EC 301 Study Set

Which of the following relationships is NOT valid

A) rising marginal cost implies that average total cost is also rising B) when marginal cost is below ATC, the latter is falling C)When MC is above AVC, AVC is rising answer: A

What would shift the demand curve to the right?

An increase in the population that demands

Which of the following costs always declines as output increases

Average fixed cost

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Average fixed cost curve

short-run price elasticity of demand for gasoline is -0.3 and the long-run price elasticity is -1.4. What happens if the government increases the federal gasoline tax?

Consumer expenditures on gasoline increase over the short run and decline over the long run

What is true regarding the utility along a price-consumption curve

It changes from point to point

What is true of the substitution effect of a decrease in price?

It will always lead to an increase in consumption

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit-maximization condition for the firm can be written as

P=MC

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

The firm produces more than the optimal quantity and earns lower profits

It is possible to have diminishing marginal returns to a single factor of production and constant returns to scale at the same time. Discuss

The statement is true. Diminishing marginal returns to a single factor applies to the short run when all other inputs are held fixed. On the other hand, returns to scales applies to the long run when all inputs can be increased.

When the CPI is higher this year than last

There has been inflation since last year

A firm's expansion path is

a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices

Imposition of an output tax on all firms in a competitive industry will result in

a leftward shift in the market supply curve

The trade-offs facing consumers include

a) how to allocate income between current consumption and future consumption b) how to allocate income across goods and services

What features are relevant for determining the extent of a market

a) its geographical boundaries b) the range of the products to be included in it

the "constant dollar" price is

a) the "current dollar" price adjusted for inflation b) the nominal price of a good adjusted for inflation c) the real price of a good

When demand is inelastic, an increase in price leads to

an increase in total expenditures

Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen,

average product is rising

As we move downward along a typical isoquant, the slope

becomes flatter

The price of good A goes up. The demand for good B shifts left. We can infer that

goods A and B are complements

due to capacity constraints, the price elasticity of supply for most goods is

greater in the long run than in the short run

An Engel curve shows combinations of

income and the quantity consumed of one good

Suppose demand exceeds supply of a good, the price will

increase

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:

increasing Pepsi consumption and reducing hamburger consumption (would get 4 utils per dollar on the next pepsi versus 3 utils per dollar on the next hamburger)

At the profit maximizing level of output, marginal profit

is zero

A firm maximizes profit by operating at the level of output where

marginal revenue equals marginal cost

The assumption that preferences are complete

means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them

A cut in the industry's cost of producing domestic goods that is passed on to the market in the form of lower prices would cause a ____________ the demand curve for domestic goods

movement along

The intercepts of the budget line

represent the quantity of each good that could be purchased if all of the budget were allocated to that good

An increase in the income of U.S. citizens would cause a _____________ the demand curve for domestic goods

shift in

The removal of quotas on the importation of foreign goods would cause a ___________ the demand curve for domestic goods

shift in

Some luxury product manufacturers will purposefully raise prices on their goods in order to reduce sales volume. This strategy may successfully increase sales revenue if the luxury goods are subject to the _____ effect have relatively _____ demand

snob...inelastic

Consumer surplus is

the area under the demand curve and above the price level

Indifference curves are convex to the origin because of

the assumption of a diminishing marginal rate of substitution

A change in the consumption of a good resulting from an increase in purchasing power, with relative prices held constant, is referred to as

the income effect

The slope of an indifference curve reveals

the marginal rate of substitution of one good for another good

Income elasticity of demand refers to

the percentage change in quantity demanded resulting from a 1% increase in income

price elasticity of supply refers to

the percentage change in the quantity supplied of one good resulting from a 1% increase in the price of that good

A supply curve reveals

the quantity of output that producers are willing to produce and sell at each possible market price

Price elasticity of demand measures

the sensitivity of quantity demanded to changes in price

When an industry's raw material costs increase, all else equal,

the supply curve shifts tot he left

In the short run when some inputs are fixed, marginal costs must eventually rise as a firm's output increases because

there will eventually be diminishing marginal products for the firm's variable inputs

the power of the supply and demand model lies in its ability

to generally predict how price and quantity will change with supply and demand shocks

If the current market price is below the market clearing level, we would expect

upward pressure on the current market price

If current output is less than the profit-maximizing output, then the next unit produced

will increase revenue more than it increases cost