Econ Final

Assuming the firm represented by the graph is an unregulated, profit-maximizing monopolist and unable to engage in price discrimination, deadweight loss is approximately equal to:

$1,200.

If a price floor is imposed at $8, total surplus (consumer plus producer surplus) is equal to:

$1,200.

If the firm represented by the graph follows the profit-maximizing rule, it will earn total revenue equal to $_ and incur total cost equal to $_.

$1,200; $720

The firm represented by the graph pays total fixed costs equal to ____ in the short run.

$1,500

Based on the graph and assuming no externalities, the deadweight loss in this market is approximately equal to:

$1,500.

Based on the graph, total variable cost is equal to ___ when output is 300 units and ___ when output is 500 units.

$1,500; $2,750

As a result of a $6 per-unit tax imposed on this product, consumer surplus changes from:

$1,800 to $800.

Assume the firm is selling output in a perfectly competitive market, the price of the product is $2, total fixed costs are equal to $5 and the wage rate paid to workers is $7.50. The value of marginal product (VMP) of the third worker is equal to:

$10

Based on the cost data, this firm has total fixed costs of:

$10.

For a monopolist that is able to perfectly price discriminate, the marginal revenue of the4th unit is _ and total revenue for 4 units is ___.

$10; $100

Bert is willing to pay $50 for a jacket that is on sale for $39. If Bert buys the jacket, his consumer surplus will be:

$11.

According to the table depicting a firm's short-run production function and assuming this firm is selling output in a perfectly competitive market for a price of $2 per unit, the value of marginal product of the second worker is equal to:

$12 and the value of marginal product of the third worker is equal to $10.

Based on the cost data, total cost is equal to:

$135 when output is equal to 3 units.

In free market equilibrium, total (consumer plus producer) surplus is equal to __.

$15

The equilibrium price of a phone case is:

$15 because the quantity supplied is equal to the quantity demanded at this price.

After the tax, the price paid by consumers is _, but the price producers actually keep is___.

$16; $10

Based on the cost data, the marginal cost of the 2nd unit of output is __.

$2

Based on the graph, total cost is equal to ___ when output is 300 units and ___ when output is 500 units.

$2,250; 3,500

If a price ceiling of $4 is imposed in this market, deadweight loss will be equal to:

$2,400.

If a price floor of $12 is imposed in this market, deadweight loss will be equal to:

$2,400.

The total tax revenue collected by the government as a result of this $6 per-unit tax is equal to:

$2,400.

Assuming the firm produces the profit-maximizing level of output, it will earn total revenue equal to _ and pay total costs equal to _.

$2,625; $1,875

Based on the cost data, average variable cost when 4 units of output are produced is __.

$2.50

Based on the graph, average fixed cost is equal to ___ when output is 300 units and ___ when output is 500 units.

$2.50; $1.50

For a monopolist that is not able to price discriminate, the marginal revenue of the4th unit is _ and total revenue for 4 units is ___.

$20; $40

Based on the cost data, the marginal cost (MC) of the third unit of output is equal to ___. At output equal to 3 units, average total cost (ATC) is equal to ___.

$20; $45

The deadweight loss represented in the graph is approximately equal to:

$214.50.

Assuming this firm follows the profit-maximizing rule, it will earn total revenue equal to:

$24,000

Assuming this firm follows the profit-maximizing rule, it will pay total cost equal to _ and earn economic profit equal to _.

$24,000; $0

The efficient quantity in the market represented by the graph occurs when the marginal benefit of the last unit is equal to:

$3 and the marginal cost of the last unit is also equal to $3.

The equilibrium price of a pumpkin in the market depicted in the graph is:

$3 because the quantity supplied of pumpkins is equal to the quantity demanded of pumpkins.

The equilibrium price of a dozen red roses in this market is:

$30 because the quantity supplied of red roses is equal to the quantity demanded of red roses at $30 per dozen of red roses.

Based on the information in the graph, total fixed cost is equal to ___.

$300

Assume the firm is selling output in a perfectly competitive market, the price of the product is $2, total fixed costs are equal to $5 and the wage rate paid to workers is $7.50. If labor is the only variable input and this firm hires the profit-maximizing number of workers, it will pay total variable costs equal to ____ and earn profit equal to ____.

$30; $5

The equilibrium price of blue jeans is _ and the equilibrium quantity is ____.

$30; 8,000

Based on the cost data, if the marginal cost of the 4th unit of output is $60, total cost is ____ and average total cost is ____ when 4 units of output are produced.

$320; $80

This firm should shut down production in the short-run to minimize its loss if the market price falls below:

$4.

Based on the cost data, the marginal cost of the 3rd unit of output is equal to:

$40.

If a price floor is imposed at $8, deadweight loss is equal to:

$400.

Based on the data in the table and assuming this firm is selling output in a perfectly competitive market for a price of $2 per unit, if the wage rate is $8 the profit-maximizing firm will earn total revenue equal to _ and pay labor costs equal to _.

$40; $32

Based on the cost data, this firm has total fixed costs equal to:

$45.

If the firm represented by the graph follows the profit-maximizing rule, it will earn economic profit equal to:

$480.

When monthly total income is $5,000, the graph below predicts that monthly household spending will be equal to:

$5,000.

This firm should shut down production in the short-run to minimize its loss if the market price falls below:

$5.

Jane was a partner at a law firm earning $200,000 per year. She left the firm to open her own law practice. In the first year of business, Jane generated revenues of $350,000 and incurred explicit costs of $100,000. Jane's economic profit from her first year in her own practice is therefore equal to:

$50,000.

Suppose Frank left his $50,000 per year job to start his own consulting business. In his first year, Frank was hired by 6 clients that paid $10,000 each for his services. Frank spent $2,500 on a new laptop and printer and had $1,000 in other business-related expenses in his first year. In his first year, Frank had an accounting profit of ____ and an economic profit of ____.

$56,500; $6,500

Based on the graph, average variable cost is equal to ___ when output is 300 units and ___ when output is 500 units.

$5; $5.50

The deadweight loss due to the $6 per-unit tax is equal to:

$600.

Assuming the firm represented by the graph is an unregulated, profit-maximizing monopolist and unable to engage in price discrimination, it will earn profit equal to:

$625.

Suppose Shelly left her $40,000 per year job to start her own painting business. In her first year, Shelly painted 30 houses and was paid $3,000 each for each house. In her first year, Shelly paid her brother $20,000 to help her paint the houses and she paid $6,000 for paint and supplies. In her first year, Shelly had an accounting profit of ____ and an economic profit of ____.

$64,000; $24,000

If a price ceiling of $4 is imposed in this market, consumer surplus plus producer surplus will be equal to:

$7,200.

If a price floor of $12 is imposed in this market, consumer surplus plus producer surplus will be equal to:

$7,200.

Based on the graph, average total cost is equal to ___ when output is 300 units and ___ when output is 500 units.

$7.50; $7

Based on the graph, total fixed cost is equal to:

$750.

This profit-maximizing firm will earn profit equal to:

$750.

According to the table depicting a firm's short-run production function and assuming this firm is selling output in a perfectly competitive market for a price of $2 per unit, if the wage rate is $8 the firm's revenue will increase by:

$8 if it hires a fourth worker, and costs will also increase by $8.

In equilibrium, consumer surplus is equal to:

$800.

In equilibrium, producer surplus is equal to:

$800.

If the market depicted by the graph achieves equilibrium, consumer surplus plus producer surplus will be equal to:

$9,600.

According to the graph below, a $1,000 increase in monthly total income leads to a:

$900 increase in monthly household spending so the slope of the function is .9.

Assume an increase in the price of a magazine from $3 to $4 causes the quantity demanded of the magazine to decrease from 5,000 to 4,000 copies per month. Using the midpoint formula, the price elasticity of demand coefficient for the magazine is approximately:

0.78.

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product if quantity demanded is 30 when price is $3 and quantity demanded is 20 when price is $5.

0.8

The opportunity cost of 1 unit of clothing is:

1 unit of food for Andy and 3/2 units of food for Debbie.

If the market depicted by the graph achieves equilibrium, the quantity bought and sold (exchanged) will be equal to:

1,200, and the price will be $8.

This profit-maximizing/loss-minimizing firm will have total cost of $_ and total fixed cost of $_.

1,800; 720

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product if quantity demanded is 125 when price is $4 and quantity demanded is 75 when price is $6.

1.25

Using the midpoint formula, if quantity demanded is 175 when price is $1.10 and quantity demanded is 225 when price is $0.90, the absolute value of the price elasticity of demand coefficient is equal to:

1.25.

For Russia, the opportunity cost of producing one motorcycle is:

1/2 computer.

If an 8% increase in the price of a product results in a 4% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is _ and demand is said to be _.

1/2; inelastic

The efficient level of output in the market represented by the graph occurs at quantity:

10, where MB = MC.

This profit-maximizing/loss-minimizing firm will produce ___ units of output and earn total revenue equal to ___.

100; $1,100

If Andy and Debbie each specialize according to comparative advantage, their combined output will be _ units of clothing and _ units of food.

10; 30

Based on the production function data, if the marginal product of the 2nd worker is 6 units of output, total output is equal to _ when 2 workers are hired.

11

If all available resources and technology are used to produce hats, then it is possible to produce of a maximum of __hats. If all available resources and technology are used to produce scarves, then it is possible to produce a maximum of __scarves.

12; 6

Based on the production function data, the marginal product of the fifth worker is __, and average product is ____ when five workers are hired.

12; 9.6

Based on the production function data, if the marginal product of the 3rd worker is 7, then the total number of units of output produced when 3 workers are hired is __.

17.

This profit-maximizing/loss-minimizing firm will produce _ units of output and have total revenue of $_.

180; 2,700

This profit-maximizing firm will produce:

2,400 units of output and charge a price of $10 per unit.

This monopoly firm maximizes profit by producing _ units of output and the efficient quantity of output based on this graph is _ units.

2,400; 3,000

Based on the graph, the minimum efficient scale for this firm is ___ units of output.

20,000

If a 5 percent decrease in the price of a good results in a 10 percent increase in the quantity demanded, the absolute value of the price elasticity of demand coefficient is __, and demand is said to be ___.

2; elastic

According to this production possibilities schedule, the opportunity cost of moving from combination A to combination B is:

30 bananas.

Based on the data in the table and assuming this firm is selling output in a perfectly competitive market for a price of $2 per unit, if the wage rate is $8 the profit-maximizing firm will hire:

4 workers and sell 20 units of output.

If a price floor is imposed at $8, the quantity bought and sold falls from ___ in equilibrium to ___ units.

400; 200

Based on the production function data, when 2 workers are hired, the average product of labor is __.

5

If the price-elasticity of demand and the price-elasticity of supply coefficients for soda are both equal to 0.67, consumers will bear ____% of a per-unit tax imposed on soda.

50

Assuming the firm represented by the graph is an unregulated, profit-maximizing monopolist and unable to engage in price discrimination, it will produce:

500 units of output and charge a price of $7.50 per unit.

The monopolistically competitive firm represented in the graph maximizes profit by producing _ units of output; the efficient level of output for this firm is _ units.

520; 630

According to the table depicting a firm's short-run production function, the marginal product of the second worker is equal to:

6 and the marginal product of the third worker is equal to 5.

The opportunity cost of moving from combination C to combination D is:

6 refrigerators.

Based on the production function data, when 4 workers are hired, the average product of labor is:

6.

If a price ceiling of $4 is imposed in this market, the quantity bought and sold (exchanged) will be equal to:

600, and there will be a market shortage.

If a price floor of $12 is imposed in this market, the quantity bought and sold (exchanged) will be equal to:

600, and there will be a market surplus.

This profit-maximizing firm will produce:

75 units of output and charge a price of $35.00 per unit

The marginal benefit of the 200th unit is equal to $____ and the marginal cost of the 200th unit is equal to $___.

8; 4

Which of the following is the best example of the derived demand for labor?

A coffee shop's demand for baristas to prepare and sell coffee drinks.

Ceteris paribus, which of the following decreases the value of marginal product (VMP) for autoworkers?

A decrease in the price of automobiles

Which of the following events would cause the demand for tennis balls to increase?

A decrease in the price of tennis racquets, a complement for tennis balls

Which of the following is most likely to be a fixed input?

A movie theater

Which of the following is not an example of government response to a market failure?

A privately-owned business that does not allow smoking

If this economy's production possibilities are represented by PPF2, production is inefficient at point(s):

A, B, C, and D.

Which equation is not accurate?

ATC + AVC = AFC

Which of the follow is the best example of a good or service sold by firms operating in an oligopoly?

Airplane manufacturers

According to this production possibilities schedule:

All of the above are true according to the production possibilities schedule.

Which of the following events will most likely cause an increase in the supply of apple juice, ceteris paribus?

An increase in the number of apple trees planted in orchards

Which of the following would lead to an increase in the supply of coffee, ceteris paribus?

An increase in the number of firms selling coffee

Which of the following will cause a decrease in the demand for batteries?

An increase in the price of digital cameras, a complement for batteries

Which of the following would lead to a decrease in the supply of desktop computers, ceteris paribus?

An increase in the wages paid to desk top computer factory workers

Which of the follow is the best example of a good or service sold in a perfectly competitive market?

Avocados

In the circular flow of economic activity:

Both a. and c. are true with respect to the circular flow of economic activity.

Which of the following is not an example of a barrier to entry?

Brand awareness

The equation of the line graphed below is:

C = 500 + 0.9(Y).

Which of the following statements is not true with respect to the economic factors of production?

Capital includes shares of corporate stock and government bonds.

Which curve represents perfectly elastic demand?

D3

Which curve represents perfectly inelastic demand?

D4

Which of the following is not a macroeconomic policy goal of a market economy?

Equal income distribution

A country has a trade deficit when the dollar value of exported goods and services exceeds the dollar value of imported goods and services.

False

An import is a good or service produced in the domestic country, but sold in the foreign country.

False

In the real world, entrepreneurs always have perfect information about potential profits in markets as the consider starting a new business.

False

Mergers between health insurance providers would never be blocked by the government since they would not harm consumers.

False

Most real-world markets are perfectly competitive.

False

Since hair salons all offer the exact same service, this market is an example of perfect competition.

False

The difference between perfect competition and monopolistic competition is that there are always more firms in a perfectly competitive market than in a monopolistically competitive market.

False

The difference between perfect competition and monopolistic competition is that there are no barriers to entry in the former, but there are significant barriers to entry in the latter.

False

U.S. law prohibits monopoly firms from operating in all cases, so there is really no purpose in learning about this type of market model.

False

All of the following markets fit the characteristics of an oligopoly except:

Fresh fruit

Which statement below is false?

Government directs resources to their highest valued use in a market economy.

Which of the following pairs of goods is most likely to have a cross elasticity of demand coefficient of -1.2?

Hot dogs and relish

Which of the follow is the best example of a good or service sold by a monopolist?

Ibrance, a patented drug used to slow the spread of breast cancer

Which of the following is not a characteristic of a perfectly competitive market?

It is nearly impossible for new firms to effectively compete against well-established firms.

If Janet can produce more baskets per hour than Karen, then:

Janet has an absolute advantage in the production of baskets.

The short-run supply curve for the perfectly competitive firm is the portion of the _ curve that lies above the _ curve.

MC; AVC

The profit-maximizing rule is for firms to produce the amount of output at which:

MR = MC.

Which of the following pairs of goods is most likely to have a cross elasticity greater than zero?

Orange juice and apple juice

A firm is in long-run equilibrium in a perfectly competitive market when:

P = MR = MC = ATC.

Which of the following statements is true for a pure, unregulated monopolist that cannot price discriminate in short-run equilibrium?

P > MR = MC

An example of a positive microeconomic statement is:

People tend to buy more chicken when the price of beef increases.

If drought conditions in the farm belt result in a decrease in the supply of wheat, what will happen to the equilibrium price and quantity of wheat, other things held constant?

Price increases and quantity decreases

All of the following are functions of government in the U.S. except:

Promoting a perfectly equal distribution of income

The basic economic questions that must be addressed by society include:

Scarcity forces society to address all of the above economic questions.

If Scottie can produce potato chips at a lower opportunity cost than Peyton, then:

Scottie has a comparative advantage in the production of potato chips.

Which of the following is a positive statement?

Some parents do not have the financial resources to pay for their children to attend college.

Which of the following statements best illustrates the existence of consumer surplus?

Stan saved $50 to buy a cowboy hat he had been wanting. When he got to the store, the hat was on sale and he bought the hat for only $39 instead of $50.

Which of the following is a likely government response to a positive externality?

Subsidizing the consumption of the good in an attempt to take advantage of the benefits that spillover to society

Which of the following pairs of goods is most likely to have a cross elasticity of demand coefficient of -1.2?

Tennis rackets and tennis balls

All points on and inside a PPF represent combinations of two outputs that are attainable and efficient.

The above statement is false.

In the Production Possibilities Model, economic growth is illustrated by moving from a point inside a PPF to a point on a PPF.

The above statement is false.

Movements from point to point along the PPF indicate changes in the technology used in production.

The above statement is false.

Production is more efficient at points on the upper left portion of the PPF than on the lower right portion of the PPF.

The above statement is false.

A bowed-out PPF indicates increasing opportunity cost.

The above statement is true.

A straight-line PPF indicates constant opportunity cost.

The above statement is true.

Combinations of outputs on the PPF represent the maximum amount the economy can produce, ceteris paribus.

The above statement is true.

If an economy is operating at a point on its PPF, the resources available to use in production are fully employed.

The above statement is true.

Points outside a PPF are unattainable, ceteris paribus.

The above statement is true.

The Production Possibilities Model assumes that the amount of resources available to use in production is fixed.

The above statement is true.

Which of the following is a government solution to a positive externality?

The county uses tax revenue to fund public schools

Which of the following best represents a derived demand for labor?

The demand for the services of nurses by hospitals

An export is a good or service produced in the domestic country, but sold in the foreign country.

True

Economic theory about oligopoly firms has to account for different possibilities since it is uncertain which markets are characterized by competition and which are characterized by collusion.

True

Markets dominated by a few large firms are referred to as oligopolies.

True

Some oligopoly markets are characterized by identical products, but others are characterized by differentiated products.

True

The difference between perfect competition and monopolistic competition is that perfectly competitive firms sell identical products while monopolistically competitive firms sell differentiated product.

True

The inefficiency that often accompanies monopoly provides justification for government regulation.

True

The typical long-run average cost (LRAC) curve is:

U-shaped due to economies and diseconomies of scale.

Under which of the following scenarios would a park exhibit the characteristics of a pure public good?

Visitors can enter the park free of charge and the park is never crowded

If the equation of a line is Y = 10 - 3X, then all of the following are true except:

X and Y are positively related.

A group of firms in an industry that band together and agree to charge a common price and set output quotas is referred to as:

a cartel.

The primary difference between a change in supply and a change in the quantity supplied is:

a change in quantity supplied is caused by a change in the price of the good itself, and a change in supply is caused by a change in a non-price determinant of supply.

Graphing a Production Possibilities Frontier assumes all of the following except:

a changing level of technology.

For a normal good, a decrease in consumer income leads to:

a decrease in demand and a decrease in both equilibrium price and quantity.

For an inferior good, an increase in consumer income leads to:

a decrease in demand and a decrease in equilibrium price.

If the supply of a resource is perfectly inelastic, a decrease in the demand for that resource will cause:

a decrease in the equilibrium price, but no change in the equilibrium quantity.

Ceteris paribus, the demand for frozen yogurt will decrease in response to:

a decrease in the price of ice cream, a substitute for frozen yogurt.

The supply of organic milk will increase as a result of:

a decrease in the price of organic feed for organic milk cows.

The demand for potato chips will increase in response to all of the following except:

a decrease in the price of potato chips.

Ceteris paribus, a decrease in the demand for soda leads to:

a decrease in the price of soda and a decrease in producer surplus.

According to the law of demand, an increase in the price of beef leads to, ceteris paribus:

a decrease in the quantity demanded of beef.

Ceteris paribus, an increase in the price of cereal leads to:

a decrease in the quantity demanded of cereal.

Of the following, the best example of a public good is:

a fireworks display because many people can watch the display at the same time and it is difficult to prevent people who do not pay from enjoying the fireworks.

An import is:

a good or service produced in a foreign country, but sold in the domestic country.

An export is:

a good or service produced in the domestic country, but sold in a foreign country.

The U.S. Postal Service is an example of:

a government-operated monopoly.

The graph of a negative, or inverse, relationship between two variables is a:

a line that slopes downward to the right.

A market that has a single supplier of a product with no close substitutes and barriers to entry is:

a monopoly.

The federal government should provide basic health care services for all U.S. citizens is an example of:

a normative macroeconomic statement.

At a price of $15:

a shortage of 8,000 pairs of blue jeans exists.

All of the following are true regarding an effective (binding) price floor for a good except:

a shortage of the good is likely to occur.

The Price Leadership model leads to the prediction that:

a single firm may dominate an oligopoly market, so other firms simply set their product price equal to the price set by the dominant firm to avoid retaliation from the dominant firm.

Economics is:

a social science that studies how choices are made and the consequences of those choices.

Line 1 shifts right to Line 2 when:

a variable other than X or Y that has a positive impact on the relationship changes.

The tendency to use common resources more than is desirable from society's point of view is called the:

aCoase theorem. dTragedy of the Commons.

Government addresses the problem of monopoly inefficiency by:

all of the above are true. a using antitrust laws to promote competition. b regulating the price a monopolist can charge for output. c operating the monopoly itself, especially in the case of natural monopoly.

Beth quit her job as a computer programmer for a large corporation to begin her own computer repair business in her garage. To do this, she took $10,000 out of her retirement fund and hired her brother, Will, on an hourly basis. As a factor of production, Beth is best classified as:

an entrepreneur.

For a normal good, an increase in consumer income leads to:

an increase in demand and an increase in both equilibrium price and quantity.

Ceteris paribus, when supply decreases, there is:

an increase in price and a decrease in consumer surplus.

In a competitive labor market, an increase in the equilibrium wage rate could result from:

an increase in the demand for labor.

The demand for potato chips will increase in response to all of the following except:

an increase in the number of firms producing potato chips.

The shift from PPF1 to PPF2 might come about due to:

an increase in the technology used to produce laptops but not dining sets.

Ceteris paribus, an increase in the demand for labor in a competitive labor market will lead to:

an increase in the wage paid to labor in that market.

A market that is made up of a few large firms that engage in strategic behavior is:

an oligopoly.

Producer surplus occurs when:

an output sells for a price that is higher than its marginal cost to the seller.

For the economy depicted in this graph, economic growth is shown by:

an outward shift of the PPF toward point E.

Firms in perfectly competitive markets:

are price-takers and sell output at the price determined by the market forces of demand and supply.

According to the law of diminishing marginal product, the marginal product of a variable input must eventually begin to fall because:

at least one input is being held fixed.

Which of the following best represents an example of an oligopoly?

automobiles

A firm gains monopoly power when:

barriers to entry can be erected and maintained.

Obstacles that make it impossible or unprofitable for new firms to enter a market are:

barriers to entry that may lead to monopoly power.

The PPF that results from this production possibilities schedule:

bows outward, indicating increasing opportunity cost.

The economic burden (economic incidence) of a tax is borne by:

buyers if demand is highly inelastic and supply is elastic.

Government's role in the economy is limited to activities such as providing national defense and a legal system in:

capitalist economic systems.

To understand the relationship between two specific variables, economists use the:

ceteris paribus assumption.

Government control of resources and centralized decision-making are characteristics of:

command economies.

From society's perspective:

competition leads to lower prices, higher output, and greater efficiency than monopoly.

The percentage of total industry output accounted for by the largest firms in an industry is called the:

concentration ratio.

Based on the graph, the firm experiences _ as output is increased from 20,000 to 50,000.

constant returns to scale

The role of an economic system is to:

coordinate the decisions of economic agents under conditions of scarcity.

Negative externalities occur when:

costs associated with an activity are borne by a third party.

Output is efficient when:

deadweight loss is equal to zero.

Microeconomics studies the:

decisions and behaviors of individuals and businesses.

The Sherman Act of 1890:

declared monopoly and unreasonable trade restraints illegal.

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should:

decrease price because demand is elastic.

In a competitive labor market, an increase in the supply of labor, ceteris paribus, will:

decrease the market wage rate.

According to the law of demand, an increase in the price of orange juice will, ceteris paribus:

decrease the quantity demanded of orange juice.

According to the law of supply, a decrease in the price of binders will, ceteris paribus:

decrease the quantity supplied of binders.

Assuming widgets are a normal good, a decrease in consumer income, ceteris paribus, will cause the equilibrium price of widgets to __ and the equilibrium quantity to____.

decrease; decrease

Ceteris paribus, an increase in the supply of a product leads to a(n) _ in the equilibrium price of the produce and a(n) _ in the equilibrium quantity of the product.

decrease; increase

Based on the data in the chart, long-run average cost:

decreases from $50 per unit to $40 per unit when the firm moves from Scale 1 to Scale 2, reflecting economies of scale.

Ceteris paribus, an increase in the marginal product of manufacturing workers causes the:

demand for labor to shift to the right.

Based on the graph, the firm experiences _ as output is increased above 50,000.

diseconomies of scale

A good economic theory or model:

does a good job explaining an economic relationship or predicting outcomes.

A monopolist that earns positive economic profit in the short run will:

earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand.

This profit-maximizing/loss-minimizing firm is:

earning an economic profit of $200 in the short run.

This profit-maximizing/loss-minimizing firm is:

earning an economic profit of $900 in the short run.

For this economy to move from PPF1 to PPF2 requires:

economic growth due technological innovation or an increase in resources.

When government sets price equal to average total cost for a natural monopoly:

economic profit is equal to zero.

Based on the graph, the firm experiences _ as output is increased from 0 to 20,000.

economies of scale

The downward-sloping portion of a LRAC curve implies:

economies of scale exist over that range of the curve.

Long-run equilibrium under perfectly competitive conditions is:

efficient because MR = MC and P = minimum ATC.

The demand for Smell-Good Shampoo is likely to be:

elastic if there are lots of good substitutes for Smell-Good Shampoo available.

If the demand function is linear and downward-sloping, demand is:

elastic on the top portion, unit elastic in the middle, and inelastic on the bottom portion of the demand function.

If the absolute value of the price elasticity of demand for tickets to musicals is 1.2, then the demand for musicals is ___ and a(n) _ in the price of tickets to musicals will lead to an increase in total revenue for musical theatres.

elastic; decrease

When output sells for a price that is higher than its marginal cost to the seller (the minimum price the seller is willing to accept), the seller:

enjoys a producer surplus.

All of the following are assumptions of the perfectly competitive model except:

entry into the market in the long run is barred.

The Federal Trade Commission Act of 1914:

established the Federal Trade Commission to deal with unfair business practices.

If perfectly competitive firms are incurring economic losses in the short run, the adjustment to long-run equilibrium includes firms _ the market which causes market supply to _ and market price to ___.

exiting; decrease; increase

If the U.S. has both an absolute and a comparative advantage in the production of solar panels, it should:

export solar panels to other countries.

The assumption that because the economy as a whole is better off as a result of a trade treaty, each individual industry must also be better off as a result of the treaty is an example of the:

fallacy of division.

Based on the production function data, diminishing marginal product (diminishing returns) sets in with the addition of the ___ worker.

fifth

When the government sets a minimum legal price for a good above the equilibrium price, it is setting a price ___, which tends to result in a ____ of the good.

floor; surplus

Capitalist economies are characterized by all of the following except:

government ownership of capital.

Ceteris paribus, the more elastic the demand for a taxed commodity, the _ it is for sellers to shift the economic burden of the tax to consumers by _ the product price.

harder; raising

Most economic systems:

have many mechanisms that address the problem of scarcity.

Demand that is perfectly elastic graphs as a:

horizontal line.

In a market economy:

households are suppliers in resource markets and demanders in product markets.

One focus of macroeconomics is:

how the economy can achieve the goals of full employment, price stability, and economic growth.

Goods and services produced in Mexico and consumed in the U.S. are ____ for the U.S. and ____ for Mexico.

imports; exports

The law of demand states that a decrease in the price of cell phones will, ceteris paribus:

increase the quantity demanded of cell phones.

An increase in the marginal product of workers would be expected to cause a(n) _ in the value of the marginal product or labor and a(n) _ in the firm's demand for workers.

increase; increase

Assume generic goods are inferior goods. A decrease in consumer income (ceteris paribus) will cause the demand for generic goods to _, and the equilibrium price of generic goods will _.

increase; increase

Assume blueberries are produced in a perfectly competitive market. If existing sellers in this market are earning positive economic profit, the number of sellers would be expected to _ in the long run, resulting in a _ equilibrium price, ceteris paribus.

increase; lower

Based on the data in the chart, long-run average cost:

increases from $40 per unit to $50 per unit when the firm moves from Scale 3 to Scale 4, reflecting diseconomies of scale.

If quantity demanded is 30 when price is $3 and quantity demanded is 20 when price is $5, then total revenue __ if price increases from $3 to $5, implying that demand is _.

increases; inelastic

A perfectly competitive firm producing where MR = MC and P < ATC in the short run is:

incurring a short-run loss, but should continue to produce if P > AVC.

Products that are necessities with no close substitutes tend to have _ demand curves.

inelastic

The demand for a life-saving drug is likely to be:

inelastic because the drug is a necessity.

If the demand for widgets decreases as consumer income increases, widgets must be a(n) ____ with a ___ income elasticity of demand.

inferior good; negative

The characteristic that distinguishes oligopoly from other market structures is:

interdependence (strategic behavior) among firms in pricing and output decisions.

Industry profit is likely to be lowest in an industry that:

is a contestable market.

An individual firm operating in a perfectly competitive market:

is a price-taker and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply.

A firm that is able to engage in perfect (or first-degree) price discrimination:

is able to charge each individual consumer the highest price that consumer is willing to pay.

The demand for labor:

is derived from the demand for the output that labor helps produce.

Suppose a firm in a perfectly competitive industry is producing at the output level where MC = MR = Price = $8. If ATC = $7 and AVC = $5, then the firm:

is earning positive economic profit.

Suppose a firm in a perfectly competitive industry is producing at the output level where MC = MR = Price = $7. If ATC = $7 and AVC = $5, then the firm:

is earning zero economic profit.

Based on the cost data, average fixed cost:

is equal to $40 when output is 4 units.

A competitive, profit-maximizing firm will choose to hire workers up to the point where the value of the marginal product:

is equal to the wage.

This PPF indicates that the opportunity cost of military goods in terms of consumer goods:

is increasing.

The economic burden of a tax:

is partially shifted to consumers through higher prices in most cases.

A firm is a pure monopoly when:

it is the only seller of a unique product and barriers to entry prevent other sellers from entering the market in the long run.

Suppose a doggie day care business firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers:

labor to be variable and capital to be fixed.

Beth quit her job as a computer programmer for a large corporation to begin her own computer repair business in her garage. To do this, she took $10,000 out of her retirement fund and hired her brother, Will, on an hourly basis. As a factor of production, Will is best classified as:

labor.

When government allows economic problems to take their own course and fix themselves, it is taking a:

laissez-faire approach to an economic problem.

If the demand for electricity is inelastic but not perfectly inelastic, a 10% increase in the price of electricity is likely to:

lead to a decrease in the quantity demanded of electricity of less than 10%.

Firms experience economies of scale when:

long-run average cost decreases as output increases.

The monopolistically competitive firm represented in the graph is in:

long-run equilibrium since it is earning zero profit.

Suppose Firm A must decide whether to charge a low price or a high price without knowing what Firm B will do. In the Nash equilibrium based on this payoff matrix, Firm A will set a _ price based on the analysis of the payoff matrix, which indicates that Firm B will set a _ price.

low; low

Buyers enjoy consumer surplus when the market price is _ than the highest price buyers would pay; sellers enjoy producer surplus when the market price is _ than the lowest price sellers would accept.

lower; higher

Compared to a perfectly competitive market, a monopoly produces a ____ output and charges a ____ price, provided economies of scale are not significant.

lower; higher

A firm that is deciding how many workers to hire in order to produce the profit-maximizing level of output in its current factory space is:

making a short-run decision

A perfectly competitive firm producing where MR = MC and P = ATC in the short run is:

making an economic profit equal to zero.

A monopolistically competitive market is characterized by:

many firms, product differentiation, and easy entry in the long run.

Assuming no market failures, an efficient level of an output exists when:

marginal benefit is equal to marginal cost.

If a firm's Total Revenue function is linear with slope equal to 5, this means that:

marginal revenue and price are both equal to $5.

Positive externalities occur when:

market activity creates benefits that spill over to third parties.

Based on this payoff matrix, if Firm A and Firm B are able to collude, they will:

maximize joint profit by setting a high price.

Firms in a monopolistically competitive market are similar to a monopoly firm in that firms in both market structures:

maximize profit by producing the quantity where marginal revenue equals marginal cost.

The assumed goal of firms in the marketplace is to:

maximize profit.

Monopolistically competitive firms:

may earn either profits or losses in the short run, but tend to earn zero economic profits in the long run.

Suppose the income elasticity for medical care is 2 and the income elasticity for dental care is 1.5; these values imply that:

medical care and dental care are both normal goods.

Suppose a firm in a perfectly competitive industry is producing at the output level where MC = MR = Price = $6. If ATC = $7 and AVC = $5, then the firm:

minimizes losses by remaining in business for the short run.

Suppose a firm in a perfectly competitive industry is producing at the output level where MC = MR = Price = $4. If ATC = $7 and AVC = $5, then the firm:

minimizes losses by shutting down immediately.

The U.S. economy is a:

mixed economy because it has elements of both a planned and a market system.

Hairstylists operate in a(n) _ market.

monopolistically competitive

A market characterized by many firms, product differentiation, and easy entry in the long run is:

monopolistically competitive.

Passage of the Airline Deregulation Act into law in 1978 resulted in:

more competition among airlines and lower fares.

According to the principle of comparative advantage, both Germany and Russia can gain from specialization and trade if Germany specializes in the production of ___ and Russia specializes in the production of __.

motorcycles; computers

When some of the costs of a good spill over to a third party, a _ externality exists and the good tends to be ___ by private markets.

negative; overproduced.

Andy has an absolute advantage in ____ and a comparative advantage in ____.

neither good; clothing

If pencil manufacturers are earning positive economic profit in the short run, and there are no barriers to entry into the pencil market, economic theory predicts that:

new firms will enter the market and drive down the price of pencils in the long run, ceteris paribus.

Because a pure public good is:

nonexcludable, it is possible for some consumers to be free riders.

If the income elasticity coefficient for fish tacos is 0.25, then fish tacos are:

normal goods because the demand for fish tacos increases when income increases.

According to this production possibilities schedule, producing a combination of 30 bananas and 30 coconuts is:

not possible given the resources and technology currently available for producing bananas and coconuts.

From society's perspective, outputs that generate negative externalities tend to be:

overproduced by private markets.

Products that generate negative externalities tend to be:

overproduced by private markets.

If a sole proprietorship goes bankrupt:

owners lose their investment and personal assets are also at risk.

All of the following are possible sources of inefficiency except:

perfect competition.

The demand curve for a firm in a perfectly competitive market is:

perfectly elastic at the market price.

The economy represented by this graph is using resources and technology efficiently when it produces at:

point A, B, or C.

The law of demand states that:

price and quantity demanded are inversely (negatively) related, ceteris paribus.

The law of supply indicates that:

price and quantity supplied are directly (positively) related.

The responsiveness of buyers to changes in the price of a product is measured by:

price elasticity of demand.

If a monopolist is able to engage in perfect price discrimination:

price is equal to marginal revenue.

Behavior in which a dominant firm's pricing strategy is followed by other firms in the industry is called:

price leadership.

If the number of people seeking to purchase new homes in the area increases at the same time that the prices of lumber and other homebuilding materials increase, then supply and demand analysis predicts that the equilibrium:

price of new homes will increase but the change in equilibrium quantity cannot be determined from the information given.

A country has an absolute advantage in the production of a specific product if it is able to:

produce a larger quantity of that product in a given amount of time, compared to another country.

A country has a comparative advantage in the production of a specific product if it is able to:

produce that product at a lower opportunity cost, compared to another country.

Assuming no externalities exist, an output that is rival and excludable is likely to be:

produced in an efficient amount by private markets.

A monopolistically competitive firm:

produces where MR = MC to maximize profit.

Monopolistically competitive firms have some market power because of:

product differentiation.

According to the Coase Theorem, private negotiation to correct for negative externalities is likely to produce an efficient outcome only if:

property rights are clearly defined and transaction costs are low.

According to the Coase Theorem, an efficient outcome can be achieved without any need for active government involvement as long as:

property rights are clearly defined and transaction costs are sufficiently low.

In the market for used cars, a shortage of used cars would, ceteris paribus:

put upward pressure on the price of used cars.

If basketball for recreation becomes more popular at the same time that the cost of producing basketballs falls, supply and demand analysis predicts that the equilibrium:

quantity of basketballs will increase but the equilibrium price might rise, fall, or stay the same.

A legal limit on the quantity of a product that can be imported from other countries is called a:

quota.

Assume a university, seeking to increase parking revenue, hires a consultant to analyze the demand for covered parking on campus. If the consultant determines that the price elasticity of demand coefficient for covered parking is 0.65, then the university should be advised to:

raise the price of covered parking on campus.

Game Theory suggests that competing firms in an oligopolistic industry may be:

reluctant to change prices because they anticipate that rivals will match price cuts but ignore price increases.

The combination of 2 school buses and 10 refrigerators:

represents an inefficient use of resources.

To be successful in increasing the price of their product, members of a cartel must:

restrict market output.

The Justice Department:

reviews proposed mergers to determine if the merger would create excessive market power.

When resources are not freely available in amounts sufficient to satisfy all desired uses for them:

scarcity exists and decisions must be made about how to allocate limited resources among competing uses.

In a capitalist market economy, economic activity is mainly guided by:

self-interest.

In order to price discriminate, a monopoly firm must be able to:

separate customers based on different elasticities of demand.

Economic theory divides decisions into those made in the:

short run, when at least one input is fixed, and the long run, when all inputs are variable.

A market price of $20 per dozen of roses will lead to a:

shortage of 200 dozens of red roses.

A Production Possibilities Frontier:

shows the maximum amount of two outputs that can be produced in a given time period, ceteris paribus.

Assume an increase in the price of jean jackets leads to an increase in the quantity supplied of jean jackets. Ceteris paribus, the graph of the relationship between the price and quantity supplied of jean jackets:

slopes upward to the right illustrating a direct relationship.

The Clayton Act of 1914:

specified the conditions under which mergers would be considered anti- competitive.

If a corporation goes bankrupt:

stockholders lose their investment but personal assets are not at risk.

If the cross elasticity of demand between goods X and Y is 2, goods X and Y are:

substitute goods.

The Herfindahl-Hirschman Index is a measure of industry concentration that is calculated by:

summing the squares of the market shares of each firm in the industry.

If there is an increase in both the number of buyers and the number of sellers in a market:

supply and demand shift rightward, so equilibrium quantity will definitely increase.

A marginal cost curve can be interpreted as a:

supply curve.

A natural monopoly can:

supply the entire market at a lower cost than many competing firms.

If phone cases are currently selling at the price of $20, there will be a:

surplus of 200 cases.

Based on the information in the graph, a price of $4 per pumpkin will lead to a:

surplus of 200 pumpkins.

A tax levied on imports is called a:

tariff.

A production possibilities frontier for two outputs is drawn assuming that:

the amount of resources currently available for production is fixed.

The free-rider problem occurs when:

the benefits associated with pure public goods cannot be denied to those who do not pay for them.

Ceteris paribus, if the marginal benefit of bananas decreases as the quantity of bananas consumed increases, then:

the demand curve for bananas will slope downward.

A country has a trade surplus when:

the dollar value of exported goods and services exceeds the dollar value of imported goods and services.

A country has a trade deficit when:

the dollar value of imported goods and services exceeds the dollar value of exported goods and services.

If the price of a cup of coffee is $2.40 in the absence of any tax, and a per-unit tax of $0.80 per cup is imposed as shown in the graph, then (ceteris paribus):

the economic burden of this tax is equally divided between buyers and sellers.

An entrepreneur who is thinking about starting a new company selling ketchup will likely have a hard time overcoming:

the economies of being established.

If the demand for chewing gum increases, ceteris paribus:

the equilibrium price and quantity of chewing gum will both increase.

If cotton clothing becomes more popular at the same time that the supply of cotton decreases, then basic supply and demand analysis predicts that:

the equilibrium price of cotton clothing will increase but the change in the equilibrium quantity of cotton clothing cannot be determined from the information given.

The demand curves of firms in monopolistically competitive markets are relatively elastic compared to market demand due to:

the existence of close substitutes.

Employees in the defense industry have greater job security and higher pay when the country is engaged in major military conflicts, therefore it is good for the country to be involved in military conflicts is an example of:

the fallacy of composition.

Many consumers may watch public TV and listen to public radio who do not contribute to fund-raising drives to help finance these organizations. This is an example of:

the free rider problem.

An introductory course in macroeconomics is likely to study:

the impact of an increase in federal government spending on households and businesses in the U.S.

For the relationship graphed below, total income is:

the independent variable and household spending is the dependent variable.

In competitive labor markets, a firm's demand for labor is determined by:

the marginal product of each worker and the price of the product.

If firms in an oligopoly market are able to collude, then:

the market price is likely to be higher and the output is likely to be lower than they would be if firms could not collude.

The shift from PPF1 to PPF2 implies all of the following EXCEPT:

the maximum amount of both outputs that can be produced increased.

Points on a production possibilities frontier imply that:

the maximum amount of goods is being produced, given the available resources and technology.

Suppose you are offered a coupon for a free dinner at a local restaurant, tip and drink included, if you attend a presentation for prospective renters at a new apartment complex in town. If you attend the presentation, then:

the opportunity cost of using the coupon for the dinner is the best alternative use of the time you spent at the presentation.

Assuming government regulators are forcing a monopoly seller to charge a price equal to marginal cost and the firm produces where MR = MC:

the output level will be efficient but economic profit might be negative.

Cross elasticity measures:

the percentage change in the quantity demanded of one product divided by the percentage change in the price of a different product.

If this economy's production possibilities are represented by PPF2, the combination of civilian goods and military goods that is best, or optimal, for society is combination:

the production possibilities model does not identify which combination is optimal for society; it identifies the combinations that are possible.

All of the following are true regarding an effective (binding) price ceiling for a good except:

the quantity bought and sold increases because the price has decreased.

After a price floor is established above the equilibrium price in the market for strawberries:

the quantity of strawberries actually bought and sold decreases.

For a pure monopoly, the industry or market demand curve is:

the same as the monopoly firm's demand curve.

Game theory helps explain:

the strategic behavior of firms in oligopoly markets.

The Tragedy of the Commons refers to:

the tendency to use common resources more than is desirable from society's point of view.

The graph of a relationship between two variables, X and Y, shifts when:

the value of an exogenous variable, something other than X or Y, changes.

Opportunity cost is:

the value of the best alternative that must be given up when a choice is made.

A movement from point B on Line 2 to point C on Line 2 occurs when:

the value of the independent variable, X, increases.

For a competitive firm hiring in a competitive labor market, the profit maximizing rule is to hire labor to the point where:

the value of the marginal product is equal to the wage rate.

Ceteris paribus, the demand for a product will be more elastic when:

there are many close substitutes available.

The typical firm in a perfectly competitive market earns zero economic profit in the long run because:

there are no barriers preventing new firms from entering the market in the long run.

The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because:

there are no barriers to prevent the entry of new firms with similar products.

The demand for a product tends to be less elastic if:

there are very few good substitutes for the product.

If a monopolistically competitive firm is earning positive economic profits in the short-run, then:

these profits will be eliminated in the long-run as new firms enter the industry.

Smaller firms generally enjoy economies of scale as they expand because:

they are able to spread capital overhead costs when more output is produced.

A firm that chooses not to produce in the short run suffers a loss equal to:

total fixed cost.

Products that generate positive externalities tend to be:

underproduced by private markets.

When a firm uses additional inputs to increase output, these inputs are:

variable

Ceteris paribus, the demand for farm workers will increase in response to all of the following except an increase in the:

wage paid to farm workers.

The statutory incidence (burden) of a tax refers to:

which party has the legal obligation to send the tax dollars to the government.

Based on the cost data, if this firm does not produce any output, it:

will still have to pay fixed costs of $160.

The opportunity cost of 1 hat is __, and the opportunity cost of 1 scarf is ___.

½ scarf; 2 hats