Econ Exam 2 P:1234

Which of the following characteristics relate to decreasing returns to scale?

A situation in which as the quantity of output rises, the average cost of production rises.

High-income countries of the world, meaning primarily the United States, Canada, countries of the European Union, and Japan, subsidize their domestic farmers by roughly ________ per day, including the value both of direct subsidies to farmers and indirect subsidies that come in the form of limiting imports of farm products.

$1 billion

Refer to Figure 7-1. With reference to Graph A, at a price of $10, total revenue equals:

$400

Which of the following characteristics relate to normal good?

A good for which the quantity demanded rises when income rises.

What term is used to describe laws that block imports sold below the cost of production and impose tariffs that would increase the price of these imports to reflect their cost of production?

Anti-dumping laws

Which of the following characteristics relate to perfect competition?

Each firm faces many competitors that sell identical products.

Which of the following refers to the elasticity calculated from the appropriate formula has an absolute value greater than 1?

Elastic

What name is given to the long-run process of firms beginning and expanding production when they see opportunity for profits?

Entry

What is meant by increasing returns to scale?

When a larger-scale firm can produce at a lower cost than a smaller-scale firm.

Which of the following characteristics relate to dumping?

Selling internationally traded goods below their cost of production.

Which of the following refers to when a price changes, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price?

Substitution effect

What is meant by marginal cost?

The additional cost of producing one more unit.

Which of the following characteristics relate to utility?

The level of satisfaction or pleasure that people receive from their choices.

What term is used to describes the stipulation that a nation should not depend too heavily on other countries for supplies of certain key products?

The national interest argument

Which of the following characteristics relate to monopolistic competition?

Many firms competing to sell similar but differentiated products.

What term is used to describe all the ways a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products?

Nontariff barriers

Which of the following refers to when a few firms have all or nearly all of the sales in an industry?

Oligopoly

In a perfectly competitive market setting, which of the following would be a true statement?

Wage rates trend toward marginal revenue product levels.

Refer to the budget line shown in the diagram above. At point U,

P1/P2 = MU1/MU2

What term is used to describe the highly inelastic case in which a percentage change in price, no matter how large, results in zero change in the quantity demanded or supplied?

Zero elasticity

Which of the following is the best example of a tariff?

a $1000-per-car fee imposed on all small cars imported

Politicians often argue for tariff increases in order to reduce the nation's dependence on imports. If tariffs are increased, the long-run effect is most likely to be:

a decrease in both American imports and exports.

Which of the following is the best example of a quota?

a limit imposed on the number of men's suits that can be imported from a foreign country

Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.

a systematic way of thinking; misguided conclusions

A tariff differs from a quota in that a tariff is

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

What is meant by race to the bottom?

When production locates in countries with the lowest environmental (or other) standards, putting pressure on all countries to reduce their environmental standards.

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves.

Refer to the table below. In this instance, expansion of output

causes input prices to rise as demand for inputs increases.

When demand is inelastic:

consumers are not very responsive to changes in price

Which of the following characteristics relate to variable costs?

costs of production that increase with the quantity produced.

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

cross-price elasticity of demand for iced tea is -2

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3.

Refer to the diagram above. What is the significance of the point at the top of the backward bending of the supply curve marked L3?

as wages increase over this range, the quantity of hours worked actually decreases

Refer to the diagram above. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply (2) curve?

as wages increase over this range, the quantity of hours worked also increases

Profit-seeking firms make decisions about how much to produce in perfectly competitive industries by using a concept that analyzes all but one of the following. Which one?

average marginal cost

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then

average product is rising.

The _____________________ curve will always lie below the curve for average cost because average cost includes ___________ in the numerator of the calculation.

average variable cost; fixed costs

Marginal utility can

be positive, negative, or zero

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:

accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________.

accounting profit; excluding opportunity cost

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

acquire energy efficient production technologies

Refer to the above diagram. In this instance,

all of the others and the consumer can choose any point on or below the budget constraint line BC.

Substitution and income effects of a change in price of a good may be used to explain the

direct relationship between income and demand.

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

domestic producers can attain the economies of scale to allow them to compete in world markets.

Which of the following is most likely to cause variation in American household spending patterns?

each of the above will cause a variation

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

If the supply curve for housing is perfectly inelastic, a reduction in demand will cause the equilibrium price to:

fall and the equilibrium quantity to stay the same.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

The term Giffen good refers to a theoretical possibility that a higher price for a good could lead to a ____________________, or that a lower price leads to a _______________________.

higher quantity demanded; lesser quantity demanded

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.

income level of each household

A new American import quota on imported steel would be likely to:

increase American production of steel.

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

The key assumption that accompanies the use of numbers for measuring utility is that

individuals choose based on their preferences.

Refer to Figure 7-1. Graph B represents a demand curve that is relatively ____. Total revenue ____ as the price decreases from $10 to $5.

inelastic; decreases

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

A demand or supply curve with ______________ would be horizontal in appearance.

infinite elasticity

"Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:

is essentially correct.

Economists would say tariffs:

limit voluntary exchanges

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:

macaroni is an inferior good and price elasticity of supply is infinite.

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its

marginal revenue is constant.

The step-by-step process of finding the choice with highest total utility involves a comparison of the

marginal utility gained and lost from different choices along the budget constraint.

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross price elasticities are greater than zero

Which of the following applies to the Giffen good theory?

theoretically unrealistic possibility

Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases?

to produce the profit-maximizing quantity of output at the lowest possible average cost

If the supply curve for aspirin is perfectly elastic, a reduction in demand will cause the equilibrium price to:

stay the same and the equilibrium quantity to fall.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease.

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,

total utility rises, but marginal utility falls.

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

one-third

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

physical space for the gallery

In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that

the average product of labor is always equal to the marginal product of labor.

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

preparing to exit operations.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

As a general rule, utility-maximizing choices between consumption goods occur where the

price ratio and marginal utilities ratio of two goods is equal.

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

Price elasticity of demand is defined as:

the percentage change in quantity demanded divided by the percentage change in price.

Tariffs result in a decrease in consumer surplus because:

the price of the protected good increases and quantity consumed decreases.

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.

Which of the following characteristics relate to protectionism?

Government policies to reduce or block imports.

What is meant by marginal revenue product?

How much revenue a firm could receive from hiring an additional worker and selling the output of that worker.

What term is used to describe a firm that faces no competitors?

Monopoly

What is meant by economic profit?

Total revenues minus all of the firm's costs, including opportunity costs.

Economists are able to determine total utility by

summing up the marginal utilities of each unit consumed.

______________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

I'MABigCorp. produces and sells medical imaging products. In order to determine its potential total revenue in the US market, analysts considered both the price of the company's products and quantity that could be produced. Which of the following must also be determined to complete this analysis?

demand for its products and the number of other firms selling similar or identical products

In economics, labor demand is synonymous with

derived demand.

If the demand curve for a life-saving medicine is perfectly inelastic, a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same.