Unit 2 Economics Test
In the free market, firms meet consumer demand through a price-based system that ensures that land, labor, and capital go to the uses consumers value most highly. This explains why in a free market resources
Are allocated efficiently
If you saw an advertisement for an electric car that boasted 500 miles between battery charges, what form of non-price competition
physical characteristics
In determining the optimal level of output, a firm should aim for the
point of maximum profitability for the company
Juanita has noticed that the price of bagels has gone up. Because of this, she has decided to buy a less expensive yogurt for her breakfast. This is an example of the
substitution effect
If Tino responds to a sharp increase in his transportation costs by buying fewer clothes, he is demonstrating
the income effect
A change in demand for one good will have what effect on its complement?
the same effect
Why do monopolists engage in price discrimination?
they want to maximize their profits
Which of the following is most similar to a purely competitive labor market?
three teenagers who each earn money by raking leaves for different people in the neighborhood
Consider each of these business activities. For which do you think supply would be the most elastic in the short term?
Baking cupcakes
Which of the following describes a way that the minimum wage and rent control are similar?
Both involve government intervention in the marketplace
How has the internet dramatically reduced search costs?
By eliminating the need to travel to stores to shop
A shift in the demand curve had led to a shortage of rice. How can this problem be resolved most quickly?
By increasing the price of rice
How would a bicycle producer most likely react to a shortage of its product?
By raising prices and increasing supply
Which set of markets includes all purely competitive markets?
Children's wood blocks, dry pasta, plain t-shirts
If the 3 largest producers of breakfast cereal agreed to form an organization that produced a limited amount of cereal for the next year in order to inflate the price, what would they be doing?
Creating a cartel
What is the effect of lower input costs?
Decreased marginal cost
In the aftermath of a hurricane, clean water became scarce, and the price of bottled water skyrocketed. This is an example of the role of price in
Distributing scarce resources efficiently
Why do high start-up costs serve as a barrier to market entry?
by limiting potential supplier to those few with large amounts of capital
The increasing age of the American population is an example of how
changing demographics can cause demand shifts
In economics, the concept of demand is defined as the desire to own something
combined with the ability to pay for it
according to the law of demand, when the price of pizza goes up
consumers will buy less pizza
If the three largest producers of breakfast cereal agreed to form an organization that produced a limited amount of cereal for the next year in order to inflate the price, what would they be doing?
creating a cartel
Shana continues to buy a necessary medicine even though prices for the medicine rise sharply. Shana's behavior shows how
demand for necessities is inelastic
In general, it is a bad move for a company to produce more of a good or service if, by doing so
marginal cost exceeds marginal revenue
A new film company's decision to locate its operations in the film-production center of Southern California is most similar to which of the following?
A firm coating close to the inputs of its products
Which factor would shift the supply curve for ethanol in the United States to the right?
A trade agreement with Brazil opening US markets to imported ethanol
Which of these is not a characteristic of pure competition?
Unique products
Marty just finished creating a market demand schedule for his hardware store. Which of the following is he most likely trying to determine?
How many tools are sold to all consumers in the market at various prices
What does a firm's supply schedule show?
How price changes affect supply for a market
"Ceteris paribus" means demand will change when price changes
If other market factors remain constant
If a business owner becomes aware of a shortage in the market for the good or service he or she produces, he or she is likely to
Increase supply more and raise the price
How can collusion be harmful to consumers?
It can make consumers pay too much money for goods or services
What role does the profit incentive play when there is a surplus of a good?
It encourages producers to lower their prices
Which of the following explains what typically happens when a market is thrown into disequilibrium?
It moves toward a new equilibrium point as a results of the laws of supply and demand
In general, a decrease in consumer income will have what effect on demand for normal goods?
It will cause demand to fall
Which of the following is a characteristic of monopolistic competition?
Low barriers to entry
Which of the following typically happens as prices for a good or service rises?
More suppliers enter the market
Which of the following would be an example of a fixed cost on a farm?
Mortgage on the land
Why does demand generally become more elastic over time?
People have time to find substitutes and change behaviors
To increase marginal return, a company might consider
Purchasing more machinery
What action by the government would most likely increase the supply of gasoline in the short term?
Reduced taxes on the refining of gasoline
Which of the following is the best example of substitute for movie tickets?
Rentals of on-demand programming
Which of the following is the best argument against the rationing system used in the United States during WWII?
Some people could still get as much as they wanted through the black market
Do higher prices lead to increased revenues for a company?
Sometimes
What would most likely happen in a purely competitive market if one supplier was significantly more efficient than all others?
Suppliers who could not become more efficient would be driven from the market
The law of supply declares which of the following?
Supply falls as price falls
If the cost of gasoline increases sharply and continues to rise, how does this development affect the demand curve for cars?
The demand curve for gas-guzzlers shifts to the left, and the demand curve for fuel-effificent cars shifts to the right
Suppose the price of a good rises. In general, how does the percentage of your budget you spend on that good affect the elasticity of your demand for goods overall?
The higher the percentage of your budget a good represents, the more elastic your overall demand
What does it mean to say that supply is unitary elastic?
The percentage change in price and in supply are the same
What might happen if a monopolist increased output of its product each week?
The price of the good would eventually fall and so would revenue
Which of the following government actions would increase the supply of cars in the United States?
The removal of car mileage regulations
Which of the following explains why agriculture price supports are inconsistent with free-market principles?
They allow government to influence farmers' decisions about what and how much to produce
How do subsidies help producers?
They increase revenues
Why do monopolies engage in price discrimination?
They want to maximize their profits
Why does the government grant patents to some firms that develop new products?
To encourage firms to research new products that may benefit society
Why does the government usually regulate natural monopolies?
To keep the monopolist from having too much power
Why does the government regulate oligopolies?
To keep them from acting like monopolies
Suppose demand for a product is highly elastic. What will likely happen to a company's total revenue if it raises the price of that product?
Total revenue will fall
In which of the following situations would a business be wise to shut down its factory?
When fixed costs exceed revenue
What happens to the average total cost curve for a company with economies of scale?
When production increases, the cost of production falls