ECON Exam 2
Some people believe there should be a legally determined maximum price in the gasoline market. Such a limit on the price of gasoline would be an example of
A price ceiling
Fill in the blanks. When there are many people involved, the transactions costs are often ___ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem ___ feasible.
higher; is not
Which of the following refers to the total output produced by a firm divided by the quantity of workers?
average product of labor
What cost measure is equal to AFC + AVC?
average total cost
Who benefits from the concept of elasticity?
both business manager and policymakers
How is the responsiveness of the quantity demanded to a change in price measured?
by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
How do economists avoid confusion over units in the computation of elasticity?
by using percentage changes rather than simple differences
Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?
opportunity cost
What is the name given to the responsiveness of the quantity supplied of a good to a change in its price?
price elasticity of supply
What is the benefit received by the consumer of a good or service called?
private benefit
What is the term used to describe the total cost of producing a good which includes both private and external costs?
social cost
The term used to describe a change in the ability of a firm to produce a given level of output with a given level of inputs is called___.
technological change
The processes a firm uses to turn inputs into outputs of goods and services is.
technology
The term tax incidence refers to
the actual division of the burden of a tax
Which of the following is the definition of marginal benefit?
the additional benefit to a consumer from consuming one more unit of a good or service.
When is output inefficiently low?
when marginal benefit is greater than marginal cost
If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber?
$208-$81 = $127
What is total revenue?
- total amount of funds a firm receives from selling a good or service -an amount calculated by multiplying price per unit by the number of units sold -an amount that increases when price increases if demand is inelastic ALL of the above
If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, the price elasticity of demand is
-1.25
which of the following is a true statement?
-The more substitutes available for a product, the greater the absolute value of the price elasticity of demand. -The more time that passes, the more elastic the demand for a product becomes. -The demand curve for a luxury is more elastic than the demand curve for a necessity. ALL of the above are true
which of the following is true if quantity demanded is not very responsive to price?
-The percentage change in quantity demanded will be less than the percentage change in price. -The price elasticity of demand will be less than 1 in absolute value -demand is inelastic ALL fo the above are true
What are the sources of externalities and market failure?
-incomplete property rights -the difficulty of enforcing property rights in certain situations. (both a. and b.)
What does the sum of consumer surplus and producer surplus equal?
Economic surplus
Which of the following is true? i.Total cost = fixed cost + variable cost ii.Total cost = explicit costs + implicit costs iii.Economic cost = accounting cost + implicit costs
I, ii, and iii
What does the term free riding refer to?
The idea that someone can benefit from a good without paying for it.
Which of the following is true about the value of the price elasticity of demand?
The value is always negative
Which of the following statements is correct?
There is no shortage of most scarce goods.
When demand is inelastic, what is the relationship between price and total revenue?
They move in the same direction
Which of the following would occur when calculating price elasticity between two points on a demand curve if we are not using the midpoint formula?
We would get a different value for price increases than for price decreases.
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
an inferior good
Which of the following is true about what happens to the quantity demanded of an inferior good?
it falls when income increases.
What is true about quantity demanded if a good is considered a necessity?
it is not very responsive to changes in income
The price elasticity of demand for a particular brand of Raisin Bran is, in absolute value,
larger than the price elasticity of demand for all breakfast cereals
Sarah spends 2% of her weekly budget on chewing gum, and she spends 50% of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be
less elastic than her demand for books.
What is the additional output that a firm produces as a result of hiring one more worker called?
marginal product of labor
Which of the following is the definition of consumer surplus?
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
What happens to the difference between average variable cost and average total cost as the level of output increases?
the difference decreases
What does the term excludability refer to?
the fact that anyone who does not pay for a good cannot consume it
Fill in the blanks. When graphing a conventional short-run production function, we place____ on the horizontal axis and ____on the vertical axis.
the variable input; output
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?
they re part of fixed cost
What do economist use the concept of elasticity for?
to measure how one economic variable responds to changes in another economic variable.
Fill in the blank. When a negative externality is present in producing a good or service, _____ of the good or service will be produced at market equilibrium.
too much
When the government imposes price floors or price ceilings, which of the following occurs?
-some people win. -some people lose. -there is a loss of economic efficiency. all of the above occur.
What is the difference between private benefit and social benefit?
An external benefit
Refer to the table below. Which of the boxes applies to goods that are excludable and nonrivalrous?
C. Examples: Cabe TV toll road
If we find that the price elasticity of demand for hamburgers is -1.3 while the price elasticity of demand for textbooks is -0.6, which of the following can we say is true?
The demand for hamburgers is more elastic than the demand for textbooks.
Which of the following is the definition of producer surplus?
The difference between the lowest price a firm would have been willing to accept and the price it actually receives
If you know the value for price elasticity of demand, then which of the following can you compute?
The effect of a price change on the quantity demanded
Which of the following is a true statement?
The more narrowly defined a product is, the larger the price elasticity of demand.
When a competitive market is in equilibrium, what is the economically efficient level of output?
The output level where marginal cost is equal to marginal benefit
Which of the following statements about the relationship between marginal product of labor and average product of labor is correct?
Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.
If demand is perfectly elastic, then what is the impact of an increase in price?
a decrease in quantity demanded to zero
what is the effect of a cut in price when demand is inelastic?
a decrease in total revenue
What is the cost that affects someone who is not directly involved int he production or consumption of a good called?
an externality
Fill in the blanks: An increase in the price of a substitute for iPods will lead to ___ in quantity demanded of iPods, so the cross-price elasticity of demand will be ___.
an increase; positive.
The following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception?
average fixed cost
What do we obtain by dividing the fixed cost by the quantity of output produced?
average fixed cost
If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two Web sites to be?
close substitutes
If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, we say demand for Red Bull is___in this range.
elastic
Which of the following are sometimes called accounting costs?
explicit costs
What is the focus of a command-and-control approach to reducing pollution?
imposing quantitative limits on the amount of pollution firms are allowed to generate
Which of the following statements is correct according to Ronald cases argument for dealing with externalities and market failure?
in some situations, a private solution to the problem of externalities can be found.
Which of the following statements is correct?
in the long run, all costs are variable.
Fill in the blanks. According to the case theorem, if transactions costs are ___, private bargaining will result in an ____ solution to the problem of externalities.
low; efficient
Which of the following does the midpoint formula use to compute elasticity?
the averages of the initial and final quantity and the initial and final price
What is the tragedy of the commons?
the tragedy of the commons refers to the tendency for a common resource to be overused.
When demand is elastic, how will an increase in price affect total revenue?
total revenue will fall
What is the cross-price elasticity of demand for two products that are unrelated?
zero
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
zero
Which costs are affected by the level of output produced?
variable costs
What happens when the quantity demanded is very responsive to changes in price?
The percentage change in quantity demanded will be greater than the percentage change in price.
Fill in the blanks: An increase in the price of a complement for DVDs will lead to____in the quantity demanded of DVDs, so the cross-price elasticity of demand will be____
a decrease; negative
if the income elasticity of SUVs is greater than 1, what is the good considered?
a luxury
If the quantity demanded of a good increases as income increases, then that good must be which of the following?
a normal good
What is the short run?
a period of time during which at least one of the firm's inputs is fixed
In response to information regarding the salaries of executives at firms receiving bailout funds int he United States, some people have called for a limit on the salaries paid to executives. Such a limit on the compensations executives can receive is an example of
a price ceiling
What is the name of legally determined maximum price that sellers may charge?
a price ceiling
what is the name of a legally determined minimum price that sellers may receive?
a price floor
What type of solution to externalities is the Coase theorem?
a private solution to externalities
What does the term rivalry refer to?
a situation in which one person's consumption of a good means that no one else can consume it
When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected?
when demand is unit elastic
What is the situation called in which the market fails to produce the efficient level of output?
market failure
When the percentage change in quantity demanded is greater than the percentage change in price, which of the following is true?
the price elasticity of demand will be greater than 1 in absolute value.
What is the production function?
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.