BE 301 exam 1
identify the author of this famous quote "it is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest"
Adam smith
Which of the following results is consistent with the imposition of a binding price ceiling?
Sellers have short-side power that allows them to discriminate costlessly.
Wally's Widgets has a total cost of $1000 when producing 100 widgets and a total cost of $1011 when producing 101 widgets. If the widget market is perfectly-competitive and the market price of widgets is $10:
Wally would make a normal profit at 100 widgets
wanda's widgets can sell 5 widgets at a price of a $5 or 6 widgets when she lowers the price to $4. if producing the 6th widget costs $4
Wanda should produce less than 6 widgets
economies of scope
a firm can produce two products more cheaply together
economies of scale
a firms long-run average costs get lower when it produces higher quantities
if you lose your job and as a result, you buy fewer iTunes music downloads. this shows that you consider iTunes music downloads to be
a normal good
learning by doing
a reduction in costs accompanying higher cumulative volume of production
agglomeration economies
a reduction in costs when firms in one industry locate close to one another
If demand is unit elastic, a small decrease in price will cause the total revenue in the market to:
change very little
Which term refers to the principle that people can mutually-benefit through trade whenever their cost of producing two goods differs?
comparative advantage
suppose the long run supply curve for a good is upward sloping. the upward slope could be explained by
increases in production costs resulting from more firms coming into the market
suppose the long-run supply curve for a good is upward-sloping. the upward slop could be explained by
increases in production costs resulting from more firms coming into the market
when there are economies of scale over the relevant range of output for a monopoly, the monopoly
is a natural monopoly
sizable economic profits can persist over time under monopoly if th monopolist
is protected by barriers to entry
suppose a sawmill produces lumber but also uses the sawdust that results from its production to produce particle board. this is an example of
joint production
in a free market for strawberries, which of the following would be a likely response to a shortage?
labor, land, and capital would be drawn into strawberry production from other sectors
first may experience diseconomies of sale when
large management structures are bureaucratic and inefficient
When a firm's cost of producing a given number of widgets per week falls as the total cumulative volume of production increases, it is benefitting from:
learning by doing
when a firm experiences diseconomy of scale,
long-run average total cost increases as output increases
economies of scale occur when
long-run average total costs fall as output increases
suppose a plague of locusts destroys a large portion of this year's wheat crop, causing 20% less wheat to be sold this year at a price that is 40% higher. from this we can conclude that
overall wheat farmers revenues will be up this year because demand was inelastic
economics typically models decision-makers as purposive (or rational. which statement best captures the meaning of this term?
people have goals and make decisions that, given the available information, they believe will best achieve them
normative statements are
prescriptive, whereas positive statements are descriptive
which of the following is not held constant in a demand schedule?
price
when firms have an incentive to exit a competitive market, their exit will
raise the profits of the firms that remain in the market
which concept below refers to the idea that markets are a way to "organize" economic activity without central direction?
the invisible hand
a non-binding price ceiling occurs when
the legal maximum price is above the market-clearing price
graphs the minimum average cost the firm can achieve for any quantity of output, which reflects some specific mix of inputs at specific prices.
the long-run average cost curve
which term refers ti economic analysis in which a real world market outcome is compared to an ideal benchmark, and the failure of the real world outcome to match the ideal benchmark is then taken as evidence in favor of government intervention that is assumed to operate ideally?
the nirvana fallacy
In a free market, what is the mechanism by which the available units of a good are rationed?
the price
when quantity demanded has increased at every price, it might be because
the price of a complementary good has decreased
suppose one change leads to an increase in the demand for widgets while at the sometime another increase leads to a decrease in the supply of widgets
the price of widgets will increase, but the effect on quantity is indeterminate
If the demand for mobile phones increases at the same time that supply-chain disruptions make mobile phone components more expensive:
there is not enough information to answer this question.
in the long run, a profit maximizing firm will choose to exit a market when
total revenue is less than total cost
When the long-run average cost curve for a firm is horizontal, the firm is experiencing constant returns to scale.
true
a government intervention necessarily creates winners and losers, while under free trade both parties expect to become better off as a result of a trade
true
if a producer can produce an additional widget at a cost of $4 and a consumer values an additional widget at $6, allowing the two parties to trade will result in a Pareto improvement
true
if new firms enter an industry, the short run supply curve shifts out and to the right
true
specializing and trading according to comparative advantage can allow two people (or countries) to both consume outside (further from the the origin) their respective production possibilities frontiers?
true
the term that means "equal balance" is
equilibrium
the wacky widget company has a total fixed costs of $100,000 per year. the firms average variable cost is $5 for 10,000 widgets. at that level of output, the firms average total costs equal
$15
Alice would pay up to $10,000 for a signal first edition copy of human action by Ludwig won Mises, but no more. bob has one, and he would sell it for as little as $100, but no less. if bob sells Alice his copy for $5,000, what is Alices consumer surplus from the transaction
$5,000
when a firm is experiencing economies of scale, long run
average total cost is greater than long run marginal cost
we can measure the profits earned by a firm in a competitive industry as
(P-ATC) X Q
midpoint method
(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]
average total cost equals
(fixed costs + variable costs) divided by quantity produced
midpoint formula
(q1-q2)/(q1+q2)/2 / (p1-p2)/(p1+p2)/2
if monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of selling the eighth unit is equal to
-$4
marginal cost equals
1) change in total cost divided by change in quantity produced 2) change in variable cost divided by change in quantity produced
patents, copyrights, and trademarks
1) examples of government created monopolies 2) examples of barriers to entry 3) allow their owners to charge higher prices
in a market economy
1) household decide which firms to work for and what to buy with their incomes 2) firms decide whom to hire and what to make
which of the following situations will total revenue increase?
1) price elasticity of demand is 0.5, and the price of the good increases 2) price elasticity of demand is 1.2, and the price of the good decreases 3) price elasticity of demand is 3.0, and the price of the good decreases
suppose a firm operates in the short run at a price above its average total cost of production. in the long run the firm should expect
1)its profits to fall 2)the market price to fall 3)new firms to enter the market
if marginal cost is equal to average total cost, then
average total cost is minimized
if the price elasticity of demand for a good is 2, then a 10 percent increase in price results in a
20 percent decrease in quantity demanded
If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a
50 percent decrease in the quantity demanded
the term "invisible hand" was coined by
Adam Smith
which of the following is an example of an externality?
Antonio's dog barks loudly during the night, waking his neighbors
Consider the production function 𝑄=10𝐾0.6𝐿0.4Q=10K0.6L0.4 This production function:
Exhibits constant returns to scale
Cobb Douglas production when exponents > 1 exponents = 1 exponents < 1
IRS constant DRS
which of the following is an example of a barrier to entry?
John obtained a copyright for the song he wrote and recorded
which of the following changes would not shift the demand curve for a good or service
a change in the price of the good or service
Which of the following changes would increase the supply of beef?
a sustained decline in corn prices
which of the following might cause the demand curve for an inferior good to shift to the left?
an increase the price of a complement
if the income elasticity of demand for widgets is negative, then widgets are
an inferior good
a fundamental source of monopoly market power arises from
barriers to entry
the fundamental cause of monopoly is
barriers to entry
Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could
benefit both Steve and tom
One reason that airlines offered excellent in-flight food and other amenities in the 1960s & 1970s could be:
binding price floors for plane flights.
which of the following is a characteristic of a perfectly competitive market?
buyers and sellers are price takers
demand is said to be price elastic if
buyers respond substantially to changes in the price of the good
when firms are said to be price takers, it implies that if a firm raises its price,
buyers will go elsewhere
any point on a country's production possibilities frontier represents a combination of two goods that an economy
can produce using all available resources and technology
a binding price ceiling
causes a shortage; is set at a price below the equilibrium price
marginal cost is equal to
change in total cost divided by change in quantity
When the price of plane flights decreases, Bob rents more nights in hotel rooms. For Bob, plane flights and hotel rooms are:
complements
if the cross-price elasticity between widgets and thingamabobs is negative, then widgets and thingamabobs are
complements
which of the following costs of publishing a book is a fixed cost?
composition, typesetting, and jacket design
when a firms long-run average total costs do not vary as output increases, the firm exhibits
contact returns to scale
suppose the equilibrium wholesale price of milk is $1/gal, but the government prohibits sales at less than $2/gal. which of the following is not a likely consequence of this price floor?
dairy farmers sell more milk
if a good is inferior, then an increase in income will result in a
decrease in the demand for the good
tom produces commemorative t-shirts in a perfectly competitive market. if tom decides to decrease his output, this will
decrease revenue, since his output has decreases, and the price remains the same
News of an imminent war between Russia and Canada (the world's third- and fourth-largest oil producers, respectively) would:
decrease the supply of oil today
two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good
if the number of buyers in a market decrease, then
demand will decrease
As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters
diminishing marginal product
the marginal product of an input declines as the quantity of the input increases
diminishing marginal product
in the short run, the size of a widget factory is fixed. as more workers are tried, output increases, but each additional worker adds less to output. the term that describes this situation is
diminishing marginal returns to labor
long-run average total cost rises as the quantity of output increases
diseconomies of scale
A monopolist faces a
downward-sloping demand curve
when new firms have an incentive to enter a competitive market, their entry will
drive down profits of existing firms in the market
total revenue minus both explicit and implicit costs is called
economic profit
long-run average total cost falls as the quantity of output increases
economies of scale
two (or more) products can be produced together more cheaply than they can be produced separately
economies of scope
demand is said to have unit elasticity if the price elasticity of demand is
equal to 1
An increase in wages for cooks won't decrease the supply of restaurant meals because restaurants are able to substitute capital and/or other inputs for some of the cooks' labor
false
Because a pork chop has a price expressed in dollars, its value is objective.
false
In the long run, the market supply curve always slopes up.
false
Producer surplus is equal to profits.
false
an increase in wages for cooks won't decrease the supply of restaurant meals because restaurants are able to substitute capital and/or other inputs for some of the cooks' labor
false
because of diminishing marginal returns, the long-run market supply curve always slopes upward
false
profit can be defined as total revenue minus implicit costs
false
the consumer price index typically understates price inflation in the United States?
false
According to the mainstream approach to economics (as explicated in, e.g., Milton Friedman's essay "The Methodology of Positive Economics"), a good model is:
falsifiable
If textbooks and study guides are complements, then an increase in the price of textbooks will result in
fewer study guides being sold
which of the following is not an assumption usually made in the perfect competition model?
firms are able to set price higher than marginal cost
a long run supply curve is flatter than short run supply curve because
firms can enter and exit a market more easily in the long run than in the short run
for a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. it follows that the
firms profit maximizing level of output is less than 100 units
if the price of gasoline falls to $1/gallon, how will this affect the market for automobiles?
gas and autos are complements, so car prices will increase but more cars will be sold
patent and copyright laws are major sources of
government created monopolies
which of the following statements is correct?
if the monopolists marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price
which of the following is a normative statement?
imposing a minimum wage is unfair to employers
scotch whisky is matured in oak casks for three or more years. this suggest that other things equal, an increase in interest rates will
increase the cost of producing scotch
which of the following is not a characteristic of a perfectly competitive market?
many firms have market power
the minimum points of the average variable costs and average total cost curves occur where the
marginal cost curve intersects those curves
the competitive firms short run supply curve is that portion of the
marginal cost curve that lies above average variable cost
Average total cost is increasing whenever
marginal cost is greater than average total cost
diminishing marginal product suggests that
marginal cost is upward sloping
which of the following statements about models is correct?
models assume away irrelevant details
the term that describes a situation where there are increasing returns to scale at the level of output that serves the entire market for a good is
natural monopoly
when existing firms in a competitive market are profitable, an incentive exists for
new firms to enter the market, even without government subsidies
if the demand for peanut butter decreases as consumer incomes fall , then peanut butter is what type of good?
normal
"ensuring that social security is financially sound for future generations is an important use of taxpayer dollars" is an example of a
normative economic statement
Raiman's shoe repair produces custom-made shoes. when mr. railman produces 12 Paris per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. what would you advise mr. raiman to do?
produce fewer custom-made shoes
the intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
profit is maximized
if demand increases in a perfectly competitive market, then in the short run
profits will increase
If regulators hope to find lucrative jobs in the industry they regulate after they leave government service, and thus make decisions that are favorable to incumbent firms in the industry, this is an example of:
regulatory capture
total revenue
remains unchanged as price increases when demand is unit elastic
if the government imposes (and enforces) a binding price ceiling on the market for apples, but doesn't provide a formal rationing mechanism
resources will be wasted as buyers jockey to obtain the good
If an increase in minimum wages forces restaurant owners to pay workers more, we would expect:
restaurant prices to rise & fewer meals to be served
which of the following is not an assumption of the perfect competition model?
sellers produce differentiated goods
The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000 (all unavoidable), total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should
stay open because shutting down would be more expensive
when the price of a subway ride increases, Alice buys more taxi rides. for Alice, subway rides and taxi rides are
substitutes
when economists refer to a production cost that has already been committed and cannot be recovers, they use the term
sunk cost
costs that are ignored because they are irrelevant to a business's production decision are called
sunk costs
When fish sales fell in New England after the Roman Catholic church ended the proscription against eating meat on Fridays, this was an example of a shift in demand caused by a change in:
tastes and preferences
which of the following changes would increase the supply of widgets?
technological innovation
Pizza is a normal good if:
the demand for pizza increases when incomes rise
when new firms enter a perfectly competitive market,
the short-run market supply curve shifts right
marginal cost equals
the slope of the total cost curve
when some resources used in production are only available in limited quantity, it is like that the long run supply curve in a competitive market is
upward sloping
when some resources used in production are only available in limits quantities, it is likely that the long run supply curve in a competitive market is
upward sloping
when remain is perfectly inelastic, the demand curve will be
vertical, because buyers purchase the same amount as before whenever the price rises or falls
which of the following is an example of an externality?
when Alice gets a flu shot, it also reduces bobs chances of getting the flu
