Econ Chapter 3 Test

Suppose demand for a product is highly elastic. What will likely happen to a company's total revenue if it raises the price of that product?

Total revenue will fall.

Which of the following government actions would increase the supply of cars in the United States?

The removal of car mileage regulations

A change in demand for one good will have what effect on its complement?

The same effect.

How do subsidies help producers?

They increase revenues.

In general, it is a bad move for a company to produce more of a good or service if, by doing so,

marginal cost exceeds marginal revenue.

In determining the optimal level of output, a firm should aim for the

point of maximum profitability for the company.

To increase marginal return, a company might consider

purchasing more machinery.

Identify Central Ideas Which of the following is an example of inelastic demand?

Priya wants to go to the season-opening game. Tickets to another game cost less, but she still buys tickets for the opener.

According to the law of demand, when the price of pizza goes up,

Consumers will buy less pizza

Which variables does a supply schedule show?

Quantity supplied and price

Marty just finished creating a market demand schedule for his hardware store. Which of the following is he most likely trying to determine?

How many tools are sold to all consumers in the market at various prices.

What does a firm's supply schedule show?

How price changes affect supply for a market

What does it mean to say that supply is unitary elastic?

The percentage change in price and in supply are the same.

"Ceteris paribus" means demand will change when price changes

If other market factors remain constant

A new film company's decision to locate its operations in the film-production center of Southern California is most similar to which of the following?

A firm locating close to the inputs of its product

Which factor would shift the supply curve for ethanol in the United States to the right?

A trade agreement with Brazil opening U.S. markets to imported ethanol

Consider each of these business activities. For which do you think supply would be most elastic in the short term?

Baking cupcakes

The increasing age of the American population is an example of how

Changing demographics can cause demand shift.

In economics, the concept of demand is defined as the desire to own something.

Combined with the ability to pay for it

What is the effect of lower input costs?

Decreased marginal cost

Which factor causes firms to increase production when the price of a good or service goes up?

Desire for Profits.

In general, a decrease in consumer income will have what effect on demand for normal goods?

It will cause demand to fall.

Which of the following typically happens as prices for a good or service rises?

More suppliers enter the market.

Which of the following would be an example of a fixed cost on a farm?

Mortgage on the land

NEw

NEw

Why does demand generally become more elastic over time?

People have time to find substitutes and change behaviors.

Do higher prices lead to increased revenues for a company?

Sometimes

Juanita has noticed that the price of bagels has gone up. Because of this, she has decided to buy a less expensive yogurt every morning for her breakfast. This is an example of the

Substitution Effect

The law of supply declares which of the following?

Supply falls as price falls.

Suppose the price of a good rises. In general, how does the percentage of your budget you spend on that good affect the elasticity of your demand for goods overall?

The higher the percentage of your budget a good represents, the more elastic your overall demand.

If Tino responds to a sharp increase in his transportation costs by buying fewer clothes, he is demonstrating

The income effect.

In which of the following situations would a business be wise to shut its factory?

When fixed costs exceed revenue.

Shana continues to buy a necessary medicine even though prices for the medicine rise sharply. Shana's behavior shows how

demand for necessities is inelastic.

Which of the following explains why firms differ in elasticity of supply in the short term?

ease of changing quantity supplied quickly