Econ 302 Test 2 - Concepts

Substitutes.... When the price of Y increases then X goes higher..

Are they complements or subs? X = M+Py/2Px When Py gets bigger, than X gets higher so this means they are

The aggregate demand curve for hamburger in the US is upward sloping at low prices

As a group, U.S. consumers view hamburgers as a normal good at a low income levels and as an inferior good at high income levels... which is not true

None of the above

The change in the price of one good has no effect on the quantity demanded of another good. These goods are:

Substitution Effect

The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the ____ effect

Isoquant Curve

The function which shows combinations of inputs that yield the same output is called a(n)

Illustrates the utility-maximizing combinations of goods associated with every income level

The income-consumption curve

There is at least one fixed input

The law of diminishing returns assumes that

That over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.

The link between the productivity of labor and the standard of living is

the addition to total output due to the addition of one unit of all other inputs

The marginal product of an input is..

Goods A and B are complements

The price of good A goes up. As a result the demand for good B shifts to the left...

Output

Fixed Costs are fixed with respect to changes in

Other Side

Fixed-Proportion Production System = Complements

Work against each other

For an inferior good, the income and sub effects...

APL

For consideration of such issues as labor's productivity growth nationwide, the relevant measure is

Any of the above are possible

Good A is a Giffen good. If the price of good A were to suddenly double, the income effect would cause the purchases of Good A to increase by

Slopes downward

Good A is a normal good. The demand curve for good A

Infinite

If a factory has a short-run capacity constraint, the marginal cost of production becomes... at the capacity constraint

Rate at which the firm can replace capital with labor without changing the output rate

If capital is measured on the vertical axis.... , the slope of the isoquant can be interpreted as the

After some level of employment, the marginal product of labor must fall

If the law of diminishing returns applies to labor then

The firm will use the one with the lower costs

If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit-maximizing firm choose between these two inputs?

Price-Consumption

An individual demand curve can be derived from the __________ curve.

Input combinations that can be purchased with a given outlay of funds

An isocost line reveals the

c

An isoquant a) must be linear b) cannot have a negative slope c) is a curve that shows all the combinations of inputs that yield the same total output d) is a curve that shows the maximum total output as a function of the level of labor input e) is a curve that shows all possible output levels that can be produced at the same cost

Positive

12) Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies?

Isoquants have negative slope

A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that

The s-t run average cost curve reveals nothing regarding returns to scale.

A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale.

would indicate that capital and labor are perfect substitutes in production

A straight-line isoquant

The income elasticity of demand for rental housing is positive

According to a survey by the US Bureau of Labor Statistics, which of the following statements about annual US household consumer expenditures is false?

The marginal product of an input will eventually decline NOT the total product of an input will eventually decline

According to the law of diminishing returns

Would indicate that capital and labor cannot be substituted for each other in production

An L-shaped isoquant

growth in capital stock and technological change... NOT the standard of living.

An important factor that contributes to labor productivity growth is...

Yes, the income effect associated with a price change is zero

As a group, US consumers have no income response for their consumption of ice cream so that the income elasticity of demand for ice cream equals zero. Does this mean that the change in ice cream consumption that results from a price increase is entirely composed of the sub effect.

The MARGINAL utility of apples decreases... the utility increases as prices fall (Y axis), but the marginal utility decreases as we move down the Y axis (Prices fall).

As we move downward along a demand curve for apples

Decline

Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to

Since it is an inferior good they have to be opposites.... person buying MORE and the income effect is LESS of the good LESS, MORE

Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ... and the income effect results Assume that beer is an inferior good. If the price of beer RISES, then the substitution effect results in the person buying ... and the income effect results

How increasing labor use alters the average product of labor.

At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you.

There are at least as many possibilities for substitution between factors of production in the long run as in the short run

At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because

There are economies of scale

At the current level of output, long-run marginal cost is $50 and long-run average cost is $75... this implies that:

The slopes of the isoquant and isocost curves are equal Costs are minimized for the production of a given output The marginal rate of Technical Substitution equals the rato of input prices

At the optimum combination of two inputs

Increase

Consider a particular market-clearing price and quantity under a perfectly competitive equilibrium. As the demand curve at this point becomes more inelastic, the consumer surplus in the market tends to

Utility-maximizing combinations of X and Y for each price of X

Consider two goods X and Y available for consumption. Assume that the price of X changes while the price of Y remains fixed. For these two goods, the price-consumption curve illustrates the.

The average product of labor is always equal to the marginal product of labor

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that.

The original quantity found by the inspectors

In closing down a military base, environmental inspectors found 100 tons of toxic waste. Which of the following is NOT a determinant of the consumer surplus generated by cleaning up 40 tons of waste

only X is normal

In short... Curve sloping upwards and then flattens

All of the above: Expenditures for wages, R&D, raw materials, and capex

In the long run, which is considered a variable cost

ATC is positive and constant, ATC equals MC... NOT.. MC is less than ATC

In the short run, suppose average total costs is a straight-line and marginal cost is positive and constant. Then, we know that

be positive

In the short run, supposes ATC is a straight line and MC is positive and constant. Then we know that fixed costs must

Marginal Cost is below AVC

In the short-run production process, the Marginal Cost is rising, and the AVC is falling as q increases

Other Side

Income Effect = Comp - Purchased Sub Effect = OG - Comp Think it goes OG then Comp then new when prices INCREASE

less than twice as much of all inputs are required to double output

Increasing returns to scale in production mean

Will Shift Right

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 H-axis will shift..

Other side

MRTS is equal to the ratio of the marginal products of the inputs... the absolute value of the slope of an isoquant

The isoquant gets flatter as we increase labor. This means that it is harder to replace capital with labor the more labor/less capital that the firm has.

Other Side

Only can add the exponents when they are being multiplied... if you are adding them then you must plug them in ... if they more than double after plugging in then it is increasing returns to scale.

Other side

There are other bundles the consumer could afford which would have a higher utility and which include less than 10 units of Good X

Suppose a consumer can afford to purchase Bundle A which includes..

the optimal capital-labor ratio remains the same

Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). If the wage rate paid to the pilots increases relative to the rental rate of capital for the airplanes, then:

The compensated budget line will be parallel and to the LEFT of the new, LOW-price budget constraint. (It moves to the left because of the decrease in price).

Suppose that we wanted to create a budget line for a consumer who faced a DECREASE in the price of good x. Which of the following statements would describe the compensated budget line for this situation?

Negative, positive

Suppose the price of rice rises and you view rice as an inferior good. The sub effect will be.... and the income effect will be

Good X and Good Y are subs

Suppose you had a graph of a downward-sloping price-consumption curve which was created by changing the price of Good X. This would indicate that...

The price of good X INCREASED.

Suppose you observed a budget constraint shift. The Y-intercept was the same, but the x-intercept shifted left. Which of the following would have occurred?

Zero or Undefined

The MRTS for isoquants in a fixed-proportion production function is

Ratio of the marginal products of inputs

The MRTS is equal to the

1. Vodka is a normal good 2. Vodka is an inferior good and the taxes collected from this tax are rebated to consumers

The Russian government wants to reduce the consumption of Vodka. A one hundred rouble tax on each bottle purchased may reduce the consumption of vodka under which circumstances

Marginal Product

The slope of the total product curve is...

Minimized when the ratio of marginal product to input price is equal for all inputs.

The total cost of producing a given level of output is

output is being produced at a minimum cost.

When an isocost line is just tangent to an isoquant, we know that

The APL is 3

When labor usage is at 12 units, output is 36 units... thus

is less than average product

When the average product is decreasing, marginal product

Both goods are normal

When the income-consumption curve has a positive slope throughout its entire length, we can conclude that

Increases (This is the bottom part of the triangle that falls... thus increased)

When the price of wood falls, the consumer surplus associated with the consumption of furniture

MC < AC, so cost-output elasticity is less than one

When there are economies of scale

Total Costs and VC

Which always Increase(s) as output increases

E

Which always increase(s) as output increases?A) Marginal Cost onlyB) Fixed Cost onlyC) Total Cost onlyD) Variable Cost onlyE) Total Cost and Variable Cost

C

Which of the following actions is not an example of the production coordination provided by firms? a) Manage production activities of workers b) Pay wages to workers? c) Establish Industry safety regulations d) Set the production schedule for each week

Utility is maximized, and ALL income is spent

Which of the following claims are true at each point along a price-consumption curve?

When the price of the good falls, the income effect is in the opposite direction to the substitution effect, and consumption falls

Which of the following describe a Giffen good

Q = 120 +3P - 2L

Which of the following function is least likely to represent a real demand curve

The fact that more of either input increases output

Which of the following is not related to the slope of isoquants

It will lead to an increase in consumption only for a normal good.

Which of the following is true concerning the INCOME effect of a decrease in price?

It will always lead to an increase in consumption.... no matter the type of good

Which of the following is true concerning the sub effect of a decrease in price?

Income is constant

Which of the following is true regarding income along a price-consumption curve

It changes from point to point

Which of the following is true regarding utility along a price-consumption curve

Constant returns to scale with rising input prices

Which scenario below would lead to lower profits as we double the inputs used by the firm

Closer and Closer together

With increasing returns to scale, isoquants for unit increases in output become

The marginal product of labor is three times the marginal product of capital

With its current levels of input use, a firm's MRTS is 3... This implies

The income effect of this award will be larger than the substitution effect

You have just won a cash award of $500 for academics

Technology

a production function assumes a given

MRTS of inputs are constant

if the isoquants are straight lines then...

Diminishing Marginal Returns

if the isoquants in an isoquant map are downward sloping but bowed away from the origin then the production technology violates the assumption of:

Below ATC

in a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, MC is