FINAL EXAM REVIEW

Normative conclusions

involve value judgments.

The amount by which total cost rises when the firm produces one additional unit of output is called

marginal cost

The competitive firm's short-run supply curve is its

marginal cost curve, but only the portion above the minimum of average variable cost.

Public policies

may be able to improve both economic efficiency or equality

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate.

10/3 toothbrushes and Portugals opportunity cost of one hairbrush is 6/5

A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that

value has increased to sellers and cost to produce has decreased

Total surplus in a market is equal to

value to buyers - costs of sellers.

Refer to Figure 3-18. The opportunity cost of 1 bowl for Juba is

3/2 cups

Refer to Figure 6-18. The amount of the tax per unit is

$14

Refer to Table 4-12. If only members are allowed to purchase tickets to this year's celebrity golf tournament, then what will be the equilibrium price?

$20

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

$60

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

(8/5) = 1.6 squash

Rent control

- is an example of price ceiling -leads to a larger shortage of apartments in the long run than in the short run -leads to lower rents and, in the long run, to lower-quality housing

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

-1.3 (negative)

Refer to Figure 5-1. Between point A and point B, the slope is equal to

-1/4 and price elasticity of demand is 3/2

Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

0.56

Refer to Figure 7-22. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus to producers already in the market would be

1,200

Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $4 and $5?

1.80

Refer to Figure 2-6. The opportunity cost of this economy moving from point I to point F is

120 pillows

Refer to Table 3-11. Assume that Max and Min each has 36 labor hours available. If each person divides his/her time equally between the production of mittens and hats, then total production is

18 mittens and 7.5 hats

Refer to Table 3-3. Which of the following combinations of cheese and wine could England not produce in 40 hours?

26 units of cheese and 4 units of wine

Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for $3,000. Michael's willingness to pay is

3,500

Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)

A + B.

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?

Dylan receives a salary for his work as a financial analyst for an investment firm.

Refer to Figure 2-8. Which point on the graph best represents the fact that, because resources are scarce, not every conceivable outcome is feasible?

Point L

Which of the following is a positive, as opposed to a normative, statement?

The US Department of Justice sued AT&T to block its merger with T-Mobile.

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

U.S. government maintained a price ceiling

Refer to Figure 4-5. Which of the following would cause the demand curve to shift from Demand B to Demand A in the market for oranges in the United States?

a decrease in the price of apples

What is the shape of the monopolist's marginal revenue curve?

a downward-sloping line that lies below the demand curve

Which of the following is not a short-run effect of rent control on the housing market?

a large shortage

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

at their efficient scale

Refer to Table 6-2. A price ceiling set at $5 will

be binding and result in a shortage of 250

Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level. Which country can benefit?

both

Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate.

brad has an advantage and wheat and Theresa has an advantage in beef

Refer to Table 4-2. Whose demand does not obey the law of demand?

carries

Refer to Table 3-40. Germany should specialize in the production of

cars and import boats

When demand is elastic, a decrease in price will cause

decrease in total revenue

Equilibrium quantity must decrease when demand

decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

When a tax is placed on the buyers of tennis racquets, the size of the tennis racquet market

decreases, but the price paid by buyers increases.

Which of the following events must cause equilibrium quantity to fall?

demand and supply both decrease

With perfect price discrimination the monopoly

eliminates deadweight loss

The consumption of water by local residents that may include pesticide runoff from local farmers' fields is an example of

externalities

Refer to Figure 2-6. A movement from point H to point K could be caused by

fewer resources are avaliable

Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of dollars, then the inner loop includes

flow of inputs from households to firms

An increase in the price of a good would

give producers an incentive to produce more

Refer to Figure 6-19. Suppose a tax of $4 per unit is imposed on this market. What will be the new quantity in this market?

greater than 100 units

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good.

Refer to Figure 6-33. Based upon the diagram,

incidence of tax falls more heavily on sellers

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

income elasticity of demand is negative.

If the government removes a binding price ceiling from a market, then the price received by sellers will

increase and the price received by sellers will increase

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.

increase in both the milk and beef markets

Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $5 doll in six weeks. Funsters should

increase the supply of its doll now before the other doll hits the market.

Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the solid horizontal line on the graph. If the price control is a price floor, then the price control

means that some firms will not be able to sell what they want

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes

neither consumer nor producer surplus. (it's not legal!)

Refer to Figure 3-15. If Perry and Jordan each spends all of his/her time producing the good in which s/he has a comparative advantage and trade takes place at a price of 1 novel for 7 poems, then

neither will gain from this trade

Refer to Figure 5-3. Which demand curve is unit elastic?

none of the above

Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, so it would not engage in foreign trade. From an economic perspective, this idea would

not make sense as long as Xenophobia had a comparative advantage in some good.

When quantity demanded increases at every possible price, the demand curve has

not shifted, rather moved along the demand curve

The phrase "no such thing as a free lunch" means

people face trade-offs

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for convertible automobiles of an increase in the price of steel?

point c to d

When a binding price floor is imposed on a market,

price no longer serves as a rationing device

Refer to Figure 7-21. When the price is P1, area C represents

producer surplus

Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should

rent the room

A decrease in quantity demanded

results in a movement upward and to the left along a demand curve.

Which of the following words and phrases best captures the notion of equality?

sameness

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

should be counted only to the extent that they are more expensive at college than elsewhere

Economic models

simplified versions of reality used to analyze real-world economic situations and no different than scientific models

Efficiency means that

society is getting the maximum benefits from its scarce resources

Market failure is the inability of

some unregulated markets to allocate resources efficiently.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

A rational decisionmaker takes an action if and only if

the marginal benefit exceeds the marginal cost

In an economy in which decisions are guided by prices and individual self-interest, there is

the potential to achieve efficiency

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates

the ticket price is below the equilibrium price.

Refer to Table 3-36. Antigua has a comparative advantage in the production of

towels and barbuda has the competitive advantage in the production of umbrellas