ECON MIDTERMS

Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: T C(q) = 400 + 0.1q2 with MC(q) = 0.2q, what part of the total cost function represent fixed costs?

400

Externalities essentially create

A divergence between private and social costs

Which of the following is an example of a normative statement? A. Universal Health Care would be good for US citizens. B. An increase in the cigarette tax would cause a decrease in the number of smokers. C. A decrease in the minimum wage would decrease unemployment. D. A law requiring the federal government to balance its budget would increase the number of jobs in the economy.

A. Universal Health Care would be good for US citizens

Your budget set contains

All bundles of jeans and sweaters that are affordable with your income

Which of the following statements is true? A) A perfectly competitive firm is a price -maker because it faces a downward-sloping demand curve. B) A perfectly competitive firm is a price -taker because it faces a downward-sloping demand curve. C) A monopoly is a price -maker because it faces a downward-sloping demand curve. D) A monopoly is a price -taker because it faces a downward-sloping demand curve.

C) A monopoly is a price -maker because it faces a downward-sloping demand curve

Each of the following are characteristics of an indifference curve graph EXCEPT A. Moving northeast to a new indifference curve will increase utility (happiness) B. Points on the same indifference curve yield equal utility (happiness) C. The axes of the indifference curve graph represent levels of utility for each good D. Indifference curves cannot cross

C. The axes of the indifference curve graph represent levels of utility for each good

In a perfectly competitive market, sellers ... and buyers ...

Cannot charge more than the market price; cannot pay less than the market price

Which of the following statements correctly describes perfectly competitive market equilibrium?

Competitive markets converge to the price at which quantity supplied and quantity demanded are equal

Whenever there is a binding price ceiling (a price control that sets the price below the market equilibrium price) that changes the equilibrium quantity, all of the below occur except which option?

Demand increases

Negative externalities lead markets to produce

Greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

If a monopolist decides to charge a higher price for its product, it will yield a ________ revenue per unit sold and ________ number of units sold.

Higher; lower

An appropriate government policy toward negative externalities is to

Impose a tax or fine on the activity that creates the negative externality

Consider the following statement: Given that bacon and eggs are complimentary goods, if the price of eggs increases, the demand for goods will fall. Is this an accurate statement?

It is somewhat inaccurate. The increase in the price of eggs will reduce the quantity demanded (not the demand) for eggs. It will, however, as the statement claims, reduce the demand for bacon.

Suppose a monopolist faces the linear demand curve: P = a − bQ, where a is the point where the demand curve touches the y-axis and b repre- sents the slope of the demand curve. Given this equation, which of the following represents the monopolist's marginal revenue?

MR=a−2bQ

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $120 and his marginal benefit from an additional slice of pizza is $140. If the price of a soft drink is $1 and the price of a slice of pizza is $5, is Charley maximizing his total benefits?

No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits *towards whatever is higher*

If the supply curve is perfectly inelastic (vertical) and the demand curve was downward sloping then a tax will affect

None of the above are correct

If MC (marginal cost) > MR (marginal revenue), then

Output should be reduced

The social cost of producing a good that generates negative externalities is the sum of the

Private cost and external costs of production

Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is the $30 per dozen. We would expect a ...

Shortage to exist and the market price of roses to increase

Social surplus is the

Sum of consumer surplus and producer surplus

Consumer Surplus

The amount a consumer is willing and able to pay minus the amount the consumer actually pays

The quantity demanded of a good is

The amount of the good that buyers are willing to purchase at a given market price

Jimmy bought an iPhone that came with a $10 rebate. Jimmy should fill out and mail in the rebate form if ...

The opportunity cost of the time and trouble of sending in the rebate is less than $10

A correlation between two variables implies that

There is a mutual relationship between both the variables

Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumers' willingness to pay for the hundredth unit and the seller's willingness to accept for the 175th unit are both $5.00, then

There is an excess supply of 75 units at the price of $5.00

If prices are held below the equilibrium price,

There will be a shortage in the market

In recent years, some online firms have offered different consumers differ- ent prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ....

third-degree price discrimination