup?
$0.20
Refer to the table below. What is the marginal revenue associated with the sixth unit of output produced and sold?
$0.50
Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $2.00, what is consumer surplus for the fourth cup of tea.
$1.00
Refer to the graph below. In order to maximize profit, what price should the firm charge?
$15
Refer to the graph below. How much is the value of total fixed cost?
$2,400
Refer to the graph below. What is the value of total fixed cost for this perfectly competitive firm?
$2,400
Refer to the graph below. How much is the marginal cost of producing the 50th cup?
$2.00
Refer to the graph below. What is the opportunity cost of moving from point B to point C?
200 roadsters
Refer to the graph below. Based on the relationship between average total cost and marginal cost, which of the curves below appears to be average total cost?
Curve 2
Refer to the graph below. Based on the relationship between marginal product and average product, which curve appears to be average product?
Curve 2
Refer to the graphs below. Which of the following statements is correct?
Market B exhibits a negative externality because the marginal social cost exceeds the marginal private cost.
Which of the following best describes the characteristics of models used in economics?
Models are simplifications of reality that include only essential elements and exclude less relevant details.
Refer to the graph below. Assume this is a competitive market. Which of the following does not exist when the price is $2.00?
deadweight loss
Which of the following would definitely result in a higher price in the market for tennis shoes?
demand increases and supply decreases
Fill in the blanks with the word and phrase that best describe the history of OPEC: Sustaining high prices has been_______because members often________their output quotas.
difficult; produce more than
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
If individual countries that are members of OPEC exceed their production quotas, the amount of oil supplied to the world____, and the price of oil_____.
increases; decreases
In which of the following market structures is the firm's demand curve the same as the market demand for the product?
monopoly
Refer to the graph below. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing roadsters?
moving from B to C
What is the name given to the situation where economies of scale are so large that one firm can supply the entire market at a lower average total cost than two or more firms?
natural monopoly
The more cell phones in use, the more valuable they become to consumers. This is an example of
network externalities.
If an individual firm in a perfectly competitive market increases its price, the firm will experience
none of the above
What type of economic analysis is concerned with the way things ought to be?
normative analysis
Which of the following is not an essential component of an economic model?
normative statements
Refer to the graph below. What name other than demand curve can you give this curve?
the marginal benefit curve
Refer to the graph below. Which of the following moves illustrates a change in quantity demanded?
the move from A to B
What is the dominant strategy of eBay auction participants?
to place a bid equal to the maximum value you place on the item
Refer to the graph below. When 14,000 cups of tea are produced per month, the marginal benefit of the 14,000th cup of tea is___, the marginal cost of the 14,000th cup of tea is¬¬____, and output is____.
$2.20; $1.80; below the efficient level
Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What price do producers receive after this tax is imposed?
$2.98
If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber?
$208 - $81 = $127
Refer to the table below. How much is the marginal revenue associated with serving seven subscribers per month?
$21
Refer to the graph below. At which of the following prices is the perfectly competitive firm earning negative economic profit?
$250
Refer to the table below. What is the average revenue associated with the sixth unit of output produced and sold?
$3.00
Refer to the table below. What is the marginal cost of producing the 200th pizza?
$3.25
Refer to the table below. What is the marginal cost of producing the 640th pizza?
$43.33
Refer to the table below. How much is the average revenue associated with serving five subscribers per month?
$45
Refer to the table below. What is the average total cost of producing 550 pizzas?
$5.00
Refer to the graph below. What Pigovian tax would push the market to efficiency?
$50
Refer to the graph below. What is firm's profit when it sells six subscriptions per month?
$72
A patent typically gives the holder exclusive rights to a product for a period of
20 years
.
.
Refer to the graph below. How many roadsters are produced at the point where BMW produces 800 SUVs
0
Refer to the graph below. What is the optimal quantity of this public good?
15 units
Refer to the graph below. To achieve economic efficiency, which output level should be produced?
15,000 cups per month, because at this level of output, marginal benefit is equal to marginal cost
Refer to the graph below. What is the opportunity cost of moving from point B to point C?
150 aircraft carriers
Refer to the graph below. To achieve economic efficiency, the level of output should be reduced when the quantity of cups produced equals
16,000
Consider the table below. What is country A's opportunity cost of producing 1 unit of clothing?
2 units of food
Refer to the graph below. Which of the following combinations of pies and cakes is unattainable given existing resources?
4 cakes and 7 pies
Refer to the table below. What level of output should be produced in order to maximize profit?
5 units of output
Refer to the graph below which shows the marginal cost and marginal revenue curves for a farmer in the perfectly competitive market for wheat. What is the profit-maximizing level of output if the producer can produce only whole units of output?
6 bushels
Refer to the table below. Based on the numbers in the table, how much should this farmer produce in order to maximize profit?
6 bushels
Refer to the graph below. What is the opportunity cost of producing 400 aircraft carriers?
600 automobiles
Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. In this graph, how much of the gas tax do consumers pay?
8 cents per gallon
In the circular-flow diagram, which arrow shows the flow of spending by households?
A
Which of the following is the definition of business strategy?
A business strategy refers to actions taken by firms to attain their objectives.
What type of statement would "A minimum wage actually reduces employment" be considered?
A positive statement
Refer to the graph below. Which of the curves is not necessary for determining the level of profit earned by a perfectly competitive firm?
All three curves are needed to determine the level of profit earned by a perfectly competitive firm.
Which of the following is consistent with the law of supply?
An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.
Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area A?
Area A is consumer surplus transferred to producers.
Refer to the graph below. A decrease in price from $3.50 to $3.00 per cup results in a gain and a loss of revenue. Which area represents the revenue gain?
Area B
Which of the following describes two goods that are substitutes?
As the price of one of the goods increases, the demand for the other good increases.
Refer to the graphs below. Which graph is representative of a typical average total cost curve?
B
Refer to the graph below. After rent control is imposed, which area represents a deadweight loss?
B+C
Refer to the graphs below. Each graph represents one country. Which country has a comparative advantage in the production of shirts?
Country B
REI and Level 9 sports are competing over the price of gloves. What is the dominant strategy? Note: there will be a problem like this on the final.
Both Firms will charge $50
Domino's and Little Caesars are competing over the price of pizza. What is the dominant Strategy? Note: There will be a problem like this one the final.
Both firms charge $5
Refer to the payoff matrix below. Suppose that Wal-Mart and Target are selling Sony flat-screen computer monitors for a price of either $150 or $200 each. Based on the information on the payoff matrix, what is the dominant strategy?
Both firms will charge $150.
Suppose Autozone and O'Reilly Auto are competing over the price of car batteries. What is the dominant strategy? Note: There will be a problem like this on the final.
Both firms will charge $50
In the circular-flow diagram, which arrow shows the flow of factors of production?
C
Refer to the graphs below. If you have a comparative advantage in the production of apples, what point would best represent your production with trade?
C
Refer to the graph below. If 14,000 cups of tea are produced, what area corresponds to deadweight loss?
C+E
Refer to the graph below. Which of the following combinations is unattainable with the current resources available in this economy?
Combination G
What trade-offs do consumers face when buying a product from a monopolistically competitive firm?
Consumers pay a price greater than marginal cost but also have choices more suited to their tastes.
Refer to the graphs below. Each graph represents one country. Which country should specialize in the production of chips?
Country A
Consider the table below. Which country has a comparative advantage in the production of each good?
Country A has a comparative advantage in the production of food; Country B has a comparative advantage in the production of clothing
The table below shows the quantity of two goods that a worker in Country A and a worker in Country B can produce per day. Which country has an absolute advantage in the production of each good?
Country A has an absolute advantage in the production of each good.
Refer to the graph below. At any level of output, what is the vertical distance between Curve 2 and Curve 3 equal to?
Curve 4
In the circular-flow diagram, which arrow shows the flow of income paid to the factors of production?
D
Refer to the graph below. Assuming the computer industry is monopolistically competitive, which set of demand and marginal revenue curves for a typical firm is more consistent with long-run equilibrium in the computer industry?
D2 and MR2
If peanut butter and jelly are complements, how will an increase in the price of jelly affect the demand for peanut butter?
Demand for peanut butter will decrease.
How will a decrease in the expected future price of Red Bull affect the demand and supply of Red Bull?F
Demand will fall and supply will rise.
Refer to the graph below. Which demand curve is associated with the shutdown point for this perfectly competitive firm?
Demand2
How does the entry of new coffeehouses affect the profits of existing coffeehouses?
Entry will decrease the profits of existing coffeehouses by shifting each of their individual demand curves to the left and making the demand curves more elastic.
How will a decrease in the expected future price of Red Bull affect the equilibrium price and quantity?
Equilibrium price will fall; the impact on equilibrium quantity is ambiguous.
Suppose that the income of buyers in a market increases and a technological advancement also occurs. What would we expect to happen in the market for a normal good?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Refer to the graphs below. The graph on the left depicts demand and supply in the competitive market for wheat. The graph on the right depicts the demand curve facing Farmer Whapple, an individual producer in the market for wheat. The demand curve for Farmer Whapple's wheat is horizontal at the market price of $4.00 because
Farmer Whapple is a price taker.
How do you find the profit maximizing quantity for a firm under monopoly?
For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.
How do you find the profit maximizing quantity for a monopolistically competitive firm?
For all firm types it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR = MC.
How do you find the profit maximizing quantity for perfectly competitive firm?
For all firm types, it is the same process. Go to the point where MR = MC. Then find the quantity on the x-axis below MR=MC.
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
Which of the following questions could be answered using economics?
How are the prices of goods and services determined?" "How does pollution affect the economy, and how should government policy deal with these effects?" "Why do firms engage in international trade, and how do government policies affect international trade?" !All of the above are economic questions.!
Which of the following is an example of a positive question?
If the college increased tuition, would class sizes decline?
Which of the following statements is correct according to Ronald Coase's argument for dealing with externalities and market failure?
In some situations, a private solution to the problem of externalities can be found.
Which of the following statements is correct?
In the long run, all costs are variable.
According to Adam Smith, which of the following is true?
Individuals usually act in a rational, self-interested way.
Refer to the graph below which shows the demand for DVDs. What happens to price elasticity as we move down the demand curve?
It becomes less elastic
Which of the following is true about what happens to the quantity demanded of an inferior good?
It falls when income increases.
Refer to the graph below. If the industry changes from being perfectly competitive to being a monopoly, what happens to producer surplus?
It increases by area A and decreases by area C.
Refer to the graph below. As you move from point A to point B and then to point C on this graph, what happens to the marginal opportunity cost?
It increases.
What is true about quantity demanded if a good is considered a necessity?
It is not very responsive to changes in income.
Refer to the graph below which shows the demand for DVDs. What happens to total revenue as we move down the demand curve?
It rises up to the midpoint, and then it falls.
When a firm's demand curve slopes downward and the firm decides to cut price, which of the following happens?
It sells more units but receives lower revenue per unit.
Refer to the graph below. According to this graph, what will happen if Starbucks increases the price of caffè lattes?
It will lose some, but not all, of its customers.
Which of the following statements regarding natural monopoly is true?
Natural monopoly is most likely to occur in markets where fixed costs are very large relative to variable costs.
Is zero economic profit inevitable in the long run for a monopolistically competitive firm?
No; a firm could try to continue making a profit in the long run by reducing production costs and improving its products.
Refer to the graph of monopoly below. What is profit when the firm sells six subscriptions per month?
None of the above; there is insufficient information to answer the question.
Refer to the graph below. The graph shows the data from Solved Problem 2-1. What is the opportunity cost of switching from Choice D to Choice E?
One cake
Refer to the graph below. When an externality is present, which combination of price and quantity does the market yield without government intervention?
P1, Q1
Refer to the graph below. What point represents the price and quantity that will prevail when the industry is perfectly competitive?
Point A
Refer to the graph below. Which point corresponds to a natural monopoly serving this market and breaking even?
Point A
Refer to the graphs below. Which points on the graph coincide with productive efficiency?
Point A on both graphs
Refer to the graphs below. What is point B' on your neighbor's PPF curve?
Point B' is your neighbor's consumption after trade.
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
Price
What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitive market?
Price is equal to both average revenue and marginal revenue.
Refer to the graph below. Which level of output indicates excess capacity?
Q1
Refer to the graph below. Which quantity is more likely to be the quantity produced by the typical firm in an oligopoly?
Q2
Refer to the graph below. At what level of output does this perfectly competitive firm maximize profit?
Q3
Refer to the graph below. What happens to quantity demanded along this demand curve?
Quantity demanded increases as the price decreases.
Which of the following statements best defines scarcity?
Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Which of the following questions can be answered using normative economic reasoning?
Should a college cut tuition to stimulate enrollments?
When the government imposes price floors or price ceilings, which of the following occurs?
Some people win. Some people lose. There is a loss of economic efficiency. All of the above occur.
Refer to the graph below. Which of the curves in the graph is not necessary for determining the level of output that maximizes profit for a perfectly competitive firm?
The ATC curve
Which of the following statements is most consistent with positive economic analysis?
The United States would be better off if it specialized in the production of some goods, and then traded some of them to other countries.
If we find that the price elasticity of demand for hamburgers is -1.3 while the price elasticity of demand for textbooks is -0.6, which of the following can we say is true?
The demand for hamburgers is more elastic than the demand for textbooks.
Refer to the graph below of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the following?
The firm can sell any amount of output as long as it accepts the market price of $4.00.
Refer to the graph below. If a perfectly competitive firm is producing at point A, which of the following is true?
The firm earns zero economic profit.
When the percentage change in quantity demanded is greater than the percentage change in price, which of the following is true?
The price elasticity of demand will be greater than 1 in absolute value.
Refer to the graphs below. What do you expect to happen in this perfectly competitive market as it approaches long-run equilibrium?
The price will decrease until it is equal to the minimum of average total cost, and profits will become zero.
Refer to the graph below. Along the demand curve, what happens to the quantity demanded as the price falls from $250 to $200 per player?
The quantity demanded increases from 35 million to 40 million players per month.
Which of the following statements about the slope and the price elasticity of demand is correct?
The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes
Refer to the graph below. When 15,000 cups of tea are produced and consumed per month, which of the following is true?
The sum of consumer and producer surplus is maximized. The level of output is economically efficient. The marginal benefit to buyers of the last cup of tea is equal to the marginal cost of producing the last cup of tea. All of the above are true.
What is the tragedy of the commons?
The tragedy of the commons refers to the tendency for a common resource to be overused.
When two goods are complements, which of the following is true?
The two goods are used together.
Which of the following is true about the value of the price elasticity of demand?
The value is always negative.
Refer to the graph below. What does the term "increasing marginal opportunity cost" mean in this graph?
There is a higher opportunity cost of producing either aircraft carriers or automobiles, so long as the quantity produced of that good is increasing.
Which of the following statements is correct?
There is no shortage of most scarce goods.
What is the short run?
a period of time during which at least one of the firm's inputs is fixed
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?
They are part of fixed cost.
When demand is inelastic, what is the relationship between price and total revenue?F
They move in the same direction.
When demand is elastic, how will an increase in price affect total revenue?
Total revenue will fall.
Which of the following would occur when calculating price elasticity between two points on a demand curve if we are not using the midpoint formula?
We would get a different value for price increases than for price decreases.
Which of the following is not among the fundamental economic questions that every society must solve?
What goods and services will be exchanged?
Refer to the graph below. In the market for digital music players, price is $250 and quantity demanded is 35 million players. Which of the following interpretations of this point on the graph is correct?
When one player costs $250, consumers buy 35 million of them per month.
Which of the following statements about the relationship between marginal product of labor and average product of labor is correct?
Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.
What is the cross-price elasticity of demand for two products that are unrelated?
Zero
A group of firms that colludes by agreeing to restrict output to increase prices and profits is called
a cartel
In what type of economy does the government decide how economic resources will be allocated?
a centrally planned economy
Which of the following would not shift the demand curve for a good or service?
a change in the price of the good or service
Which of the following is the correct definition of demand curve?
a curve that shows the relationship between the price of a product and the quantity of the product demanded
Which of the following is the textbook's definition of a supply curve?
a curve that shows the relationship between the price of a product and the quantity of the product supplied
If demand is perfectly elastic, then what is the impact of an increase in price?
a decrease in quantity demanded to zero
An early frost in the apple orchards of Washington State would cause
a decrease in the supply of apple juice, increasing equilibrium price.
What is the effect of a cut in price when demand is inelastic?
a decrease in total revenue
Fill in the blanks: An increase in the price of a complement for DVDs will lead to____in the quantity demanded of DVDs, so the cross-price elasticity of demand will be____
a decrease; negative
A strategy that is the best for a firm, no matter what strategies other firms use is
a dominant strategy.
In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people have called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of
a price ceiling
What is the name of a legally determined maximum price that sellers may charge?
a price ceiling
Some people believe there should be a legally determined maximum price in the gasoline market. Such a limit on the price of gasoline would be an example of
a price ceiling.
What is the name of a legally determined minimum price that sellers may receive?
a price floor
A buyer or seller that is unable to affect the market price is called?
a price taker
What type of solution to externalities is the Coase theorem?
a private solution to externalities
Refer to the graphs below. The perfectly competitive firm represented in the graph on the right is experiencing
a profit in the short run.
Refer to the graphs below. What do you expect to happen in this market as it approaches long-run equilibrium?
a shift to the right of the market supply curve as new firms enter
What does the term rivalry refer to?
a situation in which one person's consumption of a good means that no one else can consume it
Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in:
a surplus of workers
Which of the following is the correct definition of demand schedule?
a table showing the relationship between the price of a product and the quantity of the product demanded
Which of the following is the textbook's definition of a supply schedule?
a table that shows the relationship between the price of a product and the quantity of the product supplied
A surplus exists in a market if the actual price is
above the equilibrium price.
Which firms face a downward-sloping demand curve and a downward-sloping marginal revenue curve?
all price makers
Which of the following is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it?
allocative efficiency
Suppose you invest $200,000 in a business. The return you could earn each year on a similar investment using that money is 10 percent, or $20,000. In an economic sense, the $20,000 is
an economic cost.
Refer to the graph below. The arrow in the graph refers to the difference between D1 and D2. What does this difference represent?
an external benefit
What is the difference between private benefit and social benefit?
an external benefit
What is the cost that affects someone who is not directly involved in the production or consumption of a good called?
an externality
Refer to the graphs below. Which of the following could have caused the outward shift of the curve in the graph on the left side?
an increase in technology that affects the production of both aircraft carriers and automobiles
Which of the following would create economic growth; that is, shift the production possibilities frontier outward?
an increase in the available labor an increase in technology that affects the production of both goods an increase in the available natural resources all of the above
The following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception?
average fixed cost
What do we obtain by dividing the fixed cost by the quantity of output produced?
average fixed cost
Which of the following refers to the total output produced by a firm divided by the quantity of workers?
average product of labor
Which of the following measures is conceptually the same as price?
average revenue
What cost measure is equal to AFC + AVC?
average total cost
In the circular-flow diagram, which arrow shows the flow of goods and services?
b
Which of the terms below is defined as "Anything that keeps new firms from entering an industry in which firms are earning economic profits?"
barriers to entry
Why does a monopolistically competitive firm have a downward-sloping demand curve?
because changing the price will affect the quantity sold
If a shortage exists in a market we know that the actual price is
below equilibrium price and quantity demanded is greater than quantity supplied.
Who benefits from the concept of elasticity?
both business managers and policymakers
Economic loss refers to a situation in which a firm's total revenue is less than its total cost. To calculate the amount of a loss, which of the following costs should be included?
both explicit costs and implicit costs
Refer to the graphs below. Assuming both firms are producing 5 cups per week, which firm is maximizing profits?
both firms
When the price of a digital music player rises, the quantity of digital music players demanded by consumers falls. Therefore, the demand curve for digital music players is
downward sloping.
What does the sum of consumer surplus and producer surplus equal?
economic surplus
Which of the following is a barrier to entry?
economies of scale ownership of a key input patents all of the above
If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, we say demand for Red Bull is___in this range.
elastic
In a free market system, which of the following groups brings together the factors of production— labor, capital, and natural resources—in order to produce goods and services?
entrepreneurs
Which type of barrier to entry is the granting of a patent or copyright to an individual or firm considered?
entry blocked by government action
Which of the following terms best refers to a fair distribution of economic benefits?
equity
which of the following are sometimes called accounting costs?
explicit costs
In which markets are factors of production, such as labor, capital, natural resources, and entrepreneurial ability traded?
factor markets
Fill in the blanks. In a simple circular-flow model, there are flows of .
factors of production; goods and services funds received from the sale of factors of production; spending on final goods and services Both (a) and (b) are correct.\
Fill in the blanks. Suppliers have more bargaining power when____firms can supply the input and the input____specialized.
few; is
To maximize profit, which of the following should a firm attempt to do?
find the largest difference between total revenue and total cost
Which of the following are characteristics of a perfectly competitive industry?
firms are unable to control the prices of the products they sell firms are unable to earn an economic profit in the long run firms sell identical products all of the above
Which of the following are characteristics of monopolistic competition?
firms sell similar, but not identical, products
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good.
Fill in the blanks. When there are many people involved, the transactions costs are often___ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem ___feasible.
higher; is not
Which of the following is most likely to increase market power?
horizontal mergers
Which of the following comprises the two key groups of participants in the circular flow of income?
households and firms
Which of the following is true? i.Total cost = fixed cost + variable cost ii.Total cost = explicit costs + implicit costs iii.Economic cost = accounting cost + implicit costs
i, ii, and iii
Using the broader definition of monopoly, in which of the following cases could we argue that Microsoft has a monopoly in computer operating systems?
if Macintosh and Linux were not considered close substitutes for Windows
What is the focus of a command-and-control approach to reducing pollution?
imposing quantitative limits on the amount of pollution firms are allowed to generate
Refer to the graphs below. In which of the markets is the quantity Q1 less than the economically efficient quantity?
in Market A
Refer to the graphs below. In which of these markets is an externality present?
in both Market A and Market B
Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. When price falls from $30 to $20, demand is____between points A and C on D2 and demand is____between points A and B on D1.
inelastic; elastic
In the graph of demand in the market for DVDs below, when the price is $6, demand
is elastic.
The price elasticity of demand for a particular brand of raisin bran is, in absolute value
larger than the price elasticity of demand for all breakfast cereal
Sarah spends 2% of her weekly budget on chewing gum, and she spends 50% of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be
less elastic than her demand for books.
Economies of scale exist when a firm's_____average costs fall as it_____output.
long-run; increases
Fill in the blanks. According to the Coase theorem, if transactions costs are__, private bargaining will result in an __solution to the problem of externalities.
low; efficient
Refer to the payoff matrix below. The payoff matrix describes the payoffs to two members of the OPEC cartel. The Nash equilibrium of this game will occur with Saudi Arabia producing a _____ output and Nigeria producing a ______output.
low; high
Which term best describes the minimum amount that a firm needs to earn on a $100,000 investment to be willing to remain in a perfectly competitive industry in the long run?
opportunity cost
What is the name given to the highest-valued alternative that must be given up to engage in any activity?
oppurtnity cost
Refer to the graph below. From the origin up until point A,
output increases at an increasing rate.
For what type of market structure is demand curve the same as marginal revenue?
perfect competition
Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?
perfectly competitive firms monopolistically competitive firms monopolies all of the above
What is the stock of computers, factory buildings, and machine tools used to produce goods better known as?
physical capital
Refer to the graph of monopoly below. What point represents the price and output level that a monopoly will choose?
point B
Refer to the graph below. After the negative externality has been internalized, which point would best represent the efficient equilibrium?
point a
Refer to the graph below. If 30 billion kilowatt-hours of electricity are supplied by two firms who supply 15 billion kilowatt-hours of electricity each instead of by one firm, the average total cost of electricity
rises from $0.04 to $0.06.
Every game has these characteristics:
rules, strategies, and payoffs.
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the ______ the payoff to devoting additional resources to that activity.
smaller
What is the term used to describe the total cost of producing a good which includes both private and external costs?
social cost
What is the term given to a cost that has already been paid and cannot be recovered?
sunk cost
Generally speaking, for a market system to work, individuals must
take risks and act in rational, self-interested ways.
The term used to describe a change in the ability of a firm to produce a given level of output with a given level of inputs is called___.
technological change
The processes a firm uses to turn inputs into outputs of goods and services is.
technology
Refer to the graph below. In this problem, what is the opportunity cost of producing five cakes?
ten pies
Refer to the graphs below. Which firm is a monopolistic competitor operating in the long run?
the firm on the left
In the broadest sense, game theory studies the decisions of firms in industries where the profits of each firm depend on
the firm's interactions with other firms.
Refer to the table below. Which of the following costs are implicit costs?
the foregone salary and interest
Refer to the graphs below. Which graph best depicts the profit or loss situation for a monopolistically competitive firm in the long run?
the graph in the middle
Refer to the graphs below. Which graph depicts a situation in which some firms will exit the industry?
the graph in the middle
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in consumers' tastes for digital music players?
the graph on the left
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in income, assuming that digital music players are a normal good?
the graph on the left
Refer to the graph below. Which of the following moves illustrates what happens when a change in the price of digital music players affects the market supply for players?
the move from A to B
Refer to the graph below. Which of the following moves illustrates what happens when there is a change in the price of digital music players
the move from A to B
Refer to the graph below. Which of the following moves illustrates a change in demand?
the move from A to C
When a competitive market is in equilibrium, what is the economically efficient level of output?
the output level where marginal cost is equal to marginal benefit
Refer to the graph below. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range?
the output range greater than about 525 pizzas per day
Refer to the graph below. Fill in the blanks. When the level of output produced is Q1, economies of scale in the industry are relatively______and the industry will have a_____number of firms.
unimportant; large
Which costs are affected by the level of output produced?
variable costs
Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction?
voluntary exchange+
In which of the following situations can a firm be considered a monopoly?
when a firm can ignore the actions of all other firms
When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected?
when demand is unit elastic
When is output inefficiently low?
when marginal benefit is greater than marginal cost
Refer to the table below. When do diminishing returns in the production of pizzas start?
when the third worker is hired
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
zero
If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, the price elasticity of demand is
−1.25.
Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. Between points A and B on D1, what is the price elasticity of demand?
−1.4
If marginal revenue slopes downward, which of the following is true?
The firm must decrease its price to sell a larger quantity.
If the quantity demanded of a good increases as income increases, then that good must be which of the following?
a normal good
What type of assessment is one in which a person's values and political views form part of that assessment?
a normative assessment
Economies of scale help determine the extent of
competition in an industry.
What is the definition of market power?
Market power is the ability of a firm to charge a price greater than marginal cost.
Which of the following are effects of monopoly?
Monopoly causes a reduction in consumer surplus. Monopoly causes an increase in producer surplus. Monopoly causes a reduction in economic efficiency. all of the above
Match the following definition with one of the terms below: "A situation where each firm chooses the best strategy, given the strategies chosen by other firms."
Nash equilibrium
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.
Refer to the graph below. Assume that the firm is producing 600 units. What should the firm do in order to maximize profit?
The firm should increase the level of output, because at 600 units, marginal revenue is greater than marginal cost.
Refer to the graphs below. As market demand shifts to the left, how will the firm's level of output change?
The firm will decrease its output and suffer losses.
If a firm has the ability to affect the price of the good or service it sells, what is the relationship between its marginal revenue curve and its demand curve?
The firm will have a marginal revenue curve that is below its demand curve.
If market demand shifts to the right, how will a competitive firm's level of output change?
The firm will increase its output, and its profits will increase.
Refer to the graph below. When the perfectly competitive firm faces demand curve Demand3, which of the following is true?
The firm will suffer losses, but should continue to operate.
If both demand and supply decrease in the market for Red Bull, how will equilibrium be affected?
The impact on equilibrium price will be ambiguous, but the equilibrium quantity will fall.
What is the law of demand?
The law of demand is the rule that, holding everything else constant, when the price of a good falls, the quantity demanded will increase, and when the price of a good rises, the quantity demanded will decrease.
Refer to the graph below. The graph shows an individual's demand curve for tea. At a price of $2.00, the consumer is willing to buy five cups of tea per week. More precisely, what does this mean?
The marginal benefit of consuming the fifth cup is $2.00.
Refer to the graphs below. After the market demand curve shifts to the left, which of the following would happen in this perfectly competitive market as it adjusts to long-run equilibrium?
The market supply curve will shift to the left.
If firms in a perfectly competitive industry are earning positive profits, what would you expect to see in the long run?
The market supply curve will shift to the right as firms enter the market, prices will fall, and profits will fall.
Which of the following is a true statement?
The more narrowly defined a product is, the larger the price elasticity of demand.
Which of the following is a true statement?
The more substitutes available for a product, the greater the absolute value of the price elasticity of demand. The more time that passes, the more elastic the demand for a product becomes. The demand curve for a luxury is more elastic than the demand curve for a necessity. All of the above are true.
What happens when the quantity demanded is very responsive to changes in price?
The percentage change in quantity demanded will be greater than the percentage change in price.
Which of the following is true if quantity demanded is not very responsive to price?
The percentage change in quantity demanded will be less than the percentage change in price. The price elasticity of demand will be less than 1 in absolute value. Demand is inelastic. All of the above are true.
Which of the following conditions must exist in order to have a perfectly competitive market?
There must be many buyers and many sellers, all of whom are small relative to the market.
What is a merger between firms in the same industry called?
a horizontal merger
If the income elasticity of SUVs is greater than 1, what is the good considered?
a luxury
When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
a market
What is an inferior good?
a good for which demand decreases as income rises
What is a normal good?
a good for which demand increases as income rises
Which of the following would shift the supply of Red Bull to the left?
an increase in the price of inputs used to produce Red Bull
Which of the following would result in a decrease in the demand for Red Bull?
an increase in the price of pizza, a complement of Red Bull
Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in:
an increase in wages but lower employment.
Fill in the blanks: An increase in the price of a substitute for iPods will lead to___in quantity demanded of iPods, so the cross-price elasticity of demand will be___.
an increase; positive
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system.
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
an inferior good
What is the name given to the practical application of an invention?
an innovation
What is the name given to the development of a new good or a new process for making a good?
an invention
What are laws aimed at promoting competition among firms called?
antitrust laws
Refer to the graph below. A decrease in price from $3.50 to $3.00 per cup results in a gain and a loss of revenue. Which area represents the loss of revenue?
area A
Refer to the graph below. Assume that the firm represented by the cost and demand curves below is maximizing profit. Which area represents the formula: (P - ATC) × Q?
area A
Refer to the graph below. Which area equals consumer surplus when price is $2.20?
area A
Refer to the graph below. Which area shows a reduction in consumer surplus that is transferred to producers as a result of this industry being a monopoly rather than being perfectly competitive?
area A
Refer to the graph below. Which area equals consumer surplus when price is $2.00?
area A + B + C
Refer to the graph below. Which area shows the reduction in consumer surplus that results from this industry being a monopoly rather than perfectly competitive?
area A + area B
Refer to the graph below. Which area is considered a reduction in economic surplus as a result of this industry being a monopoly rather than being perfectly competitive?
area B + area C
Refer to the graph below. Which area equals producer surplus when price is $2.20?
area B+D
Refer to the graph below. Compared to the competitive equilibrium, how much producer surplus is lost when the price is $2.20?
area E
If increased competition leads to higher costs and higher prices in an industry, how should that market be characterized?
as a natural monopoly
Refer to the table below. When is average total cost minimized?
at 6 units of output
Fill in the blanks. In economics, as well as in life, optimal decisions are made.
at the margin
Refer to the graph below. What does Curve 4 represent?
average fixed cost
Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?
both perfectly competitive and monopolistically competitive firms
How is the responsiveness of the quantity demanded to a change in price measured?
by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
Refer to the graph below. How can the loss of economic efficiency resulting from this market being a monopoly rather than being perfectly competitive be estimated?
by estimating the size of the triangle B + C
How do economists avoid confusion over units in the computation of elasticity?
by using percentage changes rather than simple differences
Refer to the table below. Which of the boxes applies to goods that are excludable and nonrivalrous?
c
Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the
ceteris paribus condition.
Assume that an industry that began as a perfectly competitive industry becomes a monopoly. Which of the following describes a change in the market as a result of becoming a monopoly? Compared to when the industry was perfectly competitive, the monopolist will
charge a higher price and produce less output.
If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two Web sites to be?
close substitutes
An agreement among firms to charge the same price or to otherwise not compete is
collusion
Refer to the graph below. Which of the following combinations is inefficient?
combination F
Which of the following measures a relationship between the quantity of one good and the price of another good?
cross-price elasticity
Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area B + C?
deadweight loss
Refer to the graph below. In moving along the curve from point A to point B, which of the following is more likely to occur?
diminishing returns
Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph is the tax incidence larger on workers?
in both cases the tax incidence is the same
Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph do the workers pay the entire social security tax?
in neither case
Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph does the employer pay the entire social security tax?
in neither case
Refer to the graphs below which show two potential demand curves in the market for photocopies at a printing company. In which of the two graphs does a price decrease lead to an increase in total revenue?
in the graph on the right
What are the sources of externalities and market failure?
incomplete property rights the difficulty of enforcing property rights in certain situations both a. and b.
Which of the following covers the study of topics such as inflation and unemployment?
macroeconomics
What is the additional output that a firm produces as a result of hiring one more worker called?
marginal product of labor
Which of the following terms best describes the additional revenue associated with selling an additional unit of output?
marginal revenue
Refer to the graph below. The loss in revenue from decreasing price is greater than the gain in revenue from increasing price whenever
marginal revenue is negative.
Refer to the graph below. Based on the information on the graph, what is true about marginal revenue?
marginal revenue remains constant as the quantity of bushels sold increases
What types of economies require that answers be given to the following questions: what goods and services will be produced, how will the goods and services be produced, and who will receive the goods and services produced?
market economies centrally planned economies mixed economies !all of the above!
What is the situation called in which the market fails to produce the efficient level of output?
market failure
Fill in the blank:is the study of how households and businesses make choices, how they interact in markets, and how the government influences their choices.
microeconomics
Which of the following is the best classification for the economies of the United States, Canada, Japan, and Western Europe?
mixed economies
Refer to the graph below. What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?
negative economic profit
Which type of efficiency is achieved by a monopolistically competitive firm in the long run?
neither allocative nor productive efficiency
Which of the terms below is defined as "A market structure in which a small number of interdependent firms compete?"
oligopoly
Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?
opportunity cost
Which of the following involves an estimation of the benefits and costs of a particular action?
positive analysis
What is the name given to the responsiveness of the quantity supplied of a good to a change in its price?
price elasticity of supply
Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1, what is the percentage change in price when price falls from $30 to $20? Use the midpoint formula to calculate this percentage change.
price falls by 10% or price falls by 40%
What is the benefit received by the consumer of a good or service called?
private benefit
Absolute advantage is the ability of an individual, firm, or country to
produce more of a good or service than competitors using the same amount of resources.
Refer to the graph below. After rent control is imposed, area A represents:
producer surplus transferred from landlords to renters.
Which of the following refers to markets where goods such as computers or services such as medical treatment are offered?
product markets
What does an economy achieve by producing a good or service at the least possible cost?
productive efficiency
Which of the following terms best describes how the result of the forces of competition drives the market price to the minimum average cost of the typical firm?
productive efficiency
What are patents and copyrights designed to do?
protect intellectual property rights
Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1, what is the percentage change in quantity demanded when price falls from $30 to $20? Use the midpoint formula to calculate this percentage change.
quantity demanded rises by 55%
What does the term "spreading the overhead" refer to?
reducing average fixed cost by selling more output
Human capital is
the accumulated training and skills that workers possess.
The term tax incidence refers to
the actual division of the burden of a tax.
Which of the following is the definition of marginal benefit?
the additional benefit to a consumer from consuming one more unit of a good or service
Which of the following is the definition of marginal cost?
the additional cost to a firm of producing one more unit of a good or service
Which of the following does the midpoint formula use to compute elasticity?
the averages of the initial and final quantity and the initial and final price
In Solved Problem 1-1: "Orasure Makes a Decision" which of the concepts below is most applicable in solving the problem?
the concept of what a market is or marginal analysis
Refer to the graphs below. What procedure does this series of graphs show?
the construction of market demand for a public good
Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the revenue collected by the government from the tax?
the dark gray area
Which of the following is the correct definition of market demand?
the demand by all the consumers for a given good or service
Refer to the graph below. In this graph, which curve is conceptually the same as average revenue?
the demand curve
Which of the following is the definition of consumer surplus?
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Which of the following is the definition of producer surplus?
the difference between the lowest price a firm would have been willing to accept and the price it actually receives
What happens to the difference between average variable cost and average total cost as the level of output increases?
the difference decreases
Refer to the graph of costs for a perfectly competitive firm below. Which of the following best represents profit per unit?
the distance between points A and B
If you know the value for price elasticity of demand, then which of the following can you compute?
the effect of a price change on the quantity demanded
Which of the following rights is given to the holder of a patent?
the exclusive right to a new product
What does the term excludability refer to?
the fact that anyone who does not pay for a good cannot consume it
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in population?
the graph on the left
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in the expected price of digital music players in the future?
the graph on the left
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in the price of a substitute good?
the graph on the left
Refer to the graphs below. Each graph refers to the supply for digital music players. Which of the graphs illustrates the impact of an increase in productivity?
the graph on the left
Refer to the graphs below. Each graph refers to the supply for digital music players. Which of the graphs illustrates the impact of an increase in the number of firms in the market?
the graph on the left
Refer to the graphs below. Which graph best depicts a firm in a monopolistically competitive industry that has an incentive to exit the industry in the long run?
the graph on the left
Refer to the graphs below. Which graph best depicts the relationship between price and average total cost in the long run for a monopolistically competitive firm?
the graph on the left
Refer to the graphs below. Which graph best represents the concept of economic growth?
the graph on the left
Refer to the graphs below. Which graph represents the concept of economic growth?
the graph on the left
When an increase in the quantity demanded is not large enough to make up for a decrease in price, total revenue falls. Which graph is more applicable to this statement?
the graph on the left
Refer to the graphs below, which represent the situations facing typical firms in three different monopolistically competitive industries. Which graph best represents the situation where new firms are likely to enter the industry?
the graph on the right
Refer to the graphs below. Each graph refers to the demand for digital music players. Which of the graphs illustrates the impact of an increase in the price of a complementary good?
the graph on the right
Refer to the graphs below. Each graph refers to the supply for digital music player
the graph on the right
Refer to the graphs below. Each graph refers to the supply for digital music players. Which of the graphs illustrates the impact of an increase in the price of a substitute in production?
the graph on the right
Refer to the graphs below. Each graph refers to the supply for digital music players. Which of the graphs illustrates the impact of an increase in the price of an input?
the graph on the right
Refer to the graphs below. Which graph better represents an improvement only in the technology used to make automobiles?
the graph on the right
What does the term free riding refer to?
the idea that someone can benefit from a good without paying for it
Which of the following is used to describe how changes in price affect a consumer's purchasing power?
the income effect
What is marginal cost?
the increase in total cost resulting from producing one more unit of output
Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the excess burden (aka, deadweight loss) from the tax?
the light gray area
Refer to the graphs below. Suppose the graph on the left represents a typical firm's supply curve in a perfectly competitive industry, and there are 100 identical firms in the industry. Then the graph on the right represents
the market supply curve.
Refer to the graph below. Which of the following moves illustrates what happens when there is a change in a determinant of the demand for digital music players other than the price of players?
the move from A to C
Refer to the graph below. Which of the following moves illustrates what happens when there is a change in a determinant of the supply for digital music players other than the price of players?
the move from B to C
A production possibilities frontier will be linear instead of bowed out if
the opportunity cost of producing more of either of the two goods is constant.
When a monopolistically competitive firm decreases price, good and bad things happen. Which of the following is considered a good thing for the firm?
the output effect
When a monopolistically competitive firm decreases price, good and bad things happen. Which of the following is considered a bad thing for the firm?
the price effect
What does the term quantity demanded refer to?
the quantity of a good or service that a consumer is willing and able to purchase at a given price
The term quantity supplied refers to
the quantity of a good or service that a firm is willing and able to supply at a given price.
What is the production function?
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
When we talk about property rights in the discussion of externalities, which rights do we refer to?
the rights of individuals to have exclusive use of their property
Long-run competitive equilibrium is
the situation in which the entry and exit of firms have resulted in the typical firm just breaking even.
Which of the following explains why there is an inverse relationship between the price of a product and the quantity of the product demanded?
the substitution effect
Which of the following is used to explain why consumers buy other goods when the price of a good rises?
the substitution effect
What is total revenue?
the total amount of funds a firm receives from selling a good or service an amount calculated by multiplying price per unit by the number of units sold an amount that increases when price increases if demand is inelastic all of the above
Fill in the blanks. When graphing a conventional short-run production function, we place____ on the horizontal axis and ____on the vertical axis.
the variable input; output
Refer to the graph below. Which of the following best represents a tax equal to the value of the negative externality?
the vertical distance between S1 and S2
Refer to the graph below. The graph shows the market demand for satellite TV service. If the market price is $81, which consumers receive consumer surplus in this market?
those willing to pay more than $81
If automobile companies have significant bargaining power when buying tires, you would expect that
tire prices will be low.
Which of the following is critical to the success of a market system?
to allow individuals or firms to have exclusive use of their property
What is the purpose of an economic hypothesis?
to establish a causal relationship
What do economists use the concept of elasticity for?
to measure how one economic variable responds to changes in another economic variable
What is the role of an entrepreneur?
to operate a business that produces a good or service. **to bring together the factors of production—labor, capital, and natural resources. to take risks. all of the above.
Fill in the blank. When a negative externality is present in producing a good or service, of the good or service will be produced at market equilibrium.
too much