ECON101
If the price of lotion is $5 and the price of hats is $10, Fred's income is $_______ .
20
If a monopolist is currently producing at a point at which marginal revenue is greater than marginal cost, then the firm
could increase profit by producing more.
A normal good is a good for which
demand increases when consumers are richer.
If the percentage change in the quantity demanded is large compared to the percentage change in the price, then
demand is elastic
If the percentage change in the quantity demanded is smaller than the percentage change in the price, then
demand is inelastic.
If the firm produces a quantity at which total cost exceeds total revenue, then
economic profit is negative.
When demand is elastic
the quantity effect dominates the price effect.
elastic; decrease
there are more substitutes available
The upward slope of a total product curve shows that
output increases as more of a variable input is used.
The concept of a utility function represents the fact that
people make choices in a rational way.
If the demand curve is vertical, demand is ____________.
perfectly inelastic
For normal goods, the income elasticity of demand is
positive.
If two goods are substitutes, then the cross-price elasticity of demand between them is
positive.
Price floors generate a deadweight loss because they
prevent mutually beneficial transactions from occurring.
For a perfectly competitive firm, marginal revenue is equal to
price
The marginal utility per dollar spent on a good is the marginal utility of the last unit consumed divided by the _______ of the good.
price
The practice of charging different prices to different customers for the same good is known as
price discrimination.
The ___________ is the ratio of the percentage change in the quantity demanded to the percentage change in the price.
price elasticity of demand
The ___________ is the ratio of the percentage change in the quantity supplied to the percentage change in the price.
price elasticity of supply
limits the price that a monopolist is allowed to charge.
price regulation
The optimal output rule for a price-taking firm is to
produce at the point at which price is equal to marginal cost of the last unit produced.
A perfectly competitive firm will maximize profit by
producing at the point at which marginal revenue equals the marginal cost of the last unit produced.
The relationship between a firm's inputs and its quantity of output is known as the
production function.
What is the amount of profit earned by a monopolist producing 200 units at an average total cost of $6 per unit, if the current selling price is $8?
$400
The graph shows the cost structure of a perfectly competitive firm. At which of the indicated prices would the firm choose to shut down immediately?
$6
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm chooses to produce 20 units, what price will be charged?
$75
The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. What is the marginal cost of producing the sixth pound of cherries?
$8
If the demand for clothing increases by 8% when income increases by 10%, the income elasticity of clothing is ______.
0.8
Dan sells his firewood in a competitive market. If there are 200 other identical producers, at a price of $140 per load, the quantity supplied on the short-run industry supply curve is ______ loads.
1,000
These three points lie along the demand curve for admission to the local aquarium: P = $50; Q = 15 P = $40; Q = 21 P = $30; Q = 27 Using the midpoint formula, what is the price elasticity of demand between a price of $30 and a price of $50?
1.142
When the price of a pizza is $22, the Equinox Pizza Emporium sells 27 pizzas per hour. When the price is lowered to $18, they sell 35 pizzas per hour. Use these numbers to calculate the elasticity of demand for the Equinox Pizza Emporium, according to the midpoint formula.
1.29
A local artist making refrigerator magnets raises her price from $3.50 to $4.50 and finds that her quantity demanded falls from 70 per week to 50 per week. Use these numbers to calculate the elasticity of demand for her refrigerator magnets, according to the midpoint formula.
1.33
These three points lie along the demand curve for admission to the local aquarium: P = $50; Q = 15 P = $40; Q = 21 P = $30; Q = 27 Using the midpoint formula, what is the price elasticity of demand between a price of $40 and a price of $50?
1.50
When the price of bicycles is $300, 6 bicycles are supplied. When the price increases to $400, 10 bicycles are supplied. Using the midpoint method, the price elasticity of supply is _____.
1.75
The table shows the total utility that Shanka derives from iPod Shuffles and Birkenstocks. The price of the iPod Shuffles is $50, and the price of the Birkenstocks is $100. Shanka's income is $300.
10 -The marginal utility per dollar of the first iPod is the marginal utility (500) divided by the price $50 = 10.
Sergio has $15 to spend on two goods: DVD rentals and cherry sodas. The price of each DVD rental is $3, and the price of each cherry soda is $1. His utility function values for each of these two goods are given in the table above. What is Sergio's marginal utility from the third cherry soda?
15 utils
The table above gives Solana's utility functions for two goods she consumes: tomato soup and grilled cheese sandwiches. What is Solana's utility from the fourth cup of tomato soup?
16
Sergio has $15 to spend on two goods: DVD rentals and cherry sodas. The price of each DVD rental is $3, and the price of each cherry soda is $1. His utility function values for each of these two goods are given in the table above. What is Sergio's marginal utility from the second cherry soda?
20 utils
If the price elasticity of aspirin is 0.4 and the price increases by 60%, the quantity demanded decreases by ______%.
24
The table above gives Solana's utility functions for two goods she consumes: tomato soup and grilled cheese sandwiches. What is Solana's marginal utility from the second cup of tomato soup?
25
The table above gives Natasha's total utility for different quantities of hot chocolate consumed. How much marginal utility does Natasha derive from the fifth cup of hot chocolate consumed?
25 utils
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. What is the firm's profit-maximizing quantity?
250
When the demand for a product increases
both the equilibrium price and quantity will increase.
A natural monopoly is an industry
characterized by increasing returns to scale.
Assuming a normal good, according to the income effect, when the price of a good increases,
consumers buy less of it because their purchasing power has decreased.
John is currently maximizing total utility consuming pizza and soda. If the price of soda increases, then the marginal utility per dollar of soda will _______.
decrease
Along a given demand curve, an increase in price of the product will
decrease the quantity demanded.
Look at the figure Long-Run Average Cost. This firm has ________ in the output region from 0 to A.
increasing returns to scale
The price elasticity of demand for cigarettes is likely to be
inelastic. -The demand for cigarettes is inelastic because there are few substitutes.
If the price elasticity of demand for digital cameras is 0.88, then the demand is _____ and total revenue will ______ if the price of cameras increases.
inelastic; increase
If the price elasticity of demand for oranges is 0.65, then the demand is _____ and total revenue will ______ if the price of oranges increases
inelastic; increase
If the income elasticity is negative, the good is a(n)
inferior good.
price taking consumer
is a consumer whose actions have no effect on the market price of the good or service he or she buys.
Price taking producer
is a producer whose actions have no effect on the market price of the good or service it sells.
The monopolist's demand curve
is the market demand curve.
The supply of a good is relatively more elastic when
it is easy for firms to expand production of the good.
The table above gives Solana's utility functions for two goods she consumes: tomato soup and grilled cheese sandwiches. Which of the following statements is FALSE?
Solana will maximize her utility by spending an equal amount on both goods.
A patent gives a firm
a temporary monopoly
An increase in supply of a good is caused by
an increase in the number of sellers.
The demand for a good is income-inelastic if the income elasticity is
between zero and 1.
Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm's economic profit in the long run will be:
$0
The graph shows the cost structure of a perfectly competitive firm. When the market price is $11, what is the firm's level of profit?
$0
If you sell 15 quilts for $80 each, your total revenue is
$1,200
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm produces 250 units, what is the firm's level of profit?
$1,250
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm chooses to produce 20 units, what will be the amount of its total revenue?
$1,500
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm produces 250 units, what is the amount of total cost incurred
$1,500
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm produces 250 units, what is the amount of total cost incurred?
$1,500
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the marginal cost of increasing output from 1 client to 2 clients?
$10
The graph shows the cost structure of a perfectly competitive firm. At which of the indicated prices would the firm be earning zero economic profit?
$11
Sergio has $15 to spend on two goods: DVD rentals and cherry sodas. The price of each DVD rental is $3, and the price of each cherry soda is $1. His utility function values for each of these two goods are given in the table above. At Sergio's optimal consumption bundle, how much will he be spending on DVD rentals?
$12
The graph shows the cost structure of a perfectly competitive firm. At which of the indicated prices would the firm be earning a positive economic profit?
$14
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the marginal cost of increasing output from 2 clients to 3 clients?
$15
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. What is the average variable cost when 5 clients are served?
$19
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the marginal cost of increasing output from 5 clients to 6 clients?
$25
The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, then when the long-run equilibrium is reestablished, the price will be:
$3.25
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the average total cost of serving 5 clients?
$33
The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. What is the marginal cost of producing the fifth pound of cherries?
$4
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If the firm chooses to produce 20 units, what will be the amount of its profit?
$400
If a 10 percent increase in the price of lodging at a ski resort causes a 12 percent decrease in the quantity of skis rented, then the cross-price elasticity of demand between lodging and ski rentals is
-1.20
The graph shows the cost structure of a perfectly competitive firm. What quantity would the firm produce at a market price of $6?
0
If a 20 percent decrease in the price of sapphires causes a 15 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is
0.75
The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6.
300 -According to the table, the total utility of 1 bottle of suntan lotion is 300.
Given the graph, if the monopolist perfectly price discriminates, monopoly profit will be $______.
32
If James' marginal and average costs are $10, total revenue is $_______ at the profit-maximizing output.
39
Sergio has $15 to spend on two goods: DVD rentals and cherry sodas. The price of each DVD rental is $3, and the price of each cherry soda is $1. His utility function values for each of these two goods are given in the table above. What is Sergio's optimal consumption bundle?
4 DVD rentals and 3 cherry sodas
The table above gives Solana's utility functions for two goods she consumes: tomato soup and grilled cheese sandwiches. If the price of tomato soup is $2 per cup and the price of a grilled cheese sandwich is $3, what is Solana's optimal consumption bundle when she has a $17 budget to spend on these two goods?
4 cups of tomato soup and 3 grilled cheese sandwiches
The table above gives the production function for Andrew's Garage. If labor is the variable input and number of cars serviced is the output, what is the total product of labor when 6 workers are hired?
42
The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. What is the profit-maximizing quantity of cherries?
5 pounds
Sergio has $15 to spend on two goods: DVD rentals and cherry sodas. The price of each DVD rental is $3, and the price of each cherry soda is $1. His utility function values for each of these two goods are given in the table above. What is Sergio's marginal utility from the second DVD rental?
60 utils
The table above gives the production function for Andrew's Garage. If labor is the variable input and number of cars serviced is the output, what is the marginal product of labor when the number of workers rises from 2 to 3?
8
If Amy's income increases so she has $18 to spend on food. Tacos cost $2 each and pizzas cost $6 each. If she spends all of her money on tacos, she can buy ______ tacos.
9
Assuming that hardcover books are a normal good, which of the following could cause a decrease in demand for hardcover books?
A decrease in incomes
Assuming that yarn and knitting needles are complements, which of the following would cause an increase in the demand for yarn?
A lower price of knitting needles
________ illustrates a direct relationship between price and quantity.
A supply curve
Assuming that paperback books are an inferior good, which of the following could cause a decrease in demand for paperback books?
An increase in incomes
Assuming that ice cream is a normal good, which of the following could cause an increase in the demand for ice cream?
An increase in the price of substitutes for ice cream, such as frozen yogurt
Which of the following is the best example of a commodity in a perfectly competitive industry?
Apples
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. Which of the following statements is true?
At the profit-maximizing point, price is above marginal cost.
Which of the following will continually decrease as output increases?
Average fixed cost
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If we were to regulate this firm so as to eliminate the deadweight loss, what quantity would we have the firm produce?
Between 300 and 350 units
Which of the following statements is true?
Both price floors and price ceilings create incentives for illegal activities. -The illegal activities result from attempts to conduct transactions at a price other than the legally specified price.
Which of the following statements is true?
Both price floors and price ceilings result in wasted resources.
The table above gives Natasha's total utility for different quantities of hot chocolate consumed. Which of the following statements is TRUE?
For Natasha, hot chocolate is characterized by diminishing marginal utility.
The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the numbers you would put in the total cost column, and then choose the one statement below that is TRUE.
For output levels of three or more clients per day, marginal cost is increasing.
Which of the following would cause a decrease in the supply of wool sweaters?
Higher prices of wool
The table above gives Natasha's total utility for different quantities of hot chocolate consumed. Which of the following statements is FALSE?
Natasha prefers less hot chocolate to more.
A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?
P = MR = MC = ATC.
Once the monopolist finds the profit-maximizing quantity, how is the price determined?
Price will be found on the demand curve.
Who benefits from a system of rent control?
Tenants in rent-controlled apartments
Which statement below best describes the monopolist's strategy?
The monopolist seeks to produce at the point at which profit is maximized.
The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. Which of the following statements is FALSE?
The profit-maximizing point occurs when marginal cost equals average total cost.
Which of the following equations is true?
Total Cost = Fixed Cost + Variable Cost
What is on the vertical axis when we draw a total cost curve?
Total cost
_______ is the price of the product times the amount sold.
Total revenue
A competitive market is
Where many people produce the same product
Which of the following would not cause the supply curve to shift?
a change in the price of the good
A movement along the supply curve is caused by
a change in the price of the good or service.
A newspaper story recently reported that the price of new cars has decreased and the quantity of new cars sold has dropped. The new price and quantity could have been caused by:
a decrease in buyers' incomes.
If demand is elastic, then a 5% increase in price will cause
a decrease in quantity demanded of more than 5%.
Short-run and long-run average total cost curves differ because
a firm can choose its fixed cost in the long run.
A price ceiling is
a maximum price established by government intervention.
A price floor is
a minimum price established by government intervention -result in surplus
The sole supplier of a good with no close substitutes is
a monopolist
A horizontal demand curve is
a perfectly elastic demand
A vertical demand curve is
a perfectly inelastic demand.
Our approach to consumer behavior is based on the idea that
a person will make choices to maximize his or her satisfaction.
A price floor or a price ceiling is an example of
a price control
The minimum wage, which sets a lower limit on the wages that workers can earn, is often above the equilibrium price. The minimum wage is an example of
a price floor
Sales will be inefficiently allocated among sellers when
a price floor is imposed above the equilibrium price.
A deadweight loss is
a reduction in total surplus due to the fact that some potentially beneficial transactions are prevented from occurring.
A price ceiling imposed below the equilibrium price of a good will
a shortage of the good.
A demand schedule is
a table showing how much of a good consumers will buy at different prices. -From a demand schedule, we can construct a demand curve.
In the long run,
all of a firm's costs are variable costs
When the price of a good changes, the substitution effect is the
amount of the quantity change due to the fact that the consumer will substitute relatively cheaper goods in place of more expensive ones.
When the price of a good changes, the income effect is the
amount of the quantity change due to the fact that there has been a change in the purchasing power of the consumer's income.
An increase in supply is caused by:
an advancement in the technology for producing the good.
In recent years, stainless steel kitchen appliances have become more popular. This change has caused
an increase in demand for stainless steel appliances.
An increase in supply of a good is caused by:
an increase in the number of sellers.
If a price floor is imposed above the equilibrium price in a market, it will result in
an inefficiently low quantity of the good being consumed. -This inefficiently low quantity will result in a deadweight loss
Government policies used to prevent or eliminate monopolies are called ______ policy.
antitrust
The short run is the period of time in which
at least one input is fixed.
Clothing is a necessity, so the income-elasticity for clothing is
between zero and 1
The expectation of higher prices for heating oil in the future would cause a(n)_____ in the current supply of heating oil, thereby causing the current supply curve to shift to the _____ .
decrease; left
Total revenue will remain unchanged following a price increase if
demand is unit-elastic.
De Beers was created as a monopolist to control nearly all of the world's supply of
diamonds
A decrease in production costs for firms in a perfectly competitive market will cause a(n):
economic profit for firms in the short run
It is common in large beer breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate under:
economies of scale.
If the period for adjustment is very long, supply is likely to be _______.
elastic
If the time period for adjustment is very long, demand is likely to be _______.
elastic
The price elasticity of demand for European vacations is likely to be
elastic
If the price elasticity of demand for coffeemakers is 1.15, then the demand is _____ and total revenue will ______ if the price of coffeemakers increases.
elastic; decrease
If the price elasticity of demand for concert tickets is 2.12, then the demand is _____ and total revenue will ______ if the price of concert tickets increases.
elastic; decrease
The difference between long run and short run is that the long run allows for
entry and exit of firms.
To maximize utility, the marginal utility per dollar of good A should be _______ the marginal utility of good B.
equal to
Demand is unit elastic when the price elasticity of demand is
equal to 1
a natural monopoly
exists when increasing returns to scale provide a large cost advantage to a single firm that produces all of an industry's output.
French fries and hamburgers are complements. Suppose the cost of the ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then the equilibrium relative price of french fries ________ and the equilibrium quantity ________.
falls; decreases
A quota in the market for Alaskan king crabs set below the equilibrium quantity will decrease the price of Alaskan king crabs.
false
The minimum price that buyers are required to pay for a good or service is a price ceiling.
false
True or False? Producer surplus is a measure of the satisfaction a consumer derives from consuming a good or service.
false
True or False? The price elasticity of demand is the percent change in the quantity supplied divided by the percent change in the quantity demanded.
false
True or False? The price elasticity of supply is the percent change in the quantity supplied divided by the percent change in the quantity demanded.
false
True or False? The principle of diminishing marginal utility is always true.
false
When economic profits in an industry are zero:
firms are doing as well as they could do in other markets.
Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:
firms leaving the industry
If a bakery adds a new oven, this is an example of a change in a(n) _______ input.
fixed
The spreading effect refers to the fact that
fixed costs are spread across more units of output when quantity produced increases.
An input whose quantity is fixed for a period of time is known as a
fixed input.
Demand is elastic when the price elasticity of demand is
greater than 1
The demand for a good is income-elastic if the income elasticity is
greater than 1
If there are no obstacles to new firms entering the pet-sitting industry, then we can say that this industry
has free entry
When we say that the demand curve slopes downward, we mean that
higher prices are associated with lower quantities demanded.
A leftward shift in the supply of carrot cake could arise from
higher prices for carrots.
The percentage change in the demand for a good divided by the percentage change in income is __________.
income elasticity of demand
Price-discriminating firms will impose a price structure that offers customers with a ________ demand a ________ price and offers customers with a(n) ________ demand a ________ price.
less elastic; higher; more elastic; lower
A local community college charges lower tuition fees to local town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a ________ for attending the community college than residents.
less price-elastic demand
Demand is inelastic when the price elasticity of demand is
less than 1
If Nerd Squad computer repair company is in the elastic part of its demand curve, in order to increase total revenue it should
lower prices
Suppose that the price elasticity of demand for Elton John concert tickets is 1.6 for students and 0.7 for their parents. If Elton John wants to increase revenue, he should
lower prices for students and raise prices for their parents.
Significant increases in the minimum wage have the effect of
making it harder for workers to find jobs.
At quantities above the minimum-cost output
marginal cost is greater thanaveragetotal cost and average total cost is rising.
At quantities below the minimum-cost output,
marginal cost is less than average total cost and average total cost is falling.
The change in total cost arising from producing one more unit of output is known as
marginal cost.
A monopolist maximizes profit by producing at the point where
marginal revenue is equal to marginal cost.
The change in total revenue generated by one additional unit of output is known as
marginal revenue.
The change in total utility that a consumer gets by consuming 1 more unit of a good or service is called __________.
marginal utility
The marginal utility curve shows how
marginal utility depends on the quantity of a good or service already being consumed.
The change in utility derived from consuming one more unit of a good or service is known as
marginal utility.
The optimal consumption bundle is the one that
maximizes total utility given the budget constraint
The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium relative price of digital cameras ________ and the equilibrium quantity ________.
may increase, decrease, or stay the same; increases
Liz spends all her income and consumes 3 ice cream cones and 2 milkshakes per week. The marginal utility per dollar of the ice cream cones is 12 and the marginal utility per dollar of milkshakes is 9. In order to maximize utility, Liz should consume
more ice cream cones and fewer milkshakes.
If two goods are complements, then the cross-price elasticity of demand between them is
negative
The budget line has a(n) ________ slope.
negative
The slope of a long-run average total cost curve exhibiting increasing returns to scale is
negative
For inferior goods, the income elasticity of demand is
negative.
A __________ arises when the value of a good to the consumer rises as the number of people who also use the good increases.
network externality
If demand is perfectly inelastic, then a 5% increase in price will cause
no change in quantity demanded.
If supply is perfectly inelastic, then a 5 percent increase in the price of the good would cause
no change in quantity supplied.
In a perfectly competitive market,
no one market participant will be able to influence price.
When the price of a product decreases, the substitution effect causes the quantity demanded to change in the _______ direction as the price change.
opposite
The combination of goods that maximizes total utility given a budget constraint is the ______.
optimal consumption bundle
The typical supply curve illustrates that:
other things equal, the quantity supplied for a good is positively related to the price of a good.
According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:
purchase more of the now less expensive good.
If the price of a good is held above the equilibrium price
quantity demanded will exceed quantity supplied
If the price of a good is held below the equilibrium price,
quantity demanded will exceed quantity supplied.
An upper limit on the amount of a good that can be transacted is known as
quota
The total amount of the good that can be legally transacted is the
quota limit
When a quota creates a difference between the demand price and the supply price of a good, the name given to this difference is
quota rent.
If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:
relatively price-elastic.
The supply of a good is likely to be more elastic if
resources are readily available and relatively low cost.
Price elasticity of demand is a measure of
responsiveness.
Price regulation may be used in cases of natural monopoly with the goal of
setting a price equal to average total cost.
The long-run average total cost curve is made up of a series of ________ curves.
short-run average total cost
A rightward shift of the demand curve shows that
something has happened to cause a higher quantity demanded at every given price.
A leftward shift of the demand curve shows that
something has happened to cause a lower quantity demanded at every given price. -something has happened to cause a lower quantity demanded at every given price.
A good is a(n) ________ product when the good is identical even if it comes from different producers.
standardized
A vertical demand curve is perfectly inelastic.
straight line
If the price of coffee cups falls and the consumer decides to buy more coffee cups solely because they are less expensive, this describes the:
substitution effect.
Equilibrium quantity will always increase if
supply and demand both increase.
The market price of airline flights increased recently. Some economists suggest that the price increased because several airlines went out of business. They believe that in the market for flights:
supply decreased.
If the percentage change in the quantity is large compared to the percentage change in the price, then the
supply is elastic.
Free entry and exit in an industry guarantees
that the number of producers will adjust to changing market conditions.
The marginal utility per dollar spent on a good is
the additional utility gained by spending one more dollar on that good or service.
Rent control creates an inefficient allocation of resources due to the fact that
the apartments are not necessarily allocated to those who value them most.
Marginal cost is
the change in total cost divided by the change in output.
If there is a widely held expectation that prices of cotton will be higher next year, then
the demand for cotton will increase today.
The concept of the optimal consumption bundle helps us understand
the downward slope of demand.
Together, the income and substitution effects account for
the downward slope of the demand curve.
Cross-price elasticity measures
the effect of changes in one good's price on the quantity demanded of the other good.
When demand increases at the same time that supply decreases,
the equilibrium price rises but the change in equilibrium quantity is ambiguous.
When the supply of a product increases
the equilibrium price will decrease and equilibrium quantity will increase. -This is shown as a rightward shift of supply
When the supply of a product decreases
the equilibrium price will increase and equilibrium quantity will decrease -This is shown as a leftward shift of supply.
When demand increases at the same time that supply decreases
the equilibrium quantity falls but the change in equilibrium price is ambiguous
When demand and supply decrease simultaneously
the equilibrium quantity falls but the change in equilibrium price is ambiguous.
the equilibrium quantity falls but the change in equilibrium price is ambiguous
the equilibrium quantity rises but the change in equilibrium price is ambiguous.
When demand and supply increase simultaneously
the equilibrium quantity rises but the change in equilibrium price is ambiguous. -The equilibrium quantity rises because there is now more of a need for something that is relatively easier to bring to market.
We would say that the demand for sports cars is income-elastic if
the income elasticity of demand for sports cars is greater than 1.
The luxurious meals that airlines once provided on transatlantic flights were an example of
the inefficiently high quality arising from a price floor. -The meals were provided as a way of competing for customers, when competing on the basis of price was forbidden
Under conditions of perfect price discrimination,
the monopolist will capture all of consumer surplus as profit for the firm.
In comparing monopoly and perfect competition, we see that
the monopolist will produce a smaller quantity and charge a higher price.
The price effect explains why
the monopolist's marginal revenue curve lies below the demand curve.
The price elasticity of demand is
the percentage change in the quantity demanded divided by the percentage change in the price.
The short-run individual supply curve of the firm is
the portion of its marginal cost curve above average variable cost.
When demand is inelastic
the price effect dominates the quantity effect.
Along a demand curve with a constant slope
the price elasticity of demand will be greater at higher prices than at lower prices.
Once a patent expires
the price of the good will decrease, and economic efficiency will be improved.
When demand is elastic,
the quantity effect dominates the price effect.
Supply is perfectly inelastic when
the quantity supplied does not respond at all to a change in the price
If a price floor is imposed above the equilibrium price
the quantity supplied will be higher than it would be otherwise
Your utility function is
the relationship between your consumption bundle and the total amount of utility it provides
The slope of a consumer's budget line is determined by
the relative prices of the two goods
Sadia wants to practice price discrimination in her bakery. Which of the following techniques should Sadia not use?
the same price for all consumers for freshly baked goods
The diminishing returns of a variable input will account for
the upward slope of marginal cost.
When long-run average total cost increases as output increases
there are decreasing returns to scale
When long-run average total cost declines as output increases
there are increasing returns to scale
Price ceilings typically lead to inefficiencies because
they misallocate resources -Price ceilings prevent some potentially beneficial transactions.
Average total cost is equal to
total cost divided by quantity produced.
The demand for movie tickets is elastic, so when the price increases,
total revenue decreases because the quantity effect is stronger than the price effect.
A monopolist's profit is equal to
total revenue minus total cost.
True or False? According to the substitution effect, if the price of apples increases compared to the price of oranges, consumers will consume more oranges.
true
True or False? Cross-price elasticity is equal to the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.
true
True or False? The demand for gasoline is more elastic over a period of 5 years than a period of 5 days.
true
True or False? When a good accounts for only a small share of a consumer's spending, the substitution effect is essentially the complete explanation of why the individual's demand curve slopes downward.
true
Paying an annual fee to belong to a discount club like Sam's Club or Costco is a(n) _____.
two-part tariff
One way in which monopoly differs from perfect competition is that
under monopoly, there will be a positive economic profit.
If the price elasticity of demand for beach towels is 1.00, then the demand is _____ and total revenue will ______ if the price of beach towels increases.
unit-elastic; remain unchanged.
The relationship between the total utility generated and a consumer's consumption bundle is known as a
utility function.
An input whose quantity the firm can vary at any point in time is known as a
variable input
A price floor imposed above the equilibrium price of a good
will cause a surplus
A Giffen good is a good
with an upward-sloping demand curve
