QMUL ECON 2018

In long-run equilibrium in a competitive market, firms are operating at:

-zero economic profit. -the minimum of their average-total-cost curves -their efficient scale.

Jack spends his income only on two products, cola, which is priced at £1/can and pizza, which is priced at £4/piece. The quantities of cola and pizza consumed by Jack at the optimum need to satisfy the condition: marginal rate of substitution (MRS) between pizza and cola equal to:

0.25

If consumers alvays spend 15% of their income on food, then the income elasticity of demand for food is:

1

Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?

1.4

Consider an MB schedule (where MB indicates Marginal Benefit) defined as MB=X-S and an MC schedule (where MC indicates Marginal Cost)defined as MC=S+15, in which S is the number of years of schooling. What should be the value of X so that the optimal level of schooling is 10?

35

Consider an MB (where MB indicates Marginal Benefit) schedule defined as MB=15-S and an MC schedule (where MC indicates Marginal Cost) defined as MC=S, in which S is the number of years of schooling. What is the optimal level of schooling?

7.5

If a firm incurs a total cost of £874 when it produces 10 units of output and a total cost of £950 when it produces 11 units of output, the marginal cost is

76

Suppose you paid $300 to take an economics course, which meets 30 times for one hour a class, during the course of the semester. Instead of attending class, you could have either work as a cleaner for $5 an hour or waited tables for $8 an hour. Given this information, the opportunity cost of attending each class session is:

8

You are planning to run a hot dog stand during a forthcoming fair. You originally estimated that you will generate sales revenue of £2000 and you have already spent £1000 building the hot dog stand. The stand is nearly completed but now you estimate total sales to be only £800 because the fair clashed with a major festival in nearby location. Your decision rule should be to complete the hot dog stand as long as the cost to complete the stand is less than:

800

Surplus:

A situation in which quantity supplied is greater than quantity demanded

Which one of the following shifts the demand for watches to the right?

Adecrease in the price of watch batteriesif watch batteries and watches are complements

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is:

An inferior good

Which activity best corresponds to thinking at the margin?

Deciding how many hours to work

Which activity best corresponds to thinking at the margin?

Deciding how many kilometers to swim

Opportunity costs can be defined as

Direct costs plus indirect cost minus sunk costs

Anna has to decide between accepting a job with a salary of GBP20,000 per year or studying for a master's degree, in which she would have to pay tuition fees of GBP10,000. If she accepts the job she would have to relocate, incurring additional expenses of GBP5,000. Anna's opportunity cost if she continues studying is

GBP15,000

The challenges of scarcity are relevant

In both developing and developed countries

A perfectly competitive market has

Many buyers and sellers

Smartphone apps are an example of what type of industry:

Monopolistic competition

An outcome is said to be Pareto efficient when

No one can be made better off without someone being made worse off

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell (assuming tea and coffee are substitutes)?

Quantity would rise, and the effect on price would be ambiguous

In the production of goods and services, trade-offs exist because:

Society has limited resources

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

Substitutes

Opportunity cost might be defined as:

The amount of a good or service that must be given up in order to get an additional unit of another good or service

Opportunity cost:

The cost expressed in terms of the benefits sacrificed of the next best alternative

A surplus exists in the market if:

The current price is above the equilibrium price

Which of the following would cause a demand curve for a good to be price inelastic?

The good is a necessity

Suppose there is an increase in both supply and demand for beef. Further, suppose the supply of beef increases more than the demand for it. We would expect:

Theequilibrium quantity to increase and the equilibrium price to fall

Suppose your income and the price of good Y both increase. The sentence "This implies that your demand curve for good X shifts to the right" is:

True if X and Y are substitutes and X is a normal good

Pareto efficiency is:

When making someone better off will make someone else worse off

In which case will consumer surplus increase:

When the price falls

Is it possible for a profit maximising firm to operate at a loss in perfect competition?

Yes, if the price is below the average total cost curve

All of the following shift the supply of watches to the right except:

an increase in the price of watches.

A decrease in supply (shift to the left) will increase total revenue in that market if

demand is price inelastic.

Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50 per cent while the average salary of teachers increases by 20 per cent, then

fewer students will take degree courses in education and more will take accounting courses.

If a factor exhibits diminishing marginal product, hiring additional units of the factor will:

generate ever smaller amounts of output

Economics is the study of

how society manages its scarce resources

In what situation a firm should shutdown its production in the short run?

if price is less than average variable cos

A buyer's willingness to pay is that buyer's

maximum amount they are willing to pay for a good.

A monopolistic market has:

only one seller

If you produce widgets, and you know that widgets are an inferior good. If you expect a recession and a decrease in incomes you should

prepare to increase your output of widgets because the demand for the product will increase.

Normative economics

prescribes policies for the economy based upon personal value judgments.

An increase in the price of bread provides information which

tells producers to produce more bread

A rational person does not act unless

the action produces marginal benefits that exceed marginal costs.

If South Carolina experiences a late frost that damages the state's peach crop, then we would expect

the price of nectarines, a substitute fruit, to rise.

A grocery store should close at night if the:

variable costs of staying open are greater than the total revenue due to staying open.

The opportunity cost of producing an extra apple is

what must be given up in order to produce the extra apple

Assume that Alex decides to start a bakery business. He would need £10,000 to rent a space, £15,000 for purchasing equipment (e.g. oven) and inputs (like flour, yeast, etc.), and another £3,000 for overhead expenses (e.g. hiring an accountant, advertising, utilities). If he instead works as a plumber, Alex could earn £50,000. What is the opportunity cost of starting the bakery business?

£78,000