ECON FINAL

A good that is similar to another, and can be consumed in place of it, is called

a substitute good.

When the price of a burrito increases from $2 to $4, the quantity demanded decreases from 50 to 40. Using the midpoint method, the price elasticity of demand equals

1/3

If a consumer prefers apples to bananas and prefers bananas to citrus fruit, in order to satisfy assumptions about preferences she has to prefer

Apples to citrus fruit

A firm is likely to be a natural monopoly:

If economies of scale are experienced over the full range of output.

The law of supply states that, other things remaining the same,

If the price of a good increases, the quantity supplied increases.

Which of the following is an example of a normative statement?

If you consume this good, you will be better off

With respect to production, the short run is best defined as a time period

In which at least one input is fixed

If the price of a good is increased and total revenue received from the sale of this good increases, then the price elasticity of demand for the good is:

Inelastic

Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference curves implies that the MRS of "y" for "x"

Is decreasing as "x" increases

The market demand curve

Is the horizontal sum of individual demand curves.

When the average product is at its maximum,

It is equal to the marginal product.

The total variable cost curve ________ because ________ as output increases.

Slopes upward; variable cost increases

A leftward shift of a product supply curve might be caused by:

Some firms leaving an industry

You are more sensitive to a change in price if you

Spend a lot of your income on the good.

A cost function has economies of scale if

The average total cost falls as production increases.

The Marginal Product of Labor is

The change in output from hiring one additional unit of labor

The marginal product of labor is

The change in total product divided by the increase in labor

As people have become more health-conscious and decided to eat food that is better for them

The demand curve for oranges and apples has shifted to the right

Demand curves slope ________ because as the price increases and other things remain the same, the quantity demanded ________.

downward, decreases

Managerial economics is best defined as the economic study of

how businesses can decide on the best use of scarce resources.

The best definition of economics is

how choices are made under conditions of scarcity

If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE?

p < AVC for all levels of output.

Coke and Pepsi are substitutes if:

The demand for Coke increases when the price of Pepsi rises.

Assume a firm employs 10 workers and pays each $15 per hour. Further assume that the MP of the 10th worker is 5 units of output and that the price of the output is $4. According to economic theory, in the short run

The firm should hire additional workers.

Which of the following statements is true regarding the distribution of income in the United States?

The inequality in the distribution of income can be seen because the Lorenz curve lies below the line of equality.

In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior?

The law of demand is being used to increase the quantity demanded.

If there are diseconomies of scale within a given range of output, which of following is(are) TRUE?

The long-run average cost curve must be upward sloping within that range of output.

The competitive firm's supply curve is equal to

The portion of its marginal cost curve that lies above AVC

When a surplus of rice occurs

The price of rice falls.

Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?

The production possibilities frontier would shift inward.

Market equilibrium occurs when

The quantity demanded equals the quantity supplied

The price charged by a perfectly competitive firm is

The same as the market price

If demand is price inelastic and the price is lowered, which of the following occurs?

The total revenue of the firms selling the product decreases

An increase in the price of labor (a variable resource) shifts

The variable cost curves upward but leaves the fixed cost curves unchanged.

If the price is below the equilibrium price,

There is a shortage of demand

Average product is equal to

Total product ÷ quantity of labor

Chuck owns a factory that produces leather footballs. His total fixed cost equaled $86,000 last year. His total cost equaled $286,000 last year. Hence Chuck's

Total variable cost equaled $200,000.

In the long run, all factors of production are:

Variable

The law of decreasing returns states that as a firm uses more of a

Variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.

An indifference curve represents bundles of goods that a consumer

Views a equally desirable

Negative externalities can theoretically be corrected by ______ the producers of the externality, which will thereby ______ the production of the good or service.

subsidize, increase

Marginal cost is

the additional cost incurred for the production of an additional unit of output.

Marginal utility is equal to which of the following?

the change in total utility from consuming one more unit of a good

Externalities result from

the creation of benefits or costs that are not borne by their creator.

If market price is greater than the minimum of AVC but below the minimum of AC, then

the firm will operate because its loss is less than if it shut down

A market is in equilibrium:

when price adjusts so that quantity demanded equals quantity supplied.

If the demand for a product is said to be relatively inelastic, the "absolute" value of the elasticity coefficient will be:

less than one

Most private firms seek to:

maximize profits

Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc elasticity approach is

-0.75.

If 9 workers can produce 1,550 units of output and 10 workers can produce 1,700 units of output, then the marginal product of the 10th worker is

150 units.

A change in the demand for apples could result from any of the following EXCEPT

A change in the price of an apple

Which of the following is an example of an externality?

An individual living next to a chocolate factory enjoys the smell of the roasting cocoa.

Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that:

A) models shouldn't be too complex B) models shouldn't be too simple. C) models should have a level of abstraction appropriate to the topic investigated. ALL OF THE ABOVE

In a short run competitive equilibrium

A) the market demand curve is horizontal. B) the market demand curve is downward sloping. C) the market demand curve is perfectly inelastic. ALL OF THE ABOVE

Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?

A)non-price competition not necessary. B) unique products. C) market entry and exit difficult or impossible. ALL OF THE ABOVE.

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?

All of the above

The long run is a time period in which

All of the firm's resources are variable.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

An Increase in Supply

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is MOST accurate?

Applicant A has a marginal product of 75 units.

If the price elasticity of demand for a good is less than one in absolute value, economists would characterize consumers of this good

As not very price sensitive

The production possibilities frontier is the

Boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

The price elasticity of demand is a measure of

Buyers' responsiveness to changes in the price of a product

Elasticity along a downward sloping linear demand curve

Changes along the curve

When the marginal product of an additional worker is less than the marginal product of the previous worker, there are ________ returns to labor

Decreasing marginal

Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the

Demand for Apple computers decreases.

If two goods are perfect substitutes, then the indifference curves for those two goods would be

Downward sloping and straight

The factor that leads to the largest difference in households' incomes is

Education

Economic models are only useful in analyzing government policy.

False, economic models can be used to predict individual and firm behavior.

The free-rider problem often leads to market failure. Whenever this occurs, it may be possible to have government provide the public good. Government is partially able to offset the free-rider problem by

Forcing payment through its ability to tax.

If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then

He would give up 5 salads to get the next pizza

When the slope of the total product curve is steep, the marginal product is

High.

If marginal cost increases when output increases, then

Marginal product must decrease when output increases

The primary goal of a business firm is to

Maximize profit.

The longer the time that has elapsed since the price of a good changed, the

More elastic the demand for that good

An increase in the quantity demanded is shown as a

Movement along the demand curve

Equilibrium is defined as a situation in which

Neither buyers nor sellers want to change their behavior

In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

Only perfect competition

Which of the following is true for a monopoly?

P > MR

Economic models are most useful in:

Predicting changes in one variable due to a change in one or more other variables.

A market

Reflects upsloping demand and downsloping supply curves.

If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is

Relatively inelastic

Suppose that the price of flour used to produce bagels increases. Hence the equilibrium price of a bagel ________ and the equilibrium quantity ________.

Rises; decreases

The phrase "a change in demand" most directly implies a

Shift of the demand curve

An improvement in production technology will:

Shift the supply curve to the right.

If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52, then to maximize its profit (or minimize its loss) the firm should

Shut down.

Which of the following is true of a public good?

at the private market equilibrium, the social benefit of the public good is greater than the private benefit

When the market price rises, the consumers' consumer surplus ________. When the market price falls, the consumers' consumer surplus ________.

decreases, increases

Variable costs:

change in direct proportion to activity levels (or volume) of operations

Two goods are ________ if the quantity consumed of one increases when the price of the other decreases.

complementary

A firm's managers are constrained by:

consumers workers government

In the long run, firms in a competitive market

earn normal profit or means zero economic profit.

A firm's total revenue minus its total opportunity cost is called its

economic profit.

In a perfectly competitive market

firms can freely enter and exit.

Scarcity

is the inability to satisfy all our wants.

If a monopoly wants to maximize its profit, it should produce in the range where

its demand curve is elastic.

The price elasticity of demand is a measure of:

the resposiveness of consumers to a change in the price of a product

The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises,

there is a movement up along the demand curve to a smaller quantity demanded.