Chapters 1-4

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The demand function recognizes that the quantity of a good consumed depends on:

demand shifters and price.

The buyer side of the market is known as the:

demand side.

By the property of "more is better" and transitivity, indifference curves:

do not intersect one another.

What is the level of net benefits when four units are produced?

The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M. The advertising elasticity of good X is:

0.0.

Suppose the demand function is Qxd = 100 - 8Px + 6Py - M. If Px = $4, Py = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

0.17

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

Expenditures on transportation will fall less rapidly than income falls

Which of the following can be used to quantify the overall statistical significance of a regression?

F-statistic

The demand for which of the following commodities is likely to be most price inelastic?

Food

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the cross-price elasticity between goods X and Y is:

0.008.

If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own price elasticity at a price of $7?

1.75

If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is:

2/3.

Suppose the own price elasticity of demand for good X is -0.5, and the price of good X increases by 10 percent. What would you expect to happen to the total expenditures on good X?

Increase

Which of the following is NOT an important factor that affects the magnitude of the own price elasticity of a good?

Supply of the good

If the cross-price elasticity between goods A and B is negative, we know the goods are:

complements.

The statistical analysis of economic phenomena is defined as:

econometrics.

Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola IN ABSOLUTE VALUE is:

zero.

The additional benefits that arise by using an additional unit of the managerial control variable is defined as the:

marginal benefit.

The absolute value of the slope of the indifference curve is called the:

marginal rate of substitution.

Some individuals choose to undertake risky prospects while others choose safer ones because they have different:

marginal rates of substitution between risk and reward.

The upper boundary of the budget set is the:

budget line.

The combinations of goods X and Y that are affordable to the consumer are defined by the:

budget set.

An inferior good is a good

that consumers purchase less of when their incomes are higher.

Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to

an increase in the demand of good X.

If A and B are complements, an increase in the price of good A would:

lead to a decrease in demand for B.

In order to maximize net benefits, the managerial control variable should be used up to the point where:

net marginal benefits equal zero.

Maximizing total benefits is equivalent to maximizing net benefits if and only if there are:

no costs associated with achieving more benefits.

The supply function for good X is given by Qxs = 1,000 + PX - 5PY - 2PW, where PX is the price of X, PY is the price of good Y and PW is the price of input W. If the price of input W increases by $10, then the supply of good X

none of the statements associated with this question are correct.

Producer-producer rivalry functions:

only when multiple sellers for a product compete in the market.

Since most consumers spend very little on salt, a small increase in the price of salt will:

not reduce quantity demanded by very much.

Managers can get workers to work longer hours by:

offering overtime pay.

Consumer-consumer rivalry:

reduces the negotiating power of consumers in the marketplace.

Joe prefers a three-pack of soda to a six-pack. What properties does this preference violate?

More is better

An increase in the price of steak will probably lead to:

an increase in demand for chicken.

Because of producer-producer rivalry, the price will tend to:

be driven to a lower price.

An ad valorem tax causes the supply curve to:

become steeper.

Generally when calculating profits as total revenue minus total costs, accounting profits are larger than economic profits because economists take into account:

both explicit and implicit costs.

Marginal benefit refers to:

the additional benefits that arise by using an additional unit of the managerial control variables.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed,

there will be a shortage of 20 units.

Consumer-consumer rivalry arises because of:

the scarcity of goods available.

Which of the following factors would NOT affect the own price elasticity of a good?

Price of an input

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

Price will increase but quantity will decrease.

Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the demand for good x is:

inelastic.

Competitive market equilibrium

is determined by the intersection of the market demand and supply curves.

Managerial economics:

is valuable to the coordinator of a shelter for the homeless.

The law of supply states that, holding all else constant, as the price of a good falls:

quantity supplied falls.

What is the net benefit associated with producing two units of the control variable, Q (identify point C in the table)?

1,400

How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?

It decreases.

If the annual interest rate is 0 percent, the present value of receiving $210 in the next year is:

$210.

Good X is a normal good and its demand is given by Qxd = α0 + αXPX + αYPY + αMM + αHH. Then we know that

αM > 0.

Demand shifters do not include the

price of the good.

If the interest rate is 5 percent, $100 received at the end of seven years is worth how much today?

100/(1 + 0.05)7

Which of the following provides a measure of the overall fit of a regression?

F-statistic

The minimum wage

is an example of a price floor.

The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M. The own price elasticity of good X is:

-2.5.

Given that income is $500 and PX = $20 and PY = $5, what is the market rate of substitution between goods X and Y?

-4

The higher the interest rate:

The smaller the present value of a future amount

If the interest rate is 5 percent, the present value of $200 received at the end of five years is:

$156.71.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. The equilibrium price is:

$19.

If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at the end of year two, then the present value of these cash flows is:

$2,562.

An excise tax shifts the supply curve

up by the amount of the tax.

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. Then good X has a demand which is:

inelastic.

The short-run response of quantity demanded to a change in price is usually:

less than the long-run response.

If demand is perfectly inelastic, then:

the demand curve is vertical.

For a given set of data and a regression equation, the greater the R-square:

the greater the adjusted R-square.

Given a linear supply function of the form QXS = -10 + 5PX, find the inverse linear supply function.

PX = 2 + 0.2QX.

If good A is an inferior good, an increase in income leads to:

a decrease in the demand for good A.

Good X is an inferior good if a decrease in income leads to

an increase in the demand for good X.

If demand increases, then the

demand curve shifts to the right.

When a demand curve is linear:

demand is inelastic at low prices.

A price ceiling is

the maximum legal price that can be charged in a market.

A floor price is

the minimum legal price that can be charged in a market.

Economic profits are:

total revenue minus total opportunity cost.

A price elasticity of zero corresponds to a demand curve that is

vertical.

All else held constant, as additional firms enter an industry

more output is available at each given price.

Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y2 and C(Y) = 10Y2. Then marginal costs are:

20Y.

If the price of good X is $10 and the price of good Y is $5, how much of good X will the consumer purchase if her income is $15?

Cannot tell based on the above information.

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?

Price and quantity would both decrease.

Which of the following is the incorrect statement?

The difference in the slope of the total benefit curve and the total cost curve is maximized at the optimal level of Q.

Producer surplus is measured as the area

above the supply curve and below the market price.

Trade will take place:

if the maximum that a consumer is willing and able to pay is greater than the minimum price the producer is willing and able to accept for a good.

To an economist, maximizing profit is:

maximizing the value of the firm.

The affordable bundle that yields the greatest satisfaction to the consumer is:

the equilibrium consumption bundle.

Other things equal, the greater the interest rate:

the lower the NPV.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?

$25.

What is the marginal net benefit of producing the fourth unit?

-50

What is the marginal cost of producing the fifth unit?

110

What is the marginal benefit associated with producing six units of the control variable, Q (identify point D in the table)?

400

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. How much of good X is consumed?

950 units

An increase in the price of good X will have what effect on the budget line on a normal X-Y graph?

A decrease in the horizontal intercept

Which of the following is true?

A. Indifference curves may intersect. B. At a point of consumer equilibrium, the MRS always equals 1. C. If income increases, a consumer will always consume more of a good. D. None of the statements is correct.

Which of the following are least likely to be substitutes?

Automobile and gasoline.

Which of the following is not a supply shifter?

Average income level.

Which of the following is least likely to be a normal good?

Bologna.

Which of the following is most likely NOT an example of a normal good?

Bus travel

Which of the following are least likely to be complements?

Cars and trucks.

What is/are the important things that must be developed when characterizing consumer behavior?

Consumer preferences and consumer opportunities

Which of the following would not shift the demand for good A?

Drop in price of good A.

If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?

Increase the inventory.

Which of the following is probably not a normal good?

Intercity passenger bus travel.

Suppose both supply and demand decrease. What effect will this have on price?

It may rise or fall.

If the price of good X increases, what will happen to the budget line?

It will become steeper.

Suppose there is a simultaneous increase in demand and decrease in supply, what effect will this have on the equilibrium price?

It will rise.

If a consumer's income decreases, what will happen to the budget line?

It will shift inward.

At the equilibrium consumption bundle, which of the following holds?

MRSX,Y = PX/PY.

Which of the following is incorrect?

Managers should only be interested in accounting profits.

Which of the following are signals to the owners of scarce resources about the best uses of those resources?

Profits of businesses

Which of the following is a linear demand function?

Qxd = α0 + αXPX + αYPY + αMM + αHH.

Which of the following provides a measure of the overall fit of a regression?

The F-statistic and R-square

A B means:

bundle A is preferred to bundle B.

Changes in the price of a good lead to:

changes in the quantity supplied of the good.

If you were running an advertising campaign for designer men's suits, you should target families with:

higher incomes.

After a price decrease for good X, the new consumer equilibrium level of good X will be:

indeterminate without more information.

The demand for women's clothing is, in general:

more elastic than the demand for clothing.

Other things held constant, the greater the price of a good

the lower the consumer surplus.

The slope of the budget line represents:

the market rate of substitution.

When quantity demanded exceeds quantity supplied

the price is below the equilibrium price.

Consumer surplus is

the value consumers get from a good but do not pay for.

The property that rules out indifference curves that cross is:

transitivity.

If the interest rate is 5 percent, what is the present value of $10 received one year from now?

$9.52

What is the marginal net benefit associated with producing five units of the control variable, Q (identify point F in the table)?

What is the horizontal intercept of the budget line, given that M = $1,000, PX = $50, and PY = $40?

20.0

Given the benefit function B(Y) = 200Y - 3Y2, the marginal benefit is:

200 - 6Y.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price floor of $30 is set, what will be size of the resulting surplus?

55.

If bundles A, B, and C lie on the same indifference curve, then:

A B C.

Which of the following cases violates the property of transitivity?

A B, B C, C A.

Which of the following pairs of goods are probably complements?

Ketchup and French fries.

The maximum quantity of good X that is affordable is:

M/PX.

Given a linear supply function of the form QXS = 3,000 + 3PX - 2Pr - Pw, find the inverse linear supply function assuming Pr = $1,000 and Pw = $100.

PX = -300 + 0.3333QX.

Given a linear demand function of the form QXd = 100 - 0.5PX, find the inverse linear demand function.

PX = 200 - 2QX.

What is the main role of economic profits?

To signal where resources are most highly valued

A change in income will not lead to:

a movement along the demand curve.

If apples have an own price elasticity of -1.2 we know the demand is:

elastic.

If the price of good X becomes lower, then the level of consumer surplus becomes

higher.

Marginal benefits are the:

incremental benefits of a decision.

Firms advertise in order to cause the demand for their products to

shift to the right.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be:

$1,650.

Suppose the growth rate of the firm's profit is 5 percent, the interest rate is 6 percent, and the current profits of the firm are $100 million. What is the value of the firm?

$10,600 million

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?

$200

If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is the maximum total earnings the worker can receive if she is restricted to a maximum of 12 hours of work per day?

$220

Suppose the market demand for good X is given by QXd = 20 - 2PX. If the equilibrium price of X is $5 per unit then consumer surplus is

$25.

A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

$346,511

Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm?

$35,000

Suppose the growth rate of the firm's profit is 7 percent, the interest rate is 10 percent, and the current profits of the firm are $120 million. What is the value of the firm?

$4,400 million

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. The fixed payment for this worker is:

$60.

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in three (3) days?

$684

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?

If the interest rate is 5 percent and cash flows are $3,000 at the end of year one and $5,000 at the end of year two, then the present value of these cash flows is:

$7,392.29.

If the interest rate is 3 percent, the present value of $900 received at the end of four years is:

$799.64.

A worker's total earnings for one day is $100. He received a $20 fixed payment and consumes 14 hours of leisure. What is the hourly wage rate?

Suppose the growth rate of the firm's profit is 5 percent, the interest rate is 6 percent, and the current profits of the firm are $80 million. What is the value of the firm?

$8,480 million

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. What is the own price elasticity of demand?

-0.21

Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the advertising elasticity of demand for good x?

0.52

Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y2 and C(Y) = 10Y2. Then marginal benefits are:

100 - 16Y.

Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y2 and C(Y) = 10Y2. What level of Y will yield the maximum net benefits?

100/36

Given the cost function C(Y) = 6Y2, what is the marginal cost?

12Y

Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y2 and C(Y) = 10Y2. What is the maximum level of net benefits (rounded to the nearest whole number)?

139

If the income elasticity for lobster is 0.6, a 25 percent increase in income will lead to a:

15 percent increase in demand for lobster.

If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:

16 percent increase in demand for lobster.

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How many hours of leisure are consumed if this worker's total earnings are $160?

18 hours

If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absolute value) at a price of $1 is:

2/3.

You are the manager of a popular hat company. You know that the advertising elasticity of demand for your product is 0.25. How much will you have to increase advertising in order to increase demand by 5 percent?

20 percent

What is the total cost associated with producing eight units of the control variable, Q (identify point B in the table)?

3,600

What is the marginal cost associated with producing three units of the control variable, Q (identify point E in the table)?

300

The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M. The cross-price elasticity of demand between goods X and Y is:

4.0.

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $5, Py = $10, X = 20, and M = 500?

Given the benefit function B(Y) = 400Y - 2Y2, the marginal benefit is:

400 - 4Y.

Given that income is $200 and the price of good Y is $40, what is the vertical intercept of the budget line?

If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:

5 percent drop in quantity demanded of hamburgers.

The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the quantity demanded of good X?

61,300

61,500 - 4Px

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. The equilibrium quantity is:

62.

You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is 0.15. How much will you have to increase advertising in order to increase demand by 10 percent?

66.7 percent

What is the marginal revenue of producing the third unit?

Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the quantity demanded of good x?

Which of the following can explain an increase in the demand for housing in retirement communities?

An increase in the population of the elderly.

A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present value of purchasing the tractor?

None of the statements associated with this question are correct.

Suppose that supply increases and demand decreases. What effect will this have on price and quantity?

None of the statements associated with this question are correct.

The elasticity of demand for gasoline has been estimated to be 2.0, and the standard error is 1.0. The upper and lower bounds on the 95 percent confidence interval for the elasticity of demand for gasoline are:

None of the statements is correct.

When the price of sugar was "low," U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures remained at $3 billion annually. This data indicates that:

None of the statements is correct.

The supply function for good X is given by Qxs = 1,000 + PX - 5PY - 2PW, where PX is the price of X, PY is the price of good Y and PW is the price of input W. If PX = 100, PY = 150, PW = 50, then the supply curve is

Qxs = 150 + Px.

What are the advantages to a firm of selling gift certificates?

Reduced strain on the refund department and greater quantity sold if your good is an inferior good.

PXX + PYY = M is called:

a budget line

Changes in the price of other goods lead to

a change in demand.

Good Y is a complement to good X if an increase in the price of good Y leads to

a decrease in the demand for good X.

Indifference curves further from the origin imply:

a higher level of satisfaction

If you wish to open a store and you do not like risk, it would be wise to sell:

a mix of normal and inferior goods.

Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Good X is

a normal good.

Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know good x is:

a normal good.

The maximum legal price that can be charged in a market is:

a price ceiling.

If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to:

a reduction in total revenue.

a substitute for good X.

Persuasive advertising influences demand by:

altering the underlying tastes of consumers.

Producer surplus is the

area above the supply curve but below the market price of the good.

The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the:

budget constraint.

The law of demand indicates that as the price of a good increases, the quantity that

buyers are able to purchase decreases.

An ad valorem tax shifts the supply curve

by rotating it counter-clockwise.

Under producer-producer rivalry, individual firms want to sell the product at the maximum price consumers will pay, but they are unable to do this because of:

competition among sellers.

A situation where a consumer says he does not know his preference ordering for bundles X and Y would violate the property of:

completeness.

Jane pays the market price of $69 for a new pair of running shoes, even though she would be happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of

consumer surplus.

The behavior of bidders in an auction is an example of:

consumer-consumer rivalry.

Negotiations between the buyer and seller of a new house are an example of:

consumer-producer rivalry.

Property owners move scarce resources toward the production of goods most valued by society because:

consumers demand inexpensive goods and services.

Individuals who purchase services and goods for the purpose of consumption are:

consumers.

Along the same indifference curve, MRS is ________ as more of one good is obtained.

decreasing

When the own price elasticity of good X is -3.5, then total revenue can be increased by:

decreasing the price.

If the own price elasticity of demand is infinite in absolute value, then:

demand is perfectly elastic.

The property that implies that indifference curves are convex to the origin is:

diminishing marginal rate of substitution.

If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent:

drop in quantity demanded of hamburgers.

As more firms enter an industry:

economic profits decrease.

If the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be:

elastic.

Scarce resources are ultimately allocated toward the production of goods most wanted by society because:

firms attempt to maximize profits.

The manager can be 95 percent confident that the true value of the underlying parameters in a regression is not zero if the absolute value of the t-statistic is:

greater than 2.

As a general rule of thumb, a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero, when the absolute value of the t-statistic is:

greater than or equal to 2.

As a rule of thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is:

greater than or equal to 2.

The market supply curve indicates the total quantity all producers in a competitive market would produce at each price,

holding all supply shifters fixed.

Incentive plans imply:

if managers put forth little effort, they receive little pay; if they put forth much effort and hence generate many sales, they receive a lot of pay.

If marginal benefits exceed marginal costs, it is profitable to:

increase Q.

increase by $20,000.

The cross-price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7 percent, the quantity demanded of Y will:

increase by 24.5 percent.

As the interest rate increases, the opportunity cost of waiting to receive a future amount:

increases.

The marginal cost in the table is:

increasing at a constant rate.

As we move down along a linear demand curve, the price elasticity of demand becomes more:

inelastic.

Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know that the own price elasticity for good x is:

inelastic.

A firm will maximize the present value of future profits by maximizing current profits when the:

interest rate is larger than the growth rate in profits and both are constant.

Maximizing the lifetime value of the firm is equivalent to maximizing the firm's current profits if the:

interest rate is larger than the growth rate in profits and both are constant.

If the price of an input rises, producers are willing to produce

less output at each given price.

If the short-term own price elasticity for transportation is estimated to be -0.6, then long-term own price elasticity is expected to be:

less than -0.6

Maximizing the present value of all future profits is the same as maximizing current profits if the growth rate in profits is:

less than the interest rate.

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand we know that ax will be:

less than zero.

Basic principles that comprise good management include:

ll of the statements associated with this question are correct.

Which of the following is probably not a normal good?

macaroni and cheese.

The optimal amount of studying is determined by comparing:

marginal benefit and the marginal cost of studying.

The additional cost incurred by using an additional unit of the managerial control variable is defined as the:

marginal cost.

The curve which summarizes the total quantity producers are willing and able to produce at differing prices is the:

market supply curve.

We would expect the demand for jeans to be:

more elastic than the demand for clothing.

New firms have incentive to enter an industry when there is(are):

positive economic profits.

The primary inducement for new firms to enter an industry is:

presence of economic profits.

If a shortage exists in a market, the natural tendency is for:

price to increase.

Graphically, a decrease in advertising will cause the demand curve to:

shift leftward.

Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to

shift rightward.

For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to:

shift to the left.

As additional firms enter an industry, the market supply curve

shifts to the right.

If income increases, the budget line:

shifts to the right.

If an excise tax is imposed on a good, then the supply curve

shifts up by the amount of the tax.

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in a

shortage of 30 units.

In a competitive market, the market demand is Qd = 70 - 3P and the market supply is Qs = 6P. A price ceiling of $4 will result in a

shortage of 34 units.

If consumers expect future prices to be higher

stockpiling will happen when products are durable in nature.

substitute for good Y and a normal good.

If an increase in the price of good X leads to an increase in the consumption of good Y, then goods X and Y are called:

substitutes.

Which of the following is used to determine the statistical significance of a regression coefficient?

t-statistic

The substitution effect isolates the change in the consumption of a good caused by:

the change in the market rate of substitution

Consumer-producer rivalry occurs because of:

the competing interests of consumers and producers.

By the completeness property, if neither A B nor B A hold, then:

the consumer is indifferent between A and B.

If the slope of the indifference curve is steeper than the slope of the budget line, and X is on the horizontal axis:

the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.

If marginal costs exceed marginal benefits, then:

the firm should decrease its production level.

The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is:

the foregone interest that could be earned if you had the money today.

Demand shifters do not include

the price of the good.

Changes in the price of good A lead to a change in:

the quantity demanded of good A.

Consumers adjust their purchasing behavior so that:

the ratio of prices they pay equals their marginal rate of substitution.

If income decreases, then:

the vertical intercept of the budget line shifts downward.

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline would shift the supply curve

up by $1.00.

The economic principle that producers are willing to produce more output when price is high is depicted by the:

upward slope of the supply curve.

The opportunity cost of an action is the:

value of the most highly valued alternative action given up.

If a producer offers a price that is in excess of a consumer's valuation of the good, the consumer:

will refuse to purchase the good.

Suppose X and Y are complements and demand for X is Qxd = α0 + αXPX + αYPY + αMM + αHH. Then we know

αY < 0.

Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know goods x and y are:

complements.

When a demand curve is linear,

demand is elastic at high prices.

A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: ln M = 14.666 + .021 ln C - 0.036 ln r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, a 5 percent increase in interest rates will cause the demand for money to:

drop by 0.18 percent.

The cross-price elasticity of demand for textbooks and copies of old exams is -3.5. If the price of copies of old exams increases by 10 percent, the quantity demanded of textbooks will:

fall by 35 percent.

The elasticity that measures the responsiveness of consumer demand to changes in income is the:

income elasticity.

The demand for food (a broad group) is more:

inelastic than the demand for beef (specific commodity).

If there are few close substitutes for a good, demand tends to be relatively:

inelastic.

Demand tends to be:

more inelastic in the short term than in the long term.

The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, goods X and Y are:

substitutes.

When the price of sugar was "low," U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that:

the demand for sugar is inelastic.

The greater the standard error of an estimated coefficient:

the lower the t-value of the estimated coefficient.

The lower the standard error:

the more confident the manager can be that the parameter estimates reflect the true values.

The elasticity of variable G with respect to variable S is defined as:

the percentage change in variable G that results from a given percentage change in variable S.

If the demand for a product is Qxd = 10 - ln Px, then product x is:

unitary elastic.

The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 - 0.41 ln P + 0.5 ln M - 0.33 ln A + 100 ln PDVD, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Based on the information given, which of the following statements is false?

v Movies are complements for DVD rentals.

The demand for video recorders has been estimated to be linear and given by the demand relation Qv = 145 - 3.2Pv + 7M - 0.95Pf - 39Pm, where Qv is the quantity of video recorders, Pf denotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and M is income. Based on the estimated demand equation we can conclude:

video recorders are normal goods and video recorder film is a complement for video recorders.

Suppose the demand for good X is given by Qdx = 20 - 4Px + 2Py + M. The price of good X is $5, the price of good Y is $15, and income is $150. Given these prices and income, how much of good X will be purchased?

180.

Which of the following is an implicit cost of going to college?

Foregone wages

Under a price ceiling, the full economic price is

higher than the free-market price.

In order to maximize net benefits, firms should produce where:

marginal benefits equal marginal costs.

The change in net benefits that arises from a one-unit change in quantity is the:

marginal net benefits.

The difference between marginal benefits and marginal costs is the:

marginal net benefits.

Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm:

should increase the quantity produced to increase profits.

Accounting profits are:

total revenue minus total cost.

If you put $700 in a savings account at an interest rate of 3 percent, how much money will you have in one year?

$721

Suppose the market demand for good X is given by QXd = 20 - 2PX. If the equilibrium price of X is $5 per unit, then the total value a consumer receives from consuming the equilibrium quantity is

$75.

The demand for good X has been estimated by Qxd = 6 - 2Px + 5Py. Suppose that good X sells at $3 per unit and good Y sells for $2 per unit. Calculate the own price elasticity.

-0.6

Suppose the own price elasticity of demand for good X is -0.5, and the price of good X increases by 10 percent. We would expect the quantity demanded of good X to:

decrease by 5 percent.

The price elasticity of demand is -2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to:

decrease.

If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at a pork chop price of $6?

-0.86

Suppose a consumer with an income of $100 is faced with Px = 1 and Py = 1/2. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?

-2.0

Which of the following is the main goal of a continuing company?

To maximize the value of the firm

Assume that the price elasticity of demand is -0.75 for a certain firm's product. If the firm lowers price, the firm's managers can expect total revenue to:

decrease.

When dealing with present value, a higher interest rate:

decreases the present value of a future amount.

The marginal benefit in the table is:

decreasing at a constant rate.

When an effective price ceiling is in place

some consumers are better off and others are worse off.

When the government imposes a price floor above the market price, the result will be that

surpluses occur.

The equilibrium consumption bundle is:

the affordable bundle that yields the greatest satisfaction to the consumer.

If the own price elasticity of demand is infinite in absolute value, then:

the demand curve is horizontal.

Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the cross-price elasticity between goods x and y is:

0.25.

If quantity demanded for sneakers falls by 6 percent when price increases 20 percent, we know that the absolute value of the own price elasticity of sneakers is:

0.3.

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

0.4.

If the interest rate is 7 percent, $500 received at the end of nine years is worth how much today?

500/(1 + .07)9

The horizontal intercept of the budget line is:

M/PX.

The higher the interest rate, the greater the:

Neither present value nor net present value is correct.

Suppose the demand for good X is given by Qdx = 10 - 2Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased?

None of the statements associated with this question are correct.

Suppose the supply of good X is given by QSx = 10 + 2Px. How many units of good X are produced if the price of good X is 20?

None of the statements associated with this question are correct.

The possible goods and services a consumer can afford to consume represents the:

consumer opportunities.

Negotiation between the buyer and seller of a new ski boat is an example of:

consumer-producer rivalry.

Diminishing marginal rate of substitution implies that indifference curves are:

convex from the origin.

At the point of consumer equilibrium, the slope of the budget line is equal to the:

marginal rate of substitution.

To maximize profits, a firm should continue to increase production of a good until:

marginal revenue equals marginal cost.

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to:

shift to the right.

Normally, owners of firms should try to induce their managers to care:

solely about profits.

If firms expect prices to be higher in the future and the product is not perishable, then

the current supply curve shifts to the left.

The possibility of the endless cyclical preference is eliminated by the property of:

transitivity.

very inelastic.

The demand for video recorders has been estimated to be Qv = 134 - 1.07Pf + 46Pm - 2.1Pv - 5I, where Qv is the quantity of video recorders, Pf denotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and I is income. Based on the estimated demand equation we can conclude:

video recorders are inferior goods.

Technological advances will cause the supply curve to:

shift to the right.

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. How much is this person working if her daily earnings are $116?

8 hours

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. The full economic price under a price ceiling of $3 is

By the transitivity property, if A B and B C then:

A C

You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly -0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?

Buy 10.5 percent more peanut butter.

The own price elasticity of demand for apples is -1.5. If the price of apples falls by 6 percent, what will happen to the quantity of apples demanded?

It will increase 9 percent.

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

cross-price elasticity.

A price increase causes a consumer's "real" income to:

decrease.

Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:

decrease.

If supply increases, then the

equilibrium price goes down.

Economics:

exists because of scarcity.

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:

inelastic.

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

infinite.

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called

informative advertising.

We would expect the own price elasticity of demand for food to be:

less elastic than the demand for cereal.

The demand function

recognizes that the quantity of a good consumed depends on its price and demand shifters.

The supply function

recognizes that the quantity of a good produced depends on its price and supply shifters.

Non-fed ground beef is an inferior good. In economic booms, grocery managers should:

reduce their orders of non-fed ground beef.

The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will:

rise by 20 percent.

The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve:

the same level of satisfaction.

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is positive, then:

goods y and x are substitutes.

By the property of "more is better," the consumer views the products under consideration as:

goods.

Demand is more inelastic in the short term because consumers:

have no time to find available substitutes.

The minimum legal price that can be charged in a market is:

a price floor.

If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?

$1,100

If the annual interest rate is 0 percent, the present value of receiving $1.10 in the next year is:

$1.10.

If the interest rate is 12.5 percent, what is the present value of $200 received in one year?

$177.78

When MB = 300 - 12Y and TC = 12Y + 108, the optimal level of Y is:

24.

At what level of output does marginal cost equal marginal revenue?

What is the total benefit associated with producing four units of the control variable, Q (identify point A in the table)?

3,000

Which of the following is(are) true?

A. Accounting costs generally understate economic costs. B. Accounting profits generally overstate economic profits. C. In the absence of any opportunity costs, accounting profits equal economic profits. D. All of the statements associated with this question are correct.

Which of the following statements is incorrect?

A. As the population rises, the market demand curve shifts to the right. B. As a greater fraction of the population becomes elderly, the demand for medical services will tend to increase. C. Changes in the composition of the population affect the demand for a product. D. None of the statements associated with this question are incorrect.

The difference between a price decrease and an increase in income is that

An increase in income does not affect the slope of the budget line, while a decrease in price does change the slope.

Which of the following is an implicit cost to a firm that produces a good or service?

Foregone profits of producing a different good or service

Which is the correct statement about the relationship between government and the market?

Government often plays a role in disciplining the market process.

Which of the following is NOT a source of rivalry in economic transactions?

Government-producer rivalry

Which of the following pairs of goods is probably NOT an example of substitutes?

Hamburgers and ketchup

Which of the following pairs of goods are probably complements?

Hamburgers and ketchup.

Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π is profit, and b is a positive constant. How would the firm's output compare with what it would be if the manager's objective was to maximize profit?

It would be greater than the profit-maximizing output.

Given a linear demand function of the form QXd = 500 - 2PX - 3PY + 0.01M, find the inverse linear demand function assuming M = 20,000 and PY = 10.

PX = 335 - 0.5QX.

Good X is a normal good if an increase in income leads to

an increase in the demand for good X.

An income elasticity less than zero tells us that the good is:

an inferior good.

If an increase in income causes a decrease in the consumption of good Y, we know that good Y is:

an inferior good.

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If aM is negative, then good y is:

an inferior good.

Suppose good X is a normal good. Then a decrease in income would lead to

an inward shift of the demand curve.

The budget set defines the combinations of good X and Y that:

are affordable to the consumer.

The law of demand states that, holding all else constant:

as price falls, quantity demanded rises.

Suppose the demand for a product is Qxd = 12 - 3 ln Px. Then demand for product x is:

elastic

Advertising can influence demand by altering tastes of consumers. This type of advertising is known as

persuasive advertising.

The value of the firm is the:

present discounted value of all future profits.

The law of demand states that if the price of a good falls and all other things remain the same, the

quantity demanded of the good rises.

Lemonade, a good with many close substitutes, should have an own price elasticity that is:

relatively elastic.

In the Wealth of Nations, Adam Smith argues that:

self-interest leads to the efficient allocation of resources.

The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the own price elasticity of demand for good X?

-0.003

The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 - 0.41 ln P + 0.5 ln M - 0.33 ln A + 100 ln PDVD, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and PDVD = $3.00. Determine the own price elasticity of demand for movie tickets.

-0.41

The demand for good X has been estimated by Qxd = 12 - 3Px + 4Py. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.

-0.6

0.82.

The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M. The income elasticity of good X is:

1.0.

Which of the following statements is INCORRECT?

A. If a firm decreases the price of its product, its total revenue must decrease. B. The own price elasticity of demand is constant at all points along a linear demand curve. C. As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes. D. None of the statements is correct.

Which of the following measures of fit penalizes a researcher for estimating many coefficients with relatively little data?

Adjusted R-square

The demand for which of the following commodities is likely to be most inelastic?

Beverages

The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

It will increase 6 percent.

When the price of sugar was "low," consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually INCREASED to $4 billion annually. This indicates that:

None of the statements is correct.

The demand for good X is given by ln Qxd = 120 - 0.9 ln Px + 1.5 ln Py - 0.7 ln M. Which of the following statements is correct?

X has constant income elasticity.

Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then good x is:

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