Econ 101 Test Bank
How does a lower price alleviate the problem of excess supply?
A lower price decreases the number of potential sellers and increases the number of potential buyers.
For which pair of goods below would an increase in income have the same effect on both goods?
A normal good and a luxury good.
Which of the following is an example of a profit-maximizing business?
An accountant who makes her living preparing tax returns for other people
If the price of gasoline rises, buyers will probably
Spend more on gasoline since the demand for gasoline is probably inelastic.
Stricter loan standards in the mortgage lending sector could cause
a demand shift to the left in the housing market.
Output divided by the number of hours worked or by the number of workers is called
average product.
The technology or knowledge necessary for a production process is called
business know-how.
The difference between long-term and short-term profit maximization is that, in the short term,
businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.
A demand shift affects
buyers' willingness to purchase at various prices.
Government action can cause a shift in
either supply or demand.
Many times, technology is ________the equipment a company buys.
embodied in
On the basic supply-demand graph, the point at which the demand curve and the supply curve intersect is located at
equilibrium price and equilibrium quantity.
Inferior goods are characterized by _____ demand as a result of increased income.
lower
In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?
Average product would rise, and marginal product would rise.
The selling prices of houses from 2003 to 2006 reflected which market condition?
Excess demand
What word describes the goods and services that are used to produce outputs for a business?
Inputs
What is the difference between revenue and cost?
Profit
Which of the following formulas is correct?
Profit = Revenue −Cost
An increase in supply is shown graphically as a ________ shift of the supply curve, and as a result of an increase in supply, equilibrium price will ________.
rightward; decrease
Marginal cost generally ________ quantity produced.
rises with
In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.
short-term cost function
Variable costs are also known as
short-term costs.
Variable costs are relevant for
short-term everyday decision making.
innovation
something new, a change; the act of introducing a new method, idea, device, etc.
Between 2000 and 2007, many more furniture companies started producing furniture more cheaply in China. As a result, the
supply curve for furniture shifted to the right.
If a new major oil field is discovered in Africa, the world __________ curve for oil would shift to the __________.
supply; right
in the process of long-term profit maximization, the business makes decisions under the assumption that it can
vary all the inputs
To determine whether a particular good is a normal good, a luxury good, or an inferior good, you would want to observe what happens to demand for the good when __________ changes
income.
The goods or services purchased by a business for immediate use in the production process are known as
intermediate inputs.
The price of labor per unit times the amount of labor used is called
labor cost.
The added expense of producing one more unit of output is called the
marginal cost.
A profit-maximizing business will increase production as long as
marginal revenue exceeds marginal cost
The additional money a business gets from producing and selling one more unit of output is
marginal revenue.
If more and more states legalize casino gambling in the future, what will likely happen to the market for casino gambling in the states where it is currently legal?
The demand curve will shift to the left.
Higher interest rates can cause the ________ curve for new cars to ________.
demand; shift to the left.
Movies delivered over the Internet might have what effect on the market for movies in movie theaters?
A demand shift to the left
Which is NOT an example of inelastic supply
Bottled water
How might a government cause a demand shift to the right?
By requiring consumers to purchase certain products
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18
Marginal ________ is the added revenue from producing and selling one more unit of output
Revenue
What word describes the money that customers pay for the output of a business?
Revenue
Suppose a local food truck, representing a small part of an overall very large market, can sell 20 hamburgers for $100 total and can sell 30 hamburgers for $150 total. Which of the following is NOT true?
The total revenue of the 20th hamburger is $5.
Inputs to production do NOT include
average product
The price at which the quantity supplied equals quantity demanded is the
equilibrium price.
The price at which the quantity supplied equals the quantity demanded is the
equilibrium price.
If the supply of a good increases, the equilibrium price of that good
falls while quantity demanded rises.
The short-term cost function assumes that
fixed costs can't be changed.
One strategy for long-term profit maximization is
innovation
Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the
production function.
The main objective of a business in a market economy is
profit maximization
Market equilibrium is the point where quantity supplied and ________ are reasonably in balance.
quantity demanded
An increase in oil prices may cause
a reduction in the quantity of oil demanded.