Micro Final

The price elasticity of demand for a good is the response of:

quantity demanded to a one percent change in price of that good.

If the local electricity utility wants to raise revenues, it should _______ its price because demand for electricity is likely to be ________.

raise; inelastic

The fundamental reason the production possibilities curve has a downward slope is:

resources are fixed and therefore tradeoffs must be made.

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to:

the "hurdle" method of price discrimination.

In a perfectly competitive industry over the long run:

economic profits and losses are driven towards zero by entry and exit.

A market in disequilibrium would feature:

either excess supply or excess demand

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q, where Q represents the number of t-shirts you make. Refer to the information given above. If you make 100 t-shirts, your average total cost is _______.

$13

The law of demand indicates that as the cost of an activity

falls, more of the activity will occur

In competitive labor markets, ____ demand labor and ____ supply labor.

firms, workers

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, government sets the price for prescription drugs. One can conclude that the:

government has set the price below the equilibrium price.

Most cartels end or cease to be effective because:

of the incentive to cheat on the cartel agreement.

The value of marginal product curve is downward sloping because

of the law of diminishing marginal product.

An individual's supply curve shows his or her:

opportunity cost of producing at each quantity

The tragedy of the commons refers to the:

overuse of resources that have no price

Free entry of firms is a characteristic of:

perfectly competitive industries.

If the slope of the demand curve is zero, the price elasticity of demand is:

perfectly elastic

When some fraction of the benefit of an activity is received by people not participating in the activity, it is called a(n):

positive externality

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

price inelastic.

You had to pay $600 (non-refundable) for your meal plan for Fall semester, which gives you up to 150 meals. If you eat only 100 meals, your marginal cost for the 100th meal is

$0

A firm's total profit equals:

(price minus average total cost) times the quantity sold.

If the price of cheese falls by one percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese has a value of:

3

If Jane works for 6 hours she can rent 12 apartments, and if she works for 7 hours she can rent 15 apartments. The marginal benefit of the 7th hour of Jane's work equals

3 apartments

The most important decision that sellers make is:

whether to produce another unit.

Pat works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to work for $15 per hour. Assume that the labor market is perfectly competitive. Pat's reservation price for an hour of work is _______ per hour.

$15

You save $10 on gas every week since you live close to the bus stop. You have class five days a week. What is your average benefit per day for living close to the bus stop

$2

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q, where Q represents the number of t-shirts you make. Your fixed costs are _______ and your marginal cost is _____.

$300; $10

The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is the only variable cost, the value of the 14th worker's marginal product is

$32

You paid $35 for a ticket (which is a non-refundable) to see SPAM, a local rock band, in concert on Saturday. (Assume that you would not have been willing to pay any more Than $35 for this concert.) Your boss called and she is looking for someone to cover a shift on Saturday at the same time as the concert. You have to work 4 hours and she will pay you time and a half, which is $9/hr. What is the opportunity cost of going to the concert?

$36

Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dog0 sitting job that pays $30. The cost of seeing the movies is:

$37

Pat works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to work for $15 per hour. Assume that the labor market is perfectly competitive. For each hour that Pat works, the landscape company's net benefits are

$40 minus Pat's wage.

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year as a consultant. In order for Chris to earn normal profit, accounting profit would have to be _______.

$40,000

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year as a consultant. Chris's opportunity cost of running her own business is ______ which is the _______.

$40,000; implicit cost

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year as a consultant. Chris's accounting profit is _______ and Chris's economic profit is _______.

$49,000; $9,000

If the marginal costs of 1,2, and 3 hours of talking on the phone are $50, $75, and $105 respectively, then the total costs are of 1, 2, and 3 hours of talking on the phone are

$50, $125, and $230 respectively

Jack has a ticket to see Bo Bice for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the convert, five different people offer his $70 for his ticket. Jack decides to keep his ticket. The cost to Jack of seeing Bo Bice is

$70

If the price elasticity of demand for tickets to a football game is 2 then, when the price increases by 1%, quantity demanded decreases by:

2%

If a 10% decrease in the price of good leads to a 20% increase in the quantity demanded of that good, the price elasticity of demand for that good would be:

2.

If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.

5

Relative to a person who earns minimum wage, a person who earns $30 per hour has

A higher opportunity cost of taking a day off

Chris has a one- hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is

An economic problem because Chris has only hour during which he can study or work out

What might cause a supply function to shift to the left today?

An expectation that the product's price will rise in the future

What might cause a demand function to shift to the right?

An increase in the price of a substitute.

What will happen to the equilibrium price and quantity of beef if the price of chicken feed decreases?

Both will decrease

The major implication of the _______ is that individuals can solve many externalities if they can buy and sell the right to generate the externality.

Coase Theorem

Which of the following is NOT an example of an activity with external benefits?

Eating a sandwich in the dining hall

Suppose Mary is willing to pay up to $15,000 for a used Ford pick- up truck, But she finds one for $12,000. Her ______ is _______

Economic surplus: $3,000

How will a new law mandating an increase in required levels of automobile insurance affect the equilibrium price and equilibrium quantity in the market for new automobiles?

Equilibrium price will fall; equilibrium quantity will fall.

What will happen to the equilibrium quantity and equilibrium price of potatoes if population decreases and a new type of potato fungus wipes out 30% of the potato harvest?

Equilibrium quantity will decrease and equilibrium price may increase or decrease

principle of scarcity applies to

Everyone-consumers, firms, governments, and nations

The marginal benefit of an activity is the

Extra benefit associated with an extra unit of the activity

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Among the following groups—senior executives, junior executives, and students—which is likely to have the most and which is likely to have the least price elastic demand for membership in the Association of Business Professionals?

Group with the most price elastic demand: Students Group with the least price elastic demand: Senior executives

Economics is best defined as the study of

How people make choices under the conditions of scarcity and the result of those choices

The cost-benefit principle indicates that an action should be taken

If the extra benefit is greater than or equal to the extra costs

Last ear interest rates fell. The field of economics that would be most concerned with this is

Macroeconomics

______ is the additional utility gained from consuming an additional unit of a good.

Marginal Utility

What is the extra output received from the hiring of an extra worker?

Marginal product

You are having lunch at an all-you-can-eat buffet. If you are rational, what should be your marginal utility from the last morsel of food you swallow?

Marginal utility from the last morsel of food you swallow should be zero

By convention, there are two major divisions of economics, called

Micro economics and macroeconomics

The study of individual choices and group behavior in individual markets defines

Microeconomics

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. Refer to the information given above. The least costly solution to the externality present in this situation is for:

Moe to eliminate his snoring.

The slope of any production possibilities curve is ______ because ______

Negative; more production of one good means less production of the other

One thing that distinguishes normative principles form positive principles is that

Normative principles tell us how people should make economic decisions, and positive principles tell us how people should actually do make decisions

Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why?

Quantity demanded exceeds quantity supplied.

An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will this claim affect the supply (curve) of binoculars in Tucson stores?

Supply will not change, but the quantity supplied would increase in response to the higher price for binoculars. There would be a likely increase in the demand for binoculars, thereby increasing the selling price

Suppose the current issue of the New York Times reports an outbreak of mad cow disease in Nebraska, as well as the discovery of a new breed of chicken that gains more weight than existing breeds that consume the same amount of food. How will these developments affect the equilibrium price and quantity of chickens sold in the United States?

The effect on equilibrium price is unknown and equilibrium quantity will increase.

Assume the supply of land is fixed. How will an increase in the birth rate affect the equilibrium price of land?

The equilibrium price of land will increase because demand for land shifts to the right

Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur?

The equilibrium quantity of bagels will rise.

The production possibilities curve shows

The maximum production of one good for every possible production level of the other goods

Which of the following is most likely to be a fixed factor of production at a university?

The number of lecture halls.

Which of the following is most likely to be a variable factor of production at a university?

The number of teaching assistants.

Which of the following firms is most likely to be a monopolist?

The one grocery store in a small town

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why?

Winter water use tends to be for necessities like cleaning and cooking, and summer water use tends to be for both necessities and non-necessities, like gardening and recreation.

Suppose you quit your job to start a business. In the first month, your total revenue was $6,000. You paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. You determine that your profit that month was negative $200. Why?

You accounted for lost salary of $1,000

Suppose that the technology used to manufacture laptops has improved. The likely result would be:

an increase in supply of laptops.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Moe's reservation price for a slice of pizza must be:

at least $1.75 but less than $2.

A movement along a demand curve from one price-quantity combination to another is called:

a change in quantity demanded.

Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is

a decrease in demand for ketchup with no change in supply.

The entire group of buyers and sellers of a particular good or service makes up:

a market

Suppose a firm collects $90 in revenues when it sells 4 units, $100 in revenues when it sells 5 units, and $105 when it sells 6 units. You could infer the firm is likely to be:

a monopolist.

If a firm collects $80 in revenues when it sells 4 units, $100 in revenues when it sells 5 units, and $120 when it sells 6 units, one can infer the firm is more likely to be:

a perfect competitor.

The long run is defined as

a period in which all factors of production are variable.

The short run is defined as:

a period in which at least one factor of production is fixed.

Minimum wage laws are an example of

a regulated price

Pure monopoly exists when

a single firm produces a good with no close substitutes.

Economies of scale exist when:

average costs fall as the scale of production grows.

When the price of an item increases, buyers tend to purchase less of that item:

because of both the substitution and the income effects.

The equilibrium price and quantity of any good or service is established by:

both demanders and suppliers

The prisoner's dilemma refers to games in which:

both players have a dominant strategy which results in a lower payoff than they would earn if they play their dominated strategies.

In a market, the demanders are the _______, and the suppliers are the ______.

buyers; sellers

Emotions like guilt and sympathy

can solve commitment problems, increasing players' payoffs.

An agreement among firms to restrict production with the goal of earning economic profits is a:

cartel.

When the price of a good is below its equilibrium value

consumers will bid the price up

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. Beyond the 3rd pie your total utility

decreases

If the external benefit of an activity is added to the private benefits, then the:

demand curve shifts right

Price discrimination means charging:

different prices to different consumers when production costs are the same.

A demand curve is ________ sloping because __________________.

downward; fewer people are willing to buy an item at higher prices

A payoff matrix is used to show:

each player's payoffs in each possible combination of strategies.

If the percentage change in the price of a good is less than the percentage change in the quantity demanded of that good then the demand for that good, with respect to price, is:

elastic

If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price, is

elastic.

The demand for a good is unitary elastic with respect to price if the price elasticity of demand is:

equal to one

Economic profits are:

equal to total revenue minus both explicit and implicit costs.

The general rule governing the hiring of workers is to

equate marginal labor costs to marginal labor benefits.

In a free market economy, the decisions of buyers and sellers are:

guided by prices

Suppose a monopolist charges a uniform price of $10 based on profit maximization and has constant marginal costs of $3. Cody is willing to pay $6 for the monopolist's output. Therefore:

if resale of the output is impossible, the monopolist should lower its price to $6 just for Cody.

According to the law of diminishing marginal utility,

if you consume less of something, your marginal utility from that consumption increases.

Economic growth can result from a(n):

increase in the amount of productive resources

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):

increase in the demand for apartments.

uring Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. Your total utility _______ with each pie you ate up to the 3rd pie.

increased

If both supply and demand increase simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________.

indeterminate; higher

If the demand for computers shifts to the right as consumers' incomes rise, computers are

normal goods

According to the text, at a party everyone shouts in order to be heard. If instead everyone spoke at a normal volume people would still be heard. The likely reason that people continue to shout is that the:

individual incentive to be heard is greater than group incentive for everyone to be heard.

As consumers' incomes increase, the demand for ground beef decreases. Ground beef is called a(n):

inferior good

For any horizontal demand curve, the calculated price elasticity of demand is

infinity.

The demand for a good is inelastic with respect to price, if the price elasticity of demand is

is less than one.

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets

is perfectly inelastic supply

Price elasticity of demand is often expressed as a positive number because

it's convenient to use absolute values even though the formula yields non-positive numbers.

If Terry gets maximum utility from owning 10 pairs of shoes, then Terry's total utility from owning 7 pairs of shoes is ______ Terry's total utility from owning 8 pairs.

less than

If the demand for a good is elastic, that good is likely to have:

many close substitutes

The economic theory of business behavior assumes that the goal of a firm is to:

maximize its profit

The primary objective of most private firms is to:

maximize profit.

Implicit costs

measure the forgone opportunities of the owners of the business.

Explicit costs

measure the payments made to the firm's factors of production.

In many towns in the United States, a single firm provides electricity. Those firms are:

monopolists

Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping. goods; not

more; upward

A firm that emerges as the only seller in an industry with economies of scale is termed a(n):

natural monopoly

As living standards improve,

needs remain the same, but wants increase

When part of the cost of an activity falls on people not pursuing the activity, it is call a(n):

negative externality

A monopolist calculates its marginal revenue to be $15 and marginal cost to be $16. The firm:

should decrease output

The value of marginal product for the last worker hired is $20 and the wage rate is $25. The firm

should reduce its labor usage

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ______ reduction in driving if demand is _______.

small; relatively inelastic

The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n):

substitution effect of a price chang

In a free market, if the price of a good is above the equilibrium price, then

suppliers, dissatisfied with growing inventories, will lower the price

Last year Pat was a soybean farmer and Chris was a corn farmer. This year, high demand for ethanol, an automobile fuel made from corn, causes the price of corn to increase. Refer to the information above. You would predict that this year Pat may:

switch to growing corn.

According to the cost-benefit principle, you should switch to another task or job when:

the benefit from performing the new task just exceeds the opportunity cost of performing that new task.

Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases:

the demand for rental cars will increase.

Accounting profits are:

the difference between total revenues and explicit costs.

The optimal quantity of a negative externality is zero if:

the marginal cost of reducing it is zero.

If you were to start your own business, your implicit costs would include:

the opportunity cost of your time.

The three elements of a game are:

the players, the strategies, and the payoffs.

Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured on the vertical axis is:

the reciprocal of the opportunity cost of the good measured on the horizontal axis

A seller's reservation price is generally equal to:

the seller's opportunity cost.

The equilibrium in a prisoner's dilemma is an example of

the smart for one, dumb for all principle.

Moe's parents frequently tell him how it was back in their childhoods. They had a smaller house, fewer toys, only one car and one black-and-white TV, but they were happy. In fact, Moe's parents claim that they were happier than Moe and his friends are today even though Moe and his friends all have much more stuff. Moe concludes that

the social forces that influence demand have changed since Moe's parents were young.

A person's reservation price for performing a task equals

the value of the most attractive alternative activity that the person could be doing during that time

The optimal number of workers for a perfectly competitive firm to hire occurs when

the wage rate equals the value of marginal product of the last worker.

A firm is unlikely to hire a worker if

the worker's contribution to the firm's revenue is less than his or her wage.

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

there is a negative externality associated with this good.

In the Nash Equilibrium of a prisoner's dilemma game

there is unrealized opportunity for both to gain.

The Principle of Increasing Opportunity Costs implies that:

to increase production, you should use the resources with the lowest opportunity cost first.

Technological advances shift the demand for labor

to the right if technology is a complement of labor, but to the left if it is a substitute.

An external benefit implies that private markets will provide ____ of the good (relative to the social optimum), and an external cost implies that private markets will provide _____ of the good.

too little; too much

According to economists, the satisfaction people get from their consumption activities is called

utility