Econ 1 Final Exam Prep

***Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that..

wants are unlimited and resources are scarce, so trade-offs have to be made. The Scarcity Principle states that although we have boundless needs and wants, the resources available to us are limited. So having more of one thing means having less of another.

Office workers and word processing programs are complements if: A. an increase in the price of word processing programs leads to an increase in the demand for office workers. B. a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs. C. they perform similar functions. D. a decrease in the wage paid to office workers leads to a leftward shift in the demand for word processing programs.

B. If two goods are complements, then they are more valuable when used together than when used alone. Thus, an increase in the price of one leads to a decrease in the demand for the other (or, similarly, a decrease in the price of one leads to an increase in the demand for the other).

A fixed factor of production:

is fixed only in the short run. No factors are fixed in the long run, but in the short run, fixed factors of production cannot be changed.

Refer to the information above. If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she...

keeps the price of her lemonade the same and increases her output. If the market for lemonade is perfectly competitive, then no one will buy Jenny's lemonade if she increases the price. Thus, if she wants to increase her revenue, she has to keep the price of her lemonade the same and increase output.

If the demand for x1 falls when the price of x2 falls, the cross- price elasticity of demand between x1 and x2 will be ______ because these two goods are ______.

positive; substitutes. If two goods are substitutes, then a decrease in the price of one good will lead the demand of the other good to fall, implying that the cross-price elasticity of demand between the two goods will be positive.

As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called

the substitution effect of a price change. The substitution effect is the change in the quantity demanded of a good that results from buyers switching to or from substitutes when the price of a good changes.

In the summer the quantities sold of both blueberries and bathing suits increases. However, in the summer the price of blueberries falls while the price of suits increases! The best explanation for this is that...

the supply of blueberries increases in the summer while the demand for bathing suits increases in the summer. Sun and warm weather are complements in consumption of bathing suits and so demand will increase for bathing suits (increasing both price and quantity). Sun and warm weather are input into the production of blueberries and in the summer these inputs are cheaper than in the winter which will increase the supply of blueberries (reducing price and increasing quantity).

At his current level of consumption, Evan gets twice as much marginal utility from an additional bottle of water as that from an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is...

$2. The rational spending rule maintains that consumers should allocate their spending between two goods such that the marginal utility per dollar spent is the same for both goods (that is, MU/ P must be the same for both goods). Here, since the marginal utility from an additional bottle of water is twice as high as that from an additional soda, Evan is maximizing his utility if the price of water is twice the price of soda.

You buy a new Miata for $25,000 but after a month you wonder if you made the right decision. You know you can sell the car for $21,000. What is the opportunity cost of keeping your car?

$21,000. You can no longer get $25,000 for the car. The $4,000 is a sunk cost. If you keep your car, you are giving up the $21,000 someone is willing to pay for it.

Sejal's reservation price for her economics textbook is $100. The week before the semester begins, Sejal finds a copy of her textbook online for $75. Sejal's consumer surplus from buying the textbook online is

$25. Consumer surplus is the difference between a buyer's reservation price for a product and the price actually paid, which in this case is $25 ($100 − $75).

Kendall is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. Kendall's opportunity cost of going to the movie is what?

$35. Opportunity cost includes both implicit costs and explicit costs. If she goes to the movies, Kendall will give up the opportunity to earn $20 plus the $15 cost of the ticket

Suppose that Tom bought a bike from Helen for $150. If Helen was willing to sell her bike for $100 and Tom was willing to pay up to $215, the seller's surplus from this transaction was...

$50. Helen was willing to sell her bike for $100 but sold her bike to Tom for $150, so her surplus is $50.

If a firm spends $125 to produce 25 units of output and spends $250 to produce 40 units, then between 25 and 40 units of output, the marginal cost of production is...

$8.33. Total cost increased by $125 (= $250 − $125) and the number of units increased by 15, so the increase in cost per unit is $125/15, or $8.33

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's profit was ______.

$9,000. Economic profit equals total revenue minus the sum of both explicit and implicit costs. In this case, $100,000 - $36,000 (rent) - $15,000 (the administrator's salary) - $40,000 (foregone earnings) = $9,000.

What is the formula for the price elasticity of demand at a given point?

(P/Q)(1/slope)

Suppose an 10% fall in the price of strawberries increases the quantity of strawberries demanded by 2% and increases the quantity of chocolate demanded by 5%. What is the cross-price elasticity of demand for chocolate with respect to the price of strawberries? Do these data suggest strawberries and chocolate are substitutes or complements in consumption?

-0.5, complements. It suggests that strawberries and chocolate are complements. As the price of strawberries falls, people buy more strawberries and more chocolate. The cross price elasticity of demand for chocolate is (5%/-10%)=-.5

If the price elasticity of demand is 0.25, then a 2 percent increase in price will lead the quantity demanded to fall by...

0.5%. price elasticity of demand equals the percentage change in the quantity demanded divided by the percentage change in the price. So we know 0.25=X/2% and solve for X=.25*2%=.5%

If the price elasticity of demand for milk is 0.75, then if the price of milk increases by 2 percent, the quantity of milk demanded will fall by...

1.5%

***If the price elasticity of demand for chicken is 2, then a 20% decrease in the price of chicken will lead to a...

40% increase in the quantity demanded of chicken. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 2, and price decreases by 20 percent, then quantity demanded must increase by 40 (= 20 x 2) percent. Recall that price and quantity demanded move in opposite directions.

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ____ pound of fish or a maximum of ____ pounds of shrimp

50; 30. If Casey spent the entire $150 on fish, she could buy 50 pounds ($150/$3=50) and if she spent the entire $150 on shrimp, she could buy 30 pounds ($150/$5=30).

***Vinny can produce either 20 fish or 10 coconuts in a day. Diana can produce either 30 fish or 6 coconuts per day. Assume that both Vinny's and Diana's PPF are linear. Suppose Vinny and Diana specialize in the commodity that they have the comparative advantage in and trade. Assume also that the price of a coconut is 4 fish. With trade: In a day, what is the most fish Diana can have? In a day, what is the most coconuts Diana can have?

7.5 coconuts, 30 fish. Diana's comparative advantage is in fish so she will spend all day making 30 fish. She can buy coconuts for 4 fish each which means she can buy 7.5 coconuts (30fish/4fish per coconuts)

Which of the following factors will lead to a decrease in supply?

A belief that the price of a good or service will go up in the future. If sellers believe that price will go up in the future, then they will decrease their current supply so that they can sell more when the price is high.

Suppose you observe a decrease in the equilibrium price and an increase in the equilibrium quantity of corn. Of the options listed below, this is best explained by...

A decrease in the equilibrium price and an increase in the equilibrium quantity of corn suggests an increase in the supply of corn. A decrease in the cost of growing corn will increase the supply of corn.

***What might cause a demand curve to shift to the right?

A decrease in the price of a substitute. Two goods are substitutes if an increase in the price of one good leads to a rightward shift in the demand for the other

Suppose that the equilibrium price of T-shirts increases, and the equilibrium quantity of T-shirts decreases. This is best explained by...

A decrease in the supply of T-shirts. When supply decreases, the equilibrium price will rise, and the equilibrium quantity will fall

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by...

A fall in consumer income assuming corn is a normal good. A decrease in the equilibrium price and quantity of corn suggests a decrease in the demand for corn. If corn is a normal good, and consumer income falls, then demand will fall.

suppose that the technology used to manufacture laptops has improved. The likely result would be what?

An improvement in technology causes the supply curve to shift to the right because production costs are lower so that more laptops will be offered for sale at every possible price

Suppose that Candyland is currently producing at a point where the opportunity cost of making 1 lollipop is 3 gumdrops. If Candyland is open to trade with the rest of the world, and the world price of a lollipop is 40 cents and the world price of a gumdrop is 20 cents, then:

Candyland should decrease its production of lollipops.

If a nation has the lowest opportunity cost of producing a good, that nation has a(n) _______ in the production of that good

Comparative advantage. Comparative advantage means having a lower opportunity cost. Absolute advantage means being able to produce more in a given time period

***If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are what?

Complementary goods. Two goods are complements in consumption if a decrease in the price of one causes an increase in demand for the other

Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should

Decrease production. If price is less than marginal cost, then the revenue gained from selling the last unit was less than the cost of producing the last unit. Thus, the firm should reduce output

What will happen to the current equilibrium price and quantity of HDTVs if people expect the price of HDTVs to fall in the future

Demand will decrease because consumers will want to wait until the price drops. Supply will increase because suppliers will want to sell now while the price high. Current equilibrium price will fall. We cannot say what will happen to equilibrium quantity.

***Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will...

Earn greater profits or smaller losses. A decrease in fixed costs decreases total cost but does not affect marginal cost. Thus, the firm will earn a greater profit (or smaller loss), but their output will not change.

Suppose demand decreases, but there is no change in supply. How will the market reach its new equilibrium?

Excess supply will lead the price to fall. When demand decreases, there will excess supply at the original equilibrium price. Thus, sellers will lower their prices.

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium

Excess supply will lead the price to fall.. When demand decreases, there will excess supply at the original equilibrium price. Thus, sellers will lower their prices

Vinny can produce either 20 fish or 10 coconuts in a day. Diana can produce either 30 fish or 6 coconuts per day. Assume that both Vinny's and Diana's PPF are linear. If Vinny and Diana trade, what will be the price of coconuts?

Greater than 2 fish but less than 5 fish. The price of coconuts must be greater than the seller's (Vinny's) opportunity cost to produce it but also must be less than the buyer's (Diana's) opportunity cost to produce it.

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

If price is below the equilibrium price, then there will be more buyers who want to buy a good than there will be sellers who wish to sell it. In this case, frustrated buyers have an incentive to offer to pay higher prices to obtain the good

if supply increase then what happens?

If supply increase, then the equilibrium price will decrease, causing the quantity demanded to increase

Give a brief intuitive explanation of how and why an individual should change his or her optimal consumption of good 1 and good 2 if MU_1/P_1<MU_2/P_2

If the additional happiness that a person gets from the last dollar they spent on good 2 outweighs the additional happiness that a person gets from the last dollar they spent on good 1, then this individual should spend less money on good 1 and more money on good 2. People should spend their money on the goods that give them the greatest additional happiness per dollar (the biggest bang for their buck).

***One implication of the shape of the demand curve facing a perfectly competitive firm is that...

If the firm increases its price above the market price, it will earn zero revenue. A perfectly competitive firm cannot raise its price without losing all of its customers to the many rival firms that produce the same product

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

If the price is above the equilibrium price, there will be excess supply, so sellers have an incentive to lower their prices in order to increase their sales

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should...

Increase production. If price is greater than marginal cost, then the revenue gained from selling an additional unit is greater than the cost of producing an additional unit. Thus, the firm should expand output (provided the firm's revenue is sufficient to cover its variable cost)

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be...

Inelastic. If a good has few close substitutes, the change in quantity demanded will be small relative to a change in price, implying that demand is inelastic.

If an increase in income leads to a decrease in the demand for ground beef, then ground beefs is a(n)...

Inferior good. An inferior good is good for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand

You observe that the price of HDTVs increases. Can you definitively conclude that there has been an increase in demand? If not, what besides an increase in demand could explain the price increase

It's possible that the price increase could also be due to a decrease in supply

On a given linear demand curve, as price falls demand becomes ______...

Less elastic. Consider the formula for the price elasticity of demand: (P/Q) *(1/slope). As price falls (and quantity increases), (P/Q) will fall, and since slope is constant along a linear demand curve, this implies that the elasticity of demand is decreasing. That is, demand is becoming more inelastic.

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

Lower. Goods that account for a small share of a person's budget have a lower price elasticity of demand than do goods that account for a large share of a person's budget.

***In general, when the price of a fixed factor of production increases...

Marginal cost is unchanged. An increase in the price of a fixed factor of production does not change the marginal cost of producing another unit

***In general, when the price of a variable factor of production increases...

Marginal cost rises. When the price of a variable factor of production increases, the cost of producing another unit of output increases

***On a given linear demand curve, as price increases demand becomes ______

More elastic. Consider the formula for the price elasticity of demand: (P/Q) (1/slope). As price increases (and quantity falls), (P/Q) will rise, and since slope is constant along a linear demand curve, this implies that the elasticity of demand is increasing. That is, demand is becoming more elastic.

If the demand for salad dressing increases when the price of lettuce decreases, the cross- price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.

Negative; complements. If two goods are complements, then an increase in the price of one good will lead the quantity demanded of the other good to fall, implying that the cross-price elasticity of demand between the two goods will be negative.

does a change in fixed cost change variable cost?

No, a change in fixed cost will not change variable costs

Suppose that at Mandy's current level of consumption, her marginal utility from buying an additional comic book is 8 utils and her marginal utility from buying an additional novel is 6 utils. If the price of a comic book is $6 and the price of a novel is $4, is Mandy maximizing her utility?

No. She should shift his spending away from comic books and towards novels.

***One thing that distinguishes normative economic principles from positive economic principles is that...

Normative principles tell us how people should behave, and positive principles tell us how people will behave. Normative economic principles describe how people should behave; positive economic principles predict how they will behave

Suppose quantity demanded is given by Q_d = 100 -P, and quantity supplied is given by Q_s =20+3P. In this case, equilibrium price, P*, and equilibrium quantity, Q* are...

P*=$20,000 Q*=80

***An implication of scarcity is that...

People must make trade-offs. The Scarcity Principle states that although we have boundless needs and wants, the resources available to us are limited. So having more of one thing means having less of another

Joaquin's marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3, then Joaquin

Should reallocate his spending towards pecan pie and away from pumpkin pie. Since Joaquin's marginal utility per dollar spent on pumpkin pie is 4/2.5 = 1.6 utils, while his marginal utility per dollar of pecan pie is 6/3 = 2 utils, Joaquin should reallocate his spending towards pecan pie and away from pumpkin pie to maximize his utility.

At her current level of consumption, suppose Stephanie's marginal utility from a pound of chicken is 7 utils and her marginal utility from a pound of beef is 10 utils. If chicken is $3 per pound and beef is $5 per pound, then which of the following statements is correct?

Stephanie should reallocate her spending away from beef and toward chicken. Consumers maximize their utility subject to their budget constraint by making sure that the last dollar spent across all commodities gives them the same added utils. For chicken, she gets 7utils/$3=2.33 utils per dollar. For beef she gets 10utils/$5=2 utils per dollar. Since her back=per-buck is higher for chicken, she should reallocate her spending away from beef and towards chicken.

***If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are what?

Substitutes. Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other (and a decrease in the price of one good leads to a decrease in the demand for the other)

Microeconomics differs from macroeconomics in that microeconomics focuses on

The choices made by individuals and the implications of those choices. Microeconomics is the study of individual choice under scarcity and its implications of the behavior of prices and quantities in individual markets

In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect what for the demand curve?

The demand curve to shift to the right in anticipation of higher future prices. If people expect the future price of a good to increase, then current demand for the good will increase

Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets increases, then...

The demand for bus tickets will increase. Bus travel and train travel are substitutes. So if the price of train tickets increases, the demand for bus tickets will increase. An increase in the price of train tickets will also lower the quantity of train tickets demanded, but it will not change the demand for train tickets.

What does consumer surplus measure?

The difference between the most a buyer would be willing to pay for a product and the price actually paid. Consumer surplus is defined as the difference between a buyer's reservation price for a product and the price actually paid.

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect...

The equilibrium price and quantity of pencils to fall. If pencils and paper are complements, and the price of paper increases, then the demand for pencils will fall. As a result, the equilibrium price and quantity of pencils will fall.

Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur?

The equilibrium quantity of beef will fall. If the demand for beef decreases we know both the equilibrium price and quantity of beef will fall. If the supply of beef decreases we know the equilibrium price will rise and quantity will fall. Therefore, we know for sure the equilibrium quantity of beef will fall.

What will happen to the market equilibrium price and quantity for wheat if the price of corn (a substitute in production) increases?

The equilibrium quantity of wheat will fall and the equilibrium price will rise. An increase in the price of corn, a substitute in production, will reduce the supply of wheat. If the supply of wheat falls we know the equilibrium price will rise and quantity will fall.

Alex received a four-year scholarship to Stat U that covered tuition and fees, room and board, and books and supplies. Conversely, Alex could work for four years. If Alex becomes a full-time student, then what is the opportunity cost for Alex?

The opportunity cost of attending State U includes the money Alex could have earned working for four years. Even though Alex has no out-of-pocket costs, by attending State U, Alex would be giving up 4 years' worth of earnings

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

The percentage change in quantity is 0.33 (= 10,000/30,000) and the percentage change in price is 0.2 (= $5/$25). If the percentage change in quantity demanded is greater than the percentage change in price, then the price elasticity of demand will be greater than one, implying that demand is elastic with respect to price.

Which of the following would cause an increase in quantity of wheat supplied?

The price farmers receive for their wheat rises. An increase in price causes a movement along the supply curve (up and to the right).

You have noticed that there is a persistent shortage of kidneys. Based on this observation, you suspect that...

The price of kidneys is below the equilibrium price. A shortage implies that the quantity demanded is greater than the quantity supplied, indicating that the price is below the equilibrium price.

Suppose that Fiona's marginal utility from drinking milk is 5 utils per ounce and her marginal utility from eating cereal is 10 utils per ounce. If the price of milk is 50 cents per ounce and the price of cereal is 80 cents per ounce, is Fiona maximizing her utility? If so, explain how you know. If not, explain how she should change her spending to increase her utility.

The rational spending rule implies that at the optimal consumption bundle MU_m/P_m=MU_c/P_c. Thus, since 5/50<10/80, we know that Fiona is not maximizing her utility. She should decrease her consumption of milk and increase her consumption of cereal, putting her money where she gets the biggest bang for her buck.

After the price of Revlon nail polish increased, Jen stopped buying Revlon and started buying a cheaper brand of nail polish instead. This is called

The substitution effect of a price change. Jen is looking to switch to a lower-priced substitute for name brand nail polish.

when a market is in equilibrium, then...

There is neither excess demand nor excess supply when the market is in equilibrium

Briefly explain to someone who has never taken an economics class what the following condition means. MU_1/P_1 = MU_2/P_2

This condition means that the additional happiness you get from the last dollar you spend on good 1 must equal to the additional happiness you get from the last dollar you spend on good 2.

Individual supply curves generally slope ______ because ______.

Upward; of increasing opportunity costs. Consistent with the Principle of Increasing Opportunity Cost, in expanding production of any good, firms will first employ those resources with the lowest opportunity cost, and only afterwards will turn to resources with higher opportunity costs.

Vinny can produce either 20 fish or 10 coconuts in a day. Diana can produce either 30 fish or 6 coconuts per day. Assume that both Vinny's and Diana's PPF are linear. Who has the comparative advantage in the production of coconuts?

Vinny. Vinny's opportunity cost of a coconut is 2 fish. Dianna's opportunity cost of a coconut is 5 fish. Vinny is the least cost producer of coconuts and so he has the comparative advantage in coconut production.

For two goods, X and Y, to be classified as substitutes in consumption, it must be the case that...

When the price of X rises, the demand for Y increases. A substitute is a good for which demand will increase if the price of a related good increases

Country A can produce either 100 tables in a day or 25 oranges in a day. Country B can produce either 60 tables in a day or 20 oranges in a day. Country B has...

a comparative but not the absolute advantage in the production of oranges. OC of a table is 1/3 orange for country B and is 1/4 orange for country A. So B has the comparative advantage in the production of oranges, but not the absolute advantage (A can make more oranges than B)

An increase in market price will lead to...

a decrease in the quantity demand. changes in price lead to movements along a demand curve. So, if price decreases, quantity demanded will fall.

Assume both the demand for bagels and the supply of bagels increase. What will the outcome will be certain to happen?

an increase in supply and increase in demand will both increase equilibrium quantity but will have opposing effects on equilibrium price

A technological innovation that reduces a firm's cost of producing additional units of output will lead to:

an increase in the firm's supply. A reduction in marginal cost is equivalent to a rightward shift in the supply curve (that is, an increase in supply).

If the demand for hot dogs rises when income falls, then this suggests that hot dogs are...

an inferior good. For inferior goods, when income falls the demand will increase.

The allocative function of price is to...

direct resources away from markets that are overcrowded and toward markets that are undeserved. The allocative function of price is to direct resources away from markets that are overcrowded and toward markets that are underserved.

If the San Diego Ballet decreases the price of opera tickets and their total revenue rises, this suggests that the demand for tickets to the San Diego Opera is...

elastic

If price is above the equilibrium price, then there will be

excess supply

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.00. Curly did not want to sell hot dogs at $4.50, so his reservation price must be more than $4.50, but since he is willing to sell for $5.00, his reservation price cannot be more than $5.00.

Ingrid has been waiting to see the show "Mamma Mia!". When it finally comes, tickets cost $60. Ingrid's reservation price is $75. But when Ingrid tries to buy a ticket, they are sold out. Suppose Steven was able to purchase a ticket at the box office for $60. Steven's reservation price for the ticket is $65. If Steven attends "Mamma Mia!" and Ingrid does not, then this situation is...

inefficient because Steven and Ingrid could have made a mutually beneficial trade. If Steven had sold Ingrid the ticket for $70, they each would have been better off.

A perfectly competitive firm's supply curve is the portion of its ______ cost curve that lies above its ______ cost curve.

marginal; average variable. A perfectly competitive firm's will always choose the level of output such that the marginal cost is equal to price. If price is below the minimum of the average variable cost curve, however, it will shut down. Thus, a perfectly competitive firm's short run supply curve is the portion of its marginal cost curve that lies above its average variable cost curve.

On a graph of a production possibilities curve, if a point is attainable, then it...

might or might not be efficient.. Points along and beneath the production possibilities curve are attainable, but only points along the curve are efficient.

Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require...

more than 30 additional employee-hours. If production exhibits diminishing returns, then it takes ever-larger increases in the variable input to increase output by a given amount.

Refer to the table above. Suppose all firms in this industry have identical costs to this firm and are producing 15 units of output. One can predict that...

new firms will enter the industry. At Q=15, firms are earning an economic profit. Thus, other firms will have an incentive to enter this industry.

To estimate the elasticity of supply for a commodity, you need to...

observe the market equilibrium prices and quantities from a shift in demand, all else equal .If the demand curve shifts, the two market equilibrium will give you two points on one supply curve which is enough to calculate the elasticity of supply.

The absolute value of the slope of the production possibilities curve gives the...

opportunity cost of the good on the horizontal axis

Suppose the cost of producing bagels falls. At the same time, the price of cream cheese (a complement to bagels) falls. Given these changes, you would definitely expect the equilibrium...

quantity of bagels to rise. An increase in demand and an increase in supply both will cause equilibrium quantity to increase, but will have opposing effects on equilibrium price.

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

resources; satisfaction. Utility maximization is the process of allocating one's resources to obtain the greatest possible satisfaction (or, utility).

If equilibrium price of soap rises, and the equilibrium quantity of soap falls, this suggests that the...

supply of soap decreased. When there is a decline in supply, equilibrium price rises and equilibrium quantity falls

What will happen to the equilibrium price and quantity of HDTVs if the price of DVD players falls. In answering your question, assume that DVD players and HDTVs are complements in consumption.

the demand for HDTVs will increase. Current equilibrium price and quantity will increase

Suppose the elasticity of demand for gum is -0.9. Gum seller's revenues will increase if...

the demand for the product increases. the supply of the product increases.If the demand increases, both price and quantity will rise and so seller's revenues will definitely increase if demand increases. Since demand is inelastic, seller's revenues will also rise if price increases which will happen if supply falls.

Suppose that when Candyland does not trade with the rest of the world, the equilibrium price of candy canes is 40 cents each. If the world price of candy canes is 45 cents each, then ______ will be hurt if Candyland opens itself to trade with the rest of the world.

the domestic consumers of candy canes

Suppose you own a small business. Last month, your total revenue was $6,000. In addition, 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 and $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was negative $200, then it must be true that....

your implicit costs are $1,000 per month. Economic profit is the difference between total revenue and the sum of explicit and implicit costs. Here, then, you had revenue of $6000 and your explicit costs were $5200, so your implicit cost must have been $1000 if you earned a profit of -$200.