Homeworks and quizzes Exam 2

What type of elasticity is depicted in the graph below? (Vertical straight line at the center of the graph) A) perfectly inelastic B) relatively inelastic C) unitary elasticity D) relatively elastic E) perfectly elastic

A) Perfectly inelastic

What does an AFC curve look like?

(why? "It happens because same amount of fixed cost is divided by increasing output. As a result, AFC curve slope downwards and is rectangular hyperbola")

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. A) income effect B) substitution effect C) backward-bending supply curve D) preferences effect

B) substitution effect (why? "the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises." Think of the example of hamburgers vs. hotdogs if the price of hotdogs rises, what happens to the substitute?)

Which of the following is considered to be a signal that the point with the highest total utility has been found? A) the marginal utility per dollar is the same for both goods B) the marginal utility per dollar is controlled by trade-offs C) the quantities demanded change so total utility rises D) the demand curves are flatter reducing quantity

A) the marginal utility per dollar is the same for both goods (why? Because having equal marginal utility holds the greatest level of satisfaction)

The marginal utility of two goods changes ______________. A) with the quantities consumed B) for the better, if taxes are imposed C) if they are intertemporal choices D) if the mother controls the household budget

A) with the quantities consumed

If fixed costs total $1,000 and variable costs per unit equal $75 at 20 units of output, what does average total cost equal? A) $11.75 B) $53.75 C) $55.75 D) $125.00

C) $55.75 (re-check your work and formulas)

When Jackie is able to sell his homebrew for $1 a bottle, he brews and sells 5 bottles a week. When his homebrew becomes more popular, he brews and sells 15 bottles a week at a price of $3 a bottle. What is the price elasticity of supply? A) 2.0 B) 1.2 C) 1.0 D) 2.1

C) 1.0

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point? A) 1 pizza, 8 burgers B) 3 pizzas, 3 burgers C) 2 pizzas, 4 burgers D) 4 pizzas, 1 burger

C) 2 pizzas, 4 burgers (Why? Because Josh is maximizing his budget)

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is A) 6 salads, 1 vegetarian burger B) 4 salads, 6 vegetarian burgers C) 3 salads, 6 vegetarian burgers D) 3 salads, 8 vegetarian burgers

C) 3 salads, 6 vegetarian burgers (Why? Because it maximizes her budget)

Marginal utility can: A) be positive or negative, but not zero B) decrease, but not become negative C) be positive, negative, or zero D) increase positively, but not negatively

C) Be positive, negative, or zero (why? Because an item can bring a certain sense of satisfaction, dissatisfaction, or in the case of Zero marginal utility, it occurs when purchasing additional units of an item provides no further satisfaction)

An economic profit of zero indicates that a firm is making A) more than a fair rate of return and should continue operating in that industry. B) more than a fair rate of return and should stop operating in that industry. C) a fair rate of return and should continue operating in that industry. D) a fair rate of return and should stop operating in that industry. E) less than a fair rate of return and should stop operating in that industry.

C) a fair rate of return and should continue operating in that industry. (why? "When economic profit is zero, a firm is earning the same as it would if its resources were employed in the next best alternative. If the economic profit is negative, firms have the incentive to leave the market because their resources would be more profitable elsewhere.")

In terms of microeconomic analysis, what is the function of "utils"? Question options: A) a form of budget constraint B) applies to changes in income C) a measurement of utility D) relates to a consumers original choice

C) a measurement of utility (Why? "To help with this quantitative measurement of satisfaction, economists assume a unit known as a "util" to represent the amount of psychological satisfaction a specific good or service generates for a subset of people in various situations")

The _________________ budget constraint shows the tradeoff between present and future consumption. A) inflation B) utility-maximizing C) intertemporal choice D) time-value of money

C) intertemporal choice (Why? "Intertemporal choice is an economic term describing how an individual's current decisions affect what options become available in the future")

If the price of tacos decreases from $2.00 to $1.75 and the number of tacos purchased increases from 40 to 100, what is the price elasticity of demand? (Negative signs eliminated in these answers.) A) 0.16 B) 0.46 C) 2.19 D) 6.43 E) none of the above

D) 6.43

Which of the following goods would be most likely to have inelastic demand? A) McDonald's hamburger B) Pair of gap jeans C) Toyota Camry D) Legal services

D) Legal services (why? Because there will be less competition when it comes to legal services than the rest of the other options)

Which of the following factors of production is not variable in the long run? A) the size of the firm's plant B) land C) highly skilled labor D) all factors are variable in the long run E) no factors are variable in the long run

D) all factors are variable in the long run (Why? all play a roll in the factors of production in the long run)

Substitution and income effects of a change in price of a good may be used to explain the: A) direct relationship between price and quantity purchased. B) inverse relationship between price and quantity supplied C) direct relationship between price and quantity supplied. D) direct relationship between income and demand.

D) direct relationship between income and demand.

Which of the following is most likely to cause variation in American household spending patterns? A) differing levels of family income B) geographical location of households C) each household's personal preferences D) each of the above will cause a variation

D) each of the above will cause a variation (middle vs lower class, urban vs. rural, preferences vary from person to person)

There are two types of costs associated with production: ________ costs that do not change with the level of production, and _________ costs that do vary with the level of production. A) implicit; explicit. B) explicit; implicit. C) variable; fixed. D) fixed; variable. E) total; average.

D) fixed; variable. (why? Fixed does not change and variables can change based on different factors)

If one is interested in knowing whether or not a product is a normal good, one would be interested in the value of the: A) price elasticity of demand B) price elasticity of supply C) cross-price elasticity of demand D) income elasticity of demand E) relational elasticity of demand

D) income elasticity of demand (Why? "if it is a normal good, when income increase -> demand of normal goods will increase. but if income increase and demand decreased, then it is considered inferior good" - Max)

If the measured elasticity of supply coefficient equals 0.6, then supply is: A) perfectly elastic. B) elastic C) unit elastic D) inelastic. E) perfectly inelastic.

D) inelastic (why? Because if x < 1, then it is inelastic)

Which of the following is likely to make demand more elastic with respect to price? A) The good being a necessity. B) The good having no close substitutes. C) The good being a small percentage of income or budget. D) A short time frame in which to buy the good. E) none of the above

E) none of the above (why? because all these characteristics describe inelasticity)

When does the marginal product of labor diminish?

When the margins between quantities decrease

If the total fixed cost is 50 and your total variable cost is 120, what is the value of your total cost?

170 (why? 50 + 120 = 170 [TFC + TVC = TC])

Assume Bart operates a gasoline station and demand for gasoline at his particular station is elastic. If he raises his price, what will be the impact on total revenue? A) increase B) decrease C) no change

B) Decrease (why? Because it is elastic, meaning that there is a possibility of competition around him which could make customers swing one way or another)

The income elasticities of Products A and B and their cross-price elasticities with respect to Product C are: (right: income elasticity) (left: cross price elasticity) Product A +1.7 | -0.6 Product B -0.8 | +0.9 From this information, one can conclude that: A) Product A is inferior, Product B is normal, Product A is a complement to Product C, and Product B is a substitute for Product C. B) Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a substitute for Product C. C) Product A is normal, Product B is inferior, Product A is a substitute for Product C, and Product B is a complement to Product C. D) Product A is inferior, Product B is normal, Product A is a substitute for Product C, and Product B is a complement to Product C.

B) Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a substitute for Product C.

Accounting profits are calculated based upon: A) explicit cash receipts and implicit expenditures of cash. B) actual cash receipts and actual expenditures of cash. C) implicit cash receipts and actual expenditures of cash. D) opportunity costs plus explicit costs.

B) actual cash receipts and actual expenditures of cash. (why? Accounting focuses on what has been processed rather than the implication of potentials)

A tax is imposed on orange juice. Consumers will bear the full burden of this tax (i.e., pay the entire tax amount) if the: A) price elasticity of supply for orange juice equals 1.4. B) demand for orange juice is perfectly inelastic. C) demand for orange juice is unit elastic. D) supply curve for orange juice is perfectly inelastic.

B) demand for orange juice is perfectly inelastic.

Economic profits equals A) total revenue minus explicit costs only. B) total revenue minus implicit costs only. C) total revenue minus both implicit and explicit costs. D) total revenue minus neither implicit nor explicit costs.

C) total revenue minus both implicit and explicit costs. (Why? Because the economic method is different from the accounting method. You need to include future possibilities)