Microeconomics Test 2
The ratio of total costs to the quantity produced is referred to as
average total costs.
The change in total utility derived when a customer consumes one more unit of a good or service is called
average utility
Why are diamonds more expensive than water?
because the last diamond has higher marginal utility than the last glass of water
The law of diminishing product shows the relationship
between inputs and outputs for a firm in the short run.
Suppose a consumer is currently buying 5 goods so that utility is maximized. The price of one of the goods falls while the prices of the other 4 goods do not change. The consumer should
buy more of the good that has experienced the fall in price to get to the optimal position.
If the price of coffee rises relative to all other prices, consumers are likely to
buy more tea.
The price of a can of Coke is $1.25 and the marginal utility of the second can consumed is 10 utils. The marginal utility of the third donut is 4 utils. You should only consume the third donut if the price of the donut is less than or equal to
$0.50.
A firm has average fixed costs of $0.20 and average variable costs of $2.50 at an output of 500 units. The firm's total costs are therefore
$1,350.
Chad's income went from $1000 per week to $1500 per week. As a result he increased his consumption of steak from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of steak for Chad is
2.50.
If four laborers were hired and we discovered that we could produce 88 units of protiuction, what is the average physical product of labor?
22
If the absolute value of the price elasticity of demand for a product is 1.5, and the price of a product increased 30 percent, then the quantity demanded will decline by
45 percent.
Peter consumes bags of potato chips and cans of soft drink. The marginal utility of bags of potato chips is 10 utils per bag and the marginal utility of cans of soft drink is 50 utils per can. Potato chips cost $0.50 a bag, and a can of soft drink costs $1.00. What should Peter do?
Peter should buy more soft drink and fewer potato chips.
Which of the following is FALSE regarding inelastic demand?
Price elasticity of demand is greater than 1 (Ep>1).
As a firm continues to produce additional output, which of the following will continue to decline as output expands?
average fixed costs
As long as output increases
average fixed costs will decrease
With a given level of money income, when the price of a product that a consumer buys declines, the purchasing power of your money income
can increase or decreases depending on the goods being consumed.
The equation for the calculation of marginal utility is
change in total utility/change in number of units consumed.
When demand is elastic
changes in price and changes in total revenue move in opposite directions.
Vincent Van Gogh paintings have a price elasticity of supply
close to 0.0
Suppose a firm doubles its output in the long run. At the same time the unit cost of production remains unchanged. We can conclude that the firm is
facing constant returns to scale.
When long-run average costs rise as output increases, the firm is experiencing
diseconomies of scale.
When discussing the price elasticity of demand we generally refer to the absolute price elasticity of demand by consumers. This means that we will
disregard the minus sign
For an economist the short run means a time period
during which the firm is unable to change its plant size.
If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power
falls.
Summing all of the costs that do not change as output varies yields
fixed costs.
The reason that diamonds cost more than water is
the marginal utility of each diamond a consumer purchases is quite high due to the small amount of diamonds that most consumers purchase.
A consumer is buying the optimal amount of goods when
the marginal utility per last dollar spent on all of the goods purchased is the same.
Which of the following is NOT a determinant of the price elasticity of demand?
the number of producers of the good
The cross price elasticity of demand is defined as
the percentage change in the demand for one good (a shift in the demand curve) divided by the percentage change in price of a related good.
Along downward-sloping straight-line demand curve, as the price of the product goes up
the price elasticity of demand goes from being inelastic to being elastic
The diamond -water paradox was solved by knowing that
the price of water and diamonds is determined by marginal utility, not total utility.
Your allergies are bad this summer so your allergist writes you a prescription to relieve your symptoms. When you get to the pharmacy, you notice the name brand allergy medicine is more expensive than its generic equivalent. You purchase the generic equivalent and demonstrate all of the following EXCEPT
the principle of diminishing marginal utility
Regarding an addictive drug such as heroin, we discover that when the price of heroin increases,
the quantity demanded falls by a relatively small amount.
If the price elasticity of demand is 0.2, a 10 percent increase the price will cause
the quantity demanded to decrease by 2 percent.
If the price elasticity of demand is 2, a 10 percent increase in the price will cause
the quantity demanded to decrease by 20 percent.
Diminishing marginal utility means that as more of a good is consumed,
the rate at which total utility increases starts to diminish.
Kathleen eats three TV dinners. The third TV dinner makes Kathleen sick. This means that for Kathleen
the third TV dinner has negative utility.
Along an indifference curve
the total satisfaction is the same.
One characteristic of indifference curves is that
they cannot intersect.
Which equation is used by a manager when considering total cost?
total costs (TC) = total fixed costs (TFC) +total variable costs (TVC)
The average product of labor is equal to
total product divided by quantity of labor.
The slope of the perfectly inelastic demand curve is _______ the slope of the perfectly elastic demand curve is ________.
undefined, zero
If a good has an absolute price elasticity of 1, the demand for the good is
unit elastic.
If the price of a good increases and the total revenue remains the same, the demand for the good is
unit elastic.
If a 5 percent change in the price of a good elicited a 5 percent change in the quantity demanded of the good, we would say that over this range of prices the good has a(n)
unit elasticity of demand.
If the price elasticity of supply is equal to 1, we would say the supply of the item is
unit supply elastic.
If the total utility derived from consuming three oysters was 40 utils and the total utility derived from consuming four oysters was 52 utils, what was the marginal utility derived from the consumption of the fourth oyster?
12 utils
When a consumer is at the consumer optimal,
MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn-
Which of the following statements is true with respect to total utility and marginal utility?
Marginal utility can decline as total utility rises.
Based on the material presented in the chapter, can we conclude that people will consume goods until the marginal utility of each good is zero?
No, because consumption is determined by the marginal utility/price ratio.
All of the following are reasons for economies of scale EXCEPT
diminishing marginal product.
Suppose the manager ofa restaurant notices that when she has too many waiters on the floor for a shift that the waiters get in each other's way and fewer dinners are served. This is an example of
diminishing marginal product.
The inverse relationship between quantity demanded and price of a good or service can be explained, in part, by
diminishing marginal utility
If a firm gets so large that management of employees and other resources becomes a costly problem, it will be experiencing
diseconomies of scale.
An indifference curve
must slope downward towards the right
When total product is decreasing, marginal product is
negative
An inferior good has an income elasticity of demand that is
negative.
When demand is unit elastic, a change in price will cause
no change in total revenue.
If your income rises by 15 percent and, as a result, you buy more steak, then steak is a(n)
normal good.
Price elasticity of demand is the responsiveness
of the quantity demanded to a change in price
The price elasticity of demand is the
percentage change in quantity demanded/percentage change in price.
A situation in which there is a reduction in quantity supplied to zero when there is the slightest decrease in price is
perfectly elastic supply
A supply curve that is parallel to the quantity axis is
perfectly elastic.
In an extreme hypothetical instance in which the price change of a good elicited no change in quantity demanded, we would say that the item is
perfectly inelastic
A supply curve that is parallel to the price axis is
perfectly inelastic.
If a good has an absolute price elasticity of 0, the demand for the good is
perfectly inelastic.
Tickets for the Super Bowl are an example of supply that is
perfectly inelastic.
The average demand curve slopes downward due to all of the following EXCEPT
the law of increasing relative costs.
Which of the following would be an example of a fixed cost?
property insurance premiums
Advocates of behavioral economics use ______ to predict consumer behavior, whereas traditional economists use ________.
prospect theory; rational choice theory
Suppose Lois usually buys two cups of coffee for two dollars each and one scone for two dollars each. If the price of scones falls to one dollar each and she now buys two cups of coffee and two scones, this illustrates the
real income effect.
When an individual's purchasing power changes due to a change in the price of a good or service, this is referred to as
real-income effect.
If you could pay for a product according to the marginal utility that you gain from additional consumption, then as you consume more of a product the price you pay would
remain the same.
Which of the following would be an example of a fixed cost to a firm?
rent for the building it occupies
Another term for elasticity is
responsiveness
If the price of a slice of pizza falls from $2 to $1, a pizza-loving consumer will
see her purchasing power rise.
If a firm can vary all of its factors of production, it is operating in
the long run
The time frame in which all factors of production can vary is
the long run.
Assume that in the short run a firm is producing 100 units of output, has average total costs of $100, and average variable costs of $50. The firm's total fixed costs are
$5,000
Assume that in the short run firm is producing 100 units of output, has average total costs of $100, and average fixed costs of $20. The firm's total variable cost at this output level is
$8,000.
If the price of apples went up by 25 percent, which of the following values of the cross price elasticity for cars would be most reasonable to anticipate?
0.0
If the price of gasoline increased by 10 % and consumers responded by purchasing 2 % gasoline, the absolute value of price elasticity of demand for gasoline would equal
0.2
If the price of gasoline increases from $2.50 per gallon to $3.00 per gallon and the quantity demanded goes down from 120 million gallons per week to 115 million gallons per week, the absolute value of price elasticity of demand in that price range is approximately
0.23.
the price of oil goes up by 50 % and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is
0.50
A coffee shop finds that they can sell 150 donuts a day when the price of a donut is $1.20. When they price donuts at $1, they sell 170 donuts. The absolute value of the price elasticity of demand for donuts is
0.69.
For a firm, we define the short run as a period of time during which
at least one input cannot be changed.
If the price of apples went up by 25 percent, which of the following values of the cross price elasticity for oranges would be most reasonable to anticipate?
1.2
If the price of hamburger meat increases by 20 percent and the quantity supplied by meat packing companies increases by 30 percent, what is the price elasticity of supply?
1.50
A cafeteria is willing to produce 100 cups of coffee when the price is $1 and 150 cups of coffee when the price is $1.30, ceteris paribus. The price elasticity of supply of coffee is
1.53.
If the price of a cola increased by 12 % and consumers responded by purchasing the absolute value of price elasticity of demand for cola would be
1.67
If the price of corn chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is
1.67
At Phil's Hot Dog Stand we found the following: 4 laborers produced 66 hot dogs 5 laborers produced 76 hot dogs 6 laborers produced 84 hot dogs 7 laborers produced 88 hot dogs What was the marginal physical product of the sixth laborer?
8 hot dogs
Assuming that the marginal utility of the first four pieces of candy was 30, 28, 24, and 18 respectively, how much total utility was derived from eating the first three pieces of candy?
82
You consider yourself to be wise consumer. The marginal utility/price ratio of coffee is 12 utils per dollar. If the price of a donut is $0.75, you should only buy the donut if it gives you at least
9 utils of satisfaction.
Which of the following is a long-run adjustment?
A company builds a new manufacturing plant.
When a consumer shifts his purchases from product A to product B, the marginal utility of
A increases and the marginal utility of B will fall.
Which of the following is true with respect to specialization?
A) Adam Smith in The Wealth of Nations referred to specialization and division of labor B) With a given set of resources, specialization results in higher output. C) Individuals and nations specialize in their areas of comparative advantage in order to reap the gains of specialization. All of the above are correct
Which of the following is correct?
AFC = TC/Q- TVC/Q
Which of the following is NOT correct?
ATC+AVC= AFC
the price of a pizza slice falls, Tom can
Buy more pizza with his paycheck, buy more soft drinks with his paycheck. Either A or B is possible.
If Frank has been consuming 5 hamburgers per week at a consumer optimum, and the price of hamburgers falls, how will Frank respond?
He will buy more burgers
What happens to the marginal cost curve when the marginal physical product of labor is rising?
It falls.
Economists once believed utility could be measured. The philosophical school based on the thought known as utilitarianism was developed by the English philosopher
Jeremy Bentham.
Which of the following best describes the consumer optimum?
MUa/Pa = MUb/Pb = ... = MUz/Pz
Which of the following statements is FALSE regarding consumer choice?
Purchasing power has an inverse relationship with the rise in income.
Which of the following statements is correct?
Supply is more elastic in the long run than in short run.
Which of the following statements is FALSE, with respect to what economist Adam Smith called the diamond-water paradox?
The demand for water is much smaller than the demand for diamonds.
Which of the following statements regarding price elasticity of supply and the length of time for adjustment is FALSE?
The longer is the time period for adjustment, the less is the extent to which resources flow into (or out of) an industry through expansion (or contraction) of existing firms.
Suppose that the demand for men's ties is price inelastic for the range of prices between $10 and $12. If Joe raises the price of the ties in his shop from $10 to $12, what will happen to Joe's total revenues?
Total revenues will increase.
Which of the following statement is correct?
When Marginal Product is greater than Average Physical Product, Average Physical Product is increasing
Which of the following statements regarding the relationship between average and marginal costs is INCORRECT?
When marginal costs are greater than average costs, the latter must rise.
The price elasticity of supply is 0.6. This means that
a 150 percent increase in price would increase quantity supplied by 90 percent.
In economics, the term "marginal" refers to
a change in the total.
Demand is said to be inelastic when
a given percentage change in price will result in a less than proportionate percentage change in the quantity demanded
demand is greater than 1. A 1 percent change in price therefore causes We say that a good has elastic demand whenever the absolute value of the price elasticity of
a greater than 1 percent change in quantity demanded.
A perfectly elastic supply curve is
a horizontal straight line.
The short run is
a period of time during which at least one input cannot be changed.
When the price of a good that a person is consuming falls, other things being constant, there is
a real income effect.
A perfectly inelastic demand curve is
a vertical straight line.
Economists assume that people make decisions regarding consumption based on comparing
additional units of satisfaction with additional costs.
The marginal utility derived from viewing the next movie DVD is the
additional utility from viewing the DVD.
In the long run, a firm can change
all inputs.
A budget constraint shows
all of the possible combinations of goods that can be purchased with a specific budget
Suppose that indifference curve I(1), lies to the left of indifference curve I(2). We can conclude that
all points along indifference curve I(1) will correspond to lower utility than points alon indifference curve I(2).
Mathematically the marginal rate of substitution is
always a negative number.
The price elasticity of demand is
always negative.
The results of the calculation of the price elasticity of demand is
always negative.
A curve that shows a set of consumption alternatives that give the same level of satisfaction is
an indifference curve.
an individual's utility from consuming two goods increases, then there must be
an outward shift of the individual's indifference curve.
If the cross price elasticity of demand between two commodities is positive, then these commodities are
are substitutes.
Marginal utility
at first rises, becomes stable, then declines as person consumes more of a good or service.
If the value of the cross elasticity of demand is negative, the two goods are
complementary goods.
If the price of one good increases, and as a result the demand for another related good falls, the goods are
complements.
Two items which have a negative cross price elasticity of demand are referred to as
complements.
When DVDS and hamburgers were the same price, Mavis consumed 3 hamburgers and 5 DVD8 and Mavis received 10 utils from the last hamburger and 15 utils from the last DVD consumed. What should be Mavis' consumption strategy?
consume more DVDS and fewer burgers
A consumer who has chosen the right mix of goods and services to maximize his or her utility is said to have achieved
consumer optimum.
The idea that consumers continue to adjust their purchases until the marginal utility per last dollar spent on all items is equal is called the
consumer optimum.
If the price elasticity of demand for a product is less than 1, then
consumers are relatively insensitive to price changes.
If the price elasticity of demand for a product is greater than 1, then
consumers are relatively sensitive to price changes.
The average fixed cost curve
declines as output increases.
If you regularly spend $100 a month on gasoline and the price of gasoline doubles, your purchasing power has
decreased.
Moving downward on a downward-sloping linear demand curve, the absolute value of the price elasticity of demand
decreases continuously.
Economies of scale occur when there are
decreases in long-run average costs resulting from increases in output.
When marginal utility is negative, total utility is
decreasing.
Whenever the absolute value of the price elasticity of demand is greater than 1, but less than infinite,
demand is elastic
Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale?
depreciation
Due to extremely large fixed costs, an electricity generating plant probably experiences which of the following returns to size?
economies of scale
A decrease in the long-run average costs resulting from increasing output is referred to as
economies of scale.
When long-run average costs decline as output increases, the firm is experiencing
economies of scale.
Generally, expenses on a sport utility vehicle are a large part of a consumer's budget, so the demand for sport utility vehicles is more likely to be
elastic
If a good has an absolute price elasticity of 2, the demand for the good is
elastic.
If an item has an absolute price elasticity of demand that is greater than 1, we say the demand for the item is
elastic.
When the price of a ukulele is $1000, 60 ukuleles are demanded; and when the price of a ukulele goes up to $1200, 30 ukuleles are demanded. In this price range the demand for ukuleles is
elastic.
price of a pound of apples decreases to $0.80, 10,000 pounds of apples are demanded. In this When the price of a pound of apples is $1.00, 7500 pounds of apples are demanded. When the price range the demand for apples is
elastic.
the short run total costs
equal the sum of total fixed costs and total variable costs.
No matter what the price of coffee is in the cafeteria, Jack spends $20 a week on coffee. We can conclude that the absolute value of the price elasticity of demand for coffee for Jack is
equal to 1.
The absolute price elasticity of demand for a product that has many good substitutes is probably
greater than 1.
If the absolute price elasticity of demand is equal to 1 in the short run, then in the long run, ceteris paribus, the absolute price elasticity of demand will be
greater than one.
The longer the time period that suppliers have to adjust to price changes, the
greater will be the price elasticity of supply.
A perfectly elastic demand would imply what kind of demand curve?
horizontal
The income-consumption curve shows
how a consumer's choices change as his income changes.
The price elasticity of demand measures
how responsive consumers are to a change in price.
The income-consumption curve shows the combination of goods the consumer would consume
if his income increased, while prices remained unchanged.
The price-consumption curve shows the combination of goods the consumer would consume
if money income and the price of one of the goods remains unchanged, while the price of the other good changes.
When marginal utility is positive, but decreasing, then total utility is
increasing at a decreasing rate.
The cross-price elasticity of demand of products "M" and "N" is zero. This implies that "M" and "N" are
independent products
If the price of a good increases and the total revenue also increases, the good has a(n)
inelastic demand.
When the price of gasoline is $2.20 per gallon, 11 million gallons are demanded, and when the price of gasoline goes up to $2.60 per gallon, 10 million gallons are demanded. The gasoline in this range has a(n)
inelastic demand.
Generally, expenses on toothpaste are a small part of a consumer's budget, so the demand for toothpaste is more likely to be
inelastic.
If your income rises by 25 percent and, as a result, you buy fewer packages of Ramen Noodles then Ramen Noodles are a(n)
inferior good.
The production function illustrates the amount of total physical product that can be produced with a given set of
inputs
For which of the following goods is demand likely be closer to the extreme of a perfectly inelastic demand?
insulin for a diabetic
The marginal cost curve always intersects the average total cost curve at the point at which the average total cost curve
is at its minimum.
If your dinner guest said, "Every bite, including the last bite, tasted as good as the first," then the marginal utility for him
is constant.
The distance between the TC and the TVC curve
is constant.
While the slope of the perfectly inelastic supply curve ________, the slope of the perfectly elastic supply curve __________.
is zero, approaches infinity
A product that has an elastic demand curve has all of the following characteristics EXCEPT
it has few or no substitutes.
The observation that after some point, successive equal size increases in a variable factor of production, such as labor, added to fixed factors of production, will result in smaller increases in output is the
law of diminishing marginal product
The typical cost curves are U-shaped due to the
law of diminishing marginal product
Phil found that as he continued to crowd laborers into his hot dog stand, the extra output he was receiving from each additional laborer was beginning to fall off. This is an example of the
law of diminishing product.
A movie theatre raises ticket prices from $8 to $10 in order to raise revenues. The theatre's management is assuming the absolute value of the price elasticity of demand for tickets is
less than 1
After full adjustment to a price change has occurred, the absolute price elasticity of demand for an item is equal to 1. In the short run, the absolute price elasticity of demand for the item was probably
less than 1.
The absolute price elasticity of demand for a product for which annual expenditures make up a very small share of a typical consumer's budget is probably
less than 1.
If Microsoft is determining whether to build a new plant in Southern California or in New Mexico, it is making a(n) decision.
long-run
The planning curve is the
long-run average cost curve.
If a farmer seeks buy one-hundred more acres for her kiwi fruit farm, she is making a
long-run decision.
Costco can sell identical items at a lower price than Nordstroms due to Costco's
lower average fixed costs.
The addition to total costs associated with the production of one more unit of output is referred to as
marginal cost
the price of labor is constant and a firm experiences diminishing marginal product, then its
marginal costs increase.
When marginal costs are rising
marginal physical product is falling.
The change in output caused by a one-unit change in labor is referred to as the .
marginal physical product of labor.
The change in the consumption of one good that just offsets a one-unit change in the consumption of another good is the
marginal rate of substitution.
Given the price of a good or service, what determines how much a person is willing to pay for that good or service?
marginal utility
The additional utility or satisfaction that one derives from consuming one more unit of any good or service is referred to as
marginal utility
The consumer optimum is found by using
marginal utility
As more of a product is consumed, total utility increases up to a point where
marginal utility decreases.
In order for a consumer to choose between two different goods, he has to take into consideration the
marginal utility divided by the price.
A rational consumer will NEVER purchase a product when its
marginal utility is negative.
At the point at which total utility is at a maximum,
marginal utility is zero.
When you tell your mother, "I'll never be tired of your cooking," you are saying the
marginal utility of her cooking to you will never be 0.
The expression "getting the most bang for your buck" is an illustration of the
marginal utility/price ratio.
The state of consumer optimum is reached when the consumer's
marginal utility/price ratios for all items are equal.
The utility analysis theory assumes that consumers try to
maximize their total utility.
Which of the following is more likely to have perfectly elastic or nearly perfectly elastic demand?
milk produced by a Wisconsin dairy farmer
The lowest rate of output per unit of time at which long-run average costs for a firm are at a minimum defines
minimum efficient scale.
An indifference curve
must be convex to the origin.
The long run is defined as a time period during which full adjustment can be made to any change in the economic environment. Thus in the long run, all factors of production are variable. Long-run curves are sometimes called planning curves, and the long run is sometimes called the
planning horizon.
When the supply curve slopes upward, the price elasticity of supply is
positive
When total product is increasing at a decreasing rate, marginal product is
positive and decreasing.
When total product is increasing at an increasing rate, marginal product is
positive and increasing.
Usually, price elasticities of supply are
positive, because higher prices yield larger quantities supplied.
For most goods and services the income elasticity of demand is
positive.
For most items we find the price elasticity of supply will be
positive.
Utility analysis assumes that the consumer's tastes and preferences are
predetermined and stable.
Total revenue is
price x quantity
When consumers shift away from relatively higher price goods and services in favor of those that are less expensive, this is known as the
principle of substitution.
The price elasticity of supply is higher when
producers have more time to adjust to price changes
Recently Apple Computer developed Apple's new iTunes Music Store, which offers more than 200,000 songs from five major record labels, for use with Apple's iPod and iMac. Apple fans have gone gaga. More than a million songs were downloaded the first week alone! In economic terms, CEO Steve Jobs helped convert capital and labor inputs into products consumers use. Any activity that results in the conversion of resources into products that can be used in consumption is
production.
When El Torito Restaurant is deciding how many waiters to hire for a holiday weekend, it is making a ______ decision.
short-run
The budget line
shows the combination of goods that can be purchased at fixed prices and with a given income.
If the price of wireless phone service decreases and the demand for wired phone decreases, then wired and wireless phone services are
substitutes
If the price of one good increases, and as a result the demand for another good increases, the goods are
substitutes.
Two items which have a positive cross price elasticity of demand are referred to as
substitutes.
The idea that people will substitute cheaper commodities for more expensive commodities is called
substitution effect
If a college student stays home and watches a rented DVD for $5 rather than going out to a $10 movie, this is an example of the
substitution effect.
When the price of DVDS falls relative to movie and restaurant prices, and consumers buy more of the DVDS, economists call this
substitution.
If price elasticity of supply is less than 1,
supply is inelastic
An indifference map shows
that curves further from the origin represent higher levels of utility.
A perfectly elastic demand curve exhibits
that quantity demanded will decrease to zero when there is a slight increase in the price level.
At an output at which the ATC is greater than the MC
the ATC curve is downward-sloping
At an output at which MC is greater than ATC
the ATC curve is upward-sloping.
MC = AVC and MC = ATC at points at which
the AVC and ATC curves are at their respective minimums.
A university raises annual tuition by 10 percent. No other events have occurred, and the university's revenues have increased. It must be true that
the associated change in quantity demanded was smaller than 10 percent.
If price of a product falls
the budget line rotates to the right.
demand is elastic and the price of a product decreases by 10 percent, then
the change in quantity demanded is greater than 10 percent.
Marginal costs are defined as
the change in total costs due to a one-unit change in production.
consumer chooses a combination of goods that are inside of her budget line, than
the consumer is not maximizing her satisfaction.
Behavioral economics suggests that people face human limitations that prevent them from examining every possible choice available to them, with the implication that
the consumer optimum implied by utility theory is an inappropriate approach to deriving demand curves.
According to the substitution effect, if the price of a product goes down
the consumer will buy more of the good at the lower price than at a higher price, creating a downward-sloping demand curve.
The marginal rate of substitution measures
the consumer's willingness to substitute one product for another so that total utility will remain unchanged.
Total fixed cost is
the cost that does not change as output changes.
Which of the following is NOT a determinant of the price elasticity of demand?
the cost to produce the product
If the government places a $0.50 tax on an item for which demand is perfectly elastic
the entire tax will be paid by the producer
The longer a price change persists, ceteris paribus
the greater the elasticity of demand.
When indifference curve analysis is used, a consumer optimum occurs at the point at which
the indifference curve is tangent to the budget line.
Bill ate four hot dogs at the baseball game. The first one tasted best, but he found that as he ate more hot dogs the amount of extra satisfaction he was receiving was beginning to fall. This would demonstrate
the law of diminishing marginal utility.
The reason that all-you-can-eat restaurants can make money is due to
the law of diminishing marginal utility.
When you buy something, you do so because of the satisfaction you expect to receive from having and using that good. Another term that can be used for satisfaction is
utility
The amount of calendar time associated with the long run
varies by industry.
The long run for a business is a period of time
when all inputs can change.
Marginal cost is equal to average variable cost
when average variable cost is at its minimum value.
All of the following are true regarding the relationship between price elasticity of demand and total revenues EXCEPT
when the firm is facing demand that is inelastic, if it raises price, total revenues will go down.
The slope of the budget line will change
when the price of one of the products changes.
In which of the following situations is the absolute price elasticity of demand for an item most likely to exceed a value of 1?
when there is considerable time to adjust to a change in the price of the item
When demand is unit elastic, a 10 percent change in the price of the good
will cause a change in quantity demanded equal to 10 percent.
If the last $5 spent on movies added 30 utils to your total satisfaction and the last $8 spent on books add 64 utils
you can increase your satisfaction by buying more books and seeing fewer movies.
Your annual review is given to you at your place of employment, and you get a raise of 3 percent for the next year. On the subway home though, you read an article stating the price of homes in the area you are looking to buy will increase by 6 percent during the coming year. You determine from the article that if you buy in your favorite neighborhood
your purchasing power declines.
A perfectly inelastic demand curve exhibits
zero responsiveness to changes in price.
