Econ Final (Midterm Portion)

The facts that different countries experience different standards of living is largely explained by differences in those countries'

B productivity levels.

A normative economic statement such as "The minimum wage should be abolished"

B would require values and data to be evaluated

The circular-flow diagram is an example of

B. an economic model

A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period

B. are short run decisions

Refer to Figure 21-10. When comparing bundle A to bundle E, the consumer

B. prefers bundle E because it lies on a higher indifference curve.

Which of the following is not held constant when looking at an individual's demand curve?

B. price

Refer to Figure 2-5. It is not possible for this economy to produce at point

C

Refer to Scenario 13-5. Emily's annual explicit cost of capital is

C $12,000.

Refer to Table 13-15. What is variable cost when output equals 30 units?

C $90

Refer to Figure 2-9, Panel (a). The opportunity cost of moving from point J to point L is

C 2 cups of coffee.

Marginal cost is equal to

C TC/Q

Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

C The price of X has fallen, and the price of Y has risen.

Refer to Figure 21-10. Which of the following statements is correct?

B Bundle A provides the same utility as bundle C.

If income increases and prices are unchanged, the consumer's budget constraint

B Shifts outward

When leisure is a normal good, the income effect from a decrease in wages is evident in

B a desire to consume less leisure

Refer to Table 13-7. What is the value of Q?

A $16.67

Refer to Table 13-14. What is the marginal cost of the 4th unit of output?

A $4

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

A -$39,000

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product?

A 2 houses

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

A People respond to incentives

Fundamentally, economics deals with

A Scarcity

The term market failure refers to

A a situation in which the market on its own fails to allocate resources efficiently

An increase in a consumer's income

B has no effect on the slope of the consumer's budget constraint.

When the government prevents prices from adjusting naturally to supply and demand,

B it adversely affects the allocation of resources.

The x-coordinate is the

A first number of an ordered pair and represents the point's horizontal location.

Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant?

A graph a

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

A is equal to the relative price ratio of the goods.

Refer to Figure 2-10, Panel (a). Production is

A possible at points V, W, Y, and Z, but efficient only at points V, W, and Z.

Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer's total utility

A remains constant.

When an economy is operating inside its production possibilities frontier, we know that

A there are unused resources or inefficiencies in the economy.

Refer to Figure 2-6. The opportunity cost of this economy moving from point K to point H is

A zero.

The marginal rate of substitution is equal to the

A. slope of the indifference curve.

Cindy's Car Wash has average variable costs of $2 and average total costs of $3 when it produces 100 units of output (car washes). The firm's total variable cost is

B $200

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The average costs per seat is

B $500

Which of the following equations corresponds to an optimal choice point?

B (i), (ii), and (iii) only

Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he purchase?

B 75

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

C both the value of a good to society and the cost of making it

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

C his indifference curve is tangent to his budget constraint.

In the short run, a firm that produces and sells house paint can adjust

C how many workers to hire.

Economists represent a consumer's preferences using

C indifference curves.

The "broken window fallacy"

C is illustrated when a government program is justified not on its merits but on the number of jobs it will create.

Refer to Figure 2-5. This economy cannot currently produce 70 washers and 70 dryers because

C it does not have the resources and technology to produce that level of output.

Suppose price is measured along the vertical axis on a graph. When price changes, there will be a

C movement along the curve

Refer to Figure 13-8. Quantity C represents the output level where the firm

C produces at the efficient scale

The difference between accounting profit and economic profit relates to

C the manner in which costs are defined.

A consumer spends all of her income on goods x and y. At her optimum,

C the slope of her budget constraint is equal to the slope of the highest indifference curve that she can reach while remaining within her budget.

A rational consumer maximizes her

C utility.

Refer to Figure 13-3. The changing slope of the total cost curve reflects

C. decreasing marginal product.

The income effect of an increase in the interest rate will result in an increase in consumption when

C. young and a decrease in savings when young

Government policies designed to equalize the distribution of economic well-being include

D (i), (ii), and (iii)

Refer to Figure 2-6. If this economy devotes all of its resources to the production of blankets, then it will produce

D 360 blankets and 0 pillows

Refer to Figure 13-9. Which curve represents the long-run average total cost?

D ATCd

Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each car is

D Both a and b are correct.

Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the prices of both goods?

D None of the above is correct.

Preston goes to the movies every Sunday afternoon. The movie theater offers 4 combinations of popcorn and beverages: the "mini-combo" costs $5 and includes a small popcorn and a small drink, the "medium-combo" costs $7 and includes a medium popcorn and a medium drink, the "value-combo" also costs $7 and includes a small popcorn and a large drink, and the "large-combo" costs $9 and includes a large popcorn and a large drink. Preston always purchases the "value-combo." We can conclude that

D Preston prefers a combo with a smaller popcorn-to-beverage ratio.

Which of the following is an example of a normative, as opposed to positive, statement?

D The federal government's responses to the most recent recession were insufficient.

Refer to Figure 2-6. If this economy devotes one-half of its available resources to the production of blankets and the other half to the production of pillows, it could produce

D We would have to know the details of this economy's technology in order to determine this.

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

D and income effect both cause a decrease in the consumption of X

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing

D the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

As long as a consumer remains on the same indifference curve,

D. she is indifferent among the points on that curve.

If the average-total-cost curve is falling, then the marginal-cost curve must also be falling. T or F

False

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900. T or F

False

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other. T or F

False

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services. T or F

False

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect. T or F

True

An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs. T or F

True

Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff. T or F

True

Refer to Figure 2-14. Points A, B, and D represent feasible outcomes for this economy. T or F

True

Refer to Figure 2-17. The opportunity cost of producing an additional pair of shoes increases as more shoes are produced. T or F

True

The direction of the substitution effect is not influenced by whether the good is normal or inferior. T or F

True

Two variables that have a negative correlation move in opposite directions. T or F

True

When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases. T or F

True

When indifference curves are bowed inward, the marginal rate of substitution varies at each point on the indifference curve. T or F

True