ECON 2302 CHAPTER 16 REVIEW

What is used to measure the sensitivity of resource quantity to changes in resource prices along a fixed resource demand curve?

Elasticity of resource demand

In a competitive resource market, a firm is a price ______.

taker

In a purely competitive labor market, market supply and market demand establish ______.

the wage rate

Given the table, the total cost for 5 units of labor and 1 unit of capital is ______, and it ______ the least-cost combination.

$52; is not

The derived demand for an input will rise when it is highly productive in ______.

-reducing the costs to produce a product -producing a highly valued commodity

Which of the following is true concerning resource productivity and demand?

An increase in the productivity of a resource will increase the demand for the resource and vice versa.

Match the following conditions regarding the elasticity of resource demand.

(Erd > 1) - resource demand is elastic (Erd < 1) - resource demand is inelastic (Erd = 1) - resource demand is unit-elastic

Which of the following correctly summarize the coefficients of the elasticity of resource demand?

*When the elasticity of resource demand equals 1, resource demand is unit-elastic. *When the elasticity of resource demand is less than 1, resource demand is inelastic. *When the elasticity of resource demand is greater than 1, resource demand is elastic.

Derived demand for a resource depends on ______.

- the productivity of the resource used to create the good or service - the price or value received from the product it produces

Which of the following summarizes the changes in demand in the resource market as a result of an increase or decrease in product demand?

-An increase in the demand for a product will increase the demand for a resource used in its production. -A decrease in the demand for a product will decrease the demand for a resource used in its production.

What can shift the resource demand curve?

-Prices of other resources -Resource productivity -Product demand

The 4th of July weekend has arrived. Millions of people go to the beach for the long holiday weekend. Which of the following scenarios illustrates demand derived from this holiday?

-Restaurants double their meat and produce orders -Local communities hire extra life guards

The determinants of the elasticity of resource demand are ______.

-elasticity of product demand -ratio of resource cost to total cost -ease of resource substitutability

Two of the ten fastest-growing occupations in percentage terms that are related to health care include ______.

-home care aides -physician assistants

The expenditures that firms incur in acquiring economic resources flow to households in the form of ______.

-profit -interest -rent -wages

What is the rule that guides profit-seeking firms when deciding to hire more labor or use more of a specific resource?

Add additional units of the resource when each successive unit adds more to a firm's total revenue than it adds to its total cost.

Which of the following statements is true about the effects of product demand for a product on the resource demand market?

An increase in the demand will increase the demand for a resource used in its production, and vice versa.

What is measured by the percentage change in resource quantity divided by the percentage change in resource price?

Elasticity of resource demand

True or false: The marginal revenue product (MRP) of the imperfectly competitive seller falls for two reasons, MP diminishes and product price falls as output decreases.

False

True or false: The substitution and output effects are both present when the price of an input changes, and they work and change in the same direction.

False

Five of the ten fastest-growing occupations in percentage terms are related to which industry?

Health care

The marginal revenue product (MRP) of the imperfectly competitive seller falls for two reasons, because ______.

MP diminishes and product price falls as output increases

Which of the following shows that a purely competitive firm has achieved profit maximization?

MRPL / PL= MRPC / PC = 1

What is it called when income is distributed in society according to the contribution of the resource to society's output?

Marginal productivity theory of income distribution.

True or false: The level of derived demand for a good or service used in the production of other goods and services is based upon that input's level of productivity in helping reduce the cost of producing the finished product.

TRUE

Which of the following examples show derived demand?

The demand for piles of rock comes from the demand for limestone benches and building blocks.

Which of the following are inversely related and are present when the cost of an input changes?

The substitution and output effects.

What curve shows the various total amounts of the resource that firms will purchase or hire at various resource prices?

The total, or market demand curve for a specific resource.

How do firms' expenditures on economic resources affect households?

These expenditures become income for the households that supply the resources.

How do firms approach the amount of resources they use over the long run?

They can vary the amounts of all the resources they use.

Given the table, what is the least-cost combination of labor and capital that should be used to produce 50 units of output?

Three units of labor and two units of capital

When the last dollar spent on each resource yields the same marginal product ______.

a firm is producing a specific output with the least-cost combination of resources.

Unlike the least-cost rule where as long as the ratios of both equations are the same and equal (ex. 20/4 = 10/2 = 5/1 = 5), when the ratio between the two equations for the profit-maximizing rule each always equal 1 (ex. 10/10 = 5/5), then the purely competitive firm has ______.

achieved profit maximization.

If an increase in the quantity of one resource used in the production process requires an increase in the quantity used of another resource and vice versa, then the resources ______.

are complementary.

The total, or market, _________ curve for a specific resource shows the various total amounts of the resource that firms will purchase or hire at various resource prices, other things equal.

demand

Ease of substitutability, elasticity of product demand and the ratio of resource cost to total cost are all factors that ______.

determine the elasticity of resource demand

The ______ of resource demand is the sensitivity of resource quantity to changes in resource prices.

elasticity

If a person agrees that resources should be paid based upon the value of their creation, then income payments based on marginal revenue product provide a fair and ____ distribution of society's income.

equitable

Resource prices are a major factor in determining households' ______.

incomes

When the productivity of a product resource increases and makes a firm's product more efficient and or effective, it will (increase/decrease) the demand for the resource, and should the productivity of a resource decline, it will (increase/decrease) the demand for the resource.

increase, decrease

Other things equal, an increase in the demand for a product will ____ the demand for a resource used in its production, whereas a decrease in product demand will ______the demand for that resource.

increase; decrease

A firm is producing a specific output with the least-cost combination of resources when the ______.

last dollar spent on each resource yields the same marginal product.

In the resource market, the output effect means that a firm will purchase ______ of one particular input when the price of the other input falls and _____of that particular input when the price of the other input rises.

more; less

A change in quantity of a resource demanded is represented by ______.

movement from one point to another on a fixed resource demand curve.

Changes in quantity of a resource demanded are caused by a change in the ______.

price of a specific resource.

When the sale of a firm's total output of a product in a purely competitive product market has no effect on the market price, this makes the firm a __________.

price taker

The output effect means that a firm will:

purchase more of one input when the price of another input falls and less of that particular input when the price of the other input rises

In the figure, an increase in the wage rate from $5 to $7 will reduce the ______.

quantity demanded for labor from 5 to 4 units

In the figure, an increase in the wage rate (price) from $5 to $7 on the MRP = D curve has been caused by a change in the ____ ____ of labor at different wage rates rather than a distinct change in ________ for labor causing the MRP = D curve to shift. (Enter one word for each blank)

quantity, demanded, demand

To maximize profit, a firm should add additional units of a specific resource as long as each successive unit adds more to the firm's total ____________ than it adds to the firm's total ___________.

revenue; cost