econ 2113 final

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is

2

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

2.5 percent decrease in the quantity demanded

Corrective taxes differ from most taxes in that corrective taxes

do not cause deadweight losses

A monopolist faces a

downward-sloping demand curve

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality with a corrective tax, as a result

supply curve for paper would shift to the left

Producers have little incentive to produce a public good because

there is a free-rider problem

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $40 each. An economist would calculate the total cost for one photo frame to be

$15

A firm's marginal cost has a minimum value of $60, its average variable cost has a minimum value of $70, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

$70

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $5. Its average total cost is $4. Its profit is

$800

Suppose consumers often purchase bear claws to eat while they drink their lattés at local coffee shops. If the price of bear claws drops, what would happen to the equilibrium price and quantity of lattés?

Both the equilibrium price and quantity of lattés would increase

"Falling oil prices have caused a sharp decrease in the supply of oil." Speaking precisely, this quotation is

Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply

A fundamental source of monopoly market power arises from

barriers to entry

The economic inefficiency of a monopolist can be measured by the

deadweight loss

Excessive fishing occurs because

each individual fisherman has little incentive to maintain the species for the next year

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be

elastic

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

fall by 50 percent

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

inelastic

When a surplus exists in a market,

it means that quantity demanded is smaller than quantity supplied, so sellers should lower price until the surplus is eliminated.

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

less than the social cost of producing it

A monopolist produces ____________________ than in a competitive market.

less than the socially efficient quantity of output but at a higher price

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 25 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $220. In order to maximize profits, Laura should

make fewer than 25 wedding cakes per month

Because a monopolist must lower its price in order to sell another unit of output,

marginal revenue is less than price

When buyers in a competitive market take the selling price as given, they are said to be

price takers

A competitive market is in long-run equilibrium. If demand increases, we can be certain that

price will rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost

Suppose there is an increase in the price of corn. We would expect the supply curve for popcorn to

shift inward

The smaller the price elasticity of demand, the

smaller the responsiveness of quantity demanded to a change in price

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $2 per hour, then it is likely that the

supply of bicycles will shift to the left

A major difference between tariffs and import quotas is that

tariffs raise revenue for the government, while quotas do not raise revenue for the government

New technology lowering the costs of production will cause

the equilibrium price to decrease and the equilibrium quantity to increase

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates

the ticket price is below the equilibrium price

Economics is the study of how society manages its

unlimited wants and limited resources

If a firm produces nothing, which of the following costs will be zero?

variable cost