ECON2113 Final exam review
Refer to table 13-1. The average total cost of producing one widget is?
$11.00
Refer to table 13-1. The average fixed cost of producing five widgets is?
$2.00
Refer to figure 6-10. The amount of the tax imposed in this market is
$2.50
Refer to table 13-1. The average variable cost of producing four widgets is?
$2.50
Refer to figure 6-10. The equilibrium price in the market before the tax imposed is
$5.00
If Roberta sells a shirt for $30, and her producer surplus from the sale is $21, her cost must have been what?
$51
Refer to figure 6-10. The price buyers will pay after the tax imposed is
$6.00
Refer to table 13-1. The marginal cost of producing the sixth widget is?
$6.00
Which of the following is an example of a barrier to entry?
-A key resource owned by a single firm -the costs of production make a single producer more efficient than a large number of producers -The government has given the existing monopoly the exclusive right to produce the good All of the above are correct
the loss in total surplus resulting from a tax is called what?
deadweight loss
Reflect to figure 13-2. the changing slope of the total cost curve reflects what?
decreasing marginal product
The for that make market economies work are
demand and supply
according to the law of demand price and quantity
demanded are inversely related
The term tax incidence refers to the?
division of the tax burden between buyers and sellers
Tuition is the single-largest cost of attending college for most students T/F
false
a rational decisionmaker takes an action if and only the marginal cost exceeds the marginal benefit T/F
false
demand for a good would tend to be more inelastic the...
fewer the available substitutes
Demand is elastic if elasticity is...
greater than one
In a competitive market, the actions of any single buyer or seller will
have negligible impact on the market price
prices direct economic activity in a market economy by?
influencing the actions of buyers and sellers
Average total cost is increasing whenever?
marginal cost is greater than average total cost
Variable cost divided by quantity produced is
none of the above are correct
Refer to table 14-2. At which quantity of output is marginal revenue equal to marginal cost?
quantity of 6
what will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
quantity will fall and effect on price is ambiguous
If buyers are required to pay a $0.10 tax per bag on Hershey's kisses, the demand for kisses will?
shift down by $0.10 per bag.
a very hot summer in Atlanta will cause the demand for lemonade to
shift to the right
When a tax is placed on the buyers of milk, the
size of the milk market will be reduced
Henry decides to spend two hours playing golf rather than working at his job which pays $8 an hour. Henry's trade off is
the $16 he could have earned working for two hours
For most students, the largest single cost of a college education is
the wages given to attend the school
Average total cost is equal to?
total cost divided by output
Economic profit is equal to?
total revenue minus the opportunity cost of producing goods and services
Efficiency occurs when?
total surplus is maximized
The cost of an action is measured in terms of foregone opportunities. T/F
true
The marginal seller is the seller who?
would leave the market first if the price were any lower
Allowing an inventor to have the exclusive rights to market her new invention will lead to what?
-A product that is priced higher than it would be without exclusive rights -Desirable behavior in the sense that inventors are encouraged to invent. -Higher profits for the inventor -All of the above are correct
Approximately what percentage of the worlds economies experience scarcity
100%
Refer to figure 4-7. Equilibrium price and quantity are?
25,400
If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a...
40 percent increase in the quantity demanded
Refer to Table 14-2. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to
9
Refer to figure 13-5. Which curves is most likely to represent marginal cost?
A
The amount of deadweight loss associated with the tax is equal to
A B C
Which of the following statements is correct?
A competitive firm is a price taker and a monopoly is a price maker.
Which of the following statements is true of a monopoly?
A monopoly has the ability to set the price of its product whatever level it desires.
Refer to figure 4-7. At a price of 35$?
A surplus would exist and the price would tend to fall
Refer to figure 7-5. When the price of P2, producer surplus is?
A+B+C
Refer to figure 13-7. Which of the curves is most likely to characterize the short run average total cost curve of the smallest factory?
ATCc
Refer to figure 13-7. which curve represents the long run average total cost?
ATCd
Refer to figure 4-6. The movement from S to S1 is called
An increase in supply
Refer to figure 13-5. Which curves is most likely to represent average total cost?
B
Total surplus in a market is represented by the total area?
Between the demand and supply curves up to the point of equilibrium
What does Producer surplus measure
The well-being of sellers
The amount of money that a firm receives from the sale of its output is called?
Total revenue
Refer to table 14-2. At a production level of 4 units which of the following is true?
Total revenue is greater than variable cost
A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price. T/F
True
A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production. T/F
True
A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin. T/F
True
A government imposed tax on a market shrinks the size of the market. T/F
True
A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost. T/F
True
A supply curve slopes upward because, all else equal, a higher price means a greater quantity supplied. T/F
True
A tax on golf clubs will cause the equilibrium market price of golf clubs to increase, and the equilibrium quantity sold to decrease. T/F
True
A tax on sellers shifts the supply curve upward by exactly the size of the tax. T/F
True
A tax places a wedge between the price buyers pay and the price sellers receive. T/F
True
Accountants often ignore implicit costs T/F
True
As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of production. T/F
True
Assume Jack received all A's in his classes last semester. If Jack gets all C's in his classes this semester, his GPA may or may not fall. T/F
True
At the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit. T/F
True
Average total cost and marginal cost are merely wats to express information that is already contained in a firm's total cost. T/F
True
Average variable cost is equal to total variable cost divided by the quantity of output. T/F
True
Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve. T/F
True
Because taxes distort incentives, they cause markets to allocate resources inefficiently. T/F
True
By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production. T/F
True
Declining average total cost with increased production is one of the defining characteristics of a natural monopoly. T/F
True
Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product. T/F
True
Equity refers to how the pie is divided, and efficiency refers to the size of the economic pie. T/F
True
Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being. T/F
True
Firms in a competitive market are said to be price takers. T/F
True
Fixed costs are incurred even when a firm does not produce anything. T/F
True
For a firm in a competitive market, marginal revenue is always equal to average revenue. T/F
True
Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost. T/F
True
If demand is perfectly inelastic, the demand curve is vertical, and elasticity equals 0. T/F
True
Implicit costs are costs that do not require an outlay of money by the firm. T/F
True
In a competitive market, firms are unable to differentiate their product from that of other producers. T/F
True
In a competitive market, sales go to those producers who are willing to supply the product at the lowest price. T/F
True
In a market, price of any good adjusts until quantity demanded equals quantity supplied. T/F
True
In general, a tax burden falls more heavily on the side of the market that is more inelastic. T/F
True
In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories. T/F
True
In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost. T/F
True
In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit(or not enter) the market. T/F
True
Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate the true burden of a tax. T/F
True
Market failure refers to a situation in which the market does not allocate resources efficiently. T/F
True
Market is efficient when there is neither underproduction or overproduction because there is no deadweight loss. T/F
True
Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands. T/F
True
Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window cleaning is $3 per window. If Connie cleans 100 windows, her producer surplus is $100. T/F
False
Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it. T/F
False
Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount. T/F
False
Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases. T/F
False
Diseconomies of scale often arise because higher production levels allow specialization among workers. T/F
False
Economists normally assume that people start their own businesses to help society maximize its income. T/F
False
Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs. T/F
False
Fixed costs are those costs that remain fixed no matter how long the time horizon is. T/F
False
If a good or service has only one seller, it is called an oligopoly. T/F
False
If a tac is imposed on the buyer of a product, the tax incidence will fall entirely on the buy, causing the buyer to pay more. T/F
False
If the demand for a good falls when income falls, then the good is called an inferior good. T/F
False
If the marginal cost curve is rising, so is the average total cost curve. T/F
False
If the price elasticity of demand equals 0, demand is unit elastic. T/F
False
In competitive markets, firms that raise their prices are typically rewarded with larger profits. T/F
False
Often, the tax revenue collected by the government equals the reduced welfare of buyers and sellers caused by the tax. T/F
False
The area above the demand curve and below the price measures the consumer surplus in a market. T/F
False
The average total cost curve is unaffected by diminishing marginal product. T/F
False
The incidence of a tax depends on whether the tax is levied on buyers or sellers. T/F
False
The law of demand states that the quantity demanded of a product is positively related to price. T/F
False
The shape of the total cost curve is unrelated to the shape of the production function. T/F
False
The short-run supply cure in a competitive market must be more elastic than the long-run supply curve. T/F
False
The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost. T/F
False
Total surplus in a market is consumer surplus minus producer surplus T/F
False
When all individual firms in competitive markets increase their production, it is likely that the market price will fall. T/F
False
When economists speak of a firms' costs, they are usually excluding the opportunity costs. T/F
False
A long-run supply curve that is flatter than a short-run supply curve results from which of the following?
Firms can enter and exit a market more easily in the long run than in the short run
Which of the following is NOT a characteristic of a perfectly competitive market?
Firms have difficulty entering the market
Firms that shut down in the short run still have to pay their
Fixed costs
which of the following costs do not vary with the amount of output a firm produces?
Fixed costs
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the demand curve will be what?
Flatter
A tax placed on the sellers of blueberries will do what?
Increase costs, lowers profit and shifts the supply curve left(upward)
The entry of new firms into a competitive market will
Increase market supply and decrease market prices
in the long run,?
Inputs that were fixed in the short run become variable
If marginal cost is below average total cost, then average total cost?
Is falling
What happens to consumer surplus if the price of a good increases?
It decreases
The short-run supply curve of a firm in a perfectly competitive market is?
Its marginal cost curve(above average variable cost)
A firm will exit a market if, for all positive levels of output,
Its total revenue is less than its total cost its profit is negative the price of its product is less than its average total cost All of the above are correct
The amount by which total cost rises when the firm produces one additional unit of output is called?
Marginal cost
The sum of all individual demand curves for a product is called what?
Market demand
If marginal cost exceeds marginal revenue, the firm
May still be earning a profit
The efficient scale of the firm is the quantity of output that?
Minimizes average total cost
Those things that must be forgone to acquire a good are called?
Opportunity costs
Refer to figure 8-2. The price of sellers receive after the tax is?
P1
The amount of tax revenue received by the government is equal to the area
P3 A C P1
Profit-maximizing firms enter a competitive market when, for existing firms in that market,
Price exceeds average total cost (enters when there is profit)
When a perfectly competitive firm makes a decision to shut down, it is most likely that
Price is below the minimum of average variable cost.
The "invisible hand" directs economic activity through what?
Prices
Which of the following expressions is correct for a competitive firm?
Profit=total revenue-total cost Marginal revenue=(change in total revenue)/(change in quantity of output) Average revenue=Total revenue/quantity of output. All of the above are correct
Refer to figure 14-1. when price is equal to P3, the profit-maximizing firm will produce what level of output?
Q3
If a tax is imposed on a market with elastic demand and inelastic supply,
Sellers will bear most of the burden of the tax
Refer to figure 7-5. Area A represents what?
The increase in producer surplus to those producers already in the market when price rises from P1 to P2
The "invisible hand" refers to what?
The marketplace guiding the self-interests of market participants into promoting general economic well-being
Price, which is determined by all buyers and sellers as they interact in the marketplace, allocates the economy's scarce resources. T/F
True
Quantity demanded is equal to quantity suppled, at the equilibrium price. T/F
True
The amount of power that a monopoly has is a function of whether there are close substitutes for its product. T/F
True
The area below the price and above the supply curve measures the producer surplus in a market. T/F
True
The behavior of buyers and sellers drives markets towards the equilibrium. T/F
True
The cost of producing an additional unit of a good is not the same as the average cost of the good. T/F
True
The de beers diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree. T/F
True
The demand for Rice Krispies is more elastic than the demand for cereal. T/F
True
The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers. T/F
True
The government can potentially improve market outcomes if market inequalities or market failure exists. T/F
True
The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale. T/F
True
The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost cure. T/F
True
The marginal firm in a competitive market will earn zero economic profits in the long run. T/F
True
The price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent. The price elasticity of demand is 3. T/F
True
The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular price. T/F
True
The shape of the marginal cost curve tells a producer something about the marginal product of her workers. T/F
True
The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are. T/F
True
The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good. T/F
True
Variable costs usually change as the firm alters the quantity of the output. T/F
True
When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs. T/F
True
When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production. T/F
True
When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale. T/F
True
When there is deadweight loss we can be certain that the entire society experiences a loss. T/F
True
When trying to understand the decision making process of different firms, economists assume that people think at the margin. T/F
True
Economies of scale arise when?
Workers are able to specialize in a particular task
Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant, you notice that the price of bananas is higher. how would your demand for vanilla pudding be affected by this?
Your demand for vanilla pudding would decrease.
The price elasticity of demand measures what?
a buyers responsiveness to a change in the price of a good
If a surplus exists in a market we know that the actual price is
above the equilibrium price and quantity supplied is greater than the quantity demanded
Suppose the price elasticity of demand for basketballs is 1.20. A 15 percent increase in price will result in what?
an 18% increase in the quantity of basketballs demanded
refer to figure 4-1. the movement from point a to point b on the graph shows
an increase in quantity demanded
If a good is "normal", then an increase in income will result in
an increase in the demand for the good
Natural monopolies differ from other forms of monopoly because they?
are generally not worried about competition eroding their monopoly position in the market
For a competitive firm,
average revenue, marginal revenue, and the price of the good are all equal to one another
an example of market power is
being the last gas station in New Mexico for 100 miles
When a good is taxed
both buyers and sellers are worse off
The unique point at which the supply and demand curves intersect is called
Equilibrium
A competitive market will typically experience entry and exit until all accounting profits are zero. T/F
False
A firm will shut down in the short run if revenue is not sufficient to cover its fixed costs of production. T/F
False
A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests. T/F
False
A movement along a supply curve is called a change in the supple while a shift of the curve is called a change in quantity suppled. T/F
False
A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run. T/F
False
A tax raises the price received by sellers and lowers the price paid by buyers. T/F
False
Average total cost reveals how much total cost will change as the firm alters its level of production. T/F
False
Baseballs and baseball are substitute goods. T/F
False
Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue
Does not change
If a tax is imposed on the buyer of a product the demand curve will shift how?
Downward by the amount of the tax
Refer to figure 13-7. At levels of output below M the firm experiences what?
Economies of scale
Which of the following scenarios best represents a monopoly situation?
Bill owns the only grocery store in a small community that lies 200 miles from the nearest city
Refer to figure 13-5. Which curves is most likely to represent average variable cost?
C
Refer to figure 7-5. At the price of P1, producer surplus is?
C
The marginal product of labor can be defined as what?
Change in output/change in labor
The area below a demand curve and above the price measures what?
Consumer surplus
When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, we have the property of what?
Diminishing marginal product
For a firm in a perfectly competitive market, the price of the good is always,
equal to marginal revenue
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
exactly triple
Economics is the study of how fairly goods and services are distributed within society. T/F
false
