econ 302
Which of the following is true regarding income along a price-consumption curve?
Income is constant
Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but no he pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business?
$45000 per year
What are the elements of a stable cartel?
-a few firms own a large percent of actual and potential output -there are few good substitutes for what the cartel produces -prices are stable -solidarity between producers to limit cheating
which of the following would be associated with firms that have market power?
-few firms -inelastic demand -collusion among firms
choose all conditions that lead firms to more likely be price takers.
-many sellers -homogeneous product -free entry and exit
which of the following is NOT true regarding monopoly?
-monopoly is the sole producer in the market -monopoly demand curve is downward sloping -MONOPOLIST CAN CHARGE AS HIGH A PRICE AS IT LIKES -monopoly price is determined from the demand curve
the fact that alice spends no money on travel implies?...
-that her MRS does not equal the price ratio -that she is at a corner solution -that she does not derive any satisfaction from travel
the price at which the firm will make zero profits
-the price associated with the intersection of marginal cost and average total cost (ATC)
Charging every consumer exactly what they are willing to pay for each unit purchased
1st degree price discriminated monopolist
dividing consumers into two or more groups in separate demand curves and charging different prices to each group
3rd degree price descriminated monopolist
suppose a competitive market is in equilibrium at price P' and quantity Q'. if the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?
CS increases and PS remains the same
We typically think of labor as a variable cost, even in the very short run. However some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?
A salaried manager who has a three year employment contract
Total cost divided by output
Average total cost (ATC)
In 1970s the federal government imposed price controls on natural gas. Which of the following statement is true?
Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.
Pass-through-fraction formula
ES/(ES+ED)
a property of resource allocation where gains from trade are maximized.
Efficiency
curve relating the quantity of a good demanded consumed to income
Engel curve
If a factory has a short-run capacity constraint (an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes ______ at the capacity constraint.
Infinite
All the different combinations of capital and labor that end up costing the same amount in total.
Isocost line
A curve showing all the possible combinations of inputs that yield a given amount of output
Isoquant
the condition under which utility is maximized
MRS=MktRS
firms which have marginal revenue equal to price
Price taker
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
They must have the same slope
an increase in income, holding prices constant, can be represented as:
a parallel outward shift in the budget line
The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have:
a relatively high short-run monopoly power that declines in the long run
which of the following will cause the demand curve for Beatles' compact discs to shift to the right?
an increase in the price of Phil Collins' latest compact disc (a substitute)
when the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, changes in producer surplus
are positive, but more than offset by the cost to consumers and the government
I. the process of testing and revising theories is central to the development of economics as a science II. Theory is imperfect and may not adequately describe economic behavior in some cases
both are true
a rightward or leftward shift of the entire demand curve; caused by a change in something other than the price of the good
change in demand
A rightward or leftward shift of the entire demand curve; caused by a change in something other than the price of the good.
change in supply
third-degree price discrimination involves
charging different prices to different groups based upon differences in elasticity of demand.
the constant in an inverse linear demand curve
choke price
A budget line that compensates for a new price by changing the level of income such that the original level of utility can still be achieved by the consumer under the new set of prices
compensated budget line
consider the following production function: q=4L^(0.5)K^(0.5). which term best describes this production function's returns to scale?
constant returns to scale
the difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called
consumer surplus
a measure of responsiveness of quantity supplied of good x to a change in the price of good x.
cross-price elasticity
inefficiency that arises from not producing a unit when the value of that unit was more than the cost or producing a unit when the cost of that unit was more than value
deadweight loss
when quantity demanded is a function of price
demand function
The monopoly curve
does not exist
the social science that studies the choices individuals make as they cope with scarcity and the incentives that influence these choices
economics
assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the
firm's output is smaller than the profit maximizing quantity
what is the difference between a price support and a price floor?
government buys the excess supply to maintain a price support but not for a price floor
Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian would have indifference curves that are:
horizontal lines
a merger of two firms that produce the same product
horizontal merger
at a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you
how increasing labor use alters the average product of labor
governments may successfully intervene in competitive markets in order to achieve economic efficiency in what cases?
in cases of both positive and negative externalities
Zoe is an executive at Dell Computer company who is in charge of designing the next version of laptop computers. she will consider such features as screen size, weight, processor speed, and CD and DVD drives. given the fact that it is costly to include more features in new products, why might Zoe be interested in data on how much consumers paid for a range of laptops with different attributes?
in order to estimate willingness to trade off one feature for another
change in consumption of good resulting from an increase in purchasing power, with relative prices held constant
income effect
a measure of responsiveness of quantity demanded of good x to a change in income
income elasticity
the principle that marginal costs eventually rise as quantity of output increases
increasing marginal costs
doubling inputs more than doubles output
increasing returns to scale
a curve that relates the price of good x to the quantity of good x that a consumer will buy holding all other factors constant
individual demand curve
a good that has the following characteristics: when consumers get richer demand contracts; when consumers get poorer demand expands
inferior good
the price of a good that is used in the production of something else
input price
when price is a function of quantity demanded
inverse demand function
when price is a function of quantity supplied
inverse supply function
Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is buy low, sell high. Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a lower price he will have bought high and sold low. Constantines decision ____
is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold
at the profit-maximizing level of output, marginal profit
is zero
the assertion that there is an inverse relationship between price and quantity demanded
law of demand
a tax that is a certain dollar amount that is fixed
lump sum tax
to simplify our consumption models, suppose US consumers only purchase food and all other goods where good is plotted along the horizontal axis of the indifference map. Also, suppose that all states initially impose state sales taxes on all goods (including food), but then the states exempt from the state sales tax. How does this tax policy change alter the consumer's budget line?
makes the budget line flatter
the slope of the total product curve is the
marginal product
the derivative of total revenue
marginal revenue
the ability of a buyer or seller to affect the price
market power
The cross-price elasticity between a pair of complementary goods will be
negative
Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.
negative, positive
Does it make sense to consider the returns to scale of a production function in the short run?
no, we cannot change all of the production inputs in the short run
a good that has the following characteristics: when consumers get richer demand expands; when consumers get poorer demand contracts
normal good
a measure of responsiveness of quantity demanded of good x to a change in the price of good x
own-price elasticity of demand
two goods for which the marginal rate of substitution is either zero of infinite. Getting more of one good will not increase utility unless it comes with an increase in the other good as well
perfect complements
two goods for which the marginal rate of substitution of one for the other is constant
perfect substitutes
the maximum price any seller can legally charge
price ceiling
the minimum price any seller can legally charge
price floor
when firms (or buyers) take the market price as given and make their selling (or buying) decisions accordingly. Level of output has no effect on price
price taker
curve tracing the utility maximizing combinations of two goods as the price of one good changes
price-consumption curve
a statistical analysis that uses data to create a line-of-best-fit
regression
a freeze in florida's orange growing regions will:
result in a sharp increase in the price of oranges in the short run because demand and supply are highly inelastic
discrimination based upon the quantity consumed is referred to as ______ price discrimination
second-degree
a situation where quantity demanded is greater than quantity supplied; due to price being below the market clearing price
shortage
change in consumption of a good associated with a change in its price with the level of utility held constant
substitution effect
retrospective (past) costs that have already been incurred and cannot be recovered
sunk cost
suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. based on this technological development, we expect the:
supply curve for ethanol to shift rightward
when quantity supplied is a function of price
supply function
the supply curve for a competitive firm is
the MC curve above the minimum point of the AVC curve
a industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that
the firm's marginal cost curve is horizontal for some ranges of output and rises in steps
an increasing-cost industry is so named because of the positive slope of which curve?
the industry's long-run supply curve
At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that:
there are economies of scale
when the total revenue and total cost curves have the same slope
they are the furthest from each other
Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:
third-degree price discrimination
Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the market basket the marginal utility per dollar spent is equal. There are some goods which are affordable but do not appear in Jane's market basket. If Jane has maximized utility, the marginal utility spent on each of the goods that does not appear in the market basket is:
too low
if bundle A is preferred to bundle B and bundle B is preferred to bundle C then bundle A must be preferred to Bundle C.
transitivity
form of pricing where customers pay a fixed fee and a price close to marginal cost
two-part pricing monopolist
when the percentage of price has brought about an equal percent change in quantity; IeI = 1.0
unit elastic
which of the following claims is true at each point along a price-consumption curve?
utility is maximized and all income is spent
a lump sum of money which can be put towards one specific good
voucher
Jon's income consumption curve is a straight line from the origin with a positive slope. Now suppose that Jon's preferences change such that his income consumption curve remains a straight line but rotates 15 degrees clockwise. Jon's demand curve for the good on the horizontal axis A) will shift left B) will shift right C) will not change D) might do any of the above
will shift right