Economics
John earns $4,800 per month. He spends all of his money on two goods, A and B. The price of good A is $240, and the price of good B is $400. Identify the intercepts of John's budget constraint if good A is plotted on the x-axis and good B is plotted on the y-axis The slope of John's budget constraint is _________
20 units of good A on the x-axis and 12 units of good B on the y-axis -0.6
Which of the following statements is true?
A monopoly is a price−maker because it faces a downward−sloping demand curve.
Which of the following is not an example of a natural monopoly?
A pizza restaurant and a burger restaurant come together in order to reduce competition and earn higher profits.
Which of the following factors will cause a movement along the supply curve for coloring books?
An increase in the price of coloring books.
What approach would be the least effective way to deal with free riders?
Exclude citizens from benefiting from the good or service.
Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
It will produce the good above the socially efficient level.
What approach would be the least effective way to deal with the overfishing problem?
Limit who is allowed to fish in the lake.
Suppose one of your friends offered the following argument: A rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply curve, which will lead to an offsetting decrease in price. Therefore, it is impossible to tell what effect an increase in demand will have on price. Do you agree with your friend?
No, the increase in price will not cause a shift of the supply curve.
Ria has an income of $1,200. She consumes two types of goods, shoes and handbags. Suppose the price of a pair of shoes is $400, and the price of a handbag is $200. What is the opportunity cost of each good?
The opportunity cost of a pair of shoes is 2 handbags, and the opportunity cost of a handbag is 1/2 pair of shoes.
Suppose the quantity demanded of gold has gone up in a country and therefore, the demand curve shifts rightward. On the other hand, due to some restrictions imposed by the government on gold imports, the supply curve of gold in that country shifts leftward. In this case, which of the following statements always holds true?
The price of gold increases.
Are all efficient outcomes also equitable? Explain.
There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative economics, where subjective value judgments are made.
A manufacturing plant is emitting hazardous gas into the nearby area, adversely affecting the local citizens. In which of the following situations does private bargaining not likely to lead to an efficient outcome?
When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
Which of the following is true of a decrease in product prices?
When the price effect dominates the quantity effect, total revenue decreases.
Is it possible for accounting profit to be positive and economic profit to be negative?
Yes, this could occur if implicit costs were modest and explicit costs were high.
Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs?
You can compare all the activities after you translate all the missed activities into dollar amounts.
Since the inputs used to produce goods are scarce, the total amount produced of most goods is _________________ the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most, we use ________________.
below, price mechanism
A natural monopoly may develop because __________ make(s) it efficient to have only one provider of a good or service. It is characterized by fixed costs that are ______________. The formation of such a monopoly is practical for both producers and consumers because it offers them _________________ Natural monopolists worry ________ about potential entrants compared to the monopolies that arise through legal means since economic profits are ___________ likely to attract potential market entrants.
economies of scale substantial cost advantages less less
For a firm, ____________ occur when the ______________ for the firm _______ as the quantity produced increases.
economies of scale, ATC, decreases
All of the following are reasons for compensating wage differentials except:
education levels
Nalalya consumes two goods, food and clothing. The price of food is $4, the price of clothing is $13, and her income is $1,000. Nalalya always spends 30 percent of her income on food regardless of the price of food, the price of clothing, or her income. What is her price elasticity of demand for food? What is her cross-price elasticity of demand for food with respect to the price of clothing?
exactly 1 exactly zero
Common pool resources are _______ in rivalry and _______ in excludability. The overfishing by the Reed brothers is an example of _______________
high, low, tragedy of the commons
The quantity effect of a price reduction causes a(n) ________.
increase in revenue due to increased sales
Negative externalities impose an additional cost that:
is not explicitly recognized by the buyers and sellers in the market.
According to the principle of comparative advantage, both parties will engage in a trade if the trading price:
lies between their opportunity costs.
Consider the differences, if any, between a perfectly competitive market and a monopoly market. Compared to a perfectly competitive market, consumer surplus is _____, producer surplus is ______, and deadweight loss is ______. When a firm exercises its monopoly power, social surplus is _____ when compared to a perfectly competitive market.
lower higher higher lower
For two goods that are complements, the cross-price elasticity of demand will be _______________.
negative
Suppose Hershey's increases the price of its chocolate syrup by 18 percent. In response, the quantity demanded of Nesquik chocolate syrup rises by 13 percent and the quantity demanded of Breyer's vanilla ice cream falls by 4 percent. The cross-price elasticity of demand between Hershey's syrup and Nesquik's syrup is ______________ , implying these two goods are ____________. The cross-price elasticity of demand between Hershey's syrup and Breyer's vanilla ice cream is ____________, implying these two goods are______________.
positive substitutes negative compliments
The total revenue curve of a monopolist is at its maximum when marginal ________.
revenue is zero This is the correct answer.
The amount of money the firm brings in from the sale of its outputs is called ____________, while the change in total revenue associated with producing one more unit of output is called _________________.
revenue, marginal revenue
If marginal cost (MC) is greater than average total cost (ATC), then ATC is ___________. At this point of production the average fixed cost (AFC) would be ___________.
rising, falling
Which of the following would not be considered a common pool resource good?
streetlight
Derived demand is the demand a firm has for ____________.
the factors of production that enable it to produce output that is sold in product markets.
If it costs a firm $3,000 to produce 400 shirts and $6,500 to produce 900 shirts, then:
the firm is experiencing economies of scale.
The budget constraint pivots outward when _________.
the opportunity cost of any one good changes.
The budget constraint shifts outward when _________.
the price of both goods decreases.
A profit-maximizing firm will hire workers until the _____________________ equals the __________. To hire beyond that would mean the firm would be paying the worker ____________ than the worker's contribution to the firm.
value of the marginal product of labor (VMPL) wage more
To say that a good has network effects means that the ____________.
value of the product increases as more people use it.
A drought in the grape growing regions of the country increases the cost of producing jelly. At the same time, we see the price of peanut butter falls. Suppose that after both of these events the consumption of jelly is left unchanged. In this situation, the Law of Demand __________.
holds, since the demand curves for both jelly and peanut butter are downward-sloping; it is their shifts that are determining the impact on the quantity consumed.
