MICRO FINAL - FRIDAY QUIZZES
A tax imposed on the sellers of a good will
raise the price paid by buyers and lower the equilibrium quantity.
In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will
reduce output and raise price.
If marginal cost exceeds marginal revenue, a profit-maximizing firm should
reduce output until marginal cost equals marginal revenue.
In an oligopolistic market, if rival sellers act independently, each will have a strong incentive to
reduce price in order to increase sales and gain a larger share of the total market.
Many economists believe a general sales tax (particularly on items such as food) takes a larger proportion of income from low-income households than from high-income households. If this is true, a general sales tax is a
regressive tax.
Other things equal, when the supply of workers is scarce, one would predict that market wages would be
relatively high.
Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that
resources can rise in value if diverted away from that particular industry.
If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will
restrict output to increase the price even higher.
In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will
result in a market price that is lower than the efficient one.
Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would
result in a price that is lower than the efficient price for both goods.
As firms exit a competitive price-searcher market, profits of remaining firms
rise and product diversity in the market decreases.
Other things constant, an increase in consumer income will
shift the demand curve for automobiles to the right.
Over time, an increase in a nation's stock of physical capital will
shift the production possibilities curve outward.
As a general rule, technological progress
shifts the production possibilities curve outward, away from the origin.
The law of diminishing marginal returns explains the general shape of the firm's
short-run cost curves.
If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should
shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.
In a price-taker market, economic losses indicate that
some firms have miscalculated, producing goods that are less valuable than the resources used to make them.
If the government wants to raise tax revenue and shift most of the tax burden to the consumers, it would impose a tax on a good with a
steep (inelastic) demand curve and a flat (elastic) supply curve.
Low-skill workers earn a lower wage than more experienced, higher skilled workers because the
supply of low-skill workers is large relative to the demand for workers in this skill category.
Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect
the population of chickens to rise and the population of cows to fall.
Sebastian drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Sebastian is rational in deciding how many cans to buy. His consumer surplus is
$0.85.
Which of the following will most likely result from a destruction of half of the Florida orange crop due to a late-season freeze?
An increase in the price of oranges.
A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $1,000. The owner's cost of utilities is $100 if the house is unoccupied but $300 if the owner rents it out. If the owner wishes to minimize her losses from the house while away, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.)
$200
(use table to answer) What is the marginal cost of producing the third unit of output?
$44
Jonathan notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?
$7
Which of the following is part of the economic way of thinking?
(all of the above) - Opportunity costs will always be incurred when scarce resources are used to produce a good. - When the cost of an option increases, individuals will be less likely to choose it. - In addition to their immediate direct effects, economic actions often generate secondary effects that are observable only after the passage of time.
Which of the following is true of resources?
(all of the above) - Resources are inputs used to produce goods and services. - Human resources reflect the skills and productive knowledge of human beings. - With the passage of time, investment activities can increase the availability of resources.
When a good is nonexcludable,
(all of the above) - it is impossible or very costly to exclude nonpaying customers from receiving the good. - individuals will have an incentive to become free riders. - it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production.
Compared to a situation where transaction costs are zero, the existence of transaction costs
(all of the above) - will reduce the volume of trade. - will reduce the gains from trade. - may lead some buyers and sellers to employ middlemen.
Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?
2
Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is
2.5.
Suppose a market is initially competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, which of the following would be expected?
A decrease in market output and an increase in the price of the product.
Which of the following about price discrimination is true?
A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand.
Which of the following is the most likely outcome of minimum wage laws?
An increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms.
There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?
Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business.
Which of the following best explains why making automobiles completely safe is not efficient?
After some level of safety is reached, making cars even safer will not be worth the additional cost.
Which of the following would increase a firm's average total costs?
An increase in input prices.
Which of the following best illustrates the concept of "derived demand"?
An increase in the demand for bread leads to an increase in the demand for flour.
Which of the following most clearly illustrates the concept of "derived demand"?
An increase in the demand for new houses leads to an increase in the demand for construction workers.
Which of the following will become smaller and smaller as the firm expands output?
Average fixed cost.
Farmers can choose to produce cabbage or peaches. If there is an increase in the price of peaches then what will be the effect in the cabbage market?
Cabbage supply will decrease.
Which of the following are illegal under the antitrust laws of the United States?
Collusive behavior or other actions designed to create a monopoly or cartel.
Which of the following is a normative economic statement?
Companies should be concerned with more than just their profits.
Which of the following best explains why productive workers can command high wages?
Competition among employers for productive workers.
Which of the following is necessary for the invisible hand of market prices to work properly?
Competition and property rights that are well-defined and enforced.
Which of the following constitutes a barrier limiting the entry of potential competitors into a market?
Control over an essential resource.
Regarding automation, which of the following is true?
Cost-reducing automated production techniques will expand output directly and/or release scarce resources for the expansion of output in other areas.
Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?
New firms would enter the market, resulting in fewer sales by existing firms.
In which of the following cases will the total spending on a good decrease?
Demand is elastic, and price increases.
Which of the following is the primary source of cross-country differences in the real earnings of workers?
Differences in output per worker.
Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?
Egg supply will decrease.
Which of the following is most likely to reduce the market wage rate in a job category?
Employees have considerable flexibility in choosing their work hours.
If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?
Encourage farmers to grow less wheat.
Which of the following is true of entrepreneurship?
Entrepreneurial discovery is an important source of economic growth and higher living standards.
Assume that supply decreases greatly and demand decreases slightly. Which of the following will happen?
Equilibrium price will rise and equilibrium quantity will fall.
Suppose demand increases and supply increases. Which of the following will happen?
Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.
There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?
Firms will exit the market, and the product price will rise.
Which one of the following statements about pitfalls in economic decision making is correct?
Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.
Which of the following about wage discrimination is true?
If employers can hire equally productive minority employees at a lower wage than non-minorities, the profit motive provides a strong incentive to do so.
Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?
In the short run, economic profits would be earned by the earliest firms adopting the technology.
With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?
Instituting a tax policy encouraging investment at the expense of consumption.
If price rises, what happens to the demand for a product?
It does not change.
If a firm has a U-shaped long-run average cost curve,
It must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production
If the price of airline tickets falls, what will happen to the demand curve for flight attendants?
It will shift to the left.
Benjamin takes 10 minutes to iron a pair of pants and 20 minutes to type a paper. Logan takes 10 minutes to iron a pair of pants and 30 minutes to type a paper. Which of the following statements is correct?
Logan has a comparative advantage in ironing.
Which of the following must be true if average total costs are rising?
Marginal costs must be greater than average total costs.
Which of the following is true of America's millionaires?
Millionaires are far more likely than others to be self-employed entrepreneurs.
Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?
Noah gains $1,000 of value, and Emily gains $3,000 of value.
Which of the following statements is correct about the economic way of thinking?
Opportunity costs will always be incurred when scarce resources are used to produce a good.
If Penelope's marginal benefit as a consumer in the shoes market is larger than the price of a pair of shoes,
Penelope can benefit by purchasing more shoes.
If the demand for a good decreased, what would be the effect on the equilibrium price and quantity?
Price would decrease, and quantity would decrease.
In a market economy, which of the following is most important if one is going to achieve high earnings?
Providing goods and/or services that others value highly.
A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
Raise price and lower output.
Which of the following is a positive economic statement?
Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase.
When would sunk costs be irrelevant for current decision making?
Sunk cost are always irrelevant when making current decisions.
Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation?
Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.
Which of the following would most likely increase the price of automobiles?
The United Auto Workers union obtaining a substantial wage increase for auto workers.
Which of the following about costs is true?
The difference between the ATC and AVC curves will decline as output expands.
Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?
The efficient outcome would be less than 325 units.
Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?
The efficient price would be higher than $49.
If there is an increase in both the supply and demand for a good, which of the following will definitely occur?
The equilibrium quantity will increase.
Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true?
The firm will make less profit than it could at the $10 price
If a $2 tax per bottle of wine is imposed on wine producers, which of the following will occur?
The price of wine will increase, fewer bottles will be purchased, and there will be a deadweight loss from this tax.
What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?
The supply of wheat would fall.
If a construction boom leads to an increase in the price of lumber, how will the higher lumber prices influence the wood furniture market?
The supply of wood furniture will decline, and furniture prices will increase.
Which of the following about trade is true?
The value of a good generally depends on who uses it and circumstances such as when and where it is used.
If carpentry positions A and B required identical skill levels, other things constant, which one of the following would most likely increase the wage rate of position A relative to position B?
The work place of position A is in the intense heat of the sun, whereas the work place of B is air-conditioned.
Which of the following explains why monopoly is uncommon in the real world?
There are reasonable substitutes for most goods.
Which of the following statements about entrepreneurs is most accurate?
They will prosper if they undertake projects that increase the value of the resources.
Which of the following describes a situation in which demand must be elastic?
Total revenue decreases when the price of toothpaste rises.
Which of the following is true with regard to value and exchange?
Transaction costs reduce our ability to gain from potentially advantageous trades.
If you paid $100 for a truckload of lettuce on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?
Whatever you can get for it.
If Xavier can produce sandwiches at a lower opportunity cost than Kimani, then
Xavier has a comparative advantage in the production of sandwiches.
Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend Emily eight hours to type a paper or two hours to mow the lawn. Which of the following is true?
You have a comparative advantage in typing.
Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend Gabriela eight hours to type a paper or two hours to mow the lawn. Which of the following is true?
You have a comparative advantage in typing.
A decrease in supply will cause
a decrease in quantity demanded.
If air travel and bus travel are substitutes,
a decrease in the price of bus travel will decrease the demand for air travel.
In a price-taker market, profits are
a reward for creating value.
A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate
a rightward shift in demand in the winter.
Suppose a change in technology increases the marginal product of labor. The result is
a rightward shift in the demand for labor curve.
In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,
a single large firm will develop, and it will have cost advantages that protect it from potential rivals.
When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in competitive markets, their actions generally lead to
a smaller output and higher prices.
Because private owners are held responsible for damages their property causes to the property of others, private owners have
a strong incentive to take steps to reduce the chance that they will harm the property of others.
For most firms, the major difference between accounting profit and economic profit is that
accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.
If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the
actual burden of this tax falls mostly on consumers.
A competitive market economy with low barriers to entry affords an entrepreneur with
the opportunity to bring new and different products and services to the market.
An increase in supply will cause
an increase in quantity demanded.
If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by
an increase in the supply of the good.
Cartel agreements are difficult to maintain because individual members
are often unable to police the price and output policies of other members.
The economic way of thinking stresses that
as the benefits of an option increase, people will be more likely to choose that option.
Business owners who care only about maximizing profits are
at an advantage when competing against those who practice employment discrimination.
In order for the law of diminishing returns to be present, we must have
at least one factor of production to be fixed.
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high.
Whenever average total cost exceeds marginal cost,
average total cost is falling.
Economies of scale imply that within some range a firm can increase the size of operation and
average total cost will decrease.
A monopolist will earn economic profits as long as price exceeds
average total cost.
For effective price discrimination to occur, a seller must
be able to prevent consumers from reselling the product to other consumers.
Markets fail when externalities are present
because some of the costs and benefits of producing a good are not reflected in the market price.
As people have more time to adjust to a price change,
both supply and demand become more elastic.
If Ethan thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and Ethan is a utility-maximizing consumer, he should
bowl more and spend less on hamburgers.
If demand price elasticity measures 2, this implies that consumers would
buy 2 percent more of the product in response to a 1 percent drop in price.
In order to be successful in a competitive market economy, an entrepreneur must
provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere.
The most fundamental concept in economics is that
changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive.
If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to
charge a stand-by passenger more than $100.
To be economically successful, the entrepreneur must
combine resources in a manner that increases their value.
Residents of Leon County have developed a strong liking for barbeque pork sandwiches. Residents of Bay County buy the same amount of barbeque pork sandwiches but believe beef sandwiches are just about as good. From this, we can infer that
compared to residents of Leon County, residents of Bay County will have a larger price elasticity of demand for barbeque pork sandwiches.
Externalities cause the market mechanism to allocate goods and resources inefficiently because
competitive markets fail to give producers and consumers correct price signals.
The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that
consumer demand becomes more inelastic as departure time approaches.
Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would
continue to produce a quantity such that marginal revenue equals marginal cost.
A profit-maximizing farmer will apply additional units of fertilizer until the marginal revenue product (MRP) of fertilizer is half the MRP of skilled labor when a unit of fertilizer
costs half as much as a unit of skilled labor.
The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,
current firms will exit the market, causing the demand curves that face the remaining firms to increase.
Prices in resource markets
provide users with information concerning the relative scarcity of resources.
The dynamic process of competition
provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers.
Other things the same, the wages in an occupation are likely to be higher the more
dangerous the job.
As new firms enter a competitive price-searcher market, profits of existing firms
decline and product diversity in the market increases.
Automated production methods are only attractive when they
decrease per-unit costs of production.
Other things constant, a decrease in consumer income will
decrease the demand for automobiles.
Even countries that depend primarily on market forces to resolve the basic economic questions will usually rely on the collective decision-making process to
define and enforce private-property rights and designate the acceptable forms of competitive economic behavior.
When economists say the demand for a product has increased, they mean the
demand curve has shifted to the right.
Last year, 100 cases of bottled water were sold at $5 each; this year, 120 cases were sold at $7 each. The changes in price and quantity is mostly likely explained by the
demand curve shifting to the right, with no change in supply.
An increase in the demand for a product will cause the
demand for and prices of the resources used to create the product to increase.
If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,
demand is elastic.
Suppose that a tax is placed on a particular good. If the buyers end up bearing most of the tax burden, this indicates that the
demand is more inelastic than the supply.
The value of a good
depends on many factors, including who uses it and under what circumstances.
When earnings differentials are adjusted for such factors as age, education, and marital status, the
differential between the earnings of white males and those of minority males decreases.
In the long run, a firm might experience rising average total costs due to
diseconomies of scale.
A downward-sloping portion of a long-run average total cost curve is the result of
economies of scale.
The difference between zero accounting profit and zero economic profit is that
economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero accounting profit.
Because the benefits derived from an activity decline as it is expanded, it is generally
efficient to stop well before perfection is achieved.
Rebel Records announces it is cutting the prices of its bluegrass album titles by 25 percent. If Rebel is seeking to increase revenues, it must believe that the elasticity of demand for bluegrass albums is
elastic.
In a market economy, profits
encourage productive projects and losses weed out unproductive ones.
Rent controls tend to cause persistent imbalances in the market for housing because
quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because
excessive advertising is encouraged.
When new firms enter a competitive price-taker market,
existing firms may see their costs rise as more firms compete for limited resources.
"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement
fails to recognize that association is not causation.
When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were
following the guidance of the invisible hand and probably serving society's best interests as well as their own.
The government sometimes provides public goods because
free-riders make it difficult for private markets to supply the efficient quantity.
Under competitive conditions, market prices
generally bring the self-interest of individuals into harmony with the general welfare.
In order for effective price discrimination to occur, a seller must
have at least two distinguishable groups of consumers.
Assume that skilled labor costs twice as much as unskilled labor, a profit-maximizing firm will
hire until the marginal product of unskilled labor is one-half that of skilled labor.
If a firm competing in a price-taker market seeks to maximize profit, the firm should
increase output whenever price exceeds marginal cost.
If a price searcher is producing at a level of output such that its marginal cost is $16 and its marginal revenue is $9, the firm should
increase price and reduce its rate of output.
The supply curve of truck drivers is upward sloping and demand curve is downward sloping. A reduction in the price of hauling freight by truck relative to the price of hauling freight by rail will ____ the equilibrium wage of truck drivers and ____ the number of drivers employed.
increase; increase
If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is
inelastic.
Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is
inelastic.
If a $50 subsidy is legally (statutorily) granted to the sellers of weed eaters and as a result the price of weed eaters to consumers falls by $30, the actual benefit of the subsidy
is $30 to buyers and $20 to sellers.
When an economist states that a firm is earning zero economic profit, this statement implies that the firm
is doing as well as it could in any other line of business.
When members of an oligopolistic industry agree to collude, raising their product price substantially above average cost, the passage of time (months and years)
is likely to erode the agreement, as ways to cheat are developed by some participants and new entry is encouraged by the high price.
A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because
it is covering all costs, including the opportunity cost of capital and labor.
When economies of scale are important, imposing competition by splitting a monopolistic firm into many rival units will
lead to an increase in the per-unit cost of production in the industry.
If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will
lead to higher prices for medical services.
The U.S. Postal Service has a monopoly on the delivery of first-class mail due to
legal barriers limiting entry.
From the standpoint of economic efficiency, markets tend to provide
less of a public good than would be efficient.
When external benefits are present in a market,
less of the good will be produced than the amount consistent with economic efficiency.
The economizing problem is essentially one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants.
The incentive for managers of a government-operated firm (for example, a state university or the U.S. Post Office) to operate efficiently will be
low because there are no residual claimants to monitor and institute cost-reducing measures.
If marginal revenue exceeds marginal cost, a profit-maximizing monopolist will
lower price and increase output.
Under rent control, tenants can expect
lower rent and lower quality housing.
Millionaires tend to be older than the general population because
many achieve millionaire status by saving from a relatively modest income, and this will take a lengthy period of time.
As output rises, marginal product eventually diminishes and
marginal cost increases.
When the marginal product of labor diminishes,
marginal cost rises.
A local doughnut shop produces about 600 dozen doughnuts daily. If flour prices increase 20 percent
marginal cost, average variable cost, and average total cost will shift up.
When a single firm has control over the market supply of a resource that is essential to the production of a good,
monopoly is frequently the result.
When external costs are present in a market,
more of the good will be produced than the amount consistent with economic efficiency.
If mutual interdependence among firms is present, each profit-maximizing firm in the market
must consider the reactions of its rivals when it determines its price policy.
If air travel is an inferior good, then its income elasticity of demand will be
negative.
If bus travel is an inferior good, then its income elasticity of demand will be
negative.
When government imposes price controls in a market,
non-price factors become more important in the rationing of the good.
Suppose the number of coffee mugs purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, coffee mugs would be classified as
normal goods.
Suppose the number of picture frames purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, picture frames would be classified as
normal goods.
If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should
operate during the summer but shut down during the winter months.
If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as
operating at a point inside the production possibilities curve.
The most important implicit cost generally omitted from the accounting statement of a firm is the
opportunity cost of the equity capital invested by the owners.
The derived demand curve for a resource is downward sloping because
other resources will be substituted for a resource that increases in price.
Competitive price-taker firms respond to changing market conditions by varying their
output
Other things constant, the price elasticity of demand for a product will tend to be smaller (more inelastic) if
people spend an insignificant share of their income on the product.
Because information is costly to acquire,
people will rationally choose not to become fully informed when making decisions.
When demand is price inelastic,
price and total revenue move in the same direction.
When economists say the quantity supplied of a product has increased, they mean the
price of the product has risen, and consequently, suppliers are producing more of it.
In a competitive market, profit can be considered a reward to businesses that
produce a good that consumers value more highly than its component resources.
If profit-seeking entrepreneurs are going to be successful, they must
produce a product that the consumers value more than the resources required for its production.
As new firms enter a competitive price-searcher market, it can be expected that
profits of existing firms will decrease
One of the effects of patents is to
temporarily provide the patent owner with monopoly power.
When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare
the additional benefits of the second car with the additional cost of the second car.
The wages of house painters will tend to rise when
the alternative earning opportunities of house painters improve.
The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average,
the average is increasing.
In voluntary exchange, if the seller of a product gains,
the buyer must also gain; mutual gain provides the foundation for exchange.
If the price of blueberries increases, total expenditures on blueberries will decline if
the demand for blueberries is elastic.
If tea and sugar are complements, an increase in the price of tea will cause
the demand for sugar to fall.
If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,
the demand of senior citizens for the services of the restaurant must be elastic.
Airlines generally charge travelers willing to stay over Saturday night lower fares because
the demand of these travelers is elastic, and therefore, the lower fares generate more revenue.
If a college education did not increase worker productivity,
the earnings of workers with a college education would tend to be the same as for workers without a college degree.
A rational decision maker takes an action if and only if
the expected marginal benefit of the action exceeds the expected marginal cost of the action.
"If James had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates
the fallacy of composition.
In the short run, a firm will eventually experience rising average total costs because of
the law of diminishing returns.
People are willing to pay more for a diamond than for a bottle of water because
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because
the marginal cost of additional passengers is very small.
In markets characterized by oligopoly,
the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,
the quantity demanded of physicals increases and the quantity supplied of physicals decreases.
Other things constant, as the price of a resource increases,
the quantity of the resource demanded falls.
The opportunity cost of going to college is
the value of the best opportunity a student gives up to attend college.
If a firm is losing money, this implies that
the value of the resources used to make the product is being reduced.
Other things equal, the demand for a good tends to be more inelastic when
there are fewer available substitutes.
When price is greater than marginal cost for a firm in a competitive market,
there are opportunities to increase profit by increasing production.
Cartels are difficult to maintain because
there is always tension between cooperation and self-interest in a cartel.
In a market that is contestable, but has only a few sellers, the
threat of new entrants will prevent prices from rising above the competitive level.
In a competitive market economy, a scarce resource will be allocated
to those firms that can make the most profitable use of it.
When production of a good provides external benefits, there will be
too few resources devoted to its production.
If production of a good creates pollution costs that impose an externality, firms will produce
too much of the good.
Competition as a dynamic process implies that individual firms in a market
use price competition as well as other forms of competition to gain the dollar votes of consumers.
A decrease in resource prices will increase the incentive of
users to purchase the resource.
If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels,
variable cost was greater than total revenue.
The price elasticity of supply
will always be positive.
Economic analysis suggests that gains from specialization and exchange
will be realized if individuals are allowed to pursue goals that are in their own self-interest.
An increase in the demand for a resource
will increase the price of the resource and, thereby, increase the incentive of potential suppliers to provide the resource in the future.
Wages in the United States are higher than wages in China primarily because
worker productivity is higher in the United States.
A local restaurant offers an "all you can eat" barbeque special. You pay $9.00, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when
your marginal utility (or value) derived from eating another serving is zero.
