microeconomics

Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:

elastic, and total revenue will increase.

Consider the market for automobiles. If a dealer cuts prices by 10 percent and finds he sells 20 percent more cars, then demand for autos is ______ and his total revenue will _____.

elastic;rise

Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus:

fall by 3.5 percent

Pepsi and Coca Cola are substitute goods. The cross-price elasticity of demand between hot Pepsi and Coca Cola is expected to be:

greater than 0.

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. What do you recommend to the firm in case #4?

increase output.

Any imperfection in the market mechanism that prevents optimal outcomes is known as

market failure

The price elasticity of demand for a vertical demand curve is:

perfectly inelastic

Business firms supply goods and services to ________ and purchase factors of production in ________.

product markets; factor markets

If the price of doughnuts decreases, then one would expect the:

quantity of doughnuts supplied to decrease.

If marginal labor cost > marginal revenue product of labor , then the firm :

should hire less labor

If, at the present output level, price exceeds marginal cost, the purely competitive firm

should increase output to maximize its profit or minimize its loss.

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. What do you recommend to the firm in case #1?

shut down.

For the monopoly firm:

the marginal revenue curve lies below the demand curve.

The labor demand curve for a firm in a perfectly competitive labor market is given by

the marginal revenue product curve of the firm.

In the short run, a perfectly competitive firm's supply curve is:

the segment of the marginal cost curve which is rising and above the minimum average variable cost.

In the short run, a perfectly competitive firm should stay in business as long as:

the total revenue it earns is greater than the total variable cost.

Answer question 39 based on the following table. Assume that the product price is $4 per unit and that the hourly wage for workers is $12. Neither price nor wage changes with output. The marginal revenue product of the second worker hired is

$24 per hour.

Which of the following is not a factor of production?

$100,000 cash.

In the above Table, using the profit-maximization rule (MR=MC), the maximum profit that can be achieved by this monopolist is:

$15

In the above graph, the marginal cost at the most profitable output level for the monopolist is _____.

$15

Suppose a monopolist was selling 10 units of output at a price of $5 a unit. If price must be lowered to $4.75 to sell 11 units, the marginal revenue associated with the 11th unit would be

$2.25

The equilibrium price and quantity in Figure 3.2 are, respectively,

$9 and 30 units.

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

0.4

In Exhibit 6-1, if the price is reduced from $8 to $6, the price elasticity of demand is equal to:

0.636

Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000?

0.80

In the above table, the total cost of producing zero pizzas is shown to be equal to:

100

At 2 units of output in above Table, the average variable cost is:

13

In Exhibit 1-2, if the economy moves from point L to point M, the opportunity cost of producing 10 more capital goods is:

15 less consumer goods.

Answer question 40 based on the following table. Assume that the product price is $4 per unit and that the hourly wage for workers is $12. Neither price nor wage changes with output. To maximize profit, how many workers should be hired?

5

Answer question 38 based on the following table. Assume that the product price is $4 per unit and that the hourly wage for workers is $12. Neither price nor wage changes with output. The marginal physical product of the third worker hired is

5 units per hour.

In Exhibit 1-2, if the economy produces no capital goods, what is the maximum number of consumption goods that can be produced?

50

"Ceteris paribus, the price of tap water triples, you decrease the length of your showers" is illustrated by:

An upward movement along the demand curve for tap water.

Exhibit 3-6 Milk market. In Exhibit 3-6, which of the following is true about the milk market?

At price 0.70 there is an excess supply of milk.

The absolute value of the own price elasticity of demand for apples is 0.25. If the price of apples increases by 20 percent, what will happen to the quantity of apples demanded?

It will reduce by 5 percent.

A consumer maximizes total utility from a given amount of income when the

Marginal utility per dollar obtained from the last unit of each good is the same.

The doctrine of laissez faire is based on the belief that

Markets are likely to do a better job of allocating resources than government directives.

As Mary acquires more shoes, we would expect that:

Mary's total utility will increase but marginal utility of shoes will decrease

The correct ranking of degree of market power (from highest to lowest) is:

Monopoly, oligopoly, monopolistic competition, perfect competition.

The market labor supply curve:

always slopes upward

Which of the following is most likely a private good?

bicycles

Which barrier to entry results in the creation of a natural monopoly?

economies of scale

In the above graph, assume that a perfectly competitive industry confronts the same costs and the same demand as the monopolist, then the perfectly competitive industry will charge a price of _____ .

$30

In the above graph, a profit-maximizing monopolist will charge a price of ______.

$40

In Exhibit 6-1, between points a and b, the absolute value of the price elasticity of demand is:

1.0

A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $45. The price elasticity of demand for memberships at this health club is

1.1

A study of consumers in an area found that as family income increases from $25,000 per year to $35,000 per year, the number of houses purchased increased from 7,000 per year to 11,000 per year. This finding indicates the income elasticity of demand for housing over this income range is:

1.33

If income rises from $100,000 to $110,000 for a year and as a result the quantity of new boats demanded rises from 100 to 120 boats for the year, the value of the income elasticity of demand for boats is closest to:

1.9

If the elasticity of supply is 2.00, then a 5 percent increase in the price of a good will result in a __________ in quantity supplied.

10 percent increase

If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:

16 percent increase in demand for lobster.

Refer to Table 5-3. Assume the price of cola is $4 per unit and the price of pretzels is $2 per unit and suppose Michael has $18 to spend on cola and pretzels. What combination should he purchase in order to maximize his utility?

2 colas and 5 pretzels.

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the absolute of the price elasticity of demand for the dolls over this range is:

2.5

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

2500

In Table 5.2, the total utility when four units are consumed is

33.

Refer to Table 5-3. Assume the price of cola is $2 per unit and the price of pretzels is $2 per unit and suppose Michael has $18 to spend on cola and pretzels. What combination should he purchase in order to maximize his utility?

4 colas and 5 pretzels.

By filling in the blanks in the above Table, the variable cost of producing 4 pizzas is shown to be equal to:

40

If the absolute value of the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

45 percent decrease in quantity demanded.

In Table 5.2, the marginal utility of the third unit is

6

Based on the figure, to maximize its profit or minimize its loss, this firm will produce

8 units of output at a price of $14.

If the elasticity of labor demand is -0.60, a 15 percent decrease in the wage rate will induce a:

9 percent increase in the quantity of labor demanded.

Refer to Table 5-3. Assume the price of cola is $4 per unit and the price of pretzels is $2 per unit and suppose Michael has $18 to spend on cola and pretzels. The total utility from consuming the optimal units of cola and pretzels is:

96.

Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Which panel of Figure 3.3 represents the changes in the market for bacon?

A

Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be

A decrease in the demand for airline tickets.

Which of the following is likely to be a monopolist?

A drug firm that has a patent granting it the exclusive right to produce a drug

Which of the following is not associated with the monopoly market structure?

A large number of firms with no one able to influence price.

A technological advance would best be represented by

A shift outward of the production possibilities curve.

Suppose there are a series of forest fires which affect the lumber industry. The wooden furniture market would experience:

An increase in price and a decrease in quantity

Which of the following would most likely cause the demand for veggie burgers to increase?

An increase in the price of tofu burgers, perceived as a substitute by veggie burger consumers.

Hideki is the owner/operator of Hideki's Flower Shop. Last year he earned $100,000 in total revenue. His explicit costs were $60,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the course of the year he received three offers to work for other flower shops with the highest offer being $60,000 per year. Calculate Hideki's accounting and economic profit.

Accounting profit = $40,000; economic profit = negative $20,000.

The opportunity cost of working is the

Amount of leisure time that must be given up in the process.

Suppose Cesario has allocated his entire budget to the purchase of milk and cookies. The marginal utility of the last cup of milk purchased is 50 utils and each cup of milk costs 50 cents. The marginal utility of the last cookie purchased is 60 utils and each cookie costs 30 cents. We can conclude that:

Cesario should buy less milk and/or more cookies.

An increase in the price of good X caused the demand for good Y to decrease.

Cross-price elasticity is negative because the two goods are complements

Accounting costs and economic costs differ because:

Economic costs include implicit costs and accounting costs do not.

For a minimum wage to have any impact on a labor market, it must be set at a level

Higher than the equilibrium wage.

Refer to Table 3.1, if the price is $2, the market will

Experience a shortage of 22 units.

Firms in Colorado dump waste into the Colorado River and as a result, people in California and Mexico cannot use the water. What type of market failure is most likely involved?

Externalities.

Indicate if the following statement is True or False: A perfectly competitive firm faces a demand curve that is perfectly inelastic.

False

Good A has 5 substitutes, Good B has 10 substitutes, good C has 15 substitutes, and Good D has 20 substitutes. Other things being equal, the good with the greatest price elasticity of demand is:

Good D.

If Good X has social demand that is less than market demand, then Good X must be a

Good with an external cost.

According to the law of increasing opportunity costs,

In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

The labor supply curve starts to bend backward once the

Income effect exceeds the substitution effect.

The cross price elasticity between two products has been measured at 2.0. If the price of the first product is increased by 8%, demand for the second product will _________ and the two goods must be _________.

Increase by 16%; substitute goods

Which of the following will cause a movement upward along a supply curve?

Increases in the market price of a good, other things being equal.

If an economy is producing inside the production possibilities curve, then

It can produce more of one good without giving up some of another good.

A firm's demand for labor is referred to as a derived demand because

It is derived from the demand for the product that the labor is producing.

Assume Amanda always maximizes her total utility given her budget constraint. Every morning for breakfast she has two eggs and three sausages. If the marginal utility of the last egg is 10 utils and the price of eggs is $1 each, what can we say about the marginal utility of the last sausage if the price of each sausage is $2?

It must be equal to 20 utils.

Which of the following is true for a monopolist?

It must lower its price in order to sell any additional units.

A monopolist is producing at the profit-maximizing output level and charges $44 for each unit. Which of the following is true?

Its marginal cost must be less than $44.

If Karen's marginal utility for her first pair of shoes is 100 utils and marginal utility for the second pair is 80 utils then:

Karen's total utility from two pairs of shoes is 180 utils.

Ceteris paribus, if a terrible plague hits the United States causing many workers to get sick and some to die, the market labor supply curve will shift to the:

Left and the equilibrium wage rate will rise

For a monopolist, the profit-maximizing rate of output occurs where:

MR = MC

The change in total revenue associated with one additional unit of input is referred to as

MRP

At the profit-maximizing output for a perfectly competitive firm:

Marginal cost = price.

Total utility is maximized when

Marginal utility is zero.

In Exhibit 1-2, inefficient resource use is shown by which of the following points?

P

Exhibit 3-9 Demand and supply curves. In Exhibit 3-9, Equilibrium occurs at a:

Price of $60 and a quantity of 30 units.

When prices are allowed to adjust freely, if the quantity demanded of a good is less than the quantity supplied of the good at the current price, then:

Price will decrease until it reaches the equilibrium price.

Ceteris paribus, if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Price will decrease, and quantity will decrease.

In the market for smartphones and Verizon data plans, the two goods are complements. If the price of data plans rise, what response do you expect in the market for smartphones?

Price will decrease, and quantity will decrease.

Business firms supply goods and services to ____ and purchase factors of production in ____.

Product markets; factor markets.

If North Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its

Production of non-military goods will decrease.

The production possibilities curve illustrates which two of the following essential principles?

Scarce resources and opportunity cost.

If there is a shortage at a given price, then

That price is less than the equilibrium price.

The marginal physical product of labor is equal to

The change in total output associated with one additional unit of labor.

A very hot summer in Charlotte will cause:

The demand for jackets to decrease.

What is the opportunity cost of increasing the number of solar panels in use in the United States?

The land that was used to produce the solar panels that could have been used to produce something else.

At some point during a meal each extra bite provides less and less additional satisfaction. This can be explained by:

The law of diminishing marginal utility.

If the taste or preference for leisure decreases:

The market labor supply curve will shift to the right.

Adam Smith's invisible hand is now called

The market mechanism.

When firms are interdependent,

The profit of one firm depends on how its rivals respond to its strategic decisions.

A market is said to be in equilibrium when

The quantity demanded equals the quantity supplied.

The fundamental problem of economics is

The scarcity of resources relative to human wants.

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

The supply of beef would increase, decreasing beef prices.

How will an increase in lumber prices influence the home construction market?

The supply of newly constructed homes will decrease.

Which of the following is an assumption under which the production-possibilities curve is drawn?

The supply of resources is fixed.

If marginal utility is negative, then

Total utility will decrease with additional consumption.

Indicate if the following statement is True or False: Based on the figure, at the profit-maximizing (loss-minimizing) output, the firm's marginal cost is $14.

True

If the wage rate increases, there will be a (an)

Upward movement along the market labor supply curve.

Opportunity cost is

What is given up in order to get something else.

Because resources are scarce society must make decisions about all of the following except:

Whether scarcity exists or not.

Based on the figure, at the profit-maximizing (loss-minimizing) output, this firm will realize

a profit of $32.

In Figure 3.2, at price = $15, there would be:

a shortage of 40 units

The law of demand is the principle that there is ____ relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.

an inverse

Which of the following will become smaller and smaller as the firm expands output?

average fixed cost.

If a price ceiling to be effective, it should be set:

below equilibrium price, and it will create a permanent shortage.

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:

complements

Assume that the absolute value of the own price elasticity of demand is 0.75 for a certain firm's product. If the firm lowers price, the firm's managers can expect total revenue to:

decrease

If price is reduced and demand is price inelastic, then total revenue will:

decrease

If the elasticity of labor demand is -0.60, then as a result of the decrease in the wage rate, the total labor income will:

decrease because labor demand is inelastic.

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. decrease output, but not shut down. What do you recommend to the firm in case #2?

decrease output, but not shut down.

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will:

decrease the supply of cookies..

If a firm's long-run average cost curve is rising, it is experiencing:

diseconomies of scale.

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. Indicate if the following statement is True or False: The firm in case #2 is making a loss of $1000.

false

If the price of the factors used to produce a good change, both the demand curve and the supply curve of the good will shift.

false

Indicate if the following statement is True or False. 100 shares of GM stock is an example of capital

false

Indicate if the following statement is True or False. A rightward shift of the market demand curve for drones, ceteris paribus, will cause the equilibrium price to increase and equilibrium quantity to decrease.

false

Indicate if the following statement is True or False. All output combinations that lie outside a production possibilities curve are attainable with available resources and technology.

false

Indicate if the following statement is True or False. An increase in the price of one good can cause the demand for another good to increase if the two goods are complements.

false

Indicate if the following statement is True or False. If a government imposed price ceiling legally sets the price of beef below market equilibrium, there will be a surplus of beef.

false

Indicate if the following statement is True or False. If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, then markets will overproduce goods that yield external benefits and underproduce those that generate external costs.

false

Indicate if the following statement is True or False. Marginal utility for a good is computed as the change in quantity divided by the change in total utility.

false

Indicate if the following statement is True or False. The increase in the price of a plane ticket will cause a decrease in demand for airline travel and a leftward shift in the demand curve.

false

Indicate if the following statement is True or False: ATC is TFC + TVC.

false

Indicate if the following statement is True or False: Demand tends to be more elastic in the short run than in the long run.

false

Indicate if the following statement is True or False: If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is elastic:

false

Indicate if the following statement is True or False: Refer to the production possibilities curve, moving from point C to point B, the opportunity cost of 5 pizzas is 25 Salads.

false

Indicate if the following statement is True or False: Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets decreases, then we will see a rightward shift in the demand curve for bus tickets.

false

Indicate if the following statement is True or False: The cross-price elasticity of demand for substitute goods must be greater than one.

false

Indicate if the following statement is True or False: The price elasticity of demand for a product tends to be smaller (i.e. less elastic), if the product has a large number of substitutes.

false

Indicate if the following statement is True or False: The short-run is a period of production when all factors of production are fixed.

false

Indicate if the following statement is True or False: When diminishing returns begins, total physical output begins to decline.

false

Use Figure 21.1 above and indicate if the following statement is True or False: The marginal physical product of the third unit of labor in Figure 21.1 is 28 units.

false

Use the above diagram and indicate if the following statement is True or False: The total fixed cost is $80.

false

Exhibit 1-1 Production possibilities curve data. Refer to Exhibit 1-1, indicate if the following statement is True or False. If the nation decides to move from B to C, then the opportunity cost of 2 consumption goods is 1 capital good.

flase

The substitution effect of higher wage refers to the concept that:

higher wage rates encourage people to work more

Given the same cost schedules (ATC and MC) and the same demand curve, a monopolist will charge a _________ price and produces a ________ output than a perfectly competitive industry.

higher; smaller

Higher wage rates allow a person to reduce the hours worked without losing income. This is known as the

income effect

Kip will work fewer hours if his hourly wage increases. For Kip, the ___________ effect must outweigh the __________ effect.

income; substitution

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. What do you recommend to the firm in case #3?

increase output.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n):

inferior good

The absolute value of the price elasticity of demand for a completely elastic demand curve is:

infinity

Increasing returns to scale are said to exist when:

inputs are increased by some percentage and output increase by a greater percentage, causing average cost to fall

A price ceiling:

is the maximum price that the law will allow to be charged in the market.

Each firm in the following table operates in a market of perfect competition and wants to maximize its profit or minimizes its loss. What do you recommend to the firm in case #5?

maintain its current rate of output

Which of the following may not characterize an oligopoly?

many firms

The monopolistic competition market structure is characterized by:

many firms and differentiated products.

Points that lie inside the production possibilities curve are inefficient because:

more of one good could be produced without producing less of the other.

Which of the following market structures emphasizes mutual interdependence among firms?

oligopoly

Elasticity of supply for gasoline tells us:

responsiveness of gasoline producers to changes in the price of gasoline.

If there is a change in technology that increases the labor productivity, it will cause a (an):

rightward shift in the labor demand curve.

Over time, an increase in a nation's stock of physical capital will:

shift the production possibilities curve outward.

Which of the following is not characteristic of a purely competitive industry?

substantial differences in the products of sellers

Marginal product of labor is

the change in total output resulting from the employment of one more worker.

Perfect competition and monopolistic competition are best distinguished by:

the degree of product differentiation

Assuming that automobiles are normal goods, a rise in consumer income, other things being equal, will cause:

the demand curve for automobiles to shift to the right.

The President of Ivy College just requested an increase in tuition in order to earn additional revenue to help defray rising expenses. Apparently the President believes that

the demand for an Ivy College education is inelastic.

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall.

Assume milk is used to produce ice cream. Ceteris paribus, a decrease in the price of milk will cause:

the equilibrium price of ice cream to decrease and the equilibrium quantity of ice cream to increase.

When income elasticity of demand is negative, one can correctly conclude that:

the good is an inferior good.

In Exhibit 1-2, the production possibilities curve demonstrates:

the law of increasing opportunity costs.

A production function shows:

the maximum output we can produce with varying combinations of factor inputs

An increase in the quantity of tea demanded occurs if:

the price of tea falls

When an economist talks about utility, he is talking about:

the satisfaction that results from the consumption of a good.

If the quantity demanded of milk is 55,000 and the quantity supplied of milk is 80,000, then:

there is an excess supply of 25,000 units of milk.

Refer to the above Table. Diminishing marginal returns become evident with the addition of the

third worker

Indicate if the following statement is True or False. According to the law of demand, during a given period of time, the quantity of a good demanded increases as its price falls, ceteris paribus

true

Indicate if the following statement is True or False. All economies must make decisions concerning what to produce, how to produce it, and for whom to produce.

true

Indicate if the following statement is True or False. Quantity supplied will exceed quantity demanded if price is above its equilibrium level.

true

Indicate if the following statement is True or False: If the marginal cost curve intersects the average variable cost curve, the average variable cost must be at its minimum.

true

Indicate if the following statement is True or False: If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is elastic.

true

Indicate if the following statement is True or False: If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, then price elasticity of demand is elastic.

true

A price elasticity of zero corresponds to a demand curve that is:

vertical

If a 2% increase in the price of potatoes causes a 4.6% decrease in the demand for sour cream, cross-price elasticity is equal to:

−2.3