Microecon Exam 2

Using absolute values in the elastic range of the demand curve,:

% change in quantity demanded > % change in price.

The formula for price elasticity of supply is:

% change in quantity supplied/% change in price.

Suppose that when the price of gasoline is $3.50 per gallon the total amount of gasoline purchased in the United States is 6 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon the total amount of gasoline purchased is 8 million barrels per day. Based on these numbers and using the simple formula, the price elasticity of demand for gasoline is:

-2.34

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point? (hint: use the bang per buck rule)

1 movie and 1 gym class

Suppose the cross-price elasticity of peanut butter and jelly is −0.8. If the price of peanut butter decreases by 25%, the percentage change in the quantity of jelly demanded is

20

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35%

Suppose that Ben purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Ben's demand curve?

4.25

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

A = 20; E = 5

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

On the budget line, the optimized point U, should follow the rule of "bang per buck", which means __________.

MU2/P2 = MU1/P1

budget condition

PA x QA + PB x QB

Suppose you have $10 to buy either onions or breath mints. Onions cost $0.50 each, and breath mints cost $1.00. On a graph, onions are on the y-axis and breath mints are on the x-axis. If the price of onions decreases while the price of breath mints and your budget stay the same, what happens to the budgets line?

The vertical intercept shifts upward, away from the origin.

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

In microeconomic analysis, what is "utils" about?

a measurement of utility

Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.

a sytematic way of thinking; misguided conclusions

Total revenue minus the explicit cost of production is _____ profit.

accounting

Refer to the diagram. In this instance:

all of the other answers and the consumer can choose any point on or below the budget constraint line BC.

Which of the following is most likely to cause variation in American household spending patterns?

all of the other answers will cause a variation

The short run is a period of time in which:

at least one input of production is fixed.

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?

consumer expenditure survey

When demand is inelastic:

consumers are not very responsive to changes in price.

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

Which of the following uses negative and positive values to asses whether goods are substitutes or complements?

cross price elasticity

The most common pattern for marginal utility is ____________________.

diminishing marginal unity

___________ costs are defined as the sum of explicit and implicit costs.

economic

The costs associated with the use of resources are called:

economic cost

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

A price cut will increase the total revenue a firm receives if the demand for its product is:

elastic

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

elastic

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

In economics, a measure of how responsive one variable is to a change in another variable is:

elasticity

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

Monetary payments made by individuals, firms ,and governments for the use of others' land, labor, capital, and entrepreneurial ability are _____ costs.

explicit (accountable)

The marginal cost is the:

extra or additional cost associated with the production of an additional unit of output.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall and the equilibrium quantity to stay the same.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs, do not change.

The average total cost curve is:

greater than the average variable cost curve for all levels of output.

Total revenue minus the total _____ and total _____ costs of production is economic profit.

implicit, explicit

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect, higher price

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

A curve that shows the combinations of two products that generate the same amount of total utility or satisfaction is called

indifference line

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.

inelastic

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

inelastic; decreases

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:

is likely maximizing utility.

An indifference curve that is farther from the origin

is preferred to one that is closer to the origin.

A combination of goods and services that lies outside the budget line

is unattainable with the current budget at current prices.

Elasticity can be used to compare responsiveness across different goods and across countries because:

it has no units attached to it.

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

marginal cost

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

marginal utility

A decrease in consumer preference for a product, other things being equal, will cause: Group of answer choices

market demand to shift to the left.

Cross-price elasticity of demand uses

negative and positive values to determine if goods are substitutes or complements.

Economies

of scale is a condition in which the long-run average total cost of production decreases as production increases.

The price elasticity of demand is a negative number because:

of the law of demand.

With cross-price elasticity of demand,:

positive values indicate substitutes and negative values indicate complements

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.

price

___________ elasticity of demand is a measure of how responsive the quantity demanded is to a change in price.

price

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

constant

returns to scale occurs when long-run average total cost does not change as output increases.

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same.

In economics, a util refers to the:

subjective measure of the utility associated with consuming goods and services.

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

substitution effect

An indifference curve shows

the combinations of two products that generate the same amount of total utility or satisfaction.

Because an inverse relationship exists between the price and the quantity demanded,:

the price elasticity of demand is negative.

Price elasticity of demand is a measure of how responsive:

the quantity demanded is to a change in price.

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

the quantity of output

Price elasticity of supply is a measure of how responsive:

the quantity supplied is to a change in price.

The price elasticity of demand measures the:

the responsiveness of the quantity demanded to a change in price

With cross-price elasticity of demand,:

the sign helps determine whether the goods or services are substitutes or complements.

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. Group of answer choices

upward-sloping; more costly to produce

In microeconomic terms, the ability of a good or a service to satisfy wants is called

utility

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

______________ include all of the costs of production that increase with the quantity produced. Group of answer choices

variable costs