ECON 1123 Exam 2 study guide

A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firm's revenue is:

$100

When the price of a good increases by 300%, the quantity supplied of the good increases from 200 units to 900 units. The price elasticity of supply of the good is:

1.17

The total cost of a firm is $50, the average variable cost is $2, and the average fixed cost is $3. How may units of the output does the firm produce?

10 units

Assume that a consumer can spend $20 on two goods-pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumers budget constraint?

2 pens and 5 pencils

A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is:

22 units.

A firm earns $600 of total revenue from selling its product at $200 per unit. If the per-unit cost of producing the good is $150, the firm sells _______ units(s) of the good.

3

In a perfectly competitive market, situations of surplus or shortage of a good:

are self-corrected due to the competitive nature of the market.

The long-run average cost curve connects the lower part of the short-run cost curves because:

in the long run, firms have more flexibility to change input combinations.

Assume that a combination of 10 bottles of wine and 2 cartons of milk lies on a consumer's budget constraint. If the price of one bottle of wine is $10, and one carton of milk is $1, what is the consumer's income?

$102

Refer to the figure above. If the price of a sweater is $3 and the budget constraint of the consumer is B3, his income is:

$135

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________.

$3

Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $18?

$3,000

A firm sells 30 units of its product at a price of $5 per unit. It incurs a fixed cost of $100 and a variable cost of $20. The firm's profit is:

$30

A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose:

$300 every month.

When the price of milk is $3 per bottle, Steve purchases 20 bottles of milk. When the price increases to $6, Steve's consumption falls to 15 bottles. Steve's elasticity of demand for milk is:

-0.25

Sharon consumes 10 chocolates when the price of one chocolate is $2. If her elasticity of demand for chocolates is -1, she consumes ________ chocolates when the price increases to $4.

0

Refer to the table above. What is the market demand for wine when the price is $3?

50 units

Refer to the table above. What is the market demand for wine when the price is $1?

76 units

Which of the following is NOT an example of a market?

A city requires homeowners to pay $500 for putting in a sidewalk on their street

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

A fall in the price of pens

Which of the following statements correctly describes a perfectly competitive market?

All participants in a perfectly competitive market are price-takers

At a price of $5 per table, the quantity supplied of tables is 500 units whereas the quantity demanded is 660 units. Given this information, which of the following statements is true?

At $5 per table, there is a shortage in the market.

At a price of $1 per table, the quantity supplied of tables is 100 units, whereas the quantity demanded is 70 units. Given this information, which of the following statements is true?

At a price of $1 per table, there is a surplus in the market.

marginal product of labor equation

Change in production Output/ change in input Labor

Which of the following examples best describes the concept of free entry?

Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off.

The automobile market in the United States is often said to be highly competitive. But it is not perfectly competitive. What makes this market not perfectly competitive?

Different car companies make different vehicles with different features

Which of the following statements is true of the concept of willingness to pay?

If a consumer is consuming 10 units of a commodity and she is ready to pay $2 for the eleventh unit, her willingness to pay for the eleventh unit is $2

Which of the following inputs can be changed in the short run?

Labor Employed

Which of the following is an example of specialization?

Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process.

An optimizing consumer has to choose between two goods-Good A priced at P_{A} and Good B priced at P_{B}. Given that MB_{A} is the marginal benefit from consuming Good A and MB_{B} is the marginal benefit from consuming Good B, the consumer's well-being will be maximized at the point where:

MB_{A}/P_{A} = MB_{B}/P_{B}

Which of the following statements is true of the short run?

Only some of a firm's input can be varied in the short run.

Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2019 was $25 and 60 units, respectively. In 2020, the equilibrium price of Z had decreased to $15 and the equilibrium quantity had also decreased to 50 units. Other things remaining the same, which of the following could explain this change?

Shift of the demand curve for Z to the left

Z is a normal good. The equilibrium price and quantity of Z in the year 2019 was $25 and 60 units, respectively. In 2020, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change?

Shift of the supply curve of Z to the left

Which of the following situations depicts diseconomies of scale?

The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units.

Firm A and Firm B produce the same goods but with different inputs. If the inputs used by firm A are more easily available than the inputs used by firm B, then which of the following statements is true?

The elasticity of supply of firm A will be higher than the elasticity of supply of firm B

A firm uses workers, land, and machinery for its production process. Which of the following statements is then true?

The firm can change its output level in the long run by changing any or all of its three inputs.

Which of the following examples best approximates a competitive market?

The market for soybeans in the United States

Suppose the prices of a pair of jeans, a shirt, and a tie are $30, $20, and $10 respectively. Which of the following statements is true in this context?

The opportunity cost of buying a shirt is 2 ties.

The following figure displays John's budget constraint when he spends his income on tables and chairs. Refer to the figure above. Which of the following statements is true?

The opportunity cost of buying one chair is 5 tables.

Which of the following statements is true of the long run?

There are no fixed inputs in the long run.

The following figure illustrates the budget constraint of a consumer of jeans and sweaters. Refer to the figure above. A change in the budget constraint from B1 to B2 indicates:

a decrease in the price of sweaters.

If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

a higher price and a lower quantity.

Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

a higher price and quantity.

If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

a higher quantity and the same price.

In a marketplace, prices_________.

act as incentives that allow for the efficient allocation of resources.

In the long run:

all factors of production can be changed.

Refer to the figure above. A change in the budget constraint from B2 to B3 indicates

an increase in the consumer's income.

Other things remaining same, a right shift in the demand curve will lead to:

an increase in the equilibrium price and the equilibrium quantity.

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

budget constraint

A price ceiling imposed by the government:

can create situations of excess demand

A buyer is said to be a price taker if she:

can purchase any amount of a good at a fixed price provided she has the money to pay for it.

A good is said to have a relatively elastic demand if the value of price elasticity is:

greater than 1.

At all the points above the midpoint on a linear demand curve, the value of price elasticity of demand is:

greater than one.

The buyers of a good will want to purchase it as long as their willingness to pay for the good is__________.

greater than or equal to the price

While making a purchase decision using marginal thinking, a buyer should buy the good that yields the:

highest marginal benefit per dollar spent.

Willingness to pay:

is the highest price that a buyer is willing and able to pay for a unit of good.

If with a small decrease in the price of a good, the quantity supplied falls to zero, the supply of the good is said to be:

perfectly elastic.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot leftward along the vertical axis.

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

pivots leftward without a change in the intercept on the horizontal axis.

The percentage change in the quantity demanded of a good due to a percentage change in its price is referred to as the:

price elasticity of demand.

An expected increase in the market price of oil in the coming year is likely to __________ in the current year.

shift the supply curve of oil to the left

A surplus occurs in a market when ___________.

supply exceeds demand

Negative values of the price elasticity of demand of a good can be attributed to:

the Law of Demand

The quantity demanded of a good is___________.

the amount of the good that buyers are willing to purchase at a given market price

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

the opportunity cost of buying sweaters increases.

If a good has a price elasticity of demand equal to 0, ___________.

the quantity demanded is completely unaffected by a change in its price

A production function establishes the relationship between:

the quantity of inputs used and the quantity of output produced.

The general rule for benefit maximization suggests that in personal equilibrium:

the ratio of marginal benefits to price should be identical across all goods.