Econ102: Final Review

Which of the following characteristics best defines a common-resource good?

rival and nonexcludable

When making personal buying decisions, two important issues to consider are the:

satisfaction you receive from the choices that you make and the constraints of a limited budget.

If the cost of flour (which is used to make bagels) increases from $3 to $5 a bag, you could predict the supply curve for bagels to:

shift to the left.

A tax on producers would cause the __________ curve(s) to shift to the ___________.

supply; left

Zumba classes sell all 20 participant spots at a price of $4.50 each. When the instructor raised the prices to $5.50, 10 people attended the class. From the midpoint method, the price elasticity of demand for Zumba is:

-3.33.

The gap between the average total cost (ATC) and average variable cost (AVC) curves represents:

average fixed cost.

As you move left along the demand curve, the price elasticity of demand:

becomes more elastic.

Who benefits from voluntary trade between two parties?

both parties

The Coase theorem suggests that private parties:

can negotiate to correct a negative externality if there are no barriers to negotiation.

Microeconomics is the branch of economics that focuses on the:

choices and decision-making of individuals and firms.

Social welfare is measured as the sum of:

consumer surplus and producer surplus.

An expectation of a lower price in the future will:

decrease current demand.

Opportunity cost is the _________ alternative forfeited when a choice is made.

highest-valued

Economics is the study of:

how to allocate resources to satisfy wants and needs.

Oil is a main component in the manufacture of plastic bags. If the price of oil were to increase, the price of plastic bags would:

increase and quantity would decrease.

When marginal utility is positive, total utility:

increases.

When the average total cost curve is at its minimum, we know that the:

marginal cost curve intersects the average total cost curve.

The change in total cost divided by the change in output is also known as:

marginal cost.

The additional satisfaction derived from consuming one more unit of a good or service is called:

marginal utility.

A firm's decisions are ultimately oriented toward:

maximizing profit.

If a price ceiling is imposed at $15 per unit when the equilibrium market price is $12, there will be:

no surplus or shortage.

The real-income effect:

occurs when there is a change in purchasing power as a result of the change in the price of a good.

When pollution (a negative externality) is created by firms, which of the following is not a valid way for the government to restore the social optimum?

offer a subsidy to firms to reduce their production costs

Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:

the demand curve for Coke shift to the right.

If the price of a good increases, holding all else constant,

the demand for all of that good's substitutes will increase.

Suppose you are studying a production possibilities frontier (PPF) that has a bowed-out shape relative to the origin. What causes this shape?

the law of increasing relative cost.

Producer surplus is the difference between:

the price the producer receives and the willingness to sell a good.

According to the law of demand, all other things being equal,

the quantity demanded falls when the price rises, and the quantity demanded rises when price falls.

When output is 100 units, the firm's total fixed cost is $500. What will this firm's total fixed cost be if output doubles to 200 units?

$500

Which of the following is a macroeconomic question?

What is the rate of unemployment?

The term____________ means "additional."

"marginal"

Muddy's Bakery and Lilly's Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy's is willing to sell a cupcake for as little as $1.65; Lilly's is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

$1.60

Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie?

$15

If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?

$40,000

Suppose your favorite ice cream flavor, strawberry, costs $1.50 per cone and chocolate costs $1.00 per cone. If you receive 10 utils when you eat chocolate ice cream, how many utils would you need to get from eating strawberry ice cream to make you indifferent between purchasing the two flavors?

15

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 5 employees; with 5 employees, her bakery can produce 7 wedding cakes per day. If she hired a sixth employee, she'd be able to produce 9 wedding cakes per day. Therefore, the marginal product of the sixth employee is ________ wedding cake(s).

2

Which of the following will cause the demand curve for burgers to shift to the right?

A study is published by the National Association for Burger Research that says eating burgers can reduce heart disease.

Which of the following is an accurate statement about the consequence of a binding price ceiling?

Binding price ceilings encourage the formation of a black market.

Which of the following would cause the demand curve to shift to the right?

Income decreases for an inferior good. 4 (b/c it is divisible by other numbers)

Which of the following would cause a normal good's demand curve to shift to the left?

Income decreases.

When the average total cost curve is downward-sloping, what must be true about the marginal cost curve?

It is below the average total cost curve.

Which of the following is a positive statement?

Legally requiring dogs to have rabies shots will reduce the number of rabid dogs.

As more people migrated West during the gold rush, what do you think happened to the demand curve in most Western markets, holding all else constant?

The demand curve shifted to the right.

What would you expect to happen to the price of bagels if the price of flour (which is used to make bagels) decreased and the price of cream cheese (a product consumed with bagels) decreased?

The equilibrium price of bagels will be indeterminate and the equilibrium quantity will go up.

Pepsi and Coke are substitutes. What would you expect to happen to the price and quantity of Pepsi if the price of Coke increases and Pepsi develops new technology that makes its production process more efficient?

The equilibrium price will be indeterminate and the equilibrium quantity will go up.

What will happen in a market where a nonbinding price ceiling is removed?

The price and quantity will not change in the legal market.

Which of the following will cause a movement along a good's supply curve?

The price of the good increases.

A nonbinding price floor has the following consequences:

There are no consequences to a nonbinding price floor.

Which of the following is a normative statement?

Winters in Arkansas are too cold.

If a price floor is imposed at $15 per unit when the equilibrium market price is $12, there will be:

a surplus.

An external cost is best defined as the cost of an activity paid for by:

a third party.

When the price elasticity of demand of softballs is relatively elastic, a __________ in price will raise total revenue. When the price elasticity of demand is relatively inelastic, the seller should ________ the price to increase total revenue.

decrease; raise

Ceteris paribus, if a society is producing at a point on the possibilities frontier (PPF), it can only increase the production of one good by:

decreasing the production of the second good.

A tax on consumers would cause the ________ curve(s) to shift to the _________.

demand; left

Consumer surplus is defined as the:

difference between the willingness to pay for a good and the price paid to get it.

Comparative advantage emerges because of the presence of:

differing opportunity costs.

A big concern with trying to measure utility is that:

each individual has a unique personal scale for her or his utility measures.

Steve owns a bike store. He currently sells 1,200 bikes per year. If he doubles the size of his store so he can sell 2,400 bikes per year and his long-run average total cost per bike decreases, we know that Steve is experiencing:

economies of scale.

Gatorade and Powerade are substitutes. If the price of Gatorade increases, the

equilibrium price of Powerade will increase because of a shift in demand.

The costs or benefits of a market activity that affect a third party are called:

externalities.

Because of scarcity:

individuals and societies must choose which wants and needs to satisfy.

Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or Pepsi products. Nita's demand for Coca-Cola will be relatively more ________, while Becky's demand will be relatively more ________.

inelastic; elastic

A demand schedule:

is a table representing the relationship between the price of a good or service and the quantity demanded.

A society that is producing its maximum combination of goods and using all available resources for production:

is operating on its production possibilities frontier (PPF).

A person has a comparative advantage in the production of a good when she or he can produce the product at a(n)______________ opportunity cost compared to another person.

lower

Ceteris paribus means:

other things being equal.

A free-rider problem exists when:

people receive a benefit they do not need to pay for.

Kevin tells the manager at Moo's Ice Cream that he won't buy any ice cream cones costing more than $2, but he will buy a limitless number at any price of $2 or less. His elasticity of demand for ice cream cones is:

perfectly elastic.

A tax creates no deadweight loss only when demand is:

perfectly inelastic.

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is:

perfectly inelastic.

A parent that pays a child an allowance for doing chores is providing a(n)

positive incentive.

The minimum wage law is an example of a:

price floor.

A good that is rival and excludable is defined as a:

private good.

Total revenue minus total cost is equal to:

profit.

Price elasticity of demand measures the change in:

quantity demanded due to the change in price.

When the price of a good or service changes there are two effects: the:

real-income effect and the substitution effect.

When the price elasticity of demand is elastic, a consumer is:

relatively responsive to a change in price.

An example of a binding price ceiling is:

rent control that is set below the equilibrium price.

A real-life example of a binding price ceiling is:

rent control.

Which of the following is true?

social costs = internal costs + external costs

Consider a market with a positive externality. The market will tend to _________ the good because the market participants tend to ignore the __________ of their decision.

under-produce; external benefit

If a firm experiences diseconomies of scale, its long-run average cost curve is:

upward-sloping