Midterm 1 - Econ
An "increase in the quantity supplied" suggests a
Movement up along the supply curve
Refer to the above graph. Which of the following statements is correct?
Supply is perfectly elastic.
What do the income effect, the substitution effect, and diminishing marginal utility have in common?
They all help explain the downsloping demand curve.
In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?
This allows firms to more easily attract labor and other suppliers of inputs.
Refer to the diagram. This firm's average fixed costs
are the vertical distance between AVC and ATC.
Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because
as more variable inputs are hired, the amount of the fixed input per unit of variable input decreases.
Which product is most likely to be the most price elastic?
automobiles
When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the
average product of labor.
For most producing firms,
average total costs decline as output is carried to a certain level, and then begin to rise.
An economic system in which money is not used as a medium of exchange is a
barter economy.
Refer to the short-run production and cost data. The curves of Figures A and B suggest that
marginal cost reaches a minimum where marginal product is at its maximum.
Other things equal, if the prices of a firm's variable inputs were to fall,
marginal cost, average variable cost, and average total cost would all fall.
If the short-run average variable costs of production for a firm are rising, then this indicates that
marginal costs are above average variable costs.
If in the short run a firm's total product is increasing, then its
marginal product could be either increasing or decreasing.
The table shows a consumer's utility schedule. Based on the data in the table, you can conclude that the
marginal utility of the fifth unit is 2.
The table shows the utility schedule for a consumer of candy bars. Based on the data in the table, you can conclude that the
marginal utility of the sixth unit is 5.
In the diagram, curves 1, 2, and 3 represent the
marginal, average, and total product curves respectively.
Refer to the diagram. If labor is the only variable input, the average product of labor is at a
maximum at point b.
Supply curves tend to be
more elastic in the long run because there is time for firms to enter or leave the industry.
The total revenue received by sellers of a good is computed by
multiplying the price times the quantity sold.
Diminishing marginal returns sets in with the addition of the
third unit of input.
Diminishing marginal returns become evident with the addition of the
third worker.
The law of diminishing returns explains why
total cost eventually rises faster and faster.
When two workers are employed,
total product is 18.
The table shows the utility schedule for a consumer of candy bars. Based on the data in the table, you can conclude that the
total utility of 6 units is 35.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
use of savings to pay operating expenses instead of generating interest income
Assume that the only variable resource used to produce output is labor. Refer to the provided table. With diminishing marginal returns, if the firm hires seven units of labor, which of the following numbers would most probably be the total product?
37 Correct
Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The marginal cost of the fourth unit of output is
37$
Refer to the provided graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed is total product maximized?
D
Refer to the diagram. At output level Q, total cost is
0BEQ + BCDE.
Which of the following is a consequence of rent controls established to keep housing affordable for the poor?
Less rental housing is available, as prospective landlords find it unprofitable to rent at restricted prices. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled.
If the price of labor or some other variable resource decreased, the
MC curve would shift downward.
The money income of households consists of all the following, except
revenues.
If marginal cost is
rising, then average total cost could be either falling or rising.
If the price of product L increases, the demand curve for close-substitute product J will
shift to the right.
In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?
"The different brands are almost identical. I always buy the cheapest."
Refer to the diagram. The equilibrium price and quantity in this market will be
$1.00 and 200.
Blossom, Inc., sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise the price to $9, and the firm only manages to sell 460 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is
0.33 and inelastic. use midpoint formula
At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are
$8,000.
Suppose you are given the following data on demand for a product. The price elasticity of demand (based on the midpoint formula) when price decreases from $9 to $7 is
1.6
Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?
1.60$
Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The total cost of producing 4 units of output is
124$
Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia
13$
Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's explicit costs are
150,000= 22,000 +120,000+8,000+80,000
Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 How many units of the two products will the rational consumer purchase?
2 of L and 3 of M
The table shows the total utility data for products X and Y. Assume that the prices of X and Y are $3 and $4, respectively, and that consumer income is $18. How many units of the two products will the consumer buy to get maximum utility? Multiple Choice
2 of X and 3 of Y
Refer to the above graph. A decrease in supply would best be reflected by a change from
2 to 1
Refer to the data. The value for W is
20
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.
20,000
If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be
200$
Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's accounting profit is
230000
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?
3X and 4Y
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?
3X and 4Y
Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. If the price of X decreases to $2, then the utility-maximizing combination of the two products is
4 of X and 5 of Y.
are the vertical distance between AVC and ATC.
400$
At a price of $3, the total revenues of sellers will be
45
If the firm closed down in the short run and produced zero units of output, its total cost would be
50
Marginal product is zero when the total product is
58.
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $30. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?
5X and 5Y
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
60000
Refer to the provided table. The total variable cost of producing 5 units of output is
63$
The average fixed cost of producing 3 units of output is
8$
The marginal cost of the fifth unit of output is
80$
Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. What level of total utility will the utility-maximizing consumer realize?
96
Which of the following is a short-run adjustment?
A local bakery hires two additional bakers.
Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the
AVC, ATC, and MC curves all to rise.
What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
All are opportunity costs.
Which of the following best expresses the law of diminishing returns?
As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
Which of the following best illustrates the circular flow model in action?
Bobbie goes to work and builds cars; she uses the income she receives to buy food at the grocery store. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier and uses the rest to take her family out to dinner. Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers.
Refer to the provided graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed is marginal product equal to average product?
C
Refer to the above graph. If the price increases from P1 to P2, then the total revenue will gain area
C + F + H, but it will lose area J.
One basic problem, faced by Central Panners, but hardly present in a market system have to do with
Coordinating production in various industry, so that the bottleneck do not develop
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
D only
Refer to the table and graph. Suppose that the price of X falls from $2 to $1, while the price of Y remains at $4. Which of the following represents the demand curve for X if the consumer has money income of $10 to spend on X and Y?
D2
Which of the following statements is true? about diminshing marginal returns
Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs.
Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market specified in the following situation: the market for houses, when consumers experience a substantial fall in income due to a serious economic recession.
GRAPH B
Which types of goods are most adversely affected by recessions?
Goods for which the income elasticity coefficient is relatively high and positive.
Suppose the price of a product rises and the total revenue of sellers increases.
No conclusion can be reached with respect to the elasticity of supply.
Purposeful behavior means that:
People weigh cost and benefits to make decisions
Refer to the diagram. Rent controls are best illustrated by
Price A
In the diagram, the range of diminishing marginal returns is
Q1Q3.
Refer to the diagram. Diseconomies of scale
Refer to the diagram. Diseconomies of scale
Marginal product becomes negative with the hiring of the __________ unit of labor.
SEVENTH
Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.
(Consider This) Susie purchased a nonrefundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match and $5 to park her car. On the day of the match, Susie's boss offers her $100 to come to work instead. In considering what to do, which of the above would be considered a sunk cost?
The $20 ticket to the match.
A fundamental difference between the command system, and laissez-faire capitalism is that in a command system
The division of output is decided by central planning rather than individuals operating freely through markets
What would best explain why the equilibrium price of pink salmon decreased and the equilibrium quantity increased?
The increase in supply was greater than the decrease in demand.
Which of the following is not correct?
Where total product is at a maximum, average product is also at a maximum.
The coefficient of price-elasticity of supply for a product is 2 if
a 1 percent decrease in price causes a 2 percent decrease in quantity supplied.
Suppose the income elasticity of demand for toys is +2.0. This means that
a 10 percent increase in income will increase the purchase of toys by 20 percent.
Suppose the income elasticity of demand for toys is −0.5. This means that
a 12 percent increase in income will decrease the purchase of toys by 6 percent.
If producers obtain higher prices than before to produce given levels of output, then the following has occurred.
a decrease in supply
Over a period of time, the equilibrium price of a good increases and the quantity decreases. All of the following could account for this situation, except
a decrease in the price of an alternative good or service that producers could also produce.
If two goods are complements,
a decrease in the price of one will increase the demand for the other.
A natural monopoly is characterized by
a decreasing average-cost curve extending beyond the market's size.
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20. If the consumer buys product X or product Y one unit at a time, which of the following will the consumer's first two purchases be?
a first unit of Y followed by a second unit of Y
Fixed cost is
any cost that does not change when the firm changes its output.
When tickets are "scalped," then in this market transaction
both the buyer and seller benefit.
In the short run, total output in an industry
can vary as the result of using a fixed amount of plant and equipment more or less intensively.
The profit-maximizing output for this firm
cannot be determined from the information given.
Total fixed costs of production in the short run
cannot be reduced by producing less output.
The cross elasticity of demand for product X with respect to the price of product Y is −1.2. It can be inferred that X and Y are
complementary products.
Normal profits are
considered an implicit cost by economists.
Variable costs are
costs that change with the level of production.
Average fixed cost
declines continually as output increases.
Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will
decrease, quantity demanded will increase, and quantity supplied will decrease.Correct
Diminishing marginal utility explains why
demand curves are downsloping.
To the economist, total cost includes
explicit and implicit costs.
Refer to data. Marginal utility becomes negative beginning with the
fourth unit.
Accounting profits are typically
greater than economic profits because the former do not take implicit costs into account.
If you owned a small farm, which of the following would most likely be a fixed cost?
hail insurance
The simple circular flow model shows that
households are on the selling side of the resource market and on the buying side of the product market.
Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand
if a labor force in excess of Q3 is employed.
Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's implicit costs, including a normal profit, are
implicit cost =$136,000.= (50,000+80,000+6,000)
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the
income effect.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. If X is an inferior good, a decrease in income will
increase D, increase P, and increase Q.
Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. If the price of pizza decreases, then Tonya's consumption of pizza will
increase due to the income effect.
Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n)
increase in supply.
If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will
increase the quantity supplied of X and decrease the quantity demanded of X.
Refer to the graph. Which one of the following would cause a move from point d to point e along short-run average total cost curve ATC2?
increasing marginal returns
If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is
inelastic
Suppose quantity supplied declined by 23 units at each price, changing the equilibrium price in a direction and amount for you to determine. Over that price range, demand is
inelastic
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then
it is encountering constant returns to scale.
If government set a maximum price of $45 in the market,
it would create neither a shortage nor a surplus.
The supply of cars will be more elastic the
longer the time interval considered.
We would expect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods.
The short-run average total cost curve is U-shaped because
of increasing and diminishing returns.
Implicit costs are
opportunity costs of self-employed resources.
A firm can sell as much as it wants at a constant price. Demand is thus
perfectly elastic.
Refer to the provided graph. At which point is marginal product (MP) at its maximum?
point A
Which of the following would not be emphasized in a capitalist economy?
prevention of firms from exposing themselves to financial risk
The location of the product supply curve depends on
production technology.
From society's point of view, the economic function of profits and losses is to
reallocate resources from less-desired to more-desired uses.
You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to the price?
reduce price by 12.5 percent
The substitution effect
refers to the change in the quantity demanded of a good due to a change in its relative price.
The law of diminishing returns describes the
relationship between resource inputs and product outputs in the short run.
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
relatively price elastic.
The graph below shows the market for tickets to a "Final Four" sports event. Assume that there is only one kind of ticket to the event. Given this market, if the event organizers pre-set the price at $20, then this action would result in a
shortage of 5,000 units.
In 2018, the price of oil increased, which in turn contributed to a rise in the price of natural gas. This can best be explained by saying that oil and natural gas are
substitute goods, and the higher price for oil increased the demand for natural gas.
If government set a minimum price of $50 in the market, a
surplus of 21 units would occur.
Refer to the diagram. The vertical distance between ATC and AVC reflects
the average fixed cost at each level of output.
Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,
the demand for peanuts is inelastic.
Other things equal, which of the following might shift the demand curve for gasoline to the left?
the development of a low-cost electric automobile
The increase in demand for iPad tablet computers can be explained by
the enhanced versatility and storage capacity of iPads, making their MU/P increase.
An increase in the demand for corn is more than offset by an increase in its supply. As a result, the equilibrium price will
the equilibrium price decrease and the equilibrium quantity will increase.
The basic characteristic of the short run is that
the firm does not have sufficient time to change the size of its plant.
At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed. This implies that
the marginal product of labor is constant.
The graph below shows the market for tickets to a "Final Four" sports event. Assume that there is only one kind of ticket to the event.
the organizers are selling a fixed number of tickets.
f a price ceiling is set below the equilibrium price in a market,
the quantity demanded will exceed the quantity supplied.
Normal profit is
the return to the entrepreneur when economic profits are zero.
If the law of diminishing returns applies to study time,
the tenth hour of study will likely be less productive than the third.
The amount of calendar time associated with the long run
varies from industry to industry.
Increasing marginal cost of production explains
why the supply curve is upsloping.