Econ 1102: Exam 2?
Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the bookstore is $65. How much is Mark's individual consumer surplus?
$10.
At 36 units of labor, a firm finds that both average product of labor and marginal product of labor equal 42. We can conclude that the average product curve at 36 units of labor is:
horizontal.
Profits are equal to the difference between _____ and _____.
total revenue; total costs.
The income elasticity of demand of a normal good is:
greater than 0.
Average total cost is:
total cost divided by quantity.
Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q2 where Q is the quantity of dogs groomed. Given this expression, if Janet grooms five dogs her total costs will be:
$175.
Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,000 per month in rent. Oscar pays his staff $10 per hour to sell sporting goods and his monthly electricity bill averages $500, depending on his total hours of operation. Oscar's fixed costs per month equal:
$2,000
Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $12, what is the total producer surplus received by the 3 of them?
$2.
Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $18, what is the total consumer surplus for these three shoppers?
$2.
Luis is willing to sell his pool table for $600, but if he gets $840, the producer surplus Luis receives is ________.
$240.
Aisha is willing to spend $16 for a haircut. If she finds a salon where the price of a haircut is only $12, she will receive ______ in consumer surplus from this transaction.
$4.
Darren runs a barbershop with fixed costs equal to $80 per day and a total output of 70 haircuts per day. What is his weekly total fixed cost if he is open 6 days per week?
$480
Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $15, what is the total producer surplus received by the 3 of them?
$5.
Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $14, what is the total consumer surplus for these three shoppers?
$6.
Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $18, what is the total producer surplus received by the three of them?
$8.
Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $12, what is the total consumer surplus for these three shoppers?
$8.
If a 15 percent decrease in the price of sapphires causes a 20 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is:
1.33
Suppose you manage a convenience mart and are in charge of ordering products but do not set the price. The home office provides the prices. In your area, the income elasticity of demand for peanut butter is -0.5. Due to local factory closings, you expect local incomes to decrease by 20%, on average, in the next month. As a result, you should stock:
10% more peanut butter on the shelves.
A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________.
10%; fall.
A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with four workers. The marginal product of the fourth worker is:
150 bushels.
Suppose that the first four units of a variable input generate corresponding total outputs per period of 200, 350, 450, and 500, respectively. The marginal product of the second unit of input is:
150.
If quantity demanded rises by 60% and price falls by 20%, the price elasticity of demand is:
3.
Suppose that the quantity demanded for a product falls by 9 percent as people's incomes fall by 3 percent. What is the income elasticity for this good?
3.00.
A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is:
300 bushels.
A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. The price elasticity of honey is:
4.
Wal-Mart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is two, then the discount would increase sales by:
50%.
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by ________%.
50.
A group of dairy farmers are trying to raise milk prices by 10%. If the price elasticity of demand for milk is 0.75, and the price elasticity of supply for milk is 0, then by how much should farmers reduce their milk production to obtain the 10% increase?
7.5%
Which of the following occurs in the long run?
A new movie theater is built
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for:
Bayer aspirin to be more price-elastic.
Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%, then:
Burger King will sell 8% more burgers.
Nico's DVD rentals increase by 10% when his income increases by 20%. Based on this information, we know that:
DVDs are a normal good.
Which of the following is true? a. If the price elasticity of supply is less than 1, then supply is price-elastic. b. If the price elasticity of supply is zero, then price unit-elastic. c. If the price elasticity of supply is less than 1, then supply is price-inelastic. d. If the price elasticity of supply is less than 1, then supply is very responsive to price changes.
If the price elasticity of supply is less than 1, then supply is price-inelastic.
Which of the following is a reason for governments imposing or maintaining price controls?
It may be politically expedient to impose price controls that benefit influential voting groups.
The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?
Quantity demanded will decrease; total revenue will rise.
Consider the market for strawberries. Which of the following elasticity measures most likely applies to the strawberry market?
The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive.
The going rent in the market for 1-bedroom apartments in your neighborhood is $400. If the government imposes a price ceiling of $800 in this market:
The same number of apartments will be rented.
Which of the following is likely to make supply more inelastic?
The time period under consideration is very short and the inputs necessary for production cannot readily be increased.
Suppose that a binding price floor is in place in a particular market. If the market is deregulated and the price floor is removed, then which of the following effects could occur?
There would be a decrease in the quality of the good supplied.
Which of the following equations is true? a. Fixed Cost = Variable Cost + Total Cost b. Total Cost = Fixed Cost + Variable Cost c. Total Cost = Fixed Cost x Variable Cost d. Variable Cost = Fixed Cost + Total Cost
Total Cost = Fixed Cost + Variable Cost
Assume the absolute value of the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following best describes how this will affect total expenditures on corn, all other things equal? (Hint: Consider the change in corn prices.)
Total expenditures will fall.
The absolute value of the price elasticity of demand for ground beef has been estimated to be 1.0. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things equal? (Hint: Consider the change in meat prices.)
Total expenditures will remain unchanged.
The absolute value of the price elasticity of demand for fresh zucchini has been estimated to be 2.25. A new irrigation system yields a 25% increase in the nation's crop of fresh zucchini. Which of the following best describes how this will affect total expenditures on zucchini, all other things equal? (Hint: Consider the change in zucchini prices.)
Total expenditures will rise.
The absolute value of the price elasticity of demand for gasoline in the long run has been estimated to be 1.5. If an extended war in the Middle East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things equal? (Hint: Consider the change in gasoline prices.)
Total expenditures would fall.
The price elasticity of demand is measured by:
dividing the percentage change in quantity demanded by the percentage change in price.
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?
Total revenue will fall.
Which of the following occurs in the short run?
Wal-Mart hires five new workers.
Which of the following is true about the price elasticity of demand?
When demand is inelastic, a rise in price leads to an increase in total revenue.
The price elasticity of supply for a good is 3 if:
a 1% decrease in price leads to a 3% decrease in quantity supplied.
If demand is inelastic, then a 5% increase in price will cause:
a decrease in quantity demanded of less than 5%.
If demand is elastic, then a 5% increase in price will cause:
a decrease in quantity demanded of more than 5%.
The long run is a period of time in which:
a firm can adjust the quantity of any input.
A maximum legal price is called:
a price ceiling.
The likely result of a price floor is:
a surplus of the good at a price above the market equilibrium price.
Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with 3 employees. Staci hires an additional worker and total output per week rises to 328. At four workers, marginal product is _____________ the average product, so average product is ______________.
above; rising
As calculated, the price elasticity of demand is:
always negative.
Diminishing marginal returns occur when:
an additional variable factor adds less to total output than the previous unit.
The general manager of the local hockey team hires you to help maximize the team's total revenue. She explains that most costs are constant because a complete staff must always be available in case the arena fills completely. If your task were to maximize total revenue from ticket sales, then your advice to the manager would be to set the ticket price:
as close as possible to the point where the price elasticity of demand equals one.
The short run is the period of time in which:
at least one input is fixed.
If ATC is equal to MC, then one is operating:
at the minimum point of ATC.
Suppose the marginal product of the 23rd worker is eight boxes of output. Average product when 23 workers are employed is five boxes per worker. We can conclude that:
average product is rising.
If marginal cost is greater than average total cost, then:
average total cost is increasing.
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:
consumer demand becomes less price-elastic as departure time approaches.
Producers may supply a good with an inefficiently low quality if the government imposes a(n):
binding price ceiling.
A linear demand curve:
can have both elastic and inelastic price elasticities of demand.
Which of the following goods is likely to be the most income inelastic?
cigarettes.
The pair of items that is likely to have the highest cross-price elasticity of demand is:
coffee and tea.
We note that the price of pretzels increases and the demand for tortilla chips decreases, so we can assume that these two goods are:
complementary goods.
The government decides to impose a price ceiling on a good, because it thinks the market-determined price is "too high." If the government imposes the price ceiling below the equilibrium price:
consumers will respond to the lower price and therefore wish to purchase more of the good than at the equilibrium price.
As you move down a linear demand curve, the price elasticity of demand will:
decrease.
If the price of a good falls while supply remains unchanged, then total producer surplus will ____________.
decrease.
Oil is an input in the production of gasoline, and gasoline and cars are complements. An increase in the price of oil will _________ the producer surplus in the market for cars.
decrease.
The current price in the market for cab rides in your neighborhood is $5.00/mile. If the government imposes a price ceiling of $2.50/mile in this market total surplus in this market will:
decrease.
The price elasticity of demand along a demand curve with a constant slope:
decreases in absolute value as quantity demanded rises.
On a linear demand curve:
demand is elastic at high prices.
A firm finds that as it produces more, its long-run average total costs increase. This firm is experiencing:
diseconomies of scale.
A firm that is experiencing diminishing returns in management's ability to use and disseminate information as it increases production in the long run is an example of:
diseconomies of scale.
Buffalo Aircraft doubles the amount of all the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. This means that Buffalo Aircraft is experiencing:
economies of scale.
For large beer breweries, it is common for long-run average total cost to decline as output increases. This indicates that many breweries achieve:
economies of scale.
If the price of Citgo gasoline increases 10% and the quantity demanded decreases 20%, then the demand curve for gasoline is:
elastic.
If the price elasticity of demand for coffeemakers is 1.15, then the demand is _____ and total revenue will ______ if the price of coffeemakers increases.
elastic; decrease
If the price elasticity of demand for concert tickets is 2.12, then the demand is _____ and total revenue will ______ if the price of concert tickets increases.
elastic; decrease.
Products with many close substitutes tend to have _____ demand, and products considered to be luxury goods tend to have ____ demand.
elastic; elastic.
You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a variable input in the production function at your deli?
employees hired to help make the food
Marginal cost ________ over the range of increasing marginal returns and ________ over the range of diminishing marginal returns.
falls; increases
For every restaurant in Cleveland, the average total cost curve ________ at ________ levels of output, then ________ at ________ levels.
falls; low; rises; higher
A cost that does not depend on the quantity of output produced is called a:
fixed cost.
A factor of production whose quantity cannot be changed during a particular period is a(n):
fixed factor of production.
Which of the following products would have the highest price elasticity of demand?
hot dogs sold by a street vendor
Income elasticity of demand measures:
how the demand for a good changes in response to changes in income.
An important determinant of the price elasticity of demand is the:
importance of the good in household budgets.
When the demand for foods low in carbohydrates began to increase, in the short run the price elasticity of supply was lower than it will be in the long run. This is because:
in the short run, some food producers did not have as much time to produce low-carb foods as they will have in the long run.
We would say that sports cars are an inferior good if the ___________ for a sports car is __________ .
income elasticity of demand; negative.
In the market for computers, if the demand curve is elastic and the price of a computer decreases, we would expect total revenue to ________. If the demand curve is inelastic and the price of a computer decreases, we would expect total revenue to ________.
increase; decrease
The price elasticity of demand along a demand curve with a constant slope:
increases in absolute value as the price rises.
When a new worker hired adds more to total output than the previous worker hired, you have:
increasing marginal returns.
Each of the following is a source of inefficiency from a rent-control price ceiling except:
inefficiently high quality of the good being sold.
Demand for vegetables at a small farmers' market is steady, but the supply of vegetables has decreased due to a drought. This is good news for farmers if demand is:
inelastic and the price effect outweighs the output effect.
If the price elasticity of demand for digital cameras is 0.88, then the demand is _____ and total revenue will ______ if the price of cameras increases.
inelastic; increase
If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n):
inferior good.
At 30 units of output, a firm's marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 units of output its marginal cost:
is less than $10 and its average variable cost is more than $10.
The income elasticity of demand of an inferior good:
is less than 0.
If the managers of the Miami Transit Authority (MTA) raise the fare from $2.00 to $2.25 per ride and as a result total revenue increases, then we know that the demand for rides:
is price inelastic.
A price ceiling is not effective if:
it is set above the equilibrium price.
A price ceiling will have no effect if:
it is set above the equilibrium price.
The marginal cost curve intersects the average variable cost curve at:
its lowest point.
Suppose the price elasticity of demand for fishing lures equals 1 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:
leave prices unchanged in South Carolina and raise prices in Alabama.
If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be:
less price-elastic.
If hot dogs and relish are complements, their cross elasticity of demand is:
less than 0.
If two goods are complementary, we can assume that the cross-price elasticity of demand for these goods is:
less than 0.
To be binding, a price ceiling must be set at a price:
lower than the equilibrium price or at a price at which quantity demanded exceeds quantity supplied.
If an increase in income of 10% causes an increase in quantity demanded of 20% for a good, the good is a(n):
luxury good.
Suppose coffee is considered inelastic. If the price of coffee increases:
total revenue increases.
The change in total cost arising from producing one more unit of output is known as:
marginal cost.
When a firm experiences diminishing marginal returns:
marginal product is falling, yet it is still positive.
If a good is a luxury item that looms large in the household budget, then the price elasticity of demand will tend to be:
more price-elastic.
If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be:
more price-inelastic.
If soda and potato chips are complements, then their cross elasticity of demand is:
negative.
If the income elasticity of demand for a good is _______, the good is said to be _________.
negative; inferior good.
If your income increases and your consumption of a good increases, that good is considered a(n):
normal good.
If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n):
normal good.
The long run is a planning period:
over which a firm can consider all inputs as variable.
When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this information implies that for Joe:
pizza is a normal good and a luxury.
The slope of a long-run average total cost curve exhibiting diseconomies of scale is:
positive.
Vitamin Water and Gatorade are substitutes. Thus, their cross elasticity of demand is:
positive.
Hugo Chávez is the current president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wants to increase his popularity with the citizens of Venezuela and enacts a government policy that reduces the customer price of gasoline sold at state-owned gas stations to 50% of the pre-policy price. This policy is called a:
price ceiling.
The ratio of the percentage change in the quantity demanded to the percentage change in price is the:
price elasticity of demand.
A price that the government guarantees farmers will receive for a particular crop is a(n):
price floor (price support).
Supply curves tend to be more ________ the greater the time period facing the producer.
price-elastic
If total revenue goes up when price falls, the price elasticity of demand is said to be:
price-elastic.
If a change in price causes total revenue to change in the same direction, we can conclude that the demand is:
price-inelastic.
If the price elasticity of supply is less than 1, then supply is:
price-inelastic.
When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:
price-inelastic.
A competitive market for cell phone chargers is currently in equilibrium. If the price is below the equilibrium price in the cell phone charger market, what will happen to producer surplus?
producer surplus will fall.
The supply curve for a good will be more elastic if:
production inputs are readily available at a relatively low cost.
Price elasticity of demand is calculated as the percent change in:
quantity demanded divided by the percent change in price.
The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will:
reduce the number of students enrolling by less than 5%.
All of the following are characteristics of an elastic demand except: a. specific brands of goods. b. short time periods of adjustment. c. nonessential goods such as take-out food. d. a greater number of substitutes.
short time periods of adjustment.
If an increase in price for cotton increases total revenue, then the price effect is ________ the quantity effect.
stronger than
If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a(n):
substitute for good B.
If you know the cross-price elasticity between two goods is positive, then you know the two goods are:
substitutes.
Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:
substitutes.
If an increase in the price of a good leads to an increase in total revenue, then:
the demand curve must be price inelastic.
If the price of JoBob's Beef Jerky increases in price and JoBob, Inc. makes tens of millions more dollars, then we can safely conclude that:
the demand for JoBob's Beef Jerky is price inelastic.
You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input in the production function at your deli?
the dining room where customers eat their meals
In the long run:
the firm has time to change the level of all inputs.
A good is likely to have an inelastic demand curve if:
the good has few available substitutes.
The price elasticity of a good will tend to be greater:
the longer the relevant time period.
The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at a price of $0.80 per pound, then:
the price ceiling will not affect the market price or output.
The price elasticity of demand for a good such as water is likely to be very low because:
the price is very low.
Total surplus in the market is equal to:
the sum of consumer surplus and producer surplus.
The fact that there is a positive amount of total surplus in a market shows that:
there are gains from trade.
Demand for McDonald's hamburgers is more elastic than demand for hamburgers because:
there are more close substitutes for McDonald's hamburgers than for hamburgers.
When a market is efficient:
there is no way to make some people better off without making other people worse off.
The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at a price of $0.40 per pound, then:
there will be a shortage of the good.
If the price elasticity of demand for beach towels is 1.00, then the demand is _____ and total revenue will ______ if the price of beach towels increases.
unit-elastic; remain unchanged.
Which of the following is most likely to increase consumer surplus in the market for cotton T-shirts?
weather conditions provide for an extremely productive cotton harvest.
Diminishing returns to an input set in:
when some inputs are fixed and some are variable.
If there is a decrease in demand, total surplus:
will decrease.
You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that:
your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic.