Econ Final
The 3 key economic questions include all of the following EXCEPT
"where should these products be produced?"
Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would accounts say is Joe's cost of running the restaurant?
$250,000
Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joe's cost of running the restaurant?
$400,000
Suppose that 100 firms operate in a perfectly competitive industry and each firm has the same technology and cost structure. If each firm maximizes profits by selling 20 units of output at $5.00, then the quantity supplied in the market at $5.00 is:
2000.
Which of the following is the best example of a perfectly competitive firm?
Jones's wheat farm in eastern Washington
A market served by only one firm is called a
Monopoly
When does a firm's average variable cost exceed the average total cost?
Never
If the firm is incurring losses in the short run, then which of the following is true?
P < ATC
Which of the following is an example of a normative question?
Should Florida implement a state income tax to reduce its deficit?
How does the firm-specific demand curve in a perfectly competitive market compare to that in a monopoly?
The firm-specific demand curve in a perfectly competitive market is horizontal. The demand curve in a monopoly is downward sloping.
Steven lives in a big city where there is a shortage of parking. He has a parking spot in his driveway where he parks his car. Which of the following statements is most correct?
The opportunity cost of using the parking spot is the price he could charge someone else for using the spot.
Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?
The real interest rate that would have been earned on the money.
The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n)
absolute advantage.
In a market economy, what provides potential investors with reliable information about the financial performance of a firm?
accounting rules
If we observe that the price is rising in the sugar market, it is likely due to:
an excess demand for sugar.
If a grocery store had a sale on hot dogs, it would be reasonable to expect:
an increase in the demand for hot dog rolls.
Technologically enhanced corn seeds that resist insects result in:
an increase in the supply of corn.
Which is not a characteristic of perfect competition?
an upward-sloping market demand curve
The marginal cost curve intersects the short-run average total cost curve where:
average total costs are minimized in the short run.
Economics is best defined as the study of
choices made by people faced with scarcity
The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n)
comparative advantage.
Outsourcing allows a company to take advantage of the ________ of other countries, and in doing so it can produce its products at a lower cost.
comparative advantages
Compact discs are sold in a perfectly competitive market. The current market price of compact discs is $15. If at the current level of production of compact discs you calculate that the marginal cost to your company is also $15, and that AVC is rising, in the short run your company should:
continue producing the current level of compact discs.
In a market economy, what specifies the terms of exchange, facilitating exchange between strangers?
contracts
Average fixed costs in the short run:
decrease as the quantity produced increases.
One role government can play in addressing market failure is to
enforce the rules of exchange.
In a market-based economy, the government
enforces property rights.
if a monopolist is maximizing its profits, we know that it has
equated marginal cost and marginal revenue
Suppose that steak is a normal good. When income decreases the equilibrium quantity of steak will ________ and the equilibrium price of steak will ________.
fall; fall
Suppose that a natural disaster substantially increases the cost of producing cheese. We would predict that the equilibrium quantity of cheese will ________ and the equilibrium price of cheese will ________.
fall; rise
The law of supply states that:
firms supply more of a product as the price of the product rises.
To think at the margin means to consider
how a small change in one variable affects another variable.
In response to news reports that taking aspirin daily can reduce an individual's risk of a heart attack, there will most likely be a(n):
increase in the demand for aspirins.
Kevin's Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $1, and AVC is rising. If the market price of golf balls is $2, Kevin should:
increase the production of golf balls.
Suppose that automobile workers were to negotiate a very large wage increase. As a result, the equilibrium price of automobiles would ________, and the equilibrium quantity of automobiles would ________.
increase; decrease
Suppose that TV news programs report that oat bran can lower one's cholesterol. As a result, the equilibrium price of oats would ________, and the equilibrium quantity of oats would ________.
increase; increase
When Tom's income decreases, he purchases more hamburger. We can conclude that for Tom, hamburger is a(n) ________ good.
inferior
A firm's short-run supply curve is the firm's:
marginal cost curve above the minimum point of the average variable cost curve.
When a firm is experiencing diminishing marginal returns:
marginal costs are increasing.
Diminishing marginal returns implies that:
marginal product is decreasing.
A decrease in the equilibrium price of a normal good could be the result of:
new technology in the production of the good.
The face value of money or income is called its ________ value.
nominal
Adam Smith used the metaphor of the "invisible hand" to explain how
people acting on their own self-interest promote the interest of society as a whole.
When there is a shortage of a product, there is a tendency for:
price to rise.
In a market system, what provides individuals the information needed to make decisions?
prices
When people act in their own self interest, it is described as the
principle of voluntary exchange.
An import is a product
produced in a foreign country and purchased by the residents of the home country.
The firm's short-run supply curve shows the relationship between the price of a good and the:
quantity supplied of that good.
The value of money or income in terms of the quantity of goods the money can buy is called its
real value.
Providing unemployment insurance is one way a government can
reduce economic uncertainty.
Suppose that the price of fertilizer, an input in the production of corn, falls. We would predict that the equilibrium quantity of corn will ________ and the equilibrium price of corn will ________.
rise; fall
Suppose that the Surgeon General releases a study suggesting that orange juice consumption reduces the risk of cancer. We would predict that the equilibrium quantity of orange juice will ________ and the equilibrium price of orange juice will ________.
rise; rise
Suppose Tim's Cowboy boot factory produces in a perfectly competitive market. Suppose the average total cost of cowboy boots is $65, the average variable cost of cowboy boots is $60, and the price of cowboy boots is $62. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm:
should continue to produce since total revenue exceeds total variable cost.
Suppose Robin's Clock Works produces in a perfectly competitive market. Suppose the average total cost of clocks is $95, the average variable cost of clocks is $90, and the price of clocks is $85. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm:
should shut down.
When referring to "marginal" changes, the economic focus is on
small or incremental changes.
A variable measures
something that can take on different values.
Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $36. If she is following the marginal principle, Krystal should Hours of Operation Marginal Cost 1 6 2 12 3 18 4 24 5 30 6 36 7 42 Table 2.2
stay open 1 more hour.
Every year during the holidays there seems to be a great demand for some particular "hot" toy. This is an example of the effect of ________ on demand.
tastes and preferences
A household's decision about what quantity of a particular output, or product, to demand depends on all of the following factors except the:
technologies available to produce the product.
Marginal cost is defined as:
the change in short-run total cost resulting from a one-unit change in output.
MICROeconomics is best described as the study of
the choices made by individual households, firms, and governments.
Assume that compact discs and compact disc players are complements. When the price of compact disc players decreases:
the demand for compact discs increases.
Assume that butter and margarine are substitutes. When the price of butter increases:
the demand for margarine increases.
You rent a DVD of Iron Man II. The rental is for seven days and you watch the movie on the first day. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost if you decide to watch the movie a second time instead of going to a football game?
the football game you forego by watching the movie again
Which of the following is an example of something that economists would consider a cost but accountants would not?
the interest income foregone by the firm's owner because the owner invested funds into the firm
the demand curve that a monopolist faces is
the market demand curve
MACROeconomics is best described as the study of
the nation's economy as a whole.
Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that:
the price of pizza will decrease.
A change in the quantity demanded of a product is the result of a change in:
the price of the product.
When the price of peanuts falls:
the quantity demanded of peanuts increases.
in the long run, the main reason that a monopolist can earn positive economic profits while a perfectly competitive firm cannot is
there are no barriers to entry in a perfectly competitive market
You sell your good in a perfectly competitive market where the market price is $7.00. When you sell 100 units your total revenue is $700. When you sell 101 units:
total revenue increases by exactly $7.
Marginal revenue is equal to price for a perfectly competitive firm because:
total revenue increases by the price of the good when an additional unit is sold.
To make things simpler and focus attention on what really matters, economists would
use assumptions.
The real-nominal principle states that
what matters to people is the purchasing power of money or income.
