Economics 5104 midterm Ch 1-6
When society searches for the optimal method of producing goods and services, it is responding to the
"how" question.
What is the marginal cost of the 15th pair of jeans?
$4 - The change in cost from the 10th to the 15th units is $20 and the change in units is five, so the marginal cost would be the change in cost divided by the change in output or ($20/5 units) = $4 per unit.
Suppose a university raises its tuition by 8 percent and as a result the enrollment of students decreases by 4 percent. The absolute value of the price elasticity of demand is
0.5.
According to the graph, the diminishing marginal returns first occur with the
3rd worker - meets output at total output
Which panel represents the changes in the market for chicken when farmers use hormones to increase the production of chicken, but consumers are concerned about eating the chicken?
B - Farmers are able to produce more but consumers are not willing to buy more due to their concerns about hormones. As a result, demand decreases and supply increases.
Consider the market for new houses. The level of income increases for all consumers.
D. D1 -> D2
Ceteris paribus, which of the following will cause the demand for peanut butter to decrease?
Many people learn that they are allergic to peanut butter.
In a perfectly competitive market
No seller has market power
Which of the following is most true about the short run?
Some inputs are fixed.
The general shape of the average total cost curve is
U-shaped
Laissez-faire refers to
a belief of nonintervention by government in the market mechanism.
Which of the following is relatively inelastic with respect to demand?
a good with few substitutes
In a perfectly competitive market where firms are earning economic loss, which of the following is likely as the industry moves toward long-run equilibrium?
a higher price and fewer firms
eteris paribus, the quantity demanded of a good will decrease in response to
a higher price for the good.
Which of the following is characteristic of perfectly competitive markets?
a large number of firms
The long run refers to
a period of time long enough for all inputs to be varied.
ceteris paribus, which of the following will cause a rightward shift of the supply curve for plasma TVs?
a subsidy paid to the producers of plasma TVs
Marginal utility refers to the
additional utility from consuming the last unit of a good or service.
If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in
an increase in equilibrium quantity and a higher equilibrium price.
Ceteris paribus, which of the following will cause the demand for pizza to increase in a college town?
an increase in the number of students who eat pizza
Economic growth is represented by
an outward shift of the production-possibilities curve.
Explicit costs
are the sum of actual monetary payments made for resources used to produce a good.
According to the law of demand
as the price of a good falls, the quantity demanded will increase in a given time period, ceteris paribus.
A perfectly competitive firm
can sell all of its output at the prevailing price.
Suppose the price elasticity of demand for tacos is 0.80. If the price of tacos increases by 10 percent, then the quantity demanded of tacos should, ceteris paribus
decrease by 8 percent.
As more labor is hired in the short run, diminishing returns are observed because
each new worker has less capital and land (fixed inputs) to use at work.
Refer to the figure. If price is $4, this perfectly competitive firm is
earning an economic loss. - At a market price of $4, the firm would optimally produce 32 units. At this level of production, price would be below average total cost and so the firm would earn an economic loss.
Refer to the graph. If the market price is $20 for this perfectly competitive firm
economic losses - If the market price is $20, the firm would optimally produce 15 units, however this would not be enough to make a profit as at that quantity the firm would have average costs higher than prices.
If price equals average total cost and marginal cost, then
economic profits would be zero.
Ceteris paribus, a price increase will cause total revenue to decrease for a firm if the demand for its product is
elastic
A profit-maximizing competitive firm wants to _________ the rate of output when price _________ marginal cost.
expand; exceeds
Any place where factors of production are exchanged is a
factor market.
If the price elasticity of demand is 1.5, and the price rises by 20 percent, the quantity sold will, ceteris paribus
fall by 30.0 percent.
Rising marginal costs result from
falling marginal physical product.
Costs of production that do not change with the rate of output are
fixed costs.
Which of the following groups of words best represents macroeconomic goals?
full employment, price stability, economic growth
In economics, capital refers to
goods that can be used to produce other goods.
In the long run, a company will stay in business as long as price is
greater than or equal to average total costs.
When a price ceiling is set for a market, the quantity demanded will be
greater than the equilibrium quantity, and price will be less than the equilibrium price.
.The goals of the principal participants in the economy are to maximize
happiness for consumers, profits for businesses, and general welfare for government.
The production-possibilities curve shifts outward in response to
improved technology, more resources, or both.
The main difference to an economist between "short run" and "long run" is that
in the long run, all resources are variable whereas in the short run at least one resource is fixed.
Ceteris paribus, when a firm increases the price of its product, total revenue will
increase if the price elasticity of demand is inelastic.
Ceteris paribus, if the cost of insecticide decreases for tomato farmers, tomato farmers should do which of the following to maximize profits?
increase output
With a greater amount of consumption, total utility
increases as long as marginal utility is positive.
For a competitive firm, the marginal cost curve
is the short-run supply curve at all viable production levels.
The market supply of a particular good
is the sum of the quantities of the good that all producers are willing and able to sell at a particular price.
A perfectly competitive firm is a price taker because
it has no control over the market price of its product.
Ceteris paribus, if North Korea increases the size of its military, then
its production of consumer goods will decrease
Which of the following is most likely a variable cost in the short run?
labor payments
The factors of production include
land, labor, capital, and entrepreneurship.
The downward slope of the demand curve is related to the
law of diminishing marginal utility.
A perfectly competitive producer tries to maximize profits by operating at an output where
marginal cost equals price.
Marginal cost will increase with greater output if
marginal physical product is decreasing.
The change in total output that results from one additional unit of input is the
marginal physical product.
Which of the following best describes what allocates resources in the U.S. economy?
markets
The goal of most business firms is to
maximize total profit.
Over the long run, with perfectly competitive market equilibrium, price equals the ________ and economic profit is ________.
minimum of average total cost; zero
The economy of the United States is best characterized as
mixed economy.
Which list has market structures in the correct order from the most to the least market power?
monopoly, oligopoly, monopolistic competition, perfect competition
If the price elasticity of demand is 1.0, and a firm raises its price by 15 percent, then total revenue will
not change
Ceteris paribus means
only one variable is allowed to change while all others remain constant.
Over the long run, a perfectly competitive market equilibrium
price equals the minimum of average total cost.
In the short run, a manufacturer should produce the next unit of output as long as
price is greater than or equal to marginal cost.
Which of the following is a determinant of supply?
prices of the factors of production
An individual competitive firm
produces a small proportion of output relative to the market.
f demand is inelastic, then
quantity demanded is not very responsive to changes in price.
If demand is elastic, then
quantity demanded is very responsive to changes in price.
If a state decides to reduce the cost of college tuition by providing more Pell grants to students then, ceteris paribus, the
quantity demanded of a college education in the state will increase.
Price elasticity of demand shows how
quantity demanded responds to price changes.
Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the
quantity supplied of Z will increase.
All points on the production-possibilities curve
represent the use of all available resources.
In economic theory, utility refers to the
satisfaction obtained from a good or service.
When there is a surplus in a market, prices are likely to fall because
sellers would rather lower their prices to sell some of their goods or services than keep prices higher and be stuck with unsold products.
If the price of potato chips rises and the demand for pretzels rises, then potato chips and pretzels are
substitutes
Microeconomics focuses on
the behavior of individuals, firms, and government agencies
The main focus of economic studies concerns
the behavior of successful businesses.
Marginal cost is equal to
the change in total cost divided by the change in output.
An increase in the supply of frozen yogurt will take place when
the cost of producing frozen yogurt decreases.
Scarcity means
the desire for goods exceeds our capacity to produce them.
A market shortage occurs when
the market price is below equilibrium.
Which of the following will not cause a shift in the demand curve for a good?
the price of the good itself
When economists talk about a trade-off between "guns and butter," they mean
the production of more military goods may require the production of fewer consumer goods.
A market is said to be in equilibrium when
the quantity demanded equals the quantity supplied.
Competitive firms cannot individually affect market price because
their individual production is insignificant relative to the production of the industry.
Economists make a distinction between changes in quantity demanded and changes in demand
to distinguish a movement along a demand curve from a shift of the demand curve.
The law of diminishing returns means that
total product will eventually increase at a decreasing rate as more inputs are employed.
The difference between total utility and marginal utility is that
total utility is the complete satisfaction from consuming a product while marginal utility is the satisfaction from consuming one additional unit of a product.
Assuming all parcels of land are the same, there is a constant trade-off in the production of timber and food. When all land is in use, one more unit of food produced will require
two fewer units of timber produced.
Assume that we are using the midpoint method of calculating the price elasticity of demand. If a firm finds that it can sell 20,000 units at a price of $5 per unit and 25,000 units at a price of $4 per unit, then demand in this price range is
unitary elastic.
The demand for _________ is relatively elastic.
vacation travel
Opportunity cost may be defined as the
value of the most desired goods or services that are forgone to obtain something else.
Costs of production that change with the rate of output are
variable costs
Societies must address the question of what to produce because
we can't produce all the goods and services we want.
Economic and accounting costs will differ
whenever any factor of production is not paid an explicit factor payment equal to its market value.
Which of the following is consistent with a perfectly or monopolistically competitive market?
zero economic profit for firms in the long run
Ceteris paribus, which of the following events would most likely cause the production-possibilities curve to shift inward?
A major earthquake destroys several industrial centers.
"• A line graph showing the production possibilities curve.• The y-axis is labeled Office Buildings.• The x-axis is labeled Housing.• The line begins high on the y-axis, then curves outward and down to intersect the x-axis.• Four points are marked. They are labeled A, B, C, and D and are arranged in a diagonal line extending outward and upward from the intersection of the x-axis and y-axis at a 45 degree angle.• Point D is located where the x-axis and y-axis intersect.• Point C is located inside of the curve line, midway between point D and point B. • Point B is located on the curve line, midway between point C and point A.• Point A is located outside of the curve line." Society is employing some of the available technology but not all of it. Select the appropriate point that could represent this situation.
Point C - inside of curve line
