econ midterm

To manufacture 1,000 pairs of shoes in a week, a firm must use at least 1,500 workers and 5 machines or 100 machines and 150 workers. Which method can be technically efficient?

Both

You would expect the supply elasticity of corn to be

lower in the short compared to the long run

define the deductive method

made of assumptions, logical rules, and conclusions

example of public good

national defense, roads

Karen's accountants, Cooper and Cooper, would calculate the profit of KDW as:

total revenue minus explicit costs.

cost =

wage/productivity

example of a long-run decision

A dairy farmer considering whether to increase the number of cows without changing the size of the corrals or milking barn.

Can accounting profit be positive while economic profits are negative?

Yes, if total revenue covers explicit costs but not opportunity costs.

After one cow in Alberta, Canada was found with mad cow disease, the United States banned all imports of Canadian cattle and beef. This action is an example of

a regulatory trade restriction.

If elasticity of demand is less than 1:

a rise in price increases total revenue

A 50 percent tax on imports of EU Swiss Cheese is an example of:

a tariff.

The reasons LeBron James makes relatively much more (adjusted for inflation) than the best player of the 1960s (let's say Jerry West) likely include:

globalization of U.S. basketball and sport's entertainment is a U.S. export good.

For luxury goods, income elasticity is

greater than 1.

Quotas and tariffs can:

have the same effect on the price of the good if they are set appropriately.

For the manager or CEO of a business, which is most closely associated with her responsibility to the firm? An understanding of

how costs will change if production is increased.

define normal good

if income goes up, the quantity demanded for a particular good also goes up

An increase in price and decrease in quantity are consistent with a:

leftward shift in supply

If the amount of land supplied remains the same even when the price of land increases, the:

supply of land must be perfectly inelastic.

Compared to the U.S. - U.K over the period 1870 to 1940, the China-U.S. relationship over the past 30 years,

is complicated by different cultures. is complicated by different political systems.

Changing from flood irrigation and hauling hay by hand in the 1960s to pivot irrigation and the use of large machinery in the 21st century is an example of:

technological change.

A problem with government licensing rules is:

that they ensure quality.

The reason the Federal Trade Commission regulates advertising to prevent false and misleading claims is:

to prevent a market failure caused by poor information.

define economies of scale

when long run average total cost decrease as outputs increase

Define diseconomies of scale

A situation in which the long-run average cost of production increases as output increases

To maximize profits, a perfectly competitive firm should produce where marginal:

cost equals total revenue.

what kind of business operates in a perfect competition ?

dairy famers

who benefits from tariffs?

domestic producers and government input countries

justifications for government intervention

information problems, externalities, public goods

A former Utah Senator, Reed Smoot,

is known for his contribution to the misery that was the Great Depression.

Economists, at least historically, have assumed that the object/goal of a firm is to maximize:

profits = total revenue - total costs

Which of the following is a legitimate argument in support of restricting imports of some good:

protecting an infant industry for a period of time to allow comparative advantage to develop. protecting domestic production capacity for purposes of national defense. protecting domestic production capacity as pandemic risk management.

Inelasticity causes

revenue to rise

Demand is said to be elastic when the:

percentage change in quantity demanded is greater than the percentage change in price.

elasticity of demand =

percentage change in quantity demanded/percentage change in price

Aspects of Perfect Competition

price takers homogineous product lots of sellers and buyers no barriers to entry

markets will

produce correct quantity of goods produce goods efficiently

To keep the price of PPE masks from rising quickly when Covid hit, some local governments imposed price ceilings on the price of masks. These price ceilings cause ________ in the mask market.

shortages

if a perfectly competitive firm finds that price is less than average variable cost, it should:

shut down immediately.

By definition, in the short run:

some inputs are variable and some inputs are fixed.

how to calculate marginal cost

change in total cost / change in quantity

In the United States, globalization has caused workers in the education and health care to face:

little or no downward pressure on their wages.

define the inductive method

method that includes observations and induce general principles about real world

Compared with folks without collision insurance on their cars, individuals with collision insurance likely drive:

more recklessly, a moral hazard problem.

The law of diminishing marginal productivity does not apply in the long run because:

no inputs are fixed in the long run.

characteristics of public good

non-rivalry and non-exclusive

If not wearing a mask involves an eternal cost (i.e., negative externality):

not enough individuals will wear a mask.

Adverse selection occurs when:

one side of the market, either buyer or seller, has better information than the other side.

define government failure

A misallocation of resources arising from government intervention which leads to a net welfare loss. ie a person, age 30, without a college degree but has a large student debt.

A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above:

ATC

what happens when trade is based on comparative advantage ?

Both joint consumption and production would increase

Which explain why a firm will continue to produce if its economic profits are zero?

Its costs, by definition, include a normal return to owned resources. Its accounting profit is likely positive. By definition, its profits are normal.

Concerning the U.S. - China trade relationship,

Many U.S. workers have been hurt by this trade.

Karen is a self-employed owner of a dog-walking business (KDW) but doesn't pay herself a wage. From KDW's perspective, the wage Karen could have made by spending time working in another job, say $15,000, is called:

Opportunity cost

what is comparative advantage determines by ?

Opportunity cost

In considering the distribution of the gains from trade:

Smaller countries usually get a larger proportion of the gains from trade.

Which is in the correct causal order (the preceding event led to the next):

Smoot-Hawley Tariff Act; length of Great Depression; GATT; WTO.

The Covid pandemic decreased the ability of large beef slaughter plants to operate. This most likely caused the

Supply of hamburger to shift left

cause of large the U.S. trade deficits of the past 20 years?

U.S. consumption greater than U.S. production ie negative savings

define inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

The reason economists focus on economic profit is that:

although implicit costs do not show up in accounting profits, they nevertheless affect managerial decisions.

Long-run average costs at any output level will:

always be less than or equal to short-run average total costs.

The best explanation of why nations impose trade restrictions is that they

are due to politics and the special interest effect.

define inherent comparative advantage.

based on unchangeable factors

Infant industry protection can be justified in theory by:

both the "learning by doing" argument and the existence of economies of scale

any economic efficient production process is also __________

efficient

If a market has no externalities, marginal private costs:

equal marginal social costs.

If once vaccinated, a person cannot catch Covid or give Covid to someone else, the marginal social benefit resulting from a person's purchase/consumption of a Covid vaccine shot:

exceeds the marginal private benefit received by the consumer of the vaccine.

4 sources of market failure

externalities, public goods, information processes, lack of competition

Given that there are significant economies of scale involved in making flat screen televisions, the cost of manufacturing flat screen televisions most likely will:

fall as the industry grows.

Government failure is likely to occur for all of the following reasons except:

governments typically have better information than individuals of business firms.

An effective price ceiling is best defined as a price:

imposed by government below equilibrium price.

As long as marginal cost is below marginal revenue, a perfectly competitive firm should:

increase production.

An increase in the Federal minimum wage, assuming the minimum is higher than the equilibrium wage, will:

increase the number of unemployed.

An impact of an import quota is to:

increase the price of the good for domestic consumers.

Economies of scale are associated with:

indivisible setup costs high initial fixes cots the long run

sources of US comparative advantage

natural resources and cachet

because tax law is designed to encourage businesses to purchase equipment

tax depreciation expense is typically higher than economic depreciation. small businesses often have more capital than is economically efficient.

As a consequence of U.S. trade deficits

the U.S. is borrowing from the rest of the world. the U.S. has become a large debtor nation. U.S. wealth is lower than it otherwise would be.

The fact that the United States has a trade deficit means that:

the United States is consuming more than it is producing.

Online music stores such as Apple's iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:

the demand curve of CDs to the left.

Which helps explain McDonald's extraordinary success. It was at the forefront of

using the franchise system to signal quality.

Which type of business would most likely face a perfectively elastic demand curve for its product?

wheat farmer

Define economies of scope

when costs of producing products are interdependent so that it's less costly for a firm to produce one good when it's already producing another