ECON 2005 Final Exam Review
You have a comparative advantage if you can complete a task:
at a lower opportunity cost than anyone else.
When price discriminating, a company owner should set price _____ for each customer.
at or just below the marginal benefit
A market with negative externalities will tend to _____ compared to a market producing the socially optimal output.
overproduce and sell at a lower price
When resources are shared or owned in common, the Nash equilibrium leads to:
overuse of resources.
price elasticity of demand formula
% change in quantity demanded / % change in price
price elasticity of supply formula
% change in quantity supplied / % change in price
Export Formula
=quantity supplied - quantity demanded
Which of the following lists only the factors that would cause a decrease in the supply of an item?
A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production
The key to using the cost-benefit principle is to think about _________ and _________ aspects of a decision.
Financial and non-financial
Which graph shows the scenario where the substitution effect dominates labor supply decisions?
Graph A
What is quantity supplied?
It is the amount of an item that a seller is willing to sell at a particular price.
How is the economic surplus generated by a decision calculated?
It is the total benefit minus the total cost of the decision
The accompanying table provides data for five different oatmeal cookie sellers. Out of the sellers listed, who all are following the law of supply?
Len, Ren, and Jen
When you calculate marginal costs, they should include:
Only variable costs
Decisions should represent the _________ costs, rather than just the ________ costs.
Opportunity; financial
What is price competition?
Sellers try to win customers through charging as low a price as possible.
Why are supply curves typically upward-sloping?
They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.
Why would a company set up internal markets?
To solve the knowledge problem.
(Figure: Graph) In the graph, the movement from point J to point K must have been caused by:
a fall in the price of the item
Price discrimination leads to _____ than a one-price system.
a more efficient output
In a market graph, consumer surplus is the area:
above the price and below the demand curve.
A binding price floor is:
always above the equilibrium price.
Managers can harness market forces by setting up internal markets, which:
are organized within a company to buy and sell scarce resources.
Price ceilings tend to create shortages when used to
bring down price in a competitive market.
The economic burden of a tax is the:
burden created by the change in after-tax prices faced by buyers and sellers.
A search good is a product that:
can easily be evaluated before purchase.
You have an absolute advantage in producing a product if you:
can produce the product using the fewest inputs.
When a company practices price discrimination, it will keep adding customers until the point where the
company's marginal cost equals the last customer's marginal benefit.
The last 3 times I wore my orange socks to the basketball game, the Hokies won. I didn't wear my socks to the last game and they lost. "My socks determine whether the Hokies win." is an example of
confusing association (or correlation) with causation.
The cross-price elasticity of demand measures how responsive the:
demand for one good is to a change in the price of another good.
When there is a shortage of highly skilled workers in a particular region, the:
demand for skills education increases.
Why does an employer's labor demand curve slope downward?
diminishing marginal product
When there is free entry and exit in a market, in the long run, price will:
equal average cost.
The marginal private benefit is the:
extra benefit enjoyed by the buyer of one extra unit of a good or service.
As output rises, average fixed costs:
fall.
The statutory burden of a tax is the:
government-designated burden of a tax payment.
If a person is highly risk averse, the _____ marginal utility associated with a negative outcome outweighs the _____ marginal utility from a positive outcome.
higher; lower
The income effect measures
how people's choices change when they have more income
The accumulated knowledge and skills that make a worker more productive are known as:
human capital.
An increase in the price of capital will _____ demand for labor if capital and labor are substitutes, and it will _____ the demand for labor if the scale effect dominates.
increase; decrease
The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the ____________ principle.
interdependence
The ____________ suggests, decisions about quantities are best made incrementally.
marginal principle
When people are risk averse, the price they are willing to pay for insurance _____ the actuarially fair price.
may be higher than
Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:
more elastic
When advertising increases brand loyalty for your company's brand, then the company's demand curve becomes:
more inelastic.
A higher Gini coefficient means that a country has _________
more inequality
A good is characterized as _____ when one person's use of the good does not reduce another person's ability to use the same unit of the good.
non-rival
Statements about what option should be chosen are _____ statements.
normative
Analysis that describes what would happen if various actions were taken is _____ analysis.
positive
What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?
positive
The producer surplus on a unit sold equals:
price minus marginal cost.
Marginal social cost equals marginal _____ cost plus marginal _____ cost.
private; external
Sellers bear a smaller incidence of a tax when:
supply is more elastic relative to demand.
The tragedy of the commons is the:
tendency to over-consume common resources.
An individual demand curve is a graph:
that plots the quantity of the item that someone plans to buy, at each price
Cedar point amusement park reduces its entry fees. As a result of this price fall,
the quantity demanded will be higher.
A downward-sloping demand curve implies:
there is an inverse relationship between price and quantity demanded
Dependencies between your own choices reflect the fact that
you have limited resources
A company's profit margin is calculated as:
average revenue minus average cost.
When a company has market power, it is _____ in its market.
not a price-taker
By contrast with a market that produces the socially optimal output, a market with negative externalities will:
overproduce.
The relationship between price expectations and demand is
positive; when future prices are expected to rise, current demand will rise.
Which principle helps buyers and sellers make decisions about whether to trade?
the cost-benefit principle
The profit-maximizing rule MR = MC is:
followed by all types of firms.
A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.
marginal external
A prediction market is a market where:
payoffs are linked to whether an uncertain event occurs