ECON 2301
The Wax Works sells 400 candles at a price of $6 per candle. The Wax Works' total costs for producing 400 candles are $2,500. The Wax Works' economic profit is A) -$100. B) $0. C) $2,400. D) $2,500.
A) -$100.
If the supply of oranges is unit elastic, the price elasticity of supply of oranges is A) 1.0. B) 0.0. C) -1.0. D) -100
A) 1.0.
The formula for total fixed cost is A) TFC = TC -TVC. B) TFC = TC/TVC. C) TFC = TVC -TC. D) TFC = TC + TVC.
A) TFC = TC -TVC.
DVDs and DVD players are complements. An increase in the price of DVD players would cause which of the following in the market for DVDs? A) The equilibrium price and quantity of DVDs would decrease. B) The equilibrium price of DVDs would increase, and the equilibrium quantity would decrease. C) The equilibrium price of DVDs would decrease, and the equilibrium quantity would increase. D) The equilibrium price and quantity of DVDs would increase.
A) The equilibrium price and quantity of DVDs would decrease.
In perfect competition, the marginal revenue curve A) and the demand curve facing the firm are identical. B) intersects the demand curve when marginal revenue is minimized. C) is always above the demand curve facing the firm. D) is always below the demand curve facing the firm.
A) and the demand curve facing the firm are identical.
An example of a price ceiling would be the government setting the price of sugar A) below the equilibrium market price. B) above the equilibrium market price. C) at the equilibrium market price. D) none of the above.
A) below the equilibrium market price.
When supply is fixed or the product is unique, then price is A) demand determined. B) supply determined. C) government determined. D) indeterminate.
A) demand determined.
If economic profit is zero, a firm A) earns exactly a normal rate of return. B) earns a negative rate of return. C) earns a positive but below normal rate of return. D) will leave the industry.
A) earns exactly a normal rate of return.
Marginal cost is ________ average variable cost when ________. A) equal to; average variable cost is minimized. B) equal to; average total cost is minimized C) greater than; average fixed cost is minimized D) less than; total cost is maximized
A) equal to; average variable cost is minimized.
Isoquants are downward sloping because A) if more of one input is used, then less of the other input must be used to keep output constant. B) as more units of an input are used to produce a product, the firm's marginal productivity increases. C) as more units of an input are used to produce a product, total cost increases. D) Both B and C
A) if more of one input is used, then less of the other input must be used to keep output constant.
A society can produce two goods: donuts and beer. The society's production possibility frontier is negatively sloped and "bowed outward" from the origin. As this society moves up its production possibility frontier, producing more and more units of donuts, the opportunity cost of producing beer A) increases. B) decreases. C) remains constant. D) could decrease or increase depending on the technology.
A) increases.
If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run A) labor's marginal product decreases after a certain point. B) total product is negative after a certain point has been reached. C) labor's marginal product is constant. D) total product is negative.
A) labor's marginal product decreases after a certain point.
If the price of a normal good falls, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good. A) more; more B) more; less C) less; more D) less; less
A) more; more
You have decided that you want to attend a costume party as Iron Man. You estimate that it will cost $40 to assemble your costume. After spending $40 on the costume, you realize that the additional pieces you need will cost you $25 more. The marginal cost of completing the costume is
$25
A price change would have the smallest income effect on a A) pack of chewing gum. B) bicycle. C) pickup truck. D) pair of shoes.
A) pack of chewing gum.
The concept of trade-offs would become irrelevant if A) scarcity were eliminated. B) capital were eliminated. C) we were dealing with a very simple, one-person economy. D) poverty were eliminated
A) scarcity were eliminated.
If you eat at a sushi restaurant that charges $20 for its all-you-can-eat sushi special, then the marginal cost of your 10th piece of sushi is A) zero. B) $2. C) $200. D) $2,000.
A) zero
Jane has $500 a week to spend on clothing (c) and food (f). The price of clothing is $25 and the price of food is $10. What is the equation for Jane's budget constraint? A) ($25 × Clothing) × ($10 × Food) < $500 B) $25 × Clothing + $10 × Food = $500 C) $25 × Clothing + $10 × Food > $500 D) ($25 × Clothing) / ($10 × Food) = $500
B) $25 × Clothing + $10 × Food = $500
Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be A) $1. B) $4. C) $10. D) $40.
B) $4.
The price elasticity of demand for heart transplants is perfectly inelastic. Thus, the price elasticity demand for heart transplants is A) 1.0. B) 0.0. C) -1.0. D) -100.0.
B) 0.0.
A consumer satisfies the condition ________ when her indifference curve is just tangent to her budget constraint. A) TUx = TUy B) MUx/Px = MUy/Py C) MUx = MUy D) TUx/Px = TUy/Py
B) MUx/Px = MUy/Py
Which of the following is the best definition of economics? A) the study of how consumers spend their income B) the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided C) the study of how business firms decide what inputs to hire and what outputs to produce D) the study of how the federal government allocates tax dollars
B) The study of how individuals and societies choose to use the scarce resource that nature and previous generations have provided
The total of consumer plus producer surplus is greatest A) when consumer surplus is maximized. B) at the market equilibrium. C) when producer surplus is maximized. D) all of the above
B) at the market equilibrium.
Which type of cost does not depend on a firm's output? A) variable cost B) fixed cost C) total cost D) marginal cost
B) fixed cost
Outputs in the production process are A) money. B) goods and services of value to households. C) pollution. D) resources.
B) goods and services of value to the households.
A perfectly price elastic demand curve will be a ________ line. A) positively sloped B) horizontal C) vertical D) negatively sloped
B) horizontal
Diminishing marginal returns implies A) decreasing marginal costs. B) increasing marginal costs C) decreasing average fixed costs. D) decreasing average variable costs.
B) increasing marginal costs
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________. A) elastic; increase B) inelastic; increase C) elastic; decrease D) inelastic; decrease
B) inelastic; increase
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________. A) elastic; increase B) inelastic; increase C) elastic; decrease D) inelastic; decrease
B) inelastic; increase
The process of using resources to produce new capital is A) consumption. B) investment. C) economic growth. D) research and development.
B) investment
A consumer satisfies the condition MUx/Px = MUy/Py when his indifference curve ________ his 10) budget constraint. A) is completely above B) is just tangent to C) is completely below D) crosses
B) is just tangent to
The optimal method of production is the one that A) maximizes output regardless of cost. B) minimizes cost. C) minimizes the normal rate of return. D) maximizes inputs
B) minimizes cost
If the demand for coffee decreases as income decreases, coffee is a(n) A) inferior good. B) normal good. C) substitute good. D) complementary good.
B) normal good.
If your tuition is $5,000 this semester, your books cost $600, you can only work 20 rather than 40 hours per week during the 15 weeks you are taking classes and you make $15 per hour, and your room and board is $3,000 this semester (same as if not attending college), then your opportunity cost of attending college this semester is A) $5,600. B) $5,900. C) $10,100. D) $11,600.
C) $10,100
If the most someone is willing to pay for ticket to see their favorite team is $100 and the market price of the ticket is $35, then this buyer will get consumer surplus of A) 1 ticket. B) $35. C) $65. D) $100.
C) $65.
If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is A) -1. B) -0.7. C) 0.7. D) 1.43.
C) 0.7.
The cross-price elasticity of demand between good X and good Y is -3. Given this information, which of the following statements is true? A) The demand for goods X and Y is income elastic. B) The demand for goods X and Y is elastic. C) Goods X and Y are complements. D) Goods X and Y are substitutes.
C) Goods X and Y are complements.
The cost-minimizing equilibrium condition can be written as A) (MPL)(PL) = (MPK)(PK). B) MPL = MPK. C) MPL/PL = MPK/PK. D) PL = PK.
C) MPL/PL = MPK/PK.
A market in which profit opportunities are eliminated almost instantaneously is A) a capitalist market. B) a laissez-faire market. C) an efficient market. D) a socialist market.
C) an efficient market.
If the income effect of a wage change outweighs the substitution effect of a wage change, the labor-supply curve is A) horizontal. C) backward bending. B) vertical. D) upward sloping.
C) backward bending.
Among the factors of production are A) income. B) wages C) capital. D) all of the above.
C) capital.
Economists usually assume that ________ is a fixed input in the ________ run. A) labor; short B) labor; long C) capital; short D) capital; long
C) capital; short
To isolate the impact of one single factor, economists invoke the assumption of A) Ockham's razor. B) inductive reasoning. C) ceteris paribus. D) post hoc, ergo propter hoc.
C) ceteris paribus
It is necessary to ration a good whenever ________ exists. A) market equilibrium B) a surplus C) excess demand D) excess supply
C) excess demand
In a "black market," A) price is illegally below market price. B) only illegal goods and services are traded. C) illegal trading at market prices takes place. D) suppliers take advantage of buyers.
C) illegal trading at market prices takes place.
Which of the following is held constant along the demand curve? A) quantity B) price of the good C) income D) both A and B
C) income
If the slope of a straight line is -3. and if Y (the variable on the vertical axis) decreases by 6, then X (the variable on the horizontal axis) will A) decrease by 2. B) increase by 18. C) increase by 2. D) decrease by 18.
C) increase by 2.
A formal statement of a theory is known as a(n) A) positive statement. B) causal statement. C) model. D) empirical measure.
C) model.
The more time that elapses, the A) less price elastic is the demand for the product. B) greater the income elasticity of demand for a product. C) more price elastic is the demand for the product. D) smaller the income elasticity of demand for the product.
C) more price elastic is the demand for the product.
As an individual consumes more of a product within a given period of time, it is likely that each additional unit consumed will yield A) successively more satisfaction. B) less satisfaction for a while and then start to add more satisfaction. C) successively less satisfaction. D) the same amount of satisfaction.
C) successively less satisfaction.
Consumer surplus is A) current market price. B) the difference between the maximum a person is willing to pay and full costs of productions for the firm. C) the difference between the maximum a person is willing to pay and current market price. D) the difference between current market price and full costs of production for the firm.
C) the difference between the maximum a person is willing to pay and current market price.
Firms cannot enter an industry in which positive profits are being earned in A) the short run and in the long run. B) the long run. C) the short run. D) As long as positive profits are being earned, firms can enter the industry in both the short run and the long run.
C) the short run.
When the price of coffee decreases 5%, quantity demanded increases 5%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________. A) elastic; decrease B) elastic; increase C) unit elastic; not change D) inelastic; decrease
C) unit elastic; not change
People scalping tickets for a jazz festival will be successful at selling the tickets for a profit A) when prices are too high. B) any time the jazz festival is popular. C) when the price set by the festival organizers is less than the market equilibrium price. D) only when there is excess supply.
C) when the price set by the festival organizers is less than the market equilibrium price.
If the market price of a basketball is $35 and the full cost of producing it is $20, then a basketball producing firm gets producer surplus of A) 1 basketball. B) $35. C) $20. D) $15.
D) $15.
An example of an ineffective price ceiling would be the government setting the maximum price of wheat at ________ per bushel when the market price is at $5.00 per bushel. A) $2.25 B) $3.00 C) $4.75 D) $6.00
D) $6.00
If the cross-price elasticity of demand between shrimp and oysters is 4, then a 2% decrease in the price of shrimp will result in a(n) ________ in the quantity of oysters demanded. A) 2% increase B) 4% decrease C) 0.5% decrease D) 8% decrease
D) 8% decrease
If the marginal product of labor is less than the average product of labor, then the A) marginal product must be increasing. B) marginal product must be decreasing C) average product must be decreasing. D) Both B and C
D) Both B and C
Better insurance benefits increase the incentive of some individuals to work. This statement is best described as A) a normative statement. B) a comparative economics statement. C) an example of the ceteris paribus assumption. D) a positive statement.
D) a positive statement.
Among the fundamental concepts in economics are A) marginalism. C) opportunity cost. B) efficient markets D) all of the above
D) all of the above
Which of the following will cause a shift in the demand curve for hoverboards? A) a change in income B) a change in taste or preference C) a change in wealth D) all of the above
D) all of the above
Someone has a comparative advantage in producing a good if she can produce that good A) using more labor and less capital. B) using more capital and less labor. C) in greater quantities. D) at a lower opportunity cost.
D) at a lower opportunity cost.
Factors of production such as labor and capital A) are complementary. B) can be neither complements nor substitutes. C) are substitutable. D) can be complements and also substitutes.
D) can be complements and also substitutes.
The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must A) increase price by 0.5%. B) decrease price by 0.5%. C) increase price by 2.0%. D) decrease price by 2.0%.
D) decrease price by 2.0%.
An assumption underlying indifference curve analysis is that MUx/MUy ________ as more of X and less of Y is consumed. A) remains constant B) always equals one C) increases D) decreases
D) decreases
When there are more substitutes for a product, the ________ for the product is ________. A) income elasticity; smaller B) demand; less price elastic C) income elasticity; greater D) demand; more price elastic
D) demand; more price elastic
Favored customers are customers who receive special treatment from dealers during periods of A) equilibrium. B) price above equilibrium. C) excess supply. D) excess demand.
D) excess demand.
Economic costs A) are equal to the direct costs of hiring all factors of production. B) are equal to total revenue minus accounting profit. C) are the opportunity cost of each factor of production minus any interest charges paid on borrowed funds. D) include both a normal rate of return on investment and the opportunity cost of each factor of production.
D) include both a normal rate of return on investment and the opportunity cost of each factor of production.
If the price of a normal good rises, the income effect will result in households buying ________ of 1) the good and the substitution effect will result in households buying ________ of the good. A) more; more B) more; less C) less; more D) less; less
D) less; less
The branch of economics that examines the functioning of individual industries and the behavior of 3) individual decision-making units is A) positive economics. B) macroeconomics. C) normative economics. D) microeconomics.
D) microeconomics.
According to the law of demand, as prices rise, ceteris paribus A) demand increases. B) quantity demanded increases. C) demand decreases. D) quantity demanded decreases.
D) quantity demanded decreases.
Producer surplus is A) the difference between the maximum a person is willing to pay and current market price. B) the difference between willingness to sell and full costs of productions for the firm. C) current market price. D) the difference between current market price and full costs of production for the firm.
D) the difference between current market price and full costs of production for the firm.
When there is underproduction in a market A) market price is too high. B) the total of consumer and producer surplus is maximized. C) there is excess quantity supplied. D) there is a deadweight loss.
D) there is a deadweight loss.
As the variable on the Y-axis rises the variable on the X-axis falls. The relationship between X and Y is said to be positive.
False
The slope of a curved line is constant.
False
Opportunity cost is
That which we forgo, or give up, when we make a choice or a decision.
Harry tells you that he prefers Pepsi to Coke, Coke to 7-UP, and 7-UP to Pepsi. This violates what assumption made when analyzing consumer preferences? A) that more is better B) that consumers are rational C) that there is a diminishing marginal rate of substitution D) that consumers are able to choose among all the combinations of goods and services available
B) that consumers are rational
Which of the following is not an opportunity cost of attending college? A) the income you could have earned if you didn't attend college B) the cost of the food that you consume while you are attending college C) the tuition you pay D) the alternative uses of the time you spend studying
B) the cost of the food that you consume while you are attending college
If the substitution effect of a wage change outweighs the income effect of a wage change, the labor-supply curve is A) horizontal. B) upward sloping. C) vertical. D) backward bending.
B) upward sloping.
Perfectly competitive firms must make all of the following decisions except A) how much of each input to demand. B) what price to charge for their output. C) how much output to supply. D) which production technology to use
B) what price to charge for their output.
