quizlet exam 2 micro

George, who was previously unemployed, owns a firm that produces books. He sells 20 books on average per week for $50 each, and the cost of their production is $800. He makes a weekly accounting profit of _____.

$200

Josie, who was previously employed as a policewoman, owns a firm that produces burglary kits. She used to earn $1000 per month when she was a policewoman and she could return to that job if she wanted to do so. Now, she sells 500 kits in a month for $10 each. The cost of production is $2000. In a month, she makes an economic profit of _____.

$2000

A firm sells 10 shoes for $400, and incurs a total cost of $100. The firm makes an average profit of _____.

$30 (400-100=300/10=30)

The owner of a shoe firm could instead work as an accountant to earn $300 per week. The implicit cost of her contribution to production is _____.

$300

A firm sells 5 hats for $20 apiece, and incurs a cost of $10 apiece. The firm makes a profit of _____.

$50

Which of the following correctly states the reasons for the U-shapes of the long-run and short-run average total cost curves?

-Diseconomies of scale account for the upward slope of the long-run average total cost curve and decreasing marginal productivity accounts for the upward slope of the short-run average total cost curve. -Economies of scale account for the downward slope of the long-run average total cost curve and increasing marginal productivity accounts for the downward slope of the short-run average total cost curve.

Economic profit...

-includes explicit revenue and cost, and accounting profit includes explicit revenue and cost. -includes implicit revenue and cost, and accounting profit includes explicit revenue and cost

Refer to the table above. Initially, a firm employs 3 workers. The marginal product of employing a fourth workers is _____.

10

Refer to the table above. Initially, a firm employs 5 workers. The marginal product of employing 2 additional workers is ____

10

Refer to the table above. Initially the firm produces 2 bicycles. What is the marginal cost of producing the 3rd bicycle?

110

Refer to the table above. Initially the firm produces 4 units of output. What is the marginal cost of producing the 5th unit?

2

A firm has fixed costs of $400 and average variable costs of $5 per unit. What is the average total cost of producing 20 units of output?

25

If two U.S. dollars can be traded for 200 Japanese yen, how many Japanese yen does it take to buy three U.S. dollars? 200

300

A firm has a fixed cost of $1,200 and variable costs of $120 per unit. What is the average total cost of producing 5 units of output?

360

Refer to the table above. The average product when 8 workers are employed is _____.

6

A firm has a fixed cost of $100, and variable costs of $500. What is the total cost?

600

Refer to the table above. The average product when 5 workers are employed is _____.

7

The graph shown illustrates cost curves for a given production function. The marginal cost curve is represented by curve _____.

A

The production function shown exhibits increasing marginal productivity in area _____.

A

Which area represents economies of scale?

A

Refer to the graph above. In which region(s) will the firm most likely choose not to produce?

A C A and C

A shirt today costs less in real terms (the number of hours you have to work to buy it) than it did a decade ago. Why?

A fall in price due to trade

Which of the following best defines a sanction?

A total restriction on the import or export of a good.

Which of the following statements is true about the short and long runs?

All inputs are variable in the long run. Some inputs are fixed in the short run.

Which of the following statements correctly expresses the relationship between technical and economic efficiency?

An economically efficient method of production is also technically efficient.

Refer to the graph above. This firm is most likely to produce in region(s) _____.

B

The graph shown illustrates cost curves for a given production function. Which one represents an average total cost curve?

B

The production function shown exhibits diminishing marginal productivity in area ____.

B

Why do smaller countries tend to benefit more from trade?

Because the markets are so small, trade opens up relatively more opportunities for smaller countries.

The graph shown illustrates cost curves for a given production function. Which one represents an average variable cost curve?

C

Which of the following correctly states economists' insights about how the gains from trade are divided?

Countries producing goods with economies of scale tend to get a larger gain from trade. Smaller countries tend to get a larger proportion of the gain than larger countries. The more competition among traders, the less the traders tend to get.

The graph shown illustrates various cost curves related to a production function. Which one represents an average fixed cost curve?

D

The method that produces a given level of output at the lowest possible cost is called _____

Economic efficient

True or false: If one country has a comparative advantage in one good, then the other country will have a comparative advantage in the other good since comparative advantage in based on absolute costs.

False

True or false: Technical efficiency means that the combination of inputs used to produce a given output minimizes costs.

False

True or false: The minimum efficient level of production is where marginal costs equal average total cost.

False

True or false: The more competition that exists among traders, the less likely it is that the citizens in the two countries get big gains from trade.

False

The conference established in 1947 to reduce trade barriers that later became the WTO is called _____.

GATT

For producing 50 bags, Jenny can decide between three combinations of inputs: I. 10 zips and 5 embellishments II. 20 zips and 2 embellishments III. 5 zips and 10 embellishments Zips cost $1 each and embellishments cost $2 each. Which among these is the most economically efficient method?

I

For producing 50 bags, Jenny can decide between three combinations of inputs: I. 100 zippers and 50 embellishments, II. 150 zippers and 20 embellishments, or III. 50 zippers and 100 embellishments. Which method is technically efficient?

I, II, III

For producing 100 shoes, John can decide between three combinations of inputs: I. 200 laces and 100 embellishments II. 150 laces and 150 embellishments III. 150 laces and 100 embellishments Laces and embellishments cost $10 each. Which method is economically efficient?

III

For producing 100 shoes, John can decide between three combinations of inputs: I. 200 laces and 100 embellishments II. 150 laces and 150 embellishments III. 150 laces and 100 embellishments Which method is technically efficient?

III

Which of the following significantly contribute to the infant-industry argument?

Learning by doing Economies of scale

Trade restrictions for national security reasons do not take which of the following forms?

Limit voluntary trade restrictions Restrict imports of food

Which of the following can lead to diseconomies of scale?

Monitoring costs Loss of team spirit

Refer to the graph shown. If the country imposes a quota of Q0 on imported goods, equilibrium price paid by the consumer will be _____.

P0

The United States imposes a tariff of T per unit on speedboats imported from Canada shown above. The price the sellers of the boats receive is ____.

P1

At the minimum efficient level of production, the long run average total cost is _____.

at its minimum

Trade restrictions for national security reasons often take which of the following forms?

Restrict imports of defense related goods Restrict exports of defense-related goods Restrict exports of strategic materials

Which of the following correctly states economists' insights about how the gains from trade are divided?

Smaller countries tend to get a larger proportion of the gain than larger countries. Countries producing goods with economies of scale tend to get a larger gain from trade.

Which of the following are sources of U.S. comparative advantage

Strong government institutions Good physical and technological infrastructure Wealth from past production

In what ways do quotas differ from tariffs?

Tariffs decrease the price producers receive; quotas do not.

Which of the following is an example of a sanction?

The U.S. does not allow U.S. citizens to purchase goods from North Korea.

As output increases, average fixed cost _____.

decreases

Which of the following data is provided in a production table?

The level of output given various combinations of inputs.

Tariffs remain a primary source of revenue for many developing countries for the following reasons.

They are paid by those who can afford imports. Other forms of taxes have not been instituted. They are relatively easy to collect.

Which of the following are reasons countries restrict trade?

To increase government revenue To be strategic in international politics To protect national security

True or false: An economically efficient production method is the method that produces a given level of output at the lowest possible cost.

True

True or false: Area B is the only range of output in which average total costs are falling and average variable costs are rising.

True

True or false: The World Trade Organization has a system to enforce trade agreements.

True

Which of the following are sources of U.S. comparative advantage?

U.S. cachet Abundant natural resources English as an international language Good physical and technological infrastructure Strong government institutions Wealth from past production

The law of one price is most likely to hold in _____.

a competitive market

The comparative advantage argument for free trade assumes that

a country is fully utilizing its resources.

An import quota is

a quantity limit on the quantity of goods that can be imported.

The General Agreement on Tariffs and Trade (GATT) is

a regular international conference to reduce trade barriers.

Marginal product of workers is the

additional output that will be forthcoming from an additional worker, other inputs constant.

Programs designed to compensate those who are hurt when trade restrictions are loosened or removed are called trade _____.

adjustment assistance programs

The group that generally benefit from free trade are _____.

all consumers

Comparative advantage is best defined in terms of _____.

all sectors in an economy

Suppose on Monday the U.S. dollar could buy 1.2 Canadian dollars and on Tuesday it could buy 1.5 Canadian dollars. The dollar has

appreciated because it could buy more Canadian dollars.

Refer to the graph shown. If a tariff of T is imposed on the good, the revenue collected will be _____.

area B and C

The law of diminishing marginal productivity states that

as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.

When marginal cost equals average total cost, average total cost is _____.

at its low point

Fixed cost divided by quantity produced is called ____

average fixed cost

Fixed cost divided by quantity produced is called _____

average fixed cost

Output per worker is called _____.

average product

Total cost divided by the quantity produced is called _____.

average total cost

Variable cost divided by quantity produced is called _____.

average variable cost

Countries may opt for voluntary restraints on their exports to

avoid having new tariffs imposed on goods by foreign countries.

The difference between the value of exports and the value of imports for a country is called its _____

balance of trade

Learning by doing is the phenomenon of

becoming better at the task as it produces the good.

The law of diminishing marginal productivity implies that eventually

both marginal and average cost curves will be upward sloping.

In a long-run decision, a firm

can choose among all possible production techniques.

Variable costs _____, while fixed costs _____.

change ; remain constant

As the price of euros in terms of dollars rises, U.S. goods become

cheaper for Europeans, so Europeans will increase the quantity of euros supplied to buy more U.S. goods.

The flat part of the long-run average total cost curve is due to _____.

constant returns to scale

When long-run average total costs do not change with an increase in output, production is said to exhibit _____.

constant returns to scale

When a country has a trade deficit it is

consuming more than it is producing.

By definition, comparative advantage in trade refers to differences in relative _____.

cost

When a company is experiencing economies of scale,

costs per unit of output are falling as production rises.

Which country has a comparative advantage in producing shoes?

country X

Which country has a comparative advantage in producing socks?

country Y

One difference between the effect of a tariff and a quota is that a tariff

creates revenue for the domestic government, while a quota does not

The paradox that the effect of an abundance of resources on exchange rates tends to push down economic growth and increase unemployment compared to countries with fewer natural resources is called the resource _____________

curse

A firm is experiencing diseconomies of scale when long-run average total costs

decrease as output decreases. increase as output increases.

Refer to the graph. The effect of higher U.S. demand for European goods on the value of the euro can be shown by a shift in the

demand for euros from D0 to D1 and an appreciation of the euro.

Refer to the graph. The effect lower U.S. demand for European assets on the value of the euro can be shown by a shift in the

demand for euros from D1 to D0 and a depreciation of the euro.

When a currency can buy less foreign currency than before, it is said to have _____.

depreciated

Suppose on Monday the U.S. dollar could buy 1.2 euros and on Tuesday it could buy 1.5 euros. The euro has

depreciated because it could buy fewer dollars.

Trade adjustment assistance is

designed to assist workers displaced by increased foreign competition following reductions in trade restrictions.

In area C, production exhibits _____.

diseconomies of scale

The long-run average cost curve will be upward sloping when the firm is experiencing _____.

diseconomies of scale

When long-run average total costs increase as output increases, production is said to exhibit _____.

diseconomies of scale

Average fixed cost is fixed cost

divided by quantity produced

Average total cost is the total cost

divided by the quantity produced.

With constant returns to scale when an increase in output, long-run average total costs _____.

do not change

The infant industry argument states that a

domestic industry will be able to become competitive if it is protected when it initially begins production.

You know a firm is experiencing economies of scale is when its operating on the

downward sloping portion of its long-run average total cost curve.

The decline in the market value of an asset that occurs over time would be most consistent with _____.

economic depreciation

Cost is a determining factor in _____

economic efficiency

The method that produces a given level of output at the lowest possible cost is called _____.

economic efficient

Explicit and implicit revenue less explicit and implicit cost is equal to _____.

economic profit

In area A production exhibits _____.

economies of scale

Significant set-up costs can create _____.

economies of scale

The downward sloping portion of the long-run average total cost curve is the result of _____.

economies of scale

When costs per unit output fall as output increases, economists say that there are _____.

economies of scale

When long-run average total costs decrease as output increases, production is said to exhibit _____.

economies of scale

If the cost of producing a good that a firm is already producing falls when it begins to produce another good, it is experiencing _____.

economies of scope

Who is a visionary that turns new technologies into useable goods and services?

entrepreneur

The _____ relationship tells us that, at planned output level, short-run average total cost equals long-run average total cost, but at all other levels of output, short-run average total cost is higher than long-run average total cost.

envelope

The law of one price states that there is pressure for

equal factors to be priced equally.

The standard production function

eventually exhibits diminishing marginal productivity. initially exhibits increasing marginal productivity.

Using economists' framework, economic profit is best defined as

explicit and implicit revenue less explicit and implicit cost.

Total economic cost is

explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm.

The balance of trade is

exports minus imports

A firm is an economic institution that transforms

factors of production into goods and services.

Transferable comparative advantage consists of comparative advantages originated by

factors that can change relatively easily over time.

If marginal cost is rising, we can infer that marginal productivity is _____.

falling

When marginal cost is less than average variable cost, average total cost is _____.

falling

Refer to the graph. In region A, the related marginal cost would be

falling and average variable cost is falling.

True or false: A common reason for sanctions is to protect domestic infant industries.

false

True or false: According to the law of diminishing marginal productivity, marginal product will decline more slowly as output increases.

false

True or false: An import quota is a quantity limit on imports to raise government revenue.

false

True or false: Companies that export to another country prefer tariffs rather than quotas since tariffs raise the price they receive for the product.

false

True or false: Comparative advantages that are based on factors that are relatively unchangeable are called transferable comparative advantages.

false

True or false: If a country's exchange rate falls, demand for its assets will tend to fall.

false

True or false: If a depreciation measure includes opportunity cost, it most likely refers to accounting depreciation

false

True or false: In determining trade policy, broader cultural issues should be focused on because they are the most important.

false

True or false: In determining trade policy, economic issues should be focused on and broader cultural issues downplayed.

false

True or false: Laypeople are correct to oppose international trade since comparative advantage between countries is absolute.

false

True or false: Regulatory trade restrictions limit imports directly.

false

True or false: Set-up costs can create diseconomies of scale.

false

True or false: Short-run costs will always be equal to or lower than long-run costs at the same level of output.

false

True or false: The United States is financing its trade deficit by selling its real assets and buying financial assets.

false

True or false: The benefits of free trade benefit tend to benefit a small segment of society, which allows government to impose restrictions without much political pushback.

false

True or false: The downward portion of the long-run and short-run average total cost curves is caused by economies of scale.

false

True or false: The long-run average total cost curve is tangent to the minimum of all short-run average total cost curve for all levels of output.

false

True or false: The role of entrepreneurs is captured well in economic models.

false

True or false: Trade benefits all people in an economy equally.

false

True or false: Ultimately, all supply comes from firms.

false

The typical long-run average total cost curve

first falls then rise

The standard production function exhibits

first increasing, then decreasing marginal productivity.

Total cost is equal to _____.

fixed cost plus variable cost

Which of the following cannot exist in the long run?

fixed costs

The main difference between variable and fixed costs is that

fixed costs remain constant with the level of output, while variable costs change.

When there are constant returns to scale, the long-run average total cost curve is _____.

flat

If a country has a trade deficit, there will be pressures for the country to

gain comparative advantage from a combination of a decline in its wages and its exchange rate.

If average total cost is rising, we can infer that marginal cost is

greater than average cost

The typical long-run average total cost curve

has a U shape

Implicit costs

include the opportunity costs of the factors of production provided by the owners of the business.

Marginal cost is the

increase in total cost from increasing level of output by one unit

Given standard supply and demand curves, the introduction of a tariff will be expected to

increase the prices of imports and reduce the level of imports.

As output decreases, average fixed cost _____.

increases

An import quota

increases the price of the imported good to the consumer.

The cost of an input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use is called an _____.

indivisible setup cost

A production function is the relationship between _____.

inputs and outputs

When workers become more proficient at production as they produce more, it is called _____.

learn by doing

When the dollar has depreciated, the dollar can buy

less foreign currency than before.

A firm can choose among all possible production techniques in the _____.

long run

The firm has the greatest production flexibility in which time frame?

long run

If a country has a trade surplus, there will be pressures for the country to

lose comparative advantage from a combination of a rise in its wages and its exchange rate.

Paradoxically, when considering the effect of a country's natural resources on the value of its currency, countries with an abundance of resources tend to have

lower economic growth and more unemployment than countries with fewer natural resources.

Long-run costs can be

lower than short-run costs. the same as short-run costs.

The increase or decrease in the total cost by producing an additional unit of output is called ___

marginal cost

The increase or decrease in the total cost by producing an additional unit of output is called _____.

marginal cost

The graph shown illustrates cost curves for a given production function. Curve A represents _____.

marginal cost curve

The additional output that will be forthcoming from an additional worker, other inputs constant is called _____.

marginal product

The shape of the marginal cost curve mirrors the shape of the _____.

marginal productivity curve

Regulatory trade restrictions

may be a legitimate attempt to address quality concerns.

When the firm is producing where the long-run average total cost curve is minimum, it is producing at the

minimum efficient level of production.

Diseconomies of scale can be explained by _____.

monitoring costs loss of team spirit

The supply curve of euros is upward sloping because as the price of euros falls, U.S. goods become

more expensive for Europeans, so Europeans will decrease the quantity of euros supplied to buy fewer U.S. goods.

The law of one price depends on the ability of firms to

move production across national boundaries.

Every short-run average total cost curve touches the long-run average total cost curve at

one point.

Average product is the

output per worker.

When there are economies of scale, as output increases _____.

per-unit cost decreases

If the United States has a trade surplus, it must be

producing more than it is consuming.

Which of the following tells the maximum output that can be derived from a given number of inputs?

production function

An example of a regulatory trade restrictions is

prohibition of importing vegetables because of certain pesticide usage.

The World Trade Organization (WTO) works to

promote free and fair trade.

If the demand for a country's assets is high, the value of its currency will be

relatively high, leading to fewer sectors with a comparative advantage in the production of traded goods

A country is facing a recession and is thus revising its international trade policies. Which of the following international trade policies might it consider to address the recession?

restrict imports

Refer to the graph shown for an imported good. The difference between a tariff T and a quota Q1 is that the

revenue collected by the domestic government from the tariff is areas A and B while no revenue is collected by the domestic government with a quota.

When marginal cost is higher than the average cost, average cost will _____.

rise

When there are increasing constraints on a firm, costs will _____.

rise

The United States imposes a tariff on machines imported from other countries. The likely impact on the price and quantity of imports sold in the United States is

rise in price paid by less than the tariff and reduction in quantity imported.

Compared to the early 20th century, world trade as a percent of U.S. GDP has _____.

risen

Overall, since 1928, international trade as a percent of the total world production has _____.

risen

When marginal productivity falls, marginal cost _____.

rises

A country finances its trade deficit by

selling assets to foreign countries and by borrowing from them.

The U.S. economy is currently financing its ability to import more than it exports by

selling domestic assets like stocks, bonds, and real estate to foreign investors.

A firm is constrained in regard to what production decisions it can make in the _____.

short run

The minimum efficient level of production is the amount of production that

spreads setup costs out sufficiently for a firm to undertake production profitably.

When a country threatens to implement tariffs to bring about a reduction in tariffs or some other concession from another country, it is engaging in

strategic trade policies.

Refer to the graph. The effect of an increase in the demand for European assets by Americans on the value of the dollar can be shown by a shift in the

supply of dollars from S0 to S1 and a depreciation of the dollar.

Refer to the graph. The effect of a decrease in travel by Americans to Europe on the value of the dollar can be shown by a shift in the

supply of dollars from S1 to S0 and an appreciation of the dollar.

The U.S. government collects 25 percent of the value of French wine imported. This is an example of a(n) _____.

tariff

Taxes placed on internationally traded goods are called _____.

tariffs

Tariffs are best defined as a

tax placed on imported goods

When a given level of output cannot be produced using less of any one input, it is called _____.

technically efficient

Using economists' framework total revenue includes

the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.

Economies of scope occur when

the cost of producing one good lowers the cost of producing another for a multi-product firm.

Fixed costs do not exist in which time frame?

the long run

A production table is a table showing

the output resulting from various combinations of factors of production or inputs.

The average total cost curve has the same general U-shape as the average variable cost curve because the average total cost curve is

the vertical sum of the average fixed cost curve and the average variable cost curve.

If Country A and Country B must each give up 5 pounds of sugar to produce 1 pound of honey,

there will be no benefits to trade

Firms that export to other countries prefer quotas over tariffs because

they raise the price they receive for a smaller quantity of goods that they sell.

Using economists' framework, explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm is _____.

total cost

Using economists' framework, the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm is known as _____.

total revenue

The United States has a

trade deficit that it is paying for by selling assets.

True or false: A currency appreciation is a change in the exchange rate so that one currency buys more units of a foreign currency.

true

True or false: Comparative advantages that are based on factors can change relatively easily are called transferable comparative advantages.

true

True or false: Countries can have a comparative advantage in organizing trade.

true

True or false: If the law of one price holds, labor should cost the same in all countries after accounting for differences in skills, experience, and institutional structures.

true

True or false: Laypeople often do not recognize the gains from international trade since these gains are often stealth gains such as the decline in product prices.

true

True or false: Learning by doing means that as we do something, we learn what works and what doesn't and over time we become more proficient at it.

true

True or false: Refer to the graph. If a government imposes tariff T on imported goods it will collected revenues of areas A + B.

true

True or false: The cost of an input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use is called indivisible setup cost.

true

True or false: The difference between economic profit and accounting profit is that economic profit includes implicit revenue and cost, while accounting profit does not.

true

True or false: The primary distinction between a long run and a short-run decision is the degree of flexibility in decision making.

true

True or false: The small groups of producers who may be injured by trade often have more political influence than the large number of consumers who would benefit from free trade.

true

True or false: When a company becomes better at a task the more often it performs it, it is called learning by doing.

true

True or false: When a country implements a strategic trade policy, it may end up putting restrictions that it was actually haggling against.

true

True or false: When there is competition, smaller countries tend to get a larger percentage of the gains from trade than do larger countries.

true

Inherent comparative advantage is best characterized by comparative advantage based on

unchangeable over time

The total cost curve is _____.

upward sloping

Diseconomies of scale are responsible for the

upward sloping part of the long run

Costs that change as output changes are called _____

variable cost

Average variable cost is the

variable cost divided by the quantity produced

When marginal cost exceeds average total cost, average total cost is rising because

when marginal cost is higher than the average cost it will pull the average up.

The demand curve for euros is downward sloping because as the exchange rate value of the euro falls, the price of European goods

will fall for foreigners and they will purchase more euros

The demand curve for euros is downward sloping because as the exchange rate value of the euro rises, the price of European goods

will rise for foreigners and they will purchase fewer euros.

Given the opportunity costs illustrated in this graph, are there potential gains from trade for Country X and Y?

yes