Econ - Test 1
Revenue = __________ x _________
Price x Quantity
________ determine supply.
Sellers
People are willing to pay ________ the more available it is.
less
examples of inelastic demand
medicine, mostly nessecities
Elasticity of Demand Formula
% change in quantity demanded / % change in price (Q2-Q1) / (Q1+Q2 / 2) (P2-P1) / (P1+P2 / 2)
Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 999, the firm's total costs equal 1) $10,985. 2) $10,990. 3) $10,995. 4) $10,999.
1) $10,985.
Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are 1) $100, and her economic profits are $25. 2) $100, and her economic profits are $75. 3) $25, and her economic profits are $100. 4) $75, and her economic profits are $125.
1) $100, and her economic profits are $25.
A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output? 1) $250 2) $275 3) $340.91 4) $350
1) $250
Which of the following statements best reflects a price-taking firm? 1) If the firm were to charge more than the going price, it would sell none of its goods. 2) The firm has an incentive to charge less than the market price to earn higher revenue. 3) The firm can sell only a limited amount of output at the market price before the market price will fall. 4) Price-taking firms maximize profits by charging a price above marginal cost.
1) If the firm were to charge more than the going price, it would sell none of its goods.
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then 1) an increase in output will increase the firm's profit. 2) a decrease in output will increase the firm's profit. 3) total revenue exceeds total cost. 4) total cost exceeds total revenue.
1) an increase in output will increase the firm's profit.
When demand is elastic, a decrease in price will cause 1) an increase in total revenue. 2) a decrease in total revenue. 3) no change in total revenue but an increase in quantity demanded. 4) no change in total revenue but a decrease in quantity demanded.
1) an increase in total revenue.
Suppose buyers of coffee and sugar regard the two goods as complements. Then an increase in the price of coffee will cause a(n) 1) decrease in the demand for sugar and a decrease in the quantity supplied of sugar. 2) decrease in the supply of sugar and a decrease in the quantity demanded of sugar. 3) decrease in the equilibrium price of sugar and an increase in the equilibrium quantity of sugar. 4) increase in the equilibrium price of sugar and a decrease in the equilibrium quantity of sugar.
1) decrease in the demand for sugar and a decrease in the quantity supplied of sugar.
Pizza is a normal good if the demand 1) for pizza rises when income rises. 2) for pizza rises when the price of pizza falls. 3) curve for pizza slopes upward. 4) curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes.
1) for pizza rises when income rises.
Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should 1) give riding lessons to more than 20 children per month. 2) give riding lessons to fewer than 20 children per month. 3) continue to give riding lessons to 20 children per month. 4) We do not have enough information to answer the question.
1) give riding lessons to more than 20 children per month.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is 1) inelastic. 2) elastic. 3) unit elastic. 4) perfectly inelastic.
1) inelastic.
The market demand curve 1) is the sum of all individual demand curves. 2) is the demand curve for every product in an industry. 3) shows the average quantity demanded by individual demanders at each price. 4) is always flatter than an individual demand curve.
1) is the sum of all individual demand curves.
Goods with many close substitutes tend to have 1) more elastic demands. 2) less elastic demands. 3) price elasticities of demand that are unit elastic. 4) income elasticities of demand that are negative
1) more elastic demands.
Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run 1) more firms will enter the market. 2) some firms will exit from the market. 3) the equilibrium price per bottle will rise 4) average total costs will rise.
1) more firms will enter the market.
Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore should 1) produce nothing and experience a loss of $25,000. 2) produce nothing and experience a loss of $75,000. 3) continue to operate because expected profits will rise in the future. 4) continue to operate even though it predicts a loss of $75,000.
1) produce nothing and experience a loss of $25,000.
The price elasticity of demand measures how much 1) quantity demanded responds to a change in price. 2) quantity demanded responds to a change in income. 3) price responds to a change in demand. 4) demand responds to a change in supply.
1) quantity demanded responds to a change in price.
When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is 1) 1.14. 2) 1. 3) 0.25. 4) 0.13.
2) 1.
When consumers face rising gasoline prices, they typically 1) reduce their quantity demanded more in the long run than in the short run. 2) reduce their quantity demanded more in the short run than in the long run. 3) do not reduce their quantity demanded in the short run or the long run. 4) increase their quantity demanded in the short run but reduce their quantity demanded in the long run.
1) reduce their quantity demanded more in the long run than in the short run.
The price elasticity of supply measures how responsive 1) sellers are to a change in price. 2) sellers are to a change in buyers' income. 3) buyers are to a change in production costs. 4) equilibrium price is to a change in supply.
1) sellers are to a change in price.
The smaller the magnitude of the price elasticity of demand, the 1) steeper the demand curve will be through a given point. 2) flatter the demand curve will be through a given point. 3) more strongly buyers respond to a change in price between any two prices P1 and P2. 4) smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.
1) steeper the demand curve will be through a given point.
For a good that is a necessity, demand 1) tends to be inelastic. 2)tends to be elastic. 3) has unit elasticity. 4) cannot be represented by a demand curve in the usual way.
1) tends to be inelastic.
If there is a shortage of farm laborers, we would expect 1) the wage of farm laborers to increase. 2) the wage of farm laborers to decrease. 3) the price of farm commodities to decrease. 4) a decrease in the demand for substitutes for farm labor.
1) the wage of farm laborers to increase.
If the supply of a product decreases, then we would expect equilibrium price 1) to increase and equilibrium quantity to decrease. 2) to decrease and equilibrium quantity to increase. 3) and equilibrium quantity to both increase. 4) and equilibrium quantity to both decrease.
1) to increase and equilibrium quantity to decrease.
Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct? 1) Sebastian's economic profit is $4,000, and his accounting profit is $34,600. 2) Sebastian's economic profit is $4,600, and his accounting profit is $35,000. 3) Sebastian's economic profit is -$16,000, and his accounting profit is $34,600. 4) Sebastian's economic profit is -$16,000, and his accounting profit is $14,600.
1) Sebastian's economic profit is $4,000, and his accounting profit is $34,600.
Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business? 1) $20 2) $40 3) $200 4) $400
2) $40
Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be 1) $1,000 if she sells 100 candles. 2) $500 if she sells 25 candles. 3) $20 regardless of how many candles she sells. 4) $200 if she sells 5 candles.
2) $500 if she sells 25 candles.
When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about 1) 0.22. 2) 0.67. 3) 1.33. 4) 1.50
2) 0.67.
If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises? 1) Both the equilibrium price and quantity would increase. 2) Both the equilibrium price and quantity would decrease. 3) The equilibrium price would increase, and the equilibrium quantity would decrease. 4) The equilibrium price would decrease, and the equilibrium quantity would increase.
2) Both the equilibrium price and quantity would decrease.
Which of the following is not a characteristic of a perfectly competitive market? 1) Firms are price takers. 2) Firms have difficulty entering the market. 3) There are many sellers in the market. 4) Goods offered for sale are largely the same.
2) Firms have difficulty entering the market.
For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? 1) There are no close substitutes for this good. 2) The good is a luxury. 3) The market for the good is broadly defined. 4) The relevant time horizon is short.
2) The good is a luxury.
You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book. 1) You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. 2) You should stay and watch the remainder of the show. 3) You should go home and watch TV. 4) You should go home and read a book.
2) You should stay and watch the remainder of the show.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? 1) a 7.5 increase in the price of the good Correct! 2) a 13.33 percent increase in the price of the good 3) an increase in the price of the good from $7.50 to $10 4) an increase in the price of the good from $10 to $17.50
2) a 13.33 percent increase in the price of the good
Which of the following events would cause both the equilibrium price and equilibrium quantity of potatoes to increase if potatoes are an inferior good? 1) an increase in consumer income Correct! 2) a decrease in consumer income 3) greater government restrictions on agricultural chemicals 4) fewer government restrictions on agricultural chemicals
2) a decrease in consumer income
Economies of scale occur when a firm's 1) marginal costs are constant as output increases. 2) average total costs are decreasing as output increases. 3) average total costs are increasing as output increases. 4) marginal costs are equal to average total costs for all levels of output.
2) average total costs are decreasing as output increases.
Suppose you make jewelry. If the price of gold falls, then we would expect you to 1) be willing and able to produce less jewelry than before at each possible price. 2) be willing and able to produce more jewelry than before at each possible price. 3) face a greater demand for your jewelry. 4) face a weaker demand for your jewelry.
2) be willing and able to produce more jewelry than before at each possible price.
A good will have a more inelastic demand, the 1) greater the availability of close substitutes. 2) broader the definition of the market. 3) longer the period of time. 4) more it is regarded as a luxury.
2) broader the definition of the market.
If the cross-price elasticity of two goods is negative, then the two goods are 1) necessities. 2) complements. 3) normal goods. 4) inferior goods.
2) complements.
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should 1) shut down her business in the short run but continue to operate in the long run. 2) continue to operate in the short run but shut down in the long run. 3) continue to operate in both the short run and long run. 4) shut down in both the short run and long run.
2) continue to operate in the short run but shut down in the long run.
A higher price for batteries would result in a(n) 1) increase in the demand for flashlights. 2) decrease in the demand for flashlights. 3) increase in the demand for batteries. 4) decrease in the demand for batteries.
2) decrease in the demand for flashlights.
Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should 1) increase the price charged to vacationers and decrease the price charged to business travelers. 2) decrease the price charged to vacationers and increase the price charged to business travelers. 3) decrease the price to both groups of customers. 4) increase the price for both groups of customers.
2) decrease the price charged to vacationers and increase the price charged to business travelers.
Which of the following events must cause equilibrium quantity to fall? 1) demand increases and supply decreases 2) demand and supply both decrease 3) demand decreases and supply increases 4) demand and supply both increase
2) demand and supply both decrease
Microeconomics is the study of: 1) how money affects the economy. 2) how individual households and firms make decisions. 3) how government affects the economy. 4) how the economy as a whole works.
2) how individual households and firms make decisions.
You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double by the end of the year. As a result, your demand for peanut butter 1) will increase but not until the end of the year. 2) increases today. 3) decreases as you look for a substitute good. 4) shifts left today.
2) increases today.
An increase in price causes an increase in total revenue when demand is 1) elastic. 2) inelastic. 3) unit elastic. 4) All of the above are possible.
2) inelastic.
You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are a(n) 1) luxury good. 2) inferior good. 3) normal good. 4) complementary good.
2) inferior good.
The slope of a steep upward-sloping line will be a: 1) small positive number. 2) large positive number. 3) small negative number. 4) large negative number.
2) large positive number.
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should 1) make more than 20 wedding cakes per month. 2) make fewer than 20 wedding cakes per month. 3) continue to make 20 wedding cakes per month. 4) We do not have enough information to answer the question.
2) make fewer than 20 wedding cakes per month.
If two goods are complements, their cross-price elasticity will be 1) positive. 2) negative. 3) zero. 4) equal to the difference between the income elasticities of demand for the two goods.
2) negative.
Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's 1) total revenue. 2) opportunity costs. 3) explicit costs. 4) marginal costs.
2) opportunity costs.
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that: 1) trade can make everyone better off. 2) people face trade-offs. 3) rational people think at the margin. 4) people respond to incentives.
2) people face trade-offs.
Other things equal, when the price of a good 1) falls, the supply of the good rises. 2) rises, the quantity supplied of the good rises. 3) rises, the supply of the good falls. You Answered 4) falls, the quantity supplied of the good rises.
2) rises, the quantity supplied of the good rises.
For a construction company that builds houses, which of the following costs would be a fixed cost? 1) the $20 per hour wage paid to a construction foreman 2) the $30,000 per year salary paid to the company's bookkeeper 3) the $2 per worker-hour paid to the state government for workers' compensation insurance 4) All of the above are correct.
2) the $30,000 per year salary paid to the company's bookkeeper
The slope of a line is equal to: 1) the change in the value of x divided by the change in the value of y. 2) the change in the value of y divided by the change in the value of x. 3) the horizontal distance divided by the vertical distance. 4) the value of y divided by the value of x.
2) the change in the value of y divided by the change in the value of x.
People are willing to pay more for a diamond than for a bottle of water because: 1) the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 2) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 3) producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 4) water prices are held artificially low by governments, since water is necessary for life.
2) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
The demand curve for coffee shifts 1) only when income changes. 2) when a determinant of the demand for coffee other than the price of coffee changes. 3) when the price of coffee changes. 4) Both b and c are correct.
2) when a determinant of the demand for coffee other than the price of coffee changes.
Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 999, the firm's profits equal 1) $993. 2) $997. 3) $1,003. 4) $1,007.
3) $1,003.
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price? 1) $9 2) $10 3) $11 4) $12
3) $11
Tsintah weaves traditional Navaho rugs. She weaves and sells 50 rugs. Her average cost of production per rug is $50. She sells each rug for a price of $65. Tsintah's total revenues are 1) $750. 2) $2,500. 3) $3,250. 4) $5,750.
3) $3,250.
Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business? 1) $300 2) $400 3) $700 4) $1,650
3) $700
When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is 1) 1.50, and an increase in price will result in an increase in total revenue for good A. 2) 1.50, and an increase in price will result in a decrease in total revenue for good A. 3) 0.67, and an increase in price will result in an increase in total revenue for good A. 4) 0.67, and an increase in price will result in a decrease in total revenue for good A.
3) 0.67, and an increase in price will result in an increase in total revenue for good A.
If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about 1) 0.67%. 2) 0.83%. 3) 1.20%. 4) 2.70%.
3) 1.20%.
If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is 1) 0.75. 2) 1.25. 3) 1.33. 4) 1.60.
3) 1.33.
A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about 1) 0.45. 2) 2.0. 3) 2.2. 4) 200.
3) 2.2.
Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is 1) 0.35. 2) 0.43. 3) 2.33. 4) 2.89.
3) 2.33.
If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a 1) 0.2 percent decrease in the quantity demanded. 2) 5 percent decrease in the quantity demanded. 3) 20 percent decrease in the quantity demanded. 4) 40 percent decrease in the quantity demanded.
3) 20 percent decrease in the quantity demanded.
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is 1) 25 units of output. 2) 27 units of output. 3) 37 units of output. 4) 184 units of output.
3) 37 units of output.
If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a 1) 0.015 percent increase in the quantity demanded. 2) 0.6 percent increase in the quantity demanded. 3) 6 percent increase in the quantity demanded. 4) 66 percent increase in the quantity demanded.
3) 6 percent increase in the quantity demanded.
Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? 1) Consumers have experienced an increase in income, and beef-production technology has improved. 2) The price of chicken has risen, and the price of steak sauce has fallen. 3) New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. 4) The demand curve for beef must be positively sloped.
3) New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? 1) Price will fall, and the effect on quantity is ambiguous. 2) Price will rise, and the effect on quantity is ambiguous. 3) Quantity will fall, and the effect on price is ambiguous. 4) Quantity will rise, and the effect on price is ambiguous.
3) Quantity will fall, and the effect on price is ambiguous.
What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises? 1) Both the equilibrium price and quantity would increase. 2) Both the equilibrium price and quantity would decrease. 3) The equilibrium price would increase, and the equilibrium quantity would decrease. 4) The equilibrium price would decrease, and the equilibrium quantity would increase.
3) The equilibrium price would increase, and the equilibrium quantity would decrease.
Rational people make decisions "at the margin" by comparing: 1) average costs and benefits. 2) total costs and benefits. 3) additional costs and benefits. 4) opportunity costs and benefits.
3) additional costs and benefits.
When we move along a given supply curve, 1) only price is held constant. 2) technology and price are held constant. 3) all nonprice determinants of supply are held constant. 4) all determinants of quantity supplied are held constant.
3) all nonprice determinants of supply are held constant.
Suppose good X has a negative income elasticity of demand. This implies that good X is 1) a normal good. 2) a necessity. 3) an inferior good. 4) a luxury.
3) an inferior good.
Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max 1) considers athletic shoes to be necessities. 2) considers athletic shoes to be inferior goods. 3) considers athletic shoes to be normal goods. 4) has a low price elasticity of demand for athletic shoes.
3) considers athletic shoes to be normal goods.
Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should 1) shut down her business, and in the long run she should exit the industry. 2) continue to operate her business, but in the long run she should exit the industry. 3) continue to operate her business, but in the long run she will probably face competition from newly entering firms. 4) continue to operate her business, and she is also in long-run equilibrium.
3) continue to operate her business, but in the long run she will probably face competition from newly entering firms.
Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. To maximize its profit, the firm should 1) increase its output. 2) continue to produce 1,000 units. 3) decrease its output but continue to produce. 4) shut down.
3) decrease its output but continue to produce.
Good X and good Y are substitutes. If the price of good Y increases, then the 1) demand for good X will decrease. 2) quantity demanded of good X will decrease. 3) demand for good X will increase. 4) quantity demanded of good X will increase.
3) demand for good X will increase.
When the price of peaches changes, the demand curve for peaches 1) shifts because the price of peaches is measured on the vertical axis of the graph. 2) shifts because the quantity demanded of peaches is measured on the horizontal axis of the graph. 3) does not shift because the price of peaches is measured on the vertical axis of the graph. 4) does not shift because the price of peaches is measured on the horizontal axis of the graph.
3) does not shift because the price of peaches is measured on the vertical axis of the graph.
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the 1) production of the 100th unit of output increases the firm's profit by $3. 2) production of the 100th unit of output increases the firm's average total cost by $7. Correct Answer 3) firm's profit-maximizing level of output is less than 100 units. 4) production of the101st unit of output must increase the firm's profit by more than $3.
3) firm's profit-maximizing level of output is less than 100 units.
Some costs do not vary with the quantity of output produced. Those costs are called 1) marginal costs. 2) average costs. 3) fixed costs. 4) explicit costs.
3) fixed costs.
If muffins and bagels are substitutes, a higher price for bagels would result in a(n) 1) increase in the demand for bagels. 2)decrease in the demand for bagels. 3) increase in the demand for muffins. 4) decrease in the demand for muffins.
3) increase in the demand for muffins.
Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers 1) both labor and capital to be fixed. 2) both labor and capital to be variable. 3) labor to be variable and capital to be fixed. 4) capital to be variable and labor to be fixed.
3) labor to be variable and capital to be fixed.
Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of 1) building the lemonade stand. 2) hiring an artist to design a logo for her sign. 3) lemons and sugar. 4) All of the above are correct.
3) lemons and sugar.
In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the 1) price is less than average total cost. 2) marginal revenue exceeds the marginal cost. 3) price is greater than average variable cost. 4) price is greater than average fixed cost but less than average variable cost.
3) price is greater than average variable cost.
Demand is said to be inelastic if 1) buyers respond substantially to changes in the price of the good. 2) demand shifts only slightly when the price of the good changes. 3) the quantity demanded changes only slightly when the price of the good changes. 4) the price of the good responds only slightly to changes in demand.
3) the quantity demanded changes only slightly when the price of the good changes.
In economics, the cost of something is: 1) the dollar amount of obtaining it. 2) always measured in units of time given up to get it. 3) what you give up to get it. 4)often impossible to quantify, even in principle.
3) what you give up to get it.
Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about 1) -1.2, and X and Y are complements. 2) -0.1, and X and Y are complements. 3) 0.1, and X and Y are substitutes. 4) 1.2, and X and Y are substitutes
4) 1.2, and X and Y are substitutes
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? 1) 55 bouquets 2) 35 bouquets 3) 22.5 bouquets 4) 15 bouquets
4) 15 bouquets
If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a 1) 0.5 percent decrease in the quantity demanded. 2) 2 percent decrease in the quantity demanded. 3) 5 percent decrease in the quantity demanded. 4) 50 percent decrease in the quantity demanded.
4) 50 percent decrease in the quantity demanded.
A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its 1) quantity of output is higher than it was previously. 2) average total cost is higher than it was previously. 3) marginal revenue is higher than it was previously. 4) All of the above are correct.
4) All of the above are correct.
Which of the following statements best expresses a firm's profit-maximizing decision rule? 1) If marginal revenue is greater than marginal cost, the firm should increase its output. 2) If marginal revenue is less than marginal cost, the firm should decrease its output. 3) If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 4) All of the above are correct.
4) All of the above are correct.
Which of the following statements is correct? 1) The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. 2) The demand for grandfather clocks is more elastic than the demand for clocks in general. 3)The demand for cardboard is more elastic over a long period of time than over a short period of time. 4) All of the above are correct.
4) All of the above are correct.
What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? 1) Price will rise. 2) Price will fall. 3) Price will stay exactly the same. 4) The price change will be ambiguous.
4) The price change will be ambiguous.
A competitive market is one in which there: 1) is only one seller, but there are many buyers. 2)are many sellers, and each seller has the ability to set the price of his product. 3)are many sellers, and they compete with one another in such a way that some sellers are always being forced out of the market. 4) are so many buyers and so many sellers that each has a negligible impact on the price of the product.
4) are so many buyers and so many sellers that each has a negligible impact on the price of the product.
Economic models: 1) cannot be useful if they are based on false assumptions. 2) were once thought to be useful, but that is no longer true. 3) must incorporate all aspects of the economy if they are to be useful. 4) can be useful, even if they are not particularly realistic.
4) can be useful, even if they are not particularly realistic.
An early frost in the vineyards of Napa Valley would cause a(n) 1) increase in the demand for wine, increasing price. 2)increase in the supply of wine, decreasing price. 3) decrease in the demand for wine, decreasing price. 4) decrease in the supply of wine, increasing price.
4) decrease in the supply of wine, increasing price.
Economists make assumptions to: 1) mimic the methodologies employed by other scientists. 2) minimize the number of experiments that yield no useful data. 3) minimize the likelihood that some aspect of the problem at hand is being overlooked. 4) focus their thinking on the essence of the problem at hand.
4) focus their thinking on the essence of the problem at hand.
In a competitive market with identical firms, 1) an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. 2) firms cannot earn positive economic profit in either the short run or long run. 3) firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. 4) free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
4) free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
Demand is elastic if the price elasticity of demand is 1) less than 1. 2) equal to 1. 3) equal to 0. 4) greater than 1.
4) greater than 1.
The marginal product of labor is equal to the 1) incremental cost associated with a one unit increase in labor. 2) incremental profit associated with a one unit increase in labor. 3) increase in labor necessary to generate a one unit increase in output. 4) increase in output obtained from a one unit increase in labor.
4) increase in output obtained from a one unit increase in labor.
Two goods are complements when a decrease in the price of one good 1) decreases the quantity demanded of the other good. 2) decreases the demand for the other good. 3) increases the quantity demanded of the other good. 4) increases the demand for the other good.
4) increases the demand for the other good.
When supply and demand both increase, equilibrium 1) price will increase. 2) price will decrease. 3) quantity may increase, decrease, or remain unchanged. 4) price may increase, decrease, or remain unchanged.
4) price may increase, decrease, or remain unchanged.
In the case of perfectly inelastic demand, 1) the change in quantity demanded equals the change in price. 2) the percentage change in quantity demanded equals the percentage change in price. 3) infinitely-large changes in quantity demanded result from very small changes in the price. 4) quantity demanded stays the same whenever price changes.
4) quantity demanded stays the same whenever price changes.
Total revenue 1) always increases as price increases. You Answered 2) increases as price increases, as long as demand is elastic. 3) decreases as price increases, as long as demand is inelastic. 4) remains unchanged as price increases when demand is unit elastic.
4) remains unchanged as price increases when demand is unit elastic.
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a 1) shortage to exist and the market price of roses to increase. 2) shortage to exist and the market price of roses to decrease. 3) surplus to exist and the market price of roses to increase. 4) surplus to exist and the market price of roses to decrease.
4) surplus to exist and the market price of roses to decrease.
Which of the following is not a determinant of the demand for a particular good? 1) the prices of related goods 2) income 3) tastes 4) the prices of the inputs used to produce the good
4) the prices of the inputs used to produce the good
When the price of a good or service changes, 1) the demand curve shifts in the opposite direction. 2) the supply curve shifts in the opposite direction. 3) the supply curve shifts in the same direction. 4) there is a movement along a given supply curve.
4) there is a movement along a given supply curve.
________ determine demand.
Buyers
Examples of a shift in demand:
Change in: -tastes -income -# of consumers -expectations -price of related goods
Movement on the demand curve is caused by
a change in price
Movement along demand curves caused by ________________________.
a shift in price
examples of elastic demand
bottled water, mostly luxuries
inferior good
demand decreases as income increases
normal good
demand increases as income increases (or decreases)
compliments
demand of one good increases as the price of another decreases
supplements
demand of one good increases as the price of another increases
How to get zero economic profit:
doing just as good as your alternative option
Fundamentally, economics deals with...
scarcity
supply vs quantity supplied
supply: the whole relationship between P and Q quantity supplied: point on the supply curve
ATC: _______ / _______
total cost / quantity of output
