Microeconomics Ch. 2 Test Study Guide

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:

3 salads, 6 vegetarian burgers.

Using the table below that shows the production costs of the Toughskins Jeans Company, what is the TFC, TC, and MC of the third pair of jeans produced?

37, 72, 10

Which slice of pizza provides a marginal utility of 1?

6

If the price of tacos decreases from $2.00 to $1.75 and the number of tacos purchased increases from 4o to 100, what is the price elasticity of demand? (negative signs eliminated in these answers)

6.43

Which is not a fixed cost?

A worker's wage of $15 an hour.

If fixed costs total $1,000 and variable costs per unit equal $75 at 20 units of output, what does average total cost equal?

$125 (AFC = TFC Q = $1,000 20 = $50 ATC = AFC + AVC = $50 + $75 = $125)

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at the output level 8 is:

$750

What is the marginal utility of the ninth slice of pizza?

-16

Which slice of pizza provides the greater marginal utility?

1

When Jackie is able to sell his homebrew for $1 a bottle, he brews and sells 5 bottles a week. When his homebrew becomes more popular, he brews and sells 15 bottles a week at a price of $3 a bottle. What is the price elasticity of supply?

1.0

Based on the table below, what does total cost equal at an output level of 3 units?

170 (fixed cost + variable cost)

Josh's weekly budget for lunch is $24. He only eats pizza and burgers. Each burger costs $6 and pizza costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility maximizing point?

2 pizzas, 4 burgers.

What "budget constraint decision" contributes most to an individual's utility?

Impossible to say; because all of the above contributes some amount to utility.

Consumer equilibrium

MU1. MU2 ----- =. ------- P1. P2

Which of the following is likely to make demand more elastic with respect to price?

None of the above.

Income elasticity using the midpoint formula method? (how much does quantity demanded respond to an income change?)

Q2-Q1 -------- (Q1+Q2)/2 ------------------ I2-I1 -------- (I1+I2)/2

Price elasticity of demand using the midpoint method formula? (how much does quantity demanded respond to a price change)

Q2-Q1 -------- (Q1+Q2)/2 ------------------ P2-P1 -------- (P1+P2)/2

Price elasticity of supply using the midpoint formula method? (how much does quantity demanded respond to a price change?)

Q2-Q1 -------- (Q1+Q2)/2 ------------------ P2-P1 -------- (P1+P2)/2

Cross-price elasticity of demand using the midpoint method formula? (how much does quantity demanded of one good respond to a price change of a related good?)

Q2x-Q1x -------- (Q1x+Q2x)/2 ------------------ P2y-P1y -------- (P1y+P2y)/2

What does diminishing marginal utility tell us if we consume more of a good?

The marginal utility of a good decreases.

What does zero marginal utility mean?

There is no reason you should want to consume more of a product.

Which of the following could be a graph of a complete AFC curve?

a downward slope

An economic profit of zero indicates that a firm is making

a fair rate of return, and should continue operating in that industry.

In terms of microeconomic analysis, what is the function of "utils"?

a measure of utility.

Accounting profits are calculated based upon:

actual cash receipts and actual expenditures of cash.

Which of the following factors of production is not variable in the long run?

all factors are variable in the long run.

Marginal utility can:

be positive, negative, or zero.

Incorporates ideas from psychology income the economic framework.

behavioral economics

Marginal cost is equal to

change in total cost / change in quantity

Quantity increases and average total cost stays the same

constant returns to scale

Captures the tradeoff between more current consumption/less income and less current consumption/more future consumption.

current vs. future consumption decision

Assume Bart operates a gasoline station and demand for gasoline at his particular station is elastic. If he raises his price, what will be the impact on total revenue?

decrease.

A tax is imposed on orange juice. Consumers will bear the full burden of this tax (i.e., pay the entire tax amount) if the:

demand for orange juice is perfectly elastic.

Marginal utility descreases with each extra unit consumed

diminished marginal utility

Substitution and income effects of a change in price of a good may be used to explain the:

direct relationship between income and demand.

Quantity increase and average total cost increases

diseconomies of scale

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

each of the above will cause a variation.

Quantity increases and average total cost decreases

economies of scale

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded is greater than the percentage of the price change, the good is _______________.

elastic.

Out-of-pocket costs

explicit costs

There are two types of costs associated with production: ________ costs that do not change with the level of production, and _________ costs that do vary with the level of production. Question options:

fixed and variable.

Costs that do not change with changes in quantity produced

fixed costs

Based on the table below, the marginal product of labor diminishes with the addition of which picker?

fourth

The slope of a demand curve represents how much demand will respond to a change in price. This is equivalent to price elasticity of demand. The flatter the slope, the ______________ the price elasticity of demand.

greater.

Opportunity costs of using resources already owned by the firm.

implicit costs

A price increase causes less consumption of good A and good B.

income effect

If one is interested in knowing whether or not a product is a normal good, one would be interested in the value of the:

income elasticity of demand.

If the measured elasticity of supply coefficient equals 0.6, then supply is:

inelastic.

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the price elasticity of demand. When the percentage of change in the quantity demanded is less than the percentage of the price change, the good is ________________.

inelastic.

The _____________ budget constraint shows the tradeoff between present and future consumption.

intertemporal choice.

What law tells us that price and quantity demanded have a negative relationship?

law of demand.

What law tells us that price and quantity supplied have a positive relationship?

law of supply.

Which of the following goods would be most likely to have inelastic demand?

legal services.

Captures the tradeoff between more leisure/less income and less leisure/more income.

leisure-labor decision

Change in total utility due to an extra unit consumed

marginal utility

Which would be an implicit cost for a firm? The cost:

of wages foregone by the owner of the firm.

In the graph above, demand A represents a demand curve that is ________________.

perfectly elastic.

In the graph above, demand D represents a demand curve that is _______________.

perfectly inelastic.

What type of elasticity is depicted in the graph below? (straight line up and down vertically)

perfectly inelastic.

When the demand for a good or service does not vary when there is a change in price, the good is ______________.

perfectly inelastic.

The income elasticities of products A and B and their cross-price elasticities with respect to product C are:

product A is normal, product B is inferior, product A is a complement to product C, and product B is a substitute to product C.

In the graph above, demand B represents a demand curve that is _____________.

relatively elastic.

In the graph above, demand C represents a demand curve that is ____________.

relatively inelastic.

Accounting profit is equal to

revenues - explicit costs

Economic profit is equal to

revenues - explicit costs - implicit costs

The short run is a time period in which:

some resources are variable, but at least one resource is fixed.

A price increase of good A causes more consumption of good B and less consumption of good A.

substitution effect

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.

Which of the following is considered to be a signal that the point with the highest total utility has been found?

the marginal utility per dollar is the same for both goods.

Average total cost is

total cost / quantity

Profit is equal to

total revenue - total cost

Economic profits equals

total revenue minus both implicit and explicit costs.

Unit used for utility framework

utils

Costs that increase with increases in quantity produced

variable costs

The marginal utility of two goods changes ________________.

with the quantities consumed.