econ practice mc
Example of a positive economic statement
Higher prices cause consumers to buy less
Which key assumption do we change when going from the analysis of a perfectly competitive industry to a monopolistically competitive industry?
In perfect competition, firms produce identical products whereas in monopolistic competition firms produce slightly differentiated products
Not a necessary condition for a firm to engage in price discrimination
Perfectly elastic demand curve
In long run equilibrium,
Price = MC = ATC
Which government agencies are responsible for enforcing antitrust laws
The FTC and the antitrust division of the department of justice
VCR's and videotapes are complements. An increase in the price of VCR's would cause
The equilibrium price and quantity of videotapes would decrease
Bananas and apples are substitutes. When the price of bananas falls, and a technological advance in apple production occurs at the same time,
The equilibrium price of apples falls and the equilibrium quantity of apples might rise or fall
Apples and oranges are substitute goods. A freeze in Florida destroyed a good portion of the crop.
The price of both apples and oranges will increase
Suppose that in October the price of a cup of caffe latte was $1.50 and 400 lattes were consumed. In November the price of a latte was $2.00 and 200 lattes were consumed. What might have caused this change?
The price of coffee beans (input in the production of caffe lattes) rose.
Best definition of economics
The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
What will not cause a shift in the demand curve for compact discs
a change in the price of compact discs
What is most likely to move an economy from a point inside its PPF to a point closer to its PPF
a decrease in the unemployment rate
In terms of the PPF, an increase in productivity attributable to new technology would best be shown by
a movement from a point inside the the frontier to a point on it
The short run refers to
a period of time in which at least one input is fixed
During the Persian Gulf War many of Kuwait's oil refineries were destroyed. This would best be represented by
a shift of Kuwait's PPF back and to the left
Economic growth can be best represented by
a shift out and to the right of a country's production possibilities curve
If demand for a good is perfectly inelastic, then the demand curve will be
a vertical line
What will cause a decrease in supply of a product
an increase in the cost of production of the product
Which is most likely to increase the equilibrium price and decrease the equilibrium quantity of roses
an increase in the price of fertilizer which is used to grow roses
The "law of demand" implies that
as prices fall, quantity demanded increases
The law of increasing relative costs arises because
as society produces more and more of a good, people are forced to use resources which are less and less well suited to the production of that good
If the marginal cost of producing a product is greater than the average total cost of producing the product then it must be the case that
average total cost must be increasing
Guaranteed price matching, which occurs when a firm announces that it will automatically match any competitor's price is
bad for consumers because it keeps prices high
If the income elasticity of demand for cereal is -.25 and the income elasticity of demand for peaches is 1.5 then
cereal is an inferior good and peaches are a normal good
Suppose that milk and cereal are complements. If the price of milk increases, this will most likely ______ the equilibrium price of cereal and ____ the equilibrium quantity of cereal.
decrease; decrease
Suppose you produce tie-dyed t-shirts. You notice that when you charge $10 per shirt, you sell 200 shirts. Also, when you raise the price to $12, you sell 150 shirts. As the price goes up from $10 to $12, your total revenue _____, therefor the demand for tie-dyed t-shirts must be_______.
decreases; elastic
Suppose a firm doubles all of its inputs and this results in the firm tripling its output. The firm is experiencing
economies of scale
A retired individual spends the day golfing. The opportunity cost of this decision equals..
equals the cost of the golf outing plus the value of the individual's alternate use of time
Suppose that the price of fertilizer, an input in the production of corn, falls. We would predict that the equilibrium price of corn will _____ and the equilibrium quantity of corn will ______
fall; rise
During an economic downturn when consumer income falls, the demand for ice cream increases and the demand for chocolate cake decrease. This implies that
ice cream is an inferior good and cake is a normal good
If the price of a product rises, other things being equal, this will
increase the quantity supplied of the product
Suppose oranges are a normal good. If income rises, and at the same time there is a freeze in Florida which destroys part of the orange crop, then this will most likely __________ the equilibrium price of oranges and ____________ the equilibrium quantity of oranges.
increase; have an indeterminate effect on
A society can produce 2 goods: bread and cookies. The societies PPF is negatively sloped and "bowed outward" from the origin. As this society moves down its PPF producing more and more units of cookies, the opportunity cost of producing cookies...
increases
The fewer substitutes there are for a good the more ______ the demand for the good, and the longer period of time people have to adjust to a price change, the more ______ the good.
inelastic; elastic
If the market price of a product is above average variable cost but below average total cost, the firm will make a _______ in the short run, firms will _____ the long run, and the market price will _________
loss; exit; rise
Diminishing marginal product sets in when
marginal cost increases
If a firm in an oligopoly raises its prices, competing firms will _____ their prices, and if a firm in an oligopoly lowers its prices, competing firms will _____ their prices
not change; lower
Relative to a competitively organized industry, a monopoly
produces less output and charges a higher price
If the price ceiling is set below the equilibrium price,
quantity demanded will be greater than quantity supplied (shortage)
As more of a good, such as television sets, is produced the opportunity costs of producing an additional television set increases. This most likely occurs because
resources are not equally well suited to producing all goods and as more of a good is produced it is necessary to use resources less well suited to the production of the good
Lettuce and spinach are substitutes. Ceteris Paribus, if a spinach beetle destroys half of the nations spinach crop, we predict that the equilibrium price of LETTUCE will _____ and the equilibrium price of SPINACH will_______
rise; rise
NOT a characteristic of a perfectly competitive market
sellers compete with each other by charging different prices
Other things equal, the ______ the demand curve, the greater the proportion of a tax that is paid by consumers, and the ______ the supply curve, the greater the proportion of a tax that is paid by consumers
steeper; flatter
If people think that real estate prices will fall in the near future, which of the following is most likely to happen?
the demand for houses will decrease and price will actually fall in the near future
Consumer surplus is best defined as
the difference between what a person is willing to pay for a good and what a person actually has to pay for the good
The law of demand states that
the price of a good and the quantity demanded of a good are negatively related, ceteris paribus
If there is a shortage in the market for a good, we expect that
the price of the product will rise
if you choose to attend college for one semester, the true cost of this decision includes
tuition, books, and activity fees plus the wages that you could have made had you not attended college
People scalping tickets for a rock concert will be successful...
when the price set by the concert hall is less than the market equilibrium price
Suppose that a technological advancement substantially reduces the cost of producing cheese, while a new study suggests that excessive use of cheese is harmful for a person's health. We predict that the equilibrium price of cheese ________, and the equilibrium quantity of cheese _______.
will fall; might rise or fall
A tit for tat strategy means that
you should choose the strategy that your opponent chose in the previous period
