ECON FINAL EXAM

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:

$400.

***** How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?

***** They decrease the quantity of apples supplied.

***** Refer to Figure 3-1. Using the graph above and beginning on D1, a shift to D2 would indicate a(n):

***** decrease in demand.

The graph below shows the market for milk where the government imposes a price floor of $5. Fill in the blanks below with the correct terms and numbers up to two decimal places. 1.)After the price floor is in place, how many units of milk are bought/sold?______ Gallons 2.)The market does not clear after the price floor is imposed. Rather, there is a ____________ of __________ gallons

1.) 2.93 gallons 2.) Surplus of 3.66 gallons

The graph to the below right shows the market for corn with a price ceiling of $7. Fill in the blanks below with the correct terms and numbers. 1.) After the price ceiling is in place, how many bushels of corn are bought/sold? 2.)The market is not in equilibrium after the price ceiling is imposed. Rather, there is a _____________ of __________ bushels

1.) 5 2.) Shortage of 5.86 bushels

Review the following figure. Suppose the price of gasoline is $1.60 per gallon. 1.) What would happen to the quantity demanded? 2.) What would happen to the quantity supplied? 3.) At $1.60, is the market in equilibrium, a shortage, or a surplus?

1.) Fall 2.) Rise 3.) Surplus

The table shows the cost and revenue information for a perfectly (or purely) competitive firm that produces external hard drives. How many units should this firm produce to maximize profits?

14

What is the difference between fixed costs and variable costs?

A fixed cost is one that does not vary with output, such as the cost of a building or land, whereas a variable cost increases with output, such as labor or supplies

Which of the following statements most likely lies within the realm of microeconomics?

An increase in labor costs will increase the additional cost of producing another unit of a good or service

The supply and demand conditions for a manufacturing firm are given in the table above. The third column represents a supply curve without taking the social cost of pollution into account. The fourth column represents the supply curve when the firm is required to take the social cost of pollution into account. Identify the equilibrium before the social cost of production is included and after the social cost of production is included.

Before: $15,440 After: $30, 410

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?

Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.

Which of the following best characterizes the circular flow of income?

Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:

Buyers and sellers

_________ arises when firms act together to reduce output and keep prices high.

Collusion

_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economies of scale

__________________ law implies ownership over an idea or concept or image

Intellectual property

Other things being equal, a __________ supply of workers tends to __________ real wages.

Larger; decrease

In the ________, the perfectly competitive firm will react to losses by __________________________ .

Long run; reducing production or shutting down

The term _________________ refers to the additional utility provided by one additional unit of consumption.

Marginal Utility

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

____________________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.

Negative externality

Refer to Figure 4-1. The movement from __________ to __________ is consistent with a successful advertising campaign that claims wool keeps you warm.

Point A; Point F

Consider the following graph which depicts a single competitive firm that wishes to maximize profits given its costs of production. What is the profit-maximizing rule for this firm?

Produce output such that marginal revenue equals marginal cost.

The graph above shows the costs, revenue, and demand facing a monopolistically competitive firm. Refer to the graph to answer the question below. The area covered by the rectangle A B D C is the firm\'s:

Profit

How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?

The demand curve of a perfectively competitive firm is horizontal, while a monopolists demand curve is downward sloping.

Suppose that the graph above represents the market for financial capital in Yemen. How does an increase in the budget deficit of Yemen affect its equilibrium interest rate?

The equilibrium interest rate increases since the demand curve for financial capital shifts to the right.

What is the price elasticity of demand?

The extent to which quantity demanded responds to a change in price.

In an economic context, what is the "tragedy of the commons?"

The idea that people overuse or misuse a resource when property rights are not clearly defined.

Review the following figure. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market?

There would be a shortage of gasoline.

The graph above shows the costs, revenue, and demand facing a monopolistically competitive firm. Refer to the graph to answer the question below. The area covered by the rectangle C D E F is the firm\'s:

Total cost

The graph above shows the costs, revenue, and demand facing a monopolistically competitive firm. Refer to the graph to answer the question below. The area covered by the rectangle A B E F is the firm\'s:

Total revenue

In the figure above, Sacha Gillette reduces her output from7750 to 5750 dozen eggs when the price temporarily falls to ​$ 2.10.At this price and this output​ level, she is operating at a loss. Of the ones listed, what best option does Gillette have in this​ situation?

Try to cut her costs of production to decrease the loss in the short run.

Which of the following would most likely shift the production possibilities curve inward?

a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

The imposition of a price ceiling on a market often results in:

a shortage

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

A positive externality arises in a situation where a third party, outside the transaction,

benefits from a market transaction by others.

Antitrust laws were created to give government the power to

block certain mergers and break up large firms into smaller ones.

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

Refer to Figure above. A change from Point A to Point B represents a(n):

decrease in quantity demanded.

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

diminishing marginal utility

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.

elastic

Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits.

fails to allocate resources efficiently

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 demand curve as perceived by a perfectly competitive firm is __________ .

flat

An inferior good is a product:

for which demand decreases as income increases.

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a ______________ .

free rider

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

Fig.3.3 Refer to Figure 3-3. A change from Point A to Point B represents a(n):

increase in quantity supplied.

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.

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

inelastic; decreases

A price ceiling

is a legal maximum on the price at which a good can be sold.

Scarcity implies that:

it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.

Why would a typical U.S. business fail to take the social costs of pollution into consideration during the development of their operating strategies?

it isn't required to pay any of the cost of cleaning up its pollution

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

law of diminishing marginal utility

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

As a person receives more of a good, the _______________ from each additional unit of the good declines.

marginal utility

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.

monopolistic competition

The demand curve for a typical good has a(n):

negative slope because some consumers switch to other goods as the price rises.

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

nonexcludable

A public good is a good that is ____________________ , and thus is difficult for market producers to sell to individual consumers.

nonexcludable and nonrivalrous

Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .

patent; a limited time

What role does the US government play with respect to market competition?

policing anticompetitive behavior and prohibiting contracts that restrict competition

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

For a positive externality, _________________________than the social benefits.

private benefits of an action are less

For a negative externality, the __________________________ than the costs imposed on society as a whole.

private costs of an action are less

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to

select the profit maximizing quantity to produce

A monopolistically competitive firm may earn abnormally high profits in the

short term, but the process of entry will drive those profits to zero in the long run.

The term ____________ refers to a market exchange that affects a third party who is outside or external to the exchange.

spillover

Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are

substitute goods.

If a government chooses a system of marketable permits as its environmental managing tool, the reduction in pollution will

take place in the firms where it is least expensive to do so.

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A positive externality that can result is

the bees helping to pollinate the orchard, leading to more fruit.

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A negative externality that can result is

the possibility of the bees stinging the students at the school.

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

If one firm operating in an oligopoly raises its price and other firms do not do so,

the sales of the firm that increased its price will decline sharply.

Refer to the diagram below. In this instance, at the range of output represented at point b,

total costs exceed total revenues.

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.