ECON 120 Final - AlHamdi
The additional costs that a business incurs from one additional unit of output is the ____ cost.
marginal
In a production possibilities frontier model, a point inside the frontier is
productively inefficient
Total revenue minus total cost is
profit
Total revenue minus total cost is:
profit
An obstacle that makes it difficult to enter a market is known as competition.
False
Brand names are least common in a monopoly.
False
Comparative advantage is measured in terms of absolute cost.
False
A decrease in the price of pork will result in
a smaller quantity of pork supplied
A situation in which a country does not trade with other countries is called
autarky
The ____ are rules to protect the environment through government regulations.
environmental standards
Published in 1776, ________ was written by Adam Smith.
"An Inquiry into the Nature and Causes of the Wealth of Nations"
Refer to Figure above. What is the value of the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?
$1,200
In the figure above, what is the price taken by each wheat farmer for the perfectly competitive wheat market?
$15
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?
$20
In the figure above, the marginal revenue for the fifth unit is 0. What is the total revenue from 5 units?
$20
If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
$25
How much of the tax is paid by buyers?
$3
Refer to Figure above. How much of the tax is paid by buyers?
$3
What is the value of producer surplus after the imposition of the price floor?
$3,000
Ashley's expenses for her painting business include rent of $2,000, payroll of $3,000, utilities of $1,000, and painting supplies of $500. What are her variable costs?
$3,500
Kendra's marginal benefit from consuming the second ice cream cone is
$3.00
Refer to Figure above. Kendra's marginal benefit from consuming the second ice cream cone is
$3.00
Suppose the government allows imports of leather footwear into the United States. The market price falls to $18. What is the value of consumer surplus?
$320
Anthony uses $10,000 from his savings (earning 8% interest) to open his business. After the first year, Anthony incurs a loss of $40,000, which includes the interest that was lost when he withdrew funds from savings. His accounting loss is _____, and his tax expense loss is:
$39
The absolute value of the price elasticity of demand points at a and b is 1. What is the value of Pb?
$40
In the table above, the average variable cost to produce four units is:
$5.75
In the figure above, what is average fixed cost at 40 units?
$6
In the table above, the profit from selling three units is:
$6
The tariff revenue collected by the government equals
$6.4 million
Refer to Figure above. What is the value of the deadweight loss after the imposition of the price floor?
$600
What is the value of the deadweight loss after the imposition of the price floor>
$600
In the figure above, the cost per unit for this monopoly firm is:
$8
In the figure above, what is average total cost at the profit-maximizing quantity?
$8
In the figure above, this firm is experiencing an economic profit of:
-$21
If the economy is currently producing at point E, what is the opportunity cost of moving it to point B?
0 spoons
Refer to Figure above. What is the opportunity cost of one dozen roses?
0.4 dozen orchids
What is the opportunity cost of one dozen roses?
0.4 dozen orchids
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
1.62
The price elasticity of demand for Ford Mustangs is:
1.67
In the figure above, the profit-maximizing quantity is
10
In the figure above, the profit-maximizing quantity is:
10
A price elasticity of 1.25 means that if price changes by 10%, then quantity will change by:
12.5%
Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is
180
Using the midpoint formula, calculate the price elasticity of demand between points b and c.
2.2
Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?
2.43
In the figure above, what is the total physical product of three workers?
225
In the figure above, with specialization and terms of trade of 2 pizza for 2 calzone, Luxembourg can consume _____ pizza(s) and _____ calzone(s).
4; 6
Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. Refer to Table above. Using marginal analysis, determine how many hours should Lydia extend her nail salon's hours of operations?
5 hours
Using marginal analysis, how many hours should Eva extend her bakery's hours of operations? Everytime Eva hires a worker, she pays a wage of $8/hr.
5 hours
Refer to Figure above. At a price of $25, how many units will be sold?
500
In the figure above, what is the marginal physical product (MPP) of the second unit of labor?
75
In the figure above, which represents AFC?
A
Refer to Figure above. What area represents the decrease in producer surplus when the market price falls from P2 to P1?
A + B
Which of the following is an example of positive technological change?
A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.
Refer to Figure above. An increase in the price of a complement would be represented by a movement from
D2 to D1
In the figure above, which average total cost (ATC) would a firm typically choose in order to maximize profit when it is expecting output to remain low?
ATC1
____ a nation's production possibilities frontier represents economic growth.
An outward shift of
In the figure above, which of these represents producer surplus if trading occurs?
B + C + D
Table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. Refer to Table above. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximizing bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?
Both soup and sandwiches are normal goods.
The law of demand is the rule that, ____, as the price of a good or service decreases, the quantity demanded increases.
Ceteris Paribus
Which of the following is an example of spending on goods and services in the circular flow model?
Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation
The United States imports more from
China than from Japan
Which of the following statements is true?
Consumer surplus measures the net benefit from participating in a market.
Refer to Figure above. Which country has a comparative advantage in the production of pineapples?
Costa Rica
Which of the following countries does not come close to the free market benchmark?
Cuba
At which point is demand inelastic?
E
The equilibrium quantity is the quantity that appears in the market at the
Equilibrium price
A characteristic of the long run that is not available in the short run is that a firm is free to vary its output.
False
A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.
False
A perfectly competitive firm's marginal revenue curve is downward sloping.
False
A positive technological change will cause the quantity of a good supplied to increase.
False
A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.
False
A tariff is a numerical limit on the quantity of a good that can be imported.
False
An externality refers to economic events outside a market.
False
An externality refers too economic events outside a market.
False
Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive
False
Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive.
False
Economies of scale occur when long-run average total cost does not change as output increases.
False
If Blake can pick more cherries in one hour than Cody, then Blake has a comparative advantage in cherry picking
False
If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is with an advance in technology.
False
If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.
False
If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase.
False
If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.
False
If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.
False
In a market where the products are standardized, individual firms have a lot of impact on price.
False
In an increasing cost industry, the long-run supply curve is downward sloping.
False
In economics, technology change only refers to the development of new products.
False
In the United States, imports and exports make up more than half of GDP.
False
In the circular flow model, households demand resources such as labor services in the product market.
False
In the market for factors of production, firms earn income by selling goods and services to households
False
It is possible for a market for a good to experience a surplus and a shortage at the same time.
False
One desirable outcome of a market economy is that it leads to a more equitable distribution of income.
False
Optimal decisions are made at the point where marginal benefit is maximized.
False
Price elasticity of supply is a measure of how responsive the supply is to price changes.
False
Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.
False
Rent control is an example of a price floor
False
Substitute goods have a absolute cross-price elasticity of demand.
False
The agricultural industry benefits a great deal from patents and copyrights.
False
The iPod is a product without any significant network externalities.
False
The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society.
False
The marginal revenue curve for the monopolistic competitive firm lies above the demand curve.
False
The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.
False
There is a shortage of every good that is scarce.
False
To derive marginal physical product of labor, divide the change in output by the change in labor.
False
To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is maximized.
False
When voluntary exchange takes place, only one party gains from the exchange.
False
A perfectly competitive firm faces a demand curve that is
Horizontal
For each pound of salami that Hungary produces, it gives up the opportunity to make 10 bottles of beer. Slovakia can produce 1 pound of salami for every 8 bottles of beer it produces. Which of the following is true about the comparative advantage between the two countries?
Hungary has the comparative advantage in beer.
____ costs do not involve the payment of money.
Implicit
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
It is elastic at the highest prices and inelastic at the lowest prices.
What is a market failure?
It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move
Jennifer's explicit costs fall and her implicit costs rise
Which two arrows in the diagram depict the following transaction: Stanley purchases the novel, "Night of Sorrows" for his summer reading pleasure.
K and M
Marginal analysis is involving comparing
MB and MC
The profit-maximizing level of output for all firms is where:
MR = MC
If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?
MU/P has decreased and Callum should buy less of this good
The branch of economics which studies the behavior of entire economics and policies that affect the economy as a whole is called
Macroeconomics
_____ is the additional revenue that a business receives from one additional unit of output.
Marginal revenue
For a perfectly competitive firm, which of the following is not true at profit maximization?
Market price is greater than marginal cost.
In the figure above, _____ a comparative advantage in making shoes.
Mexico has
We need to privatize the social security program in the State of Kansas is a
Normative statement
A firm will make a profit when
P>ATC
_____ is the use of government policy to protect domestic businesses from foreign competition.
Protectionism
The efficient output level is
Qa
In case of shortage; we know that
Qs < Qd
The ____ Act bans predatory pricing.
Robinson-Patman
A decrease in the number oof firms in the market would be represented by a movement from
S2 to S1
Refer to Figure above. The diagram shows two supply curves, SA and SB. As price rises from P0 to P1, which supply curve is more elastic?
SB
Which of the following is a positive economic statement?
Scarcity necessitates that people make trade-off
For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?
Switzerland has the comparative advantage in watches
The formula for calculating total revenue is:
TR = P x Q
Which of the following is an example of spending on factors of production in the circular flow model?
The "Lucky Ducky" casino buys a new craps table for the casino floor.
_____ occurs when economic profit equals zero.
The breakeven point
Refer to Figure above. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A). If the price of motorcycle engines increases, and the wages of motorcycle workers increase, how will the equilibrium point change?
The equilibrium point will move from A to B
Opportunity cost is defined as
The highest-valued alternative that must be given up to engage in an activity.
Which of the following is evidence of a shortage of chocolate?
The quantity of chocolate demanded is greater than the quantity supplied
Prices of smartphones (assume that this is a normal good) have fallen in recent years. Over this same period, the price of the components used to produce smartphones has also fallen and consumer incomes have risen. Which of the following best explains the falling prices of smartphones?
The supply curve for smartphones has shifted to the right more than the demand curve has shifted to the right
If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars?
The supply curve will shift to the right
_____ is the amount of one country's good that is exchanged for a different good from another country.
The terms of trade
Which of the following describes a characteristic of a perfectly competitive market?
There are many buyers and sellers
A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.
True
A tariff is a tax on imports.
True
A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.
True
An economic model is a simplified version of reality used to analyze real-world economic situations
True
An increase in population results in an increase in demand
True
As additional workers are hired, the marginal physical product of labor declines.
True
Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.
True
For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.
True
If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods.
True
If consumers believe the price of hybrid vehicles will decrease in the future, this will cause the demand for hybrid vehicles to decrease now.
True
In a free market there are virtually no restrictions, or at best few restrictions, on how factors of production can be employed.
True
In monopolistic competition, low barriers to entry prevent long-run economic profits.
True
In the long run, in perfect competition, productive efficiency is achieved at the minimum average total cost.
True
Mail-in rebates are an example of a firm using sales, specials, and coupons to price discriminate.
True
Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.
True
Necessities tend to have more inelastic demand than luxuries.
True
Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as free riding.
True
Perfectly inelastic supply will MOST likely occur in the very short run.
True
Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.
True
The US economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.
True
The division of the burden of a tax between buyers and sellers in a market is called tax incidence.
True
The economic burden of a tariff tends to affect poor consumers more heavily.
True
The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.
True
The excess burden of a tax is also known as a deadweight loss.
True
To determine profitability, a firm looks to the average total costs curve.
True
When businesses in a competitive industry have zero economic profit, long-run economic equilibrium occurs.
True
Which of the following is a macroeconomics question?
What determines the inflation rate?
Refer to Figure above. A movement from ________ is the result of advancements in plastic production technology.
Y to Z
_____ profit entails a normal accounting profit.
Zero economic
An externality is
a benefit or cost experienced by someone who is not a producer or consumer of a good or service
The amount of income a consumer has to spend on goods and services is known as
a budget constraint.
Government-imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of
a command-and-control approach to pollution reduction
Which of the following displays these two characteristics: rivalry and non excludability?
a common resource
____ cost industry is one where the entry of new firms does not change average total cost.
a constant
Which of the following statements is true?
a curved line has slope values that change at every point
A restaurant meal is a good that generally is not traded globally due to _____, a reason that complete specialization by countries does not occur.
a lack of cost-effectiveness in trading some goods such as services
An increase in the price of MP3 players will result in
a larger quantity of MP3 players supplied
If a 5% increase in income leads to a 10% increase in quantity demanded for airline travel, then airline travel is
a luxury
Which one of the following about a monopoly is false?
a monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly
____ is the benefit that customers receive from a good or service when others also are using the good or service.
a network externality
If the current market price is $25, the market will achieve equilibrium by
a price decrease, decreasing the quantity supplied and increasing the quantity demanded
The minimum wage is an example of
a price floor
In the figure above, this monopolistic competitive firm is experiencing an economic _____ per unit sold.
a profit of $0
_____ is an example of monopolistic competition market.
a restaurant
Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see
a shortage of gasoline
In India, one source of competitive advantage is _____ because it has the second highest population in the world.
abundant labor
The explicit cost of production is also called
accounting cost
The market demand for a public good can be determined by
adding up how much each consumer is willing to pay for each unit of the public good
After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies. To maintain its market share, De Beers
adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand.
_____ refers to the paid activities that businesses use to sell products.
advertising
When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.
allocative efficency
The revenue received from the sale of ________ of a product is a marginal benefit to the firm
an additional unit
One person's consumption of ____ good diminishes the ability of others to consume the same good.
an excludable
A side effect of a transaction that affects someone who is not involved in the transaction is
an externality
If, in response to a decrease in the price of coffee, the quantity of coffee demanded increases, economists would describe this as
an increase in quantity demanded
An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in
an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease
An outward shift of a nation's production possibilities frontier can occur due to
an increase in the labor force.
Electric car manufacturers want to sell more electric cars at a higher price. Which of the following events would have this effect?
an increase in the price of gasoline
Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup to decrease?
an increase in the price of tomatoes
The substitution effect of a decrease in the price of movie tickets results in
an increase in the quantity of movie tickets demanded.
If a decrease in income leads to an increase in the demand for macaroni, then macaroni is
an inferior good
____ are designed to limit behavior that substantially decreases competition.
antitrust laws
Average total cost is _____ whenever marginal cost equals average total cost.
at its minimum
Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision
at least $125,000
Which of the following is not true for a firm in perfect competition?
average revenue is greater than marginal revenue
The _____ cost curve is U-shaped.
average total
In the figure above, the curve represented by C is the _____ curve.
average total cost
To determine whether to exit or enter an industry in the long run, a firm looks to the _____ curve at the profit-maximizing quantity.
average total costs
To have a monopoly in an industry there must be
barriers to entry so high that no other firms can enter the industry.
Why does a monopoly cause a deadweight loss?
because it stops producing output at a point where price is above marginal cost
If a government does not regulate a natural monopoly, it may be because the government:
believes that there may be competition from potential substitutes
Eliminating a tariff on running shoes would ____ businesses that sell running shoes and ____ consumers who purchase them.
benefit; benefit
Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys
both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.
If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximizes her utility she will buy
both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk.
Whenever a buyer and a seller agree to trade,
both must believe they will be made better off.
Consider a good whose consumption takes place publicly. Your decision to buy that good depends
both on the characteristics of the product and on how many other people are buying the good.
In Luxembourg, one source of competitive advantage is _____ because it has very favorable tax laws.
business environment
For-profit producers will produce only private goods because
buyers will be willing to pay for the goods since the benefits are excludable
Which of the following is an example of a quasi-public good?
cable television
A ____ tax is an example of a corrective tax.
carbon emissions
All of the following products are likely to have significant network externalities except
cat food
Marginal revenue is
change in total revenue divided by change in quantity of output
An economic principle that explains why countries produce different goods and services is
comparative advantage
If the PPF is linear, then the opportunity cost of producing a good or service is
constant
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?
consume a combination of goods that lies outside its own production possibilities frontier
The decision about what goods and services will be produced in a market economy is made by
consumers and firms choosing which goods and services to buy or produce
The decision about what goods and services will be produced made in a market economy is made by
consumers and firms choosing which goods and services to buy or produce
Demand for gasoline is less price elastic in the short run than in the long run because in the long run:
consumers have more time to adjust.
Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe
consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them
The economic model of consumer behavior predicts that
consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy.
A measure of how responsive the quantity demanded of one good is to changes in the price of another is:
cross-price elasticity.
Marketing may increase a firm's pricing power if
customer loyalty increases.
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
declines
Compared to prices charged by Uber, traditional taxi companies charge government-regulated prices. These government-regulated prices ________ in the market for shared rides.
decrease consumer surplus
If the government implements a price ceiling on insulin, this will
decrease the quantity of insulin the manufacturers will be willing to supply.
In the figure above, this monopolistic competitive firm can expect profit to _____ as competition
decrease; increases.
In general, when the price elasticity of demand is greater than 1 and a firm wants to increase total revenue, the firm should:
decreases prices
Average total cost must be ____ whenever marginal cost is less than average total cost.
decreasing
The willingness of consumers to buy a product at different prices is shown on a
demand curve
Which of the following would shift a nation's production possibilities frontier outward?
discovering a cheaper way to convert sunshine into electricity
To derive marginal physical product of labor, _____ the change in labor.
divide the change in output by
The demand curve for a monopolist is ____ sloping, so to sell more goods and services, the monopolist must ____ price.
downward; reduce
There is often a trade-off between
economic efficiency and economic equity.
____ occur when long-run average cost declines as output increases.
economies of scale
Generally, demand is more _____ in the _____ because consumers can fully adjust to price changes.
elastic; long run
A measure of the sensitivity or responsiveness of one variable to another is:
elasticity
In the figure above, the profit-maximizing quantity for this monopoly firm is:
eleven
A positive externality exists, which leas the government to issue a corrective subsidy. It is attempting to:
ensure that the externality is considered in decision making
Total utility is maximized in the consumption of two goods by
equating the marginal utility per dollar spent for each good consumed
Every society faces a trade-off between ____
equity and efficiency
One of the basic principles of economics is that trade makes:
everyone better off
In a monopolistic competition market, _____ is the amount by which output would need to increase in order to minimize average total cost.
excess capacity
____ goods can be denied to individuals who do not pay.
excludable
network externalities
exist when the usefulness of a product increases with the number of consumers who use it.
When a firm produces more output using the same inputs or the same output using fewer inputs we say that the firm
experiences positive technological change.
Costs that require a monetary payment are known as _____ costs.
explicit
Marginal utility is the
extra satisfaction received from consuming one more unit of a product.
A worker is hired in a
factor market
A worker is hired in a
factor market.
Refer to Figure above. In the circular flow diagram, market K represents
factor markets
Productive efficiency is achieved when
firms produce goods and services at the lowest cost
Which of the following is an example of a common resource good?
fish in the ocean
Average ____ cost is fixed costs per unit.
fixed
____ costs are short-run costs that do not change with the quantity of output.
fixed
What does the phrase "internalizing an external cost" mean?
forcing producers to factor into their production costs the cost of the externalities created in the production of their output
In the figure above, if Canada specializes it can produce either _____ shoes or _____ cars.
four; three
Assuming that all consumers pay the same price for a good or service, in a monopoly, price is ____ than marginal revenue for everything sold after the first one.
greater than
If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ____ than 0, and the good is ____ good.
greater; a normal
An example of a substitute good for steak is:
hamburger
To be able to price discriminate, a firm must:
have some price-setting ability
_____ barriers to entry make it difficult for new firms to enter a market easily.
high
Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ efficient if it switches from producing the good to importing it.
higher; more efficient
The difference between the ________ for a good and the ________ is called consumer surplus.
highest price a consumer is willing to pay; price the consumer actually pays
The demand curve for an individual seller's product in perfect competition is
horizontal
Where do economic agents such as individuals, firms and nations, interact with each other?
in any arena that brings together buyers and sellers
The ____ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.
income
A measure of how responsive the quantity demanded is to changes in consumers' income is:
income elasticity.
Which of the following is a source of market failure?
incomplete property rights or inability to enforce property rights
In a constant cost industry, as prices rise due to an increase in demand, initially profits generally:
increase
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should
increase its output
If the price elasticity of demand is 0.6, then price is relatively:
inelastic
As the income increases and people buy less of the good, then the good is called
inferior good
Adam Smith's ________ refers to the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole
invisible hand
Economic decline happens when the PPF shifts
inward
Refer to Figure above. At a price of $5, the quantity sold
is 2 units
The price a perfectly competitive firm receives for its output
is determined by the interaction of all sellers and all buyers in the firm's market.
If a perfectly competitive firm's price is above its average total cost, the firm
is earning a profit
If there is pollution in producing a product, then the market equilibrium price
is too low and equilibrium quantity is too high
The Coase theorem states that
is transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
In the figure above, when price is equal to $10, short-run economic profit:
is zero.
With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services?
it has become more price elastic
Refer to the figure above. What is the amount of profit if the firm produces Q2 units?
it is equal to the vertical distance c to g.
In the long run, firms will _____ the market when the market price is below average total cost.
leave
In the long run, when average total cost is greater than price, a firm should:
leave the market.
The marginal revenue curve for the monopolistic competitive firm
lies below the demand curve.
In the figure above, this firm is experiencing a short-run economic ____ when the price is $10.
loss of $35
There are many sellers in monopolistic competitive markets due to
low entry barriers
A quota
makes domestic producers better off.
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost
The additional cost to a firm of producing one more unit of a good or service is the
marginal cost
The additional cost to a firm oof producing one more unit of a good or service is the
marginal cost
A perfectly competitive firm's supply curve is its
marginal cost curve above its minimum average variable cost.
A market demand curve reflects the
marginal private benefits of consuming a product
____ is the additional revenue that a business receives from one additional unit of output.
marginal revenue
The price of a seller's product in perfect competition is determined by
market demand and market supply
_____ is all of the activities that businesses use to sell products.
marketing
An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.
model
Absolute advantage is the ability to produce:
more of a product than a trading partner with an equivalent amount of resources.
Refer to Figure above. The deadweight loss due to the externality is represented by the area
mtn
To affect the market outcome, a price floor
must be set above the equilibrium price
In order to be binding, a price floor
must lie above the free-market equilibrium price.
Consumers are less responsive to price increases when a good is a:
necessity
Because of a ____ externality, marginal social cost is greater than marginal private cost.
negative
Complement goods have a _____ cross-price elasticity of demand.
negative
An economic loss is a _____ profit.
negative economic
In a market where the products are standardized, individual firms have ____ impact on price.
no
Advertising takes place primarily in monopolistic competition and _____ market structures.
oligopoly
Accountants include _____ in calculating accounting profit.
only explicit costs
If a producer is not able to expand its plant capacity immediately, it is
operating in the short-run
The principle of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.
opportunity cost
If the production possibilities frontier is linear, then
opportunity costs are constant as more of one good is produced
A temporary exclusive right to sell a product is a:
patent
Free riding refers to a situation in which
people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.
In a competitive market, a firm achieves _____ efficiency when it obtains output for the lowest possible cost.
productive
Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that
people respond to economic incentives
Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that
people respond to economic incentives
The price elasticity of demand equals the:
percentage change in quantity demanded divided by the percentage change in price
The figure above (horizontal line) represents the ____ market structure for an individual firm.
perfect competition
A market structure with a very large number of sellers of a standardized product is known as:
perfect competition.
In monopolistic competition, products are not
perfect substitutes
Which of the following is an example of a positive externality?
planting trees along a sidewalk which adds beauty and creates shade
The supply curve has a
positive slope
A firm increased its production and sales because the firm's manager rearranged they layout of his factory floor. This is an example of
positive technological change
Marginal utility can be
positive, negative, or zero.
The PPF shows the ____ combination of goods and services a firm can produce
possible and efficiiently
The marketing four Ps are product, placement, _____, and promotion.
price
If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then
price exceeds average total cost.
The cost borne by a producer in the production of a good or service is called
private cost
When consumers desire _____, production costs and price are generally higher than in perfect competition.
product differentiation
In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. One reasons for this is
production of most goods involves increasing opportunity costs
Diedre wants to build awareness and sales for her flower shop. She is considering whether to begin a social media campaign primarily on Facebook and Instagram. Diedre is utilizing the _____ component of the 4Ps.
promotion
The Coase theorem suggests that negative externalities occur, in part, because of a lack of clearly defined:
property rights
The change in price of the same good or service causes a change in
quantity demanded
Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?
quasi-public goods
Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie
raspberries and papayas are substitutes.
The assumption that people are ____ is one of the basic assumptions in economic studies.
rational
The opportunity cost of a good on the y-axis of a production possibilities frontier is the _____ of the production possibility frontier.
reciprocal of the slope
In imperfect price discrimination, ____ deadweight loss allows more customers to purchase the product and allows firms to ____ profits.
reducing; increase
Assume that you own a small boutique hotel. In an attempt to raise revenue, you reduce your rates by 20%. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?
relatively inelastic
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic
When there are few close substitutes available for a good, demand tends to be
relatively inelastic
Traditionally, economists have considered culture, customs, and religion as
relatively unimportant factors in explaining the choices consumers make.
While politicians and the general pubic often favor a "command-and-control" approach to the reduction of greenhouse gases, many economists favor market-based policies because they
rely on economic incentives rather than on administrative rules
The ________ the sale of an additional unit of a product is a marginal benefit to the firm.
revenue received from
Bettye Babylon does not charge admission to her arboreal estate, the Hanging Gardens. Due to space limitations, Bettye only allows 200 visitors per day at her estate. The figure represents the supply and demand for admission to the Hanging Gardens. Refer to Figure above. If Bettye chose to auction off tickets to her estate, bidding should cause the price of tickets to
rise to $10
A tragedy of the commons occurs when a resource is
rival and non-excludable
In economics, choices must be made because we live in a world of
scarcity
The basic principle in economic studies is
scarcity
When a celebrity promotes a product, this may
send a signal of high quality to consumers.
A critical function of the government in facilitating the operation of a market economy is
setting up and enforcing private property rights.
In the figure above, this firm should:
shut down in the short run.
The opportunity cost of the good on the x-axis is the ____ of the PPF.
slope
Shortage happens when Quantity supplied is _________ quantity demanded.
smaller
Increasing opportunity cost along a bowed-out production possibilities frontier occurs because
some factors of production are not equally suited to producing both goods or services.
Which of the following is a result of government price controls?
some people win and some people lose
An increase in demand and supply by the same size will cause the price of the good to:
stay the same
Utility is
subjective and difficult to measure.
____ costs should not affect decision making.
sunk
The improvement in technology will lead to increase in the
supply
The upward-sloping portion of the marginal cost curve that lies above the average variable cost curve is a firm's:
supply curve
A firm that is unable to impact the market price is a price:
taker
In a perfectly competitive market; the buyer and sellers are price
takers
If we use a narrow definition of monopoly, then a monopoly is defined as a firm
that can ignore the actions of all other firms because it produces a product for which there are no close substitutes
In 1995 ____, which was established in 1948, was replaced by ____.
the GATT; the WHO
Comparative advantage means
the ability to produce a good or service at a lower opportunity cost than any other producer.
Human capital refers to
the accumulated skills and training workers have
The substitution effect of a price change refers to
the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that
the demand for paper is inelastic
If the price of smartphones was to increase, then
the demand for smartphone apps would decrease.
Refer to Figure above. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows
the effect of a negative externality in the production of a good
Refer to the figure above. The section of the demand curve labeled "A" represents
the elastic section of the demand curve
The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S2 (point E). If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change?
the equilibrium point will move from E to A
Which of the following is a characteristic of a firm in a perfectly competitive market?
the firm can sell as much as it wants without having to lower its price
When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to
the income effect
____ is responsible for the upward slope of the marginal cost curve.
the law of diminishing returns
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product.
Conceptually, the efficient level of carbon emissions is the level for which
the marginal benefit of reducing carbon emissions is equal too the marginal cost of reducing carbon emissions
Refer to Figure above. The figure above represents the market for iced tea. Assume that this is a competitive market. At an output of 30,000 units
the marginal cost of iced tea is greater than the marginal benefit; therefore, output is inefficiently high
The additional output from an additional unit of labor, holding the amount of physical capital and other inputs fixed, is:
the marginal physical product of labor.
Refer to the figure above. The curve labeled "E" is
the marginal product curve
A positive externality causes
the marginal social benefit to exceed the marginal private cost at the market equilibrium
Along a downward-sloping linear demand curve
the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
If a consumer always buys goods rationally, then
the marginal utility per dollar spent on all goods will be equal
The production possibilities frontier shoes
the maximum attainable combinations of two products that may be produced in a particular time period with available resources
The production function shows
the maximum output that can be produced from a set of inputs.
To calculate the price elasticity of supply, we divide
the percentage change in quantity by the percentage change in quantity supplied
price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price
If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then
the price elasticity of demand for teapots is greater than 1 in absolute value.
Total revenue is equal to
the price of a product multiplied by the number of units of the product sold.
By drawing a demand curve with price on the vertical axis and quantity of the horizontal axis, economics assume that the most important determinant of the demand for a good is
the price of the good
If, in a competitive market, marginal benefit is greater than marginal cost
the quantity sold is less than the equilibrium quantity
The circular flow model demonstrates
the roles played by households and firms in the market system.
An individual seller in perfect competition will not sell at a price lower than the market price because
the seller can sell any quantity she wants at the prevailing market price.
Suppose a drought resulted in a major reduction in the California lettuce crop. In the market for lettuce,
the supply curve shifted to the left resulting in an increase in the equilibrium price
If in the market for bananas the supply curve has shifted to the right, then
the supply of bananas increased
Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,
the tax burden will be shared by buyers and sellers
The ratio at which a country can trade its exports for imports from other countries is called
the terms of trade
The short-run is defined as:
the time period during which at least one variable cannot be changed.
Economists have used ____ and ____ in experiments designed to determine whether consumers care about fairness when they make decisions.
the ultimatum game; the dictator game
A characteristic of the long run is
there are both fixed and variable inputs
Which of the following is not a characteristic of a perfectly competitive market structure?
there are restrictions on exit of firms.
A significant downside to network externalities is that
there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies
Consumers have to make tradeoffs in deciding what to consume because
they are limited by a budget constraint
Who receives the most of what is produced in a market economy?
those who are willing and able to buy them
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure above illustrates the situation in the toilet paper market. Refer to Figure above. An efficient way to get the firm to produce the socially optimal output level is
to impose a tax to make the industry bear the external costs it creates
What is the rationale behind a tradable emission allowance scheme?
to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance
If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because
too much of the good will be produced
The expense of complex negotiated settlements in cases where many people are affected by negative externalities is known as:
transaction costs
In constructing a production possibilities frontier model, only _____ considered.
two goods are
Economists assume that rational people do all of the following except
undertake activities that benefit others and hurt themselves
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is
unit elastic
Scarcity refers to the situation in which
unlimited wants exceed limited resources
The demand curve for a Giffen good is
upward sloping
Buyers will bear the entire burden of a unit tax if the demand curve for a product is
vertical
Perfectly inelastic demand is represented by a demand curve which is ____, and relatively inelastic demand is represented by a demand curve which is ____.
vertical; downward sloping
Which of the following is a result of a market economy?
voluntary exchange
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic
Giffen goods
were not shown to actually exist until 2006.
Society faces a trade-off in all of the following situations except
when some previously unemployed workers find jobs
An increase in the equilibrium price for a product will result
when there is a decrease in supply and an increase in demand for the product
If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded
will decrease by 45 percent
Trade between two countries is generally a _____ situation.
win-win
The _____ price is determined by global demand for and global supply of the product.
world
In a market structure with low entry barriers, firms generally earn _____ economic profit in the long run.
zero
Wayne, a small business owner, had production expenses last year of $40,000. Revenues were $100,000. Wayne gave up a job that paid $60,000 to open his business. Wayne's economic profit last year was:
zero
Consider a production possibilities frontier model for Mexico and Canada where each country makes only two goods cars and shoes. If Mexico puts all of its resources into making shoes, it would be able to make:
zero cars
A _____ game is where the gains or losses of one player are exactly offset by the gains or losses of another player.
zero sum