ALL MICRO

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They all have barriers to entry

Refer to the diagram. A price of $60 in this market will result in

a surplus of 100 units.

Copyrights and trademarks are examples of:

property rights

An industry comprising a very large number of sellers producing a standardized product is known as

pure competition

The demand schedules for such products as eggs, bread, and electricity tend to be

relatively price inelastic.

Units ConsumedTotal UtilityMarginal Utility00-1W20235X3Y10440Z The data illustrate the

law of diminishing marginal utility

Examples of command economies are

Cuba and North Korea

How does economic rivalry take place in monopolistic competition? Describe the different aspects of product differentiation and price competition.

Economic rivalry takes place in monopolistic competition by looking at the short and long runs. In the short run a firm may or may not make a profit, it will make a profit if price is higher than ATC. In the long run firms usually earn a equilibrium profit or suffer losses and get out of the industry.

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

False

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less

False

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run

Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. Production Techniques: I II III IV Labor 4 3 2 5 Capital 2 3 5 1 Which technique is economically most efficient in producing A?

IV

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

True

(1) Qd (2) Qd (3) Price (4) Qs (5) Qs 50 40 $10 70 80 60 50 9 60 70 80 60 8 50 60 90 70 7 40 50 100 80 6 30 40 Refer to the table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9,

a surplus of 20 units would occur.

Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas

a+b

Refer to the diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is

a+b+c+d

Suppose Billy is determining whether he should steal a movie from Walmart. The cost of the movie is $25 and the direct cost and the opportunity cost of stealing the movie is zero. There is a 15 percent chance of getting caught, and caught, a fine of $250 will be charged. (a) Will Billy steal the movie? (b) Suppose Billy has a guilt cost of $10. Will Billy steal the movie?

a. he will not steal the movie because the guilt cost is $250. b. If the guilt cost is only $10 he is more likely to steal the movie because the guilt cost is small even less than the price of the movie.

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

Unlike a private good, a public good

has benefits available to all, including nonpayers.

When the price of a product increases, a consumer is able to buy less of it with a given money This describes the

income effect

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

increase the quantity demanded by about 25 percent

An economic system

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

a public goof

is available to all and cannot be denied to anyone.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

is elastic

Price Quantity Demanded 7 1 6 2 5 3 4 4 3 5 At the point where 3 units are being sold, the coefficient of price elasticity of demand

is greater than unity (one)

In the short run, a purely competitive seller will shut down if product price

is less than AVC

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for This prediction assumes that

bicycles are normal goods.

Which of the following statements is correct? a. If demand decreases and supply increases, equilibrium price will rise. b. If supply declines and demand remains constant, equilibrium price will fall. c. If supply increases and demand decreases, equilibrium price will fall. d. If demand increases and supply decreases, equilibrium price will fall.

c. If supply increases and demand decreases, equilibrium price will fall.

Which of the following is a microeconomic statement? a. Unemployment was 5.2 percent of the labor force last year. b. The general price level increased by 1.1 percent last year. c. The price of smartphones declined 2.8 percent last year. d. The real domestic output increased by 1.6 percent last year.

c. The price of smartphones declined 2.8 percent last year.

Which of the following is associated with macroeconomics? a. a case study of pricing and production in the textbook industry b. an examination of the incomes of professional athletes c. an empirical investigation of the general price level and unemployment rates since 1990 d. a study of the trend of pecan prices since the Second World War

c. an empirical investigation of the general price level and unemployment rates since 1990

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output.

The study of economics is primarily concerned with

choices that are made in seeking the best use of resources.

Blu-ray players and Blu-ray discs are

complementary goods

The demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change.

Any combination of goods lying outside of the budget line

is unattainable, given the consumer's income.

If a purely competitive firm is maximizing economic profit,

it may or may not be maximizing per-unit profit.

price quantity demanded 6 1 5 2 4 3 3 4 2 5 1 6 if the demand schedule were graphed, we would find that

its slope is constant throughout

Monopolistic competition is characterized by a

large number of firms and low entry barriers

An increase in the price of a product will reduce the amount of it purchased because

consumers will substitute other products for the one whose price has risen.

One reason that the quantity demanded of a good increases when its price falls is that the

lower price increases the real incomes of buyers, enabling them to buy more.

Monopolistic competition means

many firms producing differentiated products

For a pure monopolist, the relationship between total revenue and marginal revenue is such that

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

To maximize utility, a consumer should allocate money income so that the

marginal utility obtained from the last dollar spent on each product is the same.

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example ofmonopolistic competition

monopolistic competition

The restaurant, legal assistance, and clothing industries are each illustrations of

monopolistic competition

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase

more of B and less of A

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

more of X and/or less of Y.

The total amount of income earned by US. resource suppliers in a year, plus taxes on production and imports, is measured by

national income

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market

The Latin term "ceteris paribus" means

other things equal

Purposeful behavior means that:

people weigh costs and benefits to make decisions.

The basic formula for the price elasticity of demand coefficient is

percentage change in quantity demanded/percentage change in price

A demand curve that is parallel to the horizontal axis is

perfectly elastic

Scarcity

persists because economic wants exceed available resources.

Marginal utility can be

positive, negative, or zero

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

price

The demand curve shows the relationship between

price and quantity demanded

The law of demand states that, other things equal

price and quantity demanded are inversely related

Because the monopolist's demand curve is downsloping

price must be lowered to sell more output

Refer to the budget line shown in the diagram. If the consumer's money income is $50, the

price of C is $10 and the price of D is $5

Refer to the budget line shown in the diagram. If the consumer's money income is $20, the

price of C is $4 and the price of D is $2

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Balin's is operating in the short run, but not the long run.

Refer to the diagram. Between prices of $5.70 and $6.30

D1 is more elastic than D2.

Units of XMUxMUx/Px (if P = $2)MUx/Px (if P = $1)Units of YMUyMUy/Py (if P = $4)120--148-218--240-316--336-414--432-512--524-611--612- Refer to the table and graph. Suppose that the price of X falls from $2 to $1, while the price of Y remains at $4. Which of the following represents the demand curve for X if the consumer has money income of $10 to spend on X and Y?

D2

Refer to the diagram. The equilibrium price and quantity in this market will be

$1.00 and 200

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

$6 and $4

(1) Qd (2) Qd (3) Price (4) Qs (5) Qs 50 40 $10 70 80 60 50 9 60 70 80 60 8 50 60 90 70 7 40 50 100 80 6 30 40 Refer to the table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be

$9 and 60 units.

Units ConsumedTotal UtilityMarginal Utility00-1W20235X3Y10440Z Refer to the data. The value for Z is

-5

Units of XMUxMUx/Px = $2MUx/Px = $1Units of YMUyMUy/Py = $4120--148-218--240-316--336-414--432-512--524-611--612- If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility, this consumer should buy

1 unit of X and 2 units of Y

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 Units of LTotal UtilityUnits of MTotal Utility19116215228318336420440521542 How many units of the two products will the rational consumer purchase?

2 of L and 3 of M

Refer to the diagram. The marginal utility of the third unit of X is

4

Units Consumed Total Utility Marginal Utility 0 0 - 1 W 20 2 35 X 3 Y 10 4 40 Z Refer to the data. The value for Y is

45

Total ProductAverage Fixed CostAverage Variable CostAverage Total CostMarginal Cost1$150.00$25.00$175.00$ 25.00275.0023.0098.0021.00350.0020.0070.0014.00437.5021.0058.5024.00530.0023.0053.0031.00625.0025.0050.0035.00721.4328.0049.4346.01818.7533.0051.7668.07916.6739.0055.6786.951015.0048.0063.00128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $35, it will produce

6 units at a loss of $90.

Total ProductAverage Fixed CostAverage Variable CostAverage Total CostMarginal Cost1$150.00$25.00$175.00$ 25.00275.0023.0098.0021.00350.0020.0070.0014.00437.5021.0058.5024.00530.0023.0053.0031.00625.0025.0050.0035.00721.4328.0049.4346.01818.7533.0051.7668.07916.6739.0055.6786.951015.0048.0063.00128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $68.10, it will produce

8 units at an economic profit of $130.72.

If the demand curve for product B shifts to the right as the price of product A declines, then

A and B are complementary goods.

Explain how monopolistically competitive producers try to improve on the condition of just breaking even in the long run. Is this improvement a benefit for consumers?

Monopolistically competitors will shift prices until they can get the price set at ATC equals the MR=MC which will cause the equilibrium.

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively. It can be concluded that

Mrs. Arnold should spend more on soda and less on pretzels.

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other

TRUE

A pure monopolist sells output for $4.00 per unit at the current level of production. At this level of output, the marginal cost is $3.00, average variable costs are $3.75, and average total costs are $4.25. The marginal revenue is $3.00. What is the short-run condition for the monopolist and what output changes would you recommend?

The monopolist in the short run is losing because average total cost is greater than the price. The monopolist should try to reduce the average cost.

What is the difference between total utility and marginal utility?

Total utility is the total amount of satisfaction while marginal utility is the extra satisfaction from additional units of a good.

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

W and Y

A purely competitive seller is

a "price taker"

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by

a budget line

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

a consumer surplus of $9, and Nathan experiences a producer surplus of $3

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

a consumer surplus of $9, and Nathan experiences a producer surplus of $3.

Which of the following industries most closely approximates pure competition?

agriculture

Freedom of enterprise

allows businesses, within broad limits, to choose what goods to produce.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

Economists would describe the U.S. automobile industry as

an oligopoly

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

are $105 and $140, respectively

For a purely competitive seller, price equals

average revenue, marginal revenue, total revenue divided by output, ALL OF THESE

Monopolistic competition resembles pure competition because

barriers to entry are either weak or nonexistent

Which of the following is an example of market failure? a. positive externalities b. negative externalities c. public goods d. all of these

d. all of these

Which of the following characteristics is least unique to a market system? a. competition among buyers and sellers pursuing monetary returns b. private ownership of property resources c. freedom of enterprise and choice d. the widespread use of money

d. the widespread use of money

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

decreased by 7 percent

If X is a normal good, a rise in money income will shift the

demand curve for X to the right.

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a

demand-side market failure

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the This statement is most consistent with which explanation for the law of demand?

diminishing marginal utility

The relationship between quantity supplied and price is , and the relationship between quantity demanded and price is .

direct; inverse

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue.

Barter

entails the exchange of goods for goods

A normal good is one

for which the consumption varies directly with income.

OutputTotal Cost0$50190212031404170521062607330 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will

produce 6 units and realize a $100 economic profit.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

produce because the resulting loss is less than its TFC.

With specialization in a market economy, individual

producers consume little or none of the products they produce.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

product differentiation

Suppose that tacos and pizza are substitutes, and that soda and pizza are We would expect an increase in the price of pizza to

reduce the demand for soda and increase the demand for tacos

A product has utility if it

satisfies consumer wants.

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of

scarcity and opportunity costs.

Economics may best be defined as the:

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as a

straight, upsloping line

Total utility may be determined by

summing the marginal utilities of each unit consumed.

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of If Transcontinental does not pay for the damage it causes, what has occurred?

supply-side market failure

Producer surplus is the difference between

the minimum prices producers are willing to accept for a product and the higher equilibrium price.

The total volume of business sales in our economy is several times larger than GDP because

the GDP excludes intermediate transactions.

A positive externality or spillover benefit occurs when

the benefits associated with a product exceed those accruing to people who consume it

If someone produced too little of a good, this would suggest that

the good was produced to the point where its marginal benefit exceeded its marginal cost.

The elasticity of demand for a product is likely to be greater

the greater the amount of time over which buyers adjust to a price change.

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

the income effect

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the This statement describes

the income effect

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

the income effect.

The narrower the definition of a product

the larger the number of substitutes and the greater the price elasticity of demand.

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because

the marginal benefit of additional units of the good now outweigh the marginal cost.

Producer surplus is the difference between

the minimum prices producers are willing to accept for a product and the higher equilibrium price

Which of the following best approximates a pure monopoly? *the only grocery store in a small isolated town *the foreign exchange market *the Kansas City wheat market *the soft drink market

the only grocery store in a small isolated town

According to the marginal-cost-marginal-benefit rule,

the optimal project size is the one for which MB = MC.

The concept of price elasticity of demand measure

the sensitivity of consumer purchases to price changes.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

the substitution effect

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively This statement describes

the substitution effect

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively This statement describes

the substitution effect.

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public Also, assume that the marginal cost of the third unit is $17. We can conclude that

the third unit should be produced.

The firm represented by the diagram would maximize its profit where

the vertical distance between curves (3) and (4) is the greatest.

Competition means that

there are independently acting buyers and sellers in each market.

Economists use the term imperfect competition to describe

those markets that are not purely competitive

The MR = MC rule applies

to firms in all types of industries.

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

two

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

under the demand curve and above the actual price.