ECON 2302 Chapters 6,7,9

Opportunity Cost

The value or worth a resource would have in its best alternative use.

If economic cost is &96,000 and total revenue is $120,000, which is the economic profit?

$24,000

What is the average fixed cost if the average total cost is $100 and the average variable cost is $75?

$25

If total cost rises from $300 to $700 when one additional unit of output is produced, what is the marginal cost?

$400

Which of the following are likely to cause cost curve to shift?

- Changes in technology - Changes in resource prices

Which of the following dives home the reality of scarcity to each consumer?

- Consumers have limited amounts of money. - Goods are scare relative to the demand for them.

Which of the following are characteristics of the concept of a budget of constraint?

- Every consumer faces it. - It is more severe for some consumers than for others. - A fixed and limited amount of income.

When a firm considers its economic costs, it considers which of the following?

- Explicit and implicit costs - All opportunity costs of resources used

Which of the following resources can a firm easily and quickly adjust?

- Hourly Labor - Raw Materials - Fuel - Power

What types of costs do firms incur when producing products?

- Implicit - Explicit

Short Run

- In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. - In macroeconomics, a period in which nominal wages and other input prices do not change in response to a change in the price level.

Long Run

- In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed. - In macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in a nation's price level.

Which of the following is a characteristic of utility?

- It is not synonymous with "usefulness". - It is subjective. - It is difficult to quantity.

Individuals take actions to maximize their total utility. Which of the following are three actions that support this proposition as stated in McConnell?

- Re-gifting - Obtaining cash refunds or exchange - Setting up gift registries

Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?

- Size of the factory - Amount of machinery

High Prices of Antiques

- Strong Demand - Limited - Highly Inelastic Supply - Highly Elastic Supply

Which of the following contributes to the inverse relationship between price and quantity demanded that is illustrated by a downward sloping demand curve for a normal good?

- Substitution Effect - Income Effect

What is the effect of an increase in the price of labor on the ATC, AVC, and MC curves?

- The average variable cost, average total cost, and marginal cost curves shift upward. - The average fixed cost curve remains the same.

Marginal costs includes which of the following?

- The cost savings resulting from the not producing the last unit of output. - All the cost associated with producing the last unit of output.

What is the relationship between the law of diminishing return and the marginal cost curve?

- The law of diminishing return explain the shape of the marginal cost curve. - The shape of the marginal cost curve is a consequence of the law of diminishing returns.

Which of the following sets of values are necessary to compute average total cost (ATC)?

- Total Variable Cost and Output - Total Cost and Output - Average Fixed Cost and Average Variable Cost

Identify the correct statements about total costs and average per-unit costs.

- Total costs are the sum of fixed and variable costs and measure the full cost of producing total output. - Average costs measure the cost to produce each unit the total quantity produced by dividing total costs by total output.

Which of the following would incur an explicit cost?

- Utility Usage - Raw Materials - Labor Services

Which of the following explain why the price of water per gallon is lower than the price of a diamond per carat?

- Water is in great supply relative to demand and thus has a very low per price per gallon. - Diamonds are in small supply relative to their demand, thus their price is very high per carat. - Diamonds have high marginal utility, and therefore, their price is very high per carat.

The difference between average cost per unit and marginal cost per unit is____________.

- average costs are computed by dividing the total cost by the total quantity produced. - marginal costs are computed by dividing the change in total costs by the change in quantity produced.

When marginal product is at its maximum, marginal costs:

- beings rising with additional output produced. - are at a minimum at the same output level.

In which of the following ways does the law of diminishing marginal utility support and exemplify consumer behavior?

A downward-sloping demand curve

Average Total Cost (ATC)

A firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.

____________profit is the firm's total revenue less it explicit costs, whereas ____________profit is the firm's total revenue less economic costs (explicit and implicit).

Accounting; economic

Which of the following best describes the concept of a budget constraint?

At any time, consumers earn a fixed and limited income because they supply a finite amount of human and property resources to society.

What does the vertical distance between the average total cost and average variable cost curves measure?

Average fixed cost at any level of output.

A consumer is initially at equilibrium, buying goods A and B. If the price of good A increases, while that of B stays the same, then the consumer equilibrium by buying more of good____________and less of good____________.

B; A

How is the average total cost curve determined from graphical information?

By adding vertically the average fixed cost and average variable cost curves.

How is marginal cost calculated?

By dividing the change in total cost by the change in output.

In the____________run, a farmer has time to acquire additional land and buy more machinery and equipment.

long

A firm's decision about what output level to produce is typically a____________decision.

marginal

____________costs are the explicit payment a firm must make, or the incomes it must provide, to attract the resource it needs away from alternative production opportunities.

Economic

____________costs are the monetary payments a firm makes to purchase resources from others...

Explicit

True of False: The theory of consumer behavior assumes, that unlimited income and a set of product price, consumers make rational choice on the basis of well-defined preferences.

False

True or False: Income elasticity of demand measure consumers' sensitivity to the change in price of another good.

False

True or False: The long run is a period of time too short to change plant capacity but long enough to use a fixed-size plant more or less intensively.

False

True or False: The smaller the positive cross elasticity coefficient, the greater is the substitutability between two products.

False

Economic Profit

The return flowing to those who provide the economy with the economic resource of entrepreneurial ability; the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."

Walnuts and screwdrivers would be classified as what type of goods?

Independent Goods

More efficient technology has what effect on the productivity of all input?

It increases the productivity of all inputs.

Which of the following is true regarding a firm's plant capacity?

It is fixed in the short run.

____________is the change in total utility that results from the consumption of one more unit of a product.

Marginal utility

Which best describes economic costs?

Payment that must be made to obtain a resource.

Marginal Cost (MC)

The extra (additional) cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).

Immediate Market Period

The length of time during which the producers of a product are unable to change the quantity supplied in response to a change in price and in which there is a perfectly inelastic supply.

Which best describes the graphic portrayal of marginal cost?

The marginal cost curve declines sharply at first, reaches a minimum, and then rises abruptly.

Which best describes the graphical portrayal of marginal cost?

The marginal cost curve declines sharply at first, reaches a minimum, and then rises abruptly.

Economic Cost

The payment that must be made to obtain and retain the services of a resource; the income of a firm must provided to resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.

Price Elasticity of Supply

The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.

Cross Elasticity of Demand

The ration of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates that they are complementary goods.

Income Elasticity of Demand

The ration of the percentage in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.

True of False: The marginal utility of successive units of a good or service should always be compared against the added cost or price of the good or service

True

True or False: Coefficients of income elasticity of demand provide insights into the economy.

True

True or False: Implicit costs are the firm's opportunity costs of using its self-owned, self-employed resources.

True

True or False: The degree of price elasticity of supply depends on how easily and quickly producers can shift resources between alternative uses.

True

True or False: The larger the negative cross elasticity coefficient, the greater is the complementarity between two products.

True

True or False: When an increase in the price of one good decreases the demand for another good, then the goods are called complementary goods.

True

True or False: When considering the price elasticity of supply, price and total revenue always move together.

True

How many products (goods or services) are considered when referring to the cross elasticity of demand formula?

Two

____________refers to the satisfaction or pleasure one gets from consuming a good or service, whereas____________refers to the practical and functional use the good or service actually serves.

Utility; usefulness

For illustration purposes, utility can be measured in terms of imaginary unit called____________.

Utils

Generally speaking, there are two types of calculable profits. Of these,____________profits is what remains after a firm has paid its explicit costs.

accounting

Costs exist because resources____________.

are scarce and have alternative uses

The marginal cost curve intersects with the average variable cost curve at the____________.

average variable cost curve's minimum

In the theory of consumer behavior, we assume that each consumer has____________preferences for specific goods and services that are available in the market.

clear-cut

A consumer's choices are directly influenced by all of the following except____________.

costs of production

The government uses the idea of the____________elasticity of demand to determine whether a propose merger between two firms is a good idea.

cross

The percentage change in quantity demanded of good X divided by the percentage change in the price of product Y is know as the____________.

cross elasticity of demand

The law of diminishing marginal utility explains why the____________curve for a given product slopes downward.

demand

The formula for income elasticity of demand in the percentage change in quantity demanded____________by the percentage change in consumer income.

divided

The formula for the cross elasticity of demand is written as the percentage change in quantity demanded of one product____________by the percentage change in the price of another product.

divided

Average total cost for any output level equal total cost____________by output.

dividing

In the short run, an increase in production is reflected in more____________(inelastic/elastic) supply.

elastic

Supply is____________if the price elasticity coefficient is greater than 1.

elastic

The utility-maximizing rule requires that the marginal utility of product A divided by the price A should be____________the marginal utility of product B divided by the price of B.

equal to

A firm's monetary payment to those who supply transportation services is an example of____________.

explicit costs

When marginal product is rising, marginal costs must be____________.

fall

If successive units of a good yield smaller and smaller amounts of marginal utility then the consumer will buy additional units of a product only it its price____________.

falls

If you quit your job to start your own business, your forgone wages from your former job become part of the____________costs of your business.

implicit

Forgone entrepreneurial income is an example of a(n)____________.

implicit cost

The percentage change in quantity demanded divided by the percentage change in income is the formula for the____________elasticity of demand.

income

The____________elasticity of demand measures the degree to which consumers respond to a change in their earnings by buying more or less of a particular good.

income

People____________their demand for gold as a speculative financial investment when they fear inflation.

increase

Total utility____________(decreases/increases) at a diminishing rate as more unit of a good are consumed, reaches a maximum then____________(rises/falls)

increases; falls

Because of the limited, highly____________supply of gold, small change in demand produce large changes in price.

inelastic

The main sources of gold price fluctuations are shifts in demand interacting with highly limited and____________supply.

inelastic

Original antiques exhibit relatively price____________supply, whereas modern reproductions of antiques exhibit relatively price____________supply.

inelastic; elastic

If a good has a negative income elasticity coefficient, then it is classified as a(n)____________good.

inferior

In the short run, plant size____________.

is fixed

Increase in demand have greatly increased the price of antiques because of____________.

limited supply

A time period in which firms can adjust their plant size is known as the____________run.

long

For the industry's' viewpoint, the____________run includes enough time for existing firms to dissolve and leave the industry or for new firms to be created and enter the industry.

long

The law of diminishing____________utility states that added satisfaction declines as a consumer acquires additional units of a given product.

marginal

The____________cost curve intersects the average total cost curve at the minimum point of the average total cost curve.

marginal

A firm is producing 4 unit at a total cost of $100. The firm can produce an additional unit for a cost of $70. The cost of one additional unit is known as a(n)____________.

marginal cost

Firms use____________and____________to determine whether expansion or contraction is profitable.

marginal revenue; marginal cost

The law of diminishing____________utility helps explain the relationship between the____________of a good and the quantity demanded of the good.

marginal; price

With substitute goods, an increase in the price of good X will likely cause consumers to buy____________(more/less) of good Y.

more

We can expect a greater response, and therefore greater elasticity of supply, the____________.

more time the firm has to react to price change

According to the diamond-water paradox, some "essential" goods have____________prices than some "unimportant" goods.

much lower

When the cross-price elasticity is____________, the good are complementary.

negative

Any good for which more is demanded as income rises is a(n)____________good.

normal

Making zero economic profit, which includes implicit cost such as entrepreneurial talent,is also known as a(n)____________profit.

normal

If the income elasticity coefficient in positive, then the good is a____________good.

normal or superior

The paper used for printing textbooks is not available for printing encyclopedias or romance novel. This is an example of a(n)____________.

opportunity cost

Marginal utilities are expressed in a____________basis in order to make the amount of extra utility derived from differently priced goods comparable.

per-dollar spent

During the immediate market period, supply is____________.

perfectly inelastic

The size of the factory, the amount of machinery and equipment, and other capital resource defines____________ ____________.

plant capacity

The formula for the marginal utility per-dollar-spent of a product is the marginal utility of the product divided by its____________.

price

To calculate the coefficient for the cross-price elasticity of demand, take the percentage change in quantity demanded of product X and divide by the percentage change in the____________of product Y.

price

The income effect is the impact in the____________of a product has on a consumer's real income and also on the quantity____________(demanded/supplied) of that product.

price; demanded

An individual's demand curve for a product shows how much of the product the individual will____________at various____________.

purchase; prices

If the quantity supplied by producers is relatively insensitive to price change, supply is____________.

relatively price inelastic

When a firm's total____________exceeds all its economic costs, the residual goes to the entrepreneur.

revenue

A firm's ability to move resources from the production of one product to another is referred to as resource____________.

shiftability

In the____________run, a farmer's capacity is fixed, and he or she only has time to cultivate tomatoes more intensively by applying more labor and fertilizer to the crop.

short

A period of time too brief for a firm to alter its plant capacity yet long enough to permit a change in the degree to which the plant is used is called the____________.

short run

The utility of a specific product or service may vary widely from person to person, therefore it is____________.

subjective

Evian water and Dasani water are____________goods.

substitute

The____________is the impact that a change in a product's price has on its relative expensiveness.

substitution effect

In the immediate market period, the____________curve is vertical.

supply

The percentage change in quantity supplied divided by the percentage change in price measures the price elasticity of____________.

supply

The theory of consumer behavior assumes:

that with limited income and a set of product prices, consumers makes rational choices on the basis of well-defined preferences.

The law that says, when a good yields smaller and smaller amounts of marginal or extra utility, then the consumer will buy additional units of a product only if its price fall is____________.

the law of diminishing marginal utility

A consumer will switch____________a product with a higher MU/P and____________a product with a lower MU/P, in order to maximize____________utility.

towards; away from; total

When two goods have near-zero cross elasticity, they are called____________goods.

unrelated or independent

Increased fixed costs shift the average fixed cost and the average total cost curves____________.

upward

Rational behavior assumes that a consumer will try to use his or her income to derive the maximum amount of total____________from a good or service.

utility

Total____________is the satisfaction or pleasure one gets from consuming a good or service.

utility

Total____________is the total amount of satisfaction or pleasure a person derives from consuming some specific quantity.

utility

Given the different combinations of goods and services a consumer can obtain within his or her budget, the____________can determine the specific combination that will yield the most utility or satisfaction.

utility-maximizing rule

A firm can directly and immediately control its marginal costs (MC) by controlling its____________costs.

variable

When total revenue earned by an entrepreneur is equal to the sum of explicit and implicit costs, then the entrepreneur earns a(n)____________.

zero economic profit