Econ Exam #2

In Exhibit 6-10, at a price of $2, consumer surplus is a. $80 b. $20 c. $160 d. $8 e. $200

a. $80

What is true of marginal cost when marginal returns are decreasing? a. It is zero. b. It is negative. c. It is increasing. d. It is decreasing. e. It has a constant slope.

c. It is increasing.

Carvel advertises a football-shaped ice cream cake for $7; you can buy a second one for only $4. What do they know about consumer preferences? a. Consumers would never buy a second ice cream cake. b. Two cakes are worth less to the consumer than one. c. Marginal utility of ice cream cakes diminishes. d. Consumers only value the first cake at $4. e. Consumers value all cakes they eat at $4.

c. Marginal utility of ice cream cakes diminishes.

Which of the following illustrates the law of diminishing marginal utility? a. The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant. b. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant. c. The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant. d. The total utility of one Coke is greater than the total utility of two Cokes, other things constant. e. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third Coke, other things constant.

c. The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant.

What is the relationship between marginal cost and marginal product? a. The two are not related. b. When marginal product increases, marginal cost increases. c. When marginal product increases, marginal cost falls. d. When marginal product is negative, marginal costs are negative. e. When diminishing marginal returns set in, marginal costs fall.

c. When marginal product increases, marginal cost falls.

The law of diminishing marginal returns states that a. long-run average cost declines as output increases b. if the marginal product is above the average product, the average will rise c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes d. as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes e. if marginal product is positive, total product falls

c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes

If the administration raises tuition on our campus in order to increase revenue, it will a. not be successful if the demand curve slopes downward b. be successful if demand is elastic c. be successful if demand is inelastic d. be successful if supply is elastic e. be successful if supply is inelastic

c. be successful if demand is inelastic

Given the information in Exhibit 7-2, at what point do diminishing marginal returns set in? a. before the first unit of labor b. between the first and second units of labor c. between the second and third units of labor d. between the third and fourth units of labor e. between the fourth and fifth units of labor

c. between the second and third units of labor

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should a. golf more so that the total satisfaction from this activity will increase b. spend less on movies so that the marginal satisfaction from expenditures in this area will increase c. golf less and spend more on movies d. eliminate golfing from his schedule e. golf more since it costs less

c. golf less and spend more on movies

If the demand for a good is elastic, then total revenue a. increases as price increases b. remains constant as quantity demanded increases c. increases as price decreases d. decreases as quantity demanded increases e. decreases as price decreases

c. increases as price decreases

If a firm facing a perfectly elastic demand curve raises its price, a. it will still sell exactly the same amount of output as it did at the lower price b. it will lose some, but not all, of its sales c. its sales will decrease to zero d. its sales will increase e. it is impossible to predict what will happen to its sales

c. its sales will decrease to zero

Economies of scale occur where a. long-run average cost falls as new firms enter the industry b. short-run average cost falls as new firms enter the industry c. long-run average cost falls as one firm expands plant size d. marginal cost falls as one firm expands plant size e. long-run average cost rises as one firm expands plant size

c. long-run average cost falls as one firm expands plant size

What is true of marginal cost when marginal returns are increasing? a. It is zero. b. It is negative. c. It is increasing. d. It is decreasing. e. It has a constant slope.

d. It is decreasing.

"I don't feel so good. I shouldn't have had that last doughnut." Which statement best describes this situation? a. The marginal utility of the last doughnut was positive. b. The marginal utility of doughnuts is still increasing. c. The total utility from eating doughnuts is negative. d. The marginal utility of the last doughnut was negative. e. The marginal utility of the next doughnut will be positive.

d. The marginal utility of the last doughnut was negative.

Suppose Enid could increase her total utility by purchasing one more book and one less video rental. Which of the following is true? a. The marginal utility of video rentals exceeds the marginal utility of books. b. The marginal utility of books exceeds the marginal utility of video rentals. c. The marginal utility of video rentals is negative. d. The marginal utility per dollar spent on books exceeds that of video rentals. e. Total utility is at a maximum.

d. The marginal utility per dollar spent on books exceeds that of video rentals.

Which of the following statements concerning utility is correct? a. It is possible to precisely measure the utility an individual receives from consuming a particular good or service b. It is always possible to determine whether Dalene or Juloy gets more utility from consuming two units of the same good c. The utility of goods can be measured while the same is not true for services d. Utility is a subjective measure of satisfaction an individual receives from consuming a good or service e. It is only useful if there is no scarcity

d. Utility is a subjective measure of satisfaction an individual receives from consuming a good or service

Diminishing marginal utility means that a. as you consume more of a good, other things constant, the total satisfaction you obtain from consuming this good tends to fall b. as you hire more labor, other things constant, the total amount produced begins to fall c. as you hire more labor, other things constant, the marginal product begins to fall d. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall e. as you consume more of a good, other things constant, the extra satisfaction you obtain from each extra good becomes negative

d. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall

Fixed costs are defined as a. the total costs of a firm's production b. the additional cost of the last unit produced c. costs that increase proportionately as the quantity produced increases d. costs that do not vary as quantity produced increases e. implicit costs only

d. costs that do not vary as quantity produced increases

The short run is a period of time a. equal to or less than six months b. during which all resources may be varied c. during which all resources are fixed d. during which at least one resource is fixed e. during which at least one resource may be varied

d. during which at least one resource is fixed

If a price reduction leads to larger total revenue, demand is a. perfectly inelastic b. inelastic c. unit elastic d. elastic e. perfectly elastic

d. elastic

Demand is more elastic a. in the short run than in the long run b. for necessities than for luxuries c. for food than for hamburgers d. for goods with many substitutes than for goods with only a few e. for broadly defined goods than for narrowly defined ones

d. for goods with many substitutes than for goods with only a few

If demand is unit elastic, a price reduction will a. increase revenues b. reduce revenues c. reduce quantity demanded d. have no effect on revenue e. increase profits

d. have no effect on revenue

Given the information in Exhibit 7-2, what is the marginal product of the third unit of labor? a. 45 pairs of shoes b. 25 pairs of shoes c. 15 pairs of shoes d. $45 e. $25

b. 25 pairs of shoes

A perfectly elastic demand curve is... a. a vertical straight line b. a horizontal straight line c. a downward-sloping straight line d. an upward-sloping straight line e. not a straight line

b. a horizontal straight line

When the price is P in Exhibit 6-11, the shaded area represents a. a shortage b. producer surplus c. consumer surplus d. a price floor e. a price ceiling

c. consumer surplus

Quantity Price Old: 20 $40 New: 10 $60 Use the information in Exhibit 5-2 to calculate the value of price elasticity of demand... a. 0.67 b. 0.33 c. 0.6 d. 1.675 e. 1.25

d. 1.675

A variable cost is one that changes a. in the long run only b. in the short run only c. year to year d. month to month e. as output changes

e. as output changes

As a consumer allocates income between good A and good B, total utility is maximized when a. the marginal utility of A = the marginal utility of B b. the marginal utility of A = the marginal utility of B = 0 c. the price of A = price of B d. marginal utility of A/price of A = marginal utility of B/price of B = 0 e. marginal utility of A/price of A = marginal utility of B/price of B

e. marginal utility of A/price of A = marginal utility of B/price of B

If you buy a good, its expected marginal value to you a. is equal to its price b. is greater than its price c. is less than its price d. may be less than or equal to but not greater than its price e. may be greater than or equal to but not less than its price

e. may be greater than or equal to but not less than its price

What happens to consumer surplus as price falls along a given demand curve? a. It always increases. b. It always decreases. c. It never changes. d. It increases only if price increases just a little. e. It depends on the elasticity of demand and supply.

a. It always increases

A perfectly inelastic demand curve is a. a vertical straight line b. a horizontal straight line c. a downward-sloping straight line d. an upward-sloping straight line e. not a straight line

a. a vertical straight line

A good that takes up a very large percentage of the consumer's budget will tend to have a. an elastic demand b. a perfectly elastic demand c. an inelastic demand d. an upward-sloping demand curve e. very many substitutes

a. an elastic demand

The marginal cost curve intersects the average total cost curve (ATC) a. at the ATC's minimum point b. only when the ATC is sloping upward c. at the ATC's maximum point d. only when the ATC is sloping downward e. when the ATC intersects the fixed cost curve

a. at the ATC's minimum point

If marginal cost is less than average total cost, a. average total cost must be falling b. average total cost must be increasing c. average total cost is constant d. average variable = 0 e. average fixed cost must be increasing

a. average total cost must be falling

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is... a. elastic b. inelastic c. unit elastic d. suggestive of an inferior good e. equal to -20

a. elastic

As output increases, diseconomies of scale a. lead to rising long-run average costs b. lead to declining long-run average costs c. lead to rising short-run marginal costs d. lead to declining short-run total cost e. means the law of diminishing marginal returns is affecting production

a. lead to rising long-run average costs

Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MUA/PA exceeds MUB/PB, she can increase total utility by buying a. more A and less B b. more B and less A c. more A without changing her consumption of B d. less B without changing her consumption of A e. more B and more A

a. more A and less B

Demand is unit elastic whenever... a. price elasticity has an absolute value of 1 b. price elasticity has an absolute value greater than 1 c. price elasticity has an absolute value less than 1 d. price elasticity is equal to 0 e. a good is a necessity

a. price elasticity has an absolute value of 1

Which of the following is most likely to be a fixed cost for any firm? a. rental lease on office space b. sales taxes c. shipping and postage costs d. the monthly electric bill e. charitable donations

a. rental lease on office space

If a good is offered to you free of charge, then you a. stop consuming it when its marginal utility equals 0 or becomes negative b. stop consuming it when its marginal utility begins to fall c. stop consuming it when its marginal utility begins to increase d. never stop consuming it e. stop consuming it when its total utility equals 0

a. stop consuming it when its marginal utility equals 0 or becomes negative

If the average height in the classroom were 5 feet 8 inches and Kevin Durant, who is 6 feet 10 inches tall, came in and sat down, a. the average height would rise b. the average height would fall c. the average height would not change d. the average height would rise to 6 feet 10 inches e. the marginal height would be 5 feet 8 inches

a. the average height would rise

Which of the following tends to make demand for a good more elastic? a. A reduction in the number of substitutes for the good. b. Consumers have a long time to adjust to a price change. c. The amount spent on the good is a small proportion of the consumer's budget. d. The good is broadly defined. e. The good is a necessity.

b. Consumers have a long time to adjust to a price change.

Marginal utility is the a. overall satisfaction obtained from consuming a good b. additional satisfaction obtained from consuming one more unit of a good c. average satisfaction obtained from consuming a good d. the change in satisfaction obtained from consuming 1 percent more of a good e. additional cost of one more unit of a good

b. additional satisfaction obtained from consuming one more unit of a good

The long run is a period of time a. during which at least one resource is fixed b. during which all resources are variable c. during which all resources are fixed d. less than one year e. greater than one year

b. during which all resources are variable

The shape of the long-run average cost curve reflects a. market demand b. economies and diseconomies of scale c. increasing and diminishing marginal returns d. productivity of fixed inputs e. all of the above

b. economies and diseconomies of scale

Along a linear demand curve, as the price rises, demand becomes more a. steep b. elastic c. inelastic d. unit elastic e. variable

b. elastic

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is a. perfectly elastic b. elastic c. unit elastic d. inelastic e. perfectly inelastic

b. elastic

Based on the information in Exhibit 5-2, the demand for the good is __________ and an increase in price from $40 to $60 per unit will __________ total revenue... a. unit elastic; increase b. elastic; decrease c. unit elastic; not change d. inelastic; increase e. elastic; increase

b. elastic; decrease

If a firm raises the price of its product, its total revenue will a. always increase b. increase only if demand is price inelastic c. increase only if demand is price elastic d. remain constant, regardless of price elasticity of demand e. never increase

b. increase only if demand is price inelastic

If the managers of a theater plan to raise ticket prices to increase ticket revenues, then they must believe that demand is a. elastic b. inelastic c. unit elastic d. perfectly elastic e. income elastic

b. inelastic

The marginal utility of a second copy of today's New York Times is a. infinite b. practically zero c. positive and greater than the marginal utility of the first copy d. equal to the marginal utility of the first copy e. 50 cents

b. practically zero

Demand is elastic whenever... a. price elasticity has an absolute value of 1 b. price elasticity has an absolute value greater than 1 c. price elasticity has an absolute value less than 1 d. price elasticity is equal to 0 e. consumers respond to a change in price

b. price elasticity has an absolute value greater than 1

Economists assume people's tastes are a. determined solely by advertising b. relatively stable over time c. quite variable d. irrelevant to utility analysis e. identical

b. relatively stable over time

In Exhibit 6-2, where does marginal utility first begin to diminish? a. sometime after the first unit consumed b. sometime after the second unit consumed c. sometime after the third unit consumed d. sometime after the fourth unit consumed e. sometime after the fifth unit consumed

b. sometime after the second unit consumed

Demand is inelastic if.. a. the percentage change in quantity demanded is greater than the percentage change in price b. the percentage change in quantity demanded is less than the percentage change in price c. the percentage change in quantity demanded is equal to the percentage change in price d. the value of price elasticity is equal to 1 e. the value of price elasticity is greater than 1

b. the percentage change in quantity demanded is less than the percentage change in price

Inputs that can be increased or decreased in the short run are called a. fixed inputs b. variable inputs c. economic inputs d. accounting inputs e. normal inputs

b. variable inputs

If the price of a good is 0, a consumer will a. consume all units that have positive total utility b. consume an infinite quantity c. consume all units with positive marginal utility d. consume the entire amount supplied e. consume until total utility becomes 0

c. consume all units with positive marginal utility

For building contractors, doubling the size of an office building does not require double the inputs because there are common walls. This is an example of a. increasing marginal product b. diminishing marginal returns c. economies of scale d. diseconomies of scale e. constant returns to scale

c. economies of scale

Demand is inelastic only if.. a. price elasticity has an absolute value of 1 b. price elasticity has an absolute value greater than 1 c. price elasticity has an absolute value less than 1 d. price elasticity is negative e. consumers do not respond to a change in price

c. price of elasticity had an absolute value less than 1

Increasing marginal returns are generally the result of a. diseconomies of scale b. increasing costs c. specialization and division of labor d. labor unions e. technology

c. specialization and division of labor

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then a. the law of diminishing returns is in effect b. long-run average costs must be decreasing c. the firm is experiencing diseconomies of scale d. the firm should increase production e. the firm is experiencing constant returns to scale

c. the firm is experiencing diseconomies of scale

Marginal product is defined as a. the increase in revenue that occurs when an additional unit of a resource is added b. the increase in output that occurs when all resources are increased by the same proportion c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant d. the amount of additional resources needed to increase output by one unit when all resources are increased by the same amount e. the amount of additional money needed to increase output by one unit when all resources are held constant

c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant

The market demand curve is a. any individual's demand curve multiplied by the number of consumers in the market b. the relationship between income and quantity demanded c. the sum of the individual demand curves for all consumers in the market d. usually upward sloping e. the sum of prices paid at each quantity demanded

c. the sum of the individual demand curves for all consumers in the market

The law of diminishing marginal utility states that a. total utility falls as more of a good is consumed, other things constant b. total utility falls as marginal utility falls, other things constant c. marginal utility rises as total utility increases, other things constant d. marginal utility falls as more of a good is consumed, other things constant e. marginal utility falls as less of a good is consumed, other things constant

d. marginal utility falls as more of a good is consumed, other things constant

To derive a demand curve using utility analysis, a. change a consumer's marginal utilities and note the effect of demand curve changes on market prices b. change a consumer's marginal utilities and note the effect of supply curve changes on market prices c. change a consumer's marginal utilities and note the effect of supply and demand curve changes on market prices d. note how the consumer's utility-maximizing consumption bundle changes in response to price changes e. note how the consumer's utility-maximizing consumption bundle changes in response to demand-curve shifts

d. note how the consumer's utility-maximizing consumption bundle changes in response to price changes

A measure of consumer surplus in any market is a. total expenditure on the good b. the area above the supply curve and below the price c. the area beneath the demand curve d. the area beneath the demand curve and above the price

d. the area beneath the demand curve and above the price

Along a linear demand curve, a. both the slope and price elasticity are constant b. the price elasticity is constant, but the slope varies c. total revenues are constant d. the slope is constant, but the price elasticity varies e. total revenues are negative

d. the slope is constant, but the price elasticity varies

When income is allocated to two goods, x and y, consumer equilibrium occurs when a. MUx = MUy b. MUx = MUy, and the budget is exhausted c. TUx/Py = TUx/Py d. MUx/Py = MUx/Py, and some money is not spent e. MUx/Px = MUy/Py, and the budget is exhausted

e. MUx/Px = MUy/Py, and the budget is exhausted

If a firm is experiencing diminishing marginal returns to labor, which of the following must be true? a. The first workers the firm hired were better than the workers hired later on. b. The firm is experiencing decreasing returns to scale. c. The firm has more than enough space for its current operation. d. Output is decreasing. e. The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.

e. The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.

Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This is an example of a. production inefficiency b. diminishing marginal returns c. diseconomies of scale d. constant returns to scale e. economies of scale

e. economies of scale

If Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180, that $20 saved is a. his reservation price b. the store's producer surplus c. his total expenditure d. his marginal utility e. his consumer surplus

e. his consumer surplus

When marginal product is decreasing, marginal cost is a. less than zero b. equal to zero c. constant d. decreasing e. increasing

e. increasing