econ test #2
Total revenue decreases when price increases. Is this elastic demand, inelastic demand, or unit-elastic demand?
elastic
Is this an explicit or implicit cost? Supplies such as paint stripper, varnish, polish, sandpaper, etc
explicit
Is this an explicit or implicit cost? Wages paid to a part-time helper
explicit
True or false A price ceiling below the equilibrium price increases quantity supplied
f
As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?
.25 substitutes
Suppose you are in the business earning an accounting profit of $25,000. What is your economic profit if the implicit cost of your capital is $2,000 and the opportunity cost of your time is $23,000?
0
If the cross-price elasticity between two goods is negative, this means that the two goods are a. substitutes b. complements c. normal d. inferior e. luxuries
b
Using the midpoint method, calculate the PES for web-design services when the price per hour rises from $100 to $150 and the number of hours supplied increases from 300,000 hours to 500,000. Is supply elastic, inelastic, or unit-elastic?
1.25 elastic
The price of strawberries falls from $1.50 to $1.00 per carton, and the quantity demanded goes from 100,000 to 200,000 cartons. What is the price elasticity of demand?
1.7
The PED for ice-cream sandwiches is 1.2 at the current price level of $0.50 per sandwich and the current consumption level of 100,000 sandwiches. Calculate the change in the quantity demanded when price rises by $0.05.
12,000
Assume the price of corn rises by 20% and this causes suppliers to increase the quantity of corn supplied by 40%. Calculate the price elasticity of supply. Is supply elastic or inelastic?
2 elastic
Accountants use only _____ costs in their computations. A) opportunity B) implicit C) explicit D) variable
c
At the present level of consumption, 4,000 movie tickets, and at the current price, $5 per ticket, the PED for movie tickets is 1. Using the midpoint method, calculate the percentage by which the owners of movie theaters must reduce the price in order to sell 5,000 tickets.
22%
After Chelsea's income increased from $12,000 to $18,000 a year, her purchases of CDs increased from 10 to 40 CDs a year. Calculate Chelsea's IED using the midpoint method.
3
When a local cable company offers cheaper pay-per-view films, local movie theaters have more unfilled seats. How does this affect supply and/or demand, as well as the equilibrium price and quantity?
Decrease in demand, equilibrium price and quantity decrease
Allocating kidneys to those with the highest net benefit (where net benefit is measured as the expected increase in lifespan from a transplant) is an attempt to maximize a. consumer surplus b. producer surplus c. profit d. equity e. respect for elders
a
As the price of gasoline fell in the US during the 1990s, more people bought large cars. How does this affect supply and/or demand, as well as the equilibrium price and quantity?
Increase in demand, Increase in equilibrium price and quantity
As technology innovation has lowered the cost of recycling used paper, fresh paper made from recycled stock is used more frequently. How does this affect supply and/or demand, as well as the equilibrium price and quantity?
Increase in supply, equilibrium price falls, quantity rises
Assume the price of an inferior good increases. Given that the demand curve for the good slopes downward, what is true of the relative sizes of the income and substitution effects for the inferior good?
Substitution is larger
A decrease in the price of butter would most likely decrease the demand for a. margarine b. bagels c. jelly d. milk e. syrup
a
A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for: A) a home entertainment system to be more price-elastic. B) a home entertainment system to be more price-inelastic. C) newspapers to be more price-elastic. D) the two to be equally price-elastic.
a
An increase in the number of buyers and a technological advance will cause a. demand to increase and supply to increase b. demand to increase and supply to decrease c. demand to decrease and supply to increase d. demand to decrease and supply to decrease e. no change in demand and an increase in supply
a
Historically, the limits imposed by diminishing returns have been alleviated by a. investment in capital b. increases in the population c. discovery of more land d. Thomas Malthus e. economic models
a
If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to: A) 0.75. B) approximately 0.33. C) approximately 1.33. D) 1.
a
In the long run, a. all inputs are variable b. all inputs are fixed c. some inputs are variable and others are fixed d. a firm will go out of business e. firms increase in size
a
Suppose Bob has a part-time business washing cars. He has washed nine cars on a given day; the marginal benefit of washing the tenth car is $20 and the marginal cost is $12. Bob should: A) wash the tenth car. B) not wash the tenth car. C) increase his marginal benefit. D) There is not enough information to decide.
a
The equilibrium price will rise, but equilibrium quantity may increase, decrease, or stay the same if a. demand increases and supply decreases b. demand increases and supply increases c. demand decreases and supply increases d. demand decreases and supply decreases e. demand increases and supply does not change
a
The market for soybeans is initially in equilibrium. Because of mad cow disease, producers decide to replace bone meal with soybeans in cattle feed. The likely effect is that: a. the equilibrium price and quantity of soybeans will rise. b. the equilibrium price and quantity of soybeans will fall. c. the equilibrium quantity of soybeans will rise, but we can't determine what will happen to the equilibrium price. d. the equilibrium price of soybeans will rise, but we can't determine what will happen to the equilibrium quantity.
a
The optimal consumption rule states that total utility is maximized when all income is spent and a. mu/p is equal for all goods b. mu is equal for all goods c. p/mu is equal for all goods d. mu is as high as possible for all goods e. the amount spent on each good is equal
a
The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve. B) both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions. C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply. D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve.
a
The slope of the total product curve is also known as a. marginal product b. marginal cost c. average product d. average revenue e. profit
a
When milk prices increased in 2008, one milk consumer stated that the reason he cut down on milk consumption was so that he could drive his car. This action represents a: A) movement along the demand curve for milk. B) movement along the supply curve for milk. C) shift of the demand curve for milk. D) shift of the supply curve for milk.
a
When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____. A) $209; $204.25 B) $209; $236.50 C) $236.50; $209 D) $180.50; $209
a
Which of the following is considered when calculating economic profit but not accounting profit? a. implicit cost b. explicit cost c. total revenue d. marginal cost e. all of the above
a
Which of the following is the best definition of accounting profit? Accounting profit equals total revenue minus depreciation and total ______ a. explicit cost only b. implicit cost only c. explicit cost plus implicit cost d. opportunity cost e. explicit cost plus opportunity cost
a
Which of the following will increase the demand for disposable diapers? a. a new "baby boom" b. concern over the environmental effects of landfills c. a decrease in the price of cloth diapers d. a move toward earlier potty training of children e. a decrease in the price of disposable diapers
a
Which of the following would decrease the effect of a quota on a market? a. a decrease in demand b. increase in supply c. increase in demand d. price ceiling above the equilibrium price e. none of the above
a
A consumer is spending all of her income and receiving 100 utils from the last unit of good a and 80 utils from the last unit of good b. If the price of good a is $2 and the price of good B is $1, to maximize total utility the consumer the consumer should buy a. more of good a b. more of good b c. less of good b d. more of both goods e. less of both goods
b
A technological advance in the production of automobiles will _____ the _____ automobiles. decrease; demand for increase; supply of decrease; demand decrease; supply of
b
Assume there are two goods, good X and good Y. Good X costs $5 and good Y costs $10. If your income is $200, which of the following combinations of good X and good Y is on your budget line? a. 0 units of good x and 18 units of good y b. 0 units of good x and 20 units of good y c. 20 units of good x and 0 units of good y d. 10 units of good x and 12 units of good y e. all of the above
b
Consumer surplus is found as the area a. above the supply curve and below the price b. below the demand curve and above the price c. above the demand curve and below the price d. below the supply curve and above the price e. below the supply curve and above demand curve
b
Diminishing returns to an input ensures that as a firm continues to produce, the total product curve will have what kind of slope? a. negative decreasing b. positive decreasing c. negative increasing d. positive increasing e. positive constant
b
If a decrease in price from $2 to $1 causes an increase in quantity demanded from 100 to 120, using the midpoint method, PED equals a. 0.17 b. 0.27 c. 0.40 d. 2.5 e. 3.72
b
Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat? A) 8 B) 10 C) 5 D) 11
b
Which of the following is correct for a price increase? when demand is __________, total revenue will ________. a. inelastic, decrease b. elastic, decrease c. unit-elastic, increase d. unit-elastic, decrease e. elastic, increase
b
Which of the following is true at equilibrium? a. The supply schedule is identical to the demand schedule at every price b. The quantity demanded is the same as the quantity supplied c. The quantity is zero d. Every consumer who enjoys the good can consume it. e. Producers could not make any more of the product regardless of the price
b
Which of the following will lead to an increase in the equilibrium price of product "x"? a. an increase in consumer incomes if product "x" is an inferior good b. an increase in the price of machinery used to produce product "x" c. technological advance in the production of good "x" d. decrease in the price of good "y" ( a substitute for good "x") e. expectation by consumers that the price of good "x" is going to fall
b
You manage a nightclub, and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that your bouncer thinks the demand for drinks is _____ and your bartender thinks the demand for drinks is _____. A) elastic; inelastic B) inelastic; elastic C) elastic; elastic D) inelastic; inelastic
b
You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business? A) wages paid to part-time employees B) the job offer you did not accept at a local catering service C) bread, meat, and vegetables used to produce the items on your menu D) your monthly utility bill
b
The cost of a semester-long meal ticket at the student cafeteria rises, representing a significant increase in living costs. As a result, many students have less money to spend on weekend meals at restaurants and eat in the cafeteria instead. Assume that cafeteria meals are an inferior good. State whether the income effect, substitution effect, or both effects are significant. If both, which direction do they move in?
both in opposite directions
Apartment rents have risen dramatically this year. Since rent absorbs a major part of her income, Delia moves to a smaller apartment. Assume that rental housing is a normal good. State whether the income effect, substitution effect, or both effects are significant. If both, which direction do they move in?
both in the same direction
A firm earns a normal profit when its a. accounting profit equals 0 b. economic profit is positive c. total revenue equals its total costs d. accounting profit equals its economic profit e. economic profit equals its total explicit and implicit costs
c
A technological advance in textbook production will lead to which of the following? a. a decrease in textbook supply b. an increase in textbook demand c. an increase in textbook supply d. a movement along the supply curve for textbooks e. an increase in textbook prices
c
Consumer surplus for an individual buyer is equal to: A) the consumer's willingness to pay for the good minus the marginal cost of producing the good. B) the price of the good minus the marginal cost of producing the good. C) the consumer's willingness to pay for the good minus the price of the good. D) the marginal cost of the good minus the consumer's willingness to pay for the good.
c
If an increase in income leads to a decrease in demand, the good is a. a complement b. a substitute c. inferior d. abnormal e. normal
c
Maria wants to get rid of her bookshelf. She is willing to give it away, but her neighbor offers to pay $30 for it. Maria takes a: A) consumer surplus gain. B) consumer surplus loss. C) producer surplus gain. D) producer surplus loss.
c
Other things equal, a rise in price will result in a. producer surplus will rise, consumer surplus will rise b. producer surplus will fall, consumer surplus will fall c. producer surplus will rise, consumer surplus will fall d. producer surplus will fall, consumer surplus will rise e. producer surplus will not change, consumer surplus will rise
c
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000. The accounting profit of Wang's Wicker Furniture Store is: A) $200,000. B) $60,000. C) $30,000. D) $0.
c
The income effect is most likely to come into play for which of the following goodS? a. water b. clothing c. housing d. transportation e. entertainment
c
Total revenue is maximized when demand is a. elastic b. inelastic c. unit-elastic d. zero e. infinite
c
When a firm is producing zero output, total costs equals a. zero b. variable cost c. fixed cost d. average total cost e. marginal cost
c
Which of the following is certainly true if demand and supply increase at the same time? a. the equilibrium price will increase b. the equilibrium price will decrease c. the equilibrium quantity will increase d. the equilibrium quantity will decrease e. the equilibrium quantity may increase, decrease, or stay the same
c
Which of the following is true if the PED for a good is zero? a. the slope of the demand curve is zero b. the slope of the demand curve is one c. the demand curve is vertical d. the demand curve is horizontal e. the price of the good is high
c
Which of the following leads to a more inelastic price elasticity of supply? 1. the use of inputs that are easily obtained 2. a high degree of substitutability between inputs 3. a shorter time period in which to supply the good a. 1 b. 2 c. 3 d. 1 and 2 e. 1, 2, 3
c
Which of the following would NOT cause the supply curve to shift? A) a change in the technology of production B) a change in factor costs C) a change in the price of the good D) a change in suppliers' expectations of future prices
c
You sell t-shirts at your school's football games. Each shirt costs $5 to make and sells for $10. Each game lasts two hours and you sell 100 shirts per game. You could always be earning $8 per hour at your other job. Which of the following is correct? You accounting profit from selling shirts at a game is a. $1,000 and your economic profit is $500. b. $500 and your economic profit is $1,000. c. $500 and your economic profit is $484. d. $484 and your economic profit is $500. e. $500 and your economic profit is also $500.
c
if a 2% change in the price of a good leads to a 10% change in the quantity demanded of a good, what is the value of PED? a. 0.02 b. 0.2 c. 5 d. 10 e. 20
c
A perfectly elastic demand curve is a. upward sloping b. vertical c. not a straight line d. horizontal e. downward sloping
d
A perfectly elastic supply curve is a. positively sloped b. negatively sloped c. vertical d. horizontal e. u-shaped
d
A production function shows the relationship between inputs and a. fixed costs b. variable costs c. total revenue d. output e. profit
d
An increase in the demand for steak will lead to an increase in which of the following? a. the supply of steak b. the supply of hamburger (a substitute in production) c. the supply of chicken (a substitute in consumption) d. the supply of leather (a complement in production) e. the demand for leather
d
Generally, each successive unit of a good consumed will cause marginal utility to a. increase at an increasing rate b. increase at a decreasing rate c. increase at a constant rate d. decrease e. either increase or decrease
d
If Kylie buys 200 units of good X when her income is $20,000 and 300 units of good X when her income increases to $25,000, her income elasticity of demand is a. 0.06 b. 0.5 c. 1.65 d. 1.8 e. 2.00
d
In economic analysis, at the optimal quantity of an activity: A) marginal benefit exceeds marginal cost by the greatest amount. B) total benefit exceeds total cost by the greatest amount. C) marginal benefit equals marginal cost. D) total benefit exceeds total cost by the greatest amount and marginal benefit equals marginal cost.
d
Quotas lead to which of the following? 1. inefficiency due to missed opportunities 2. incentives to evade or break the law 3. a surplus in the market a. 1 b. 2 c. 3 d. 1, 2 e. 1, 2, 3
d
The income elasticity of demand for a normal good is a. zero b. 1 c. infinite d. positive e. negative
d
The market price of a good will tend to rise if a. demand decreases b. supply increases c. it is above the equilibrium price d. it is below the equilibrium price e. demand shifts to the left
d
The optimal consumption bundle is always represented by a point a. inside the consumer's budget line b. outside the consumer's budget line c. at highest point on the consumer's budget line d. on the consumer's budget line e. at horizontal intercept of the consumer's budget line
d
The publisher of an economics textbook finds that when the book's price is lowered from $70 to $60, sales rise from 10,000 to 15,000. By the midpoint method, the price elasticity of demand is: A) 500. B) 50. C) 3.5. D) 2.6.
d
Total revenue will decrease if the price goes _____ and demand is _____. A) up; perfectly price-inelastic B) up; price-inelastic C) down; price-elastic D) up; price-elastic
d
When making decisions, which of the following costs should be ignored? a. average costs b. total costs c. marginal costs d. sunk costs e. none- no costs should be ignored
d
Which of the following describes what will happen in the market for tomatoes if a salmonella outbreak is attributed to tainted tomatoes? a. supply will decrease and price will increase b. supply will decrease and price will decrease c. demand will decrease and price will increase d. demand will decrease and price will decrease
d
Which of the following is an example of an implicit cost of going out for lunch? a. the amount of the tip you leave the waiter b. the total bill you charge to your credit card c. the cost of gas to drive to the restaurant d. the value of the time you spent eating lunch e. all of the above
d
Which of the following statements is true? 1. When a good absorbs only a small share of consumer spending, the income effect explains the demand curve's negative slope. 2. A change in consumption brought about by a change in purchasing power describes the income effect. 3. In the case of an inferior good, the income and substitution effects work in opposite directions. a. 1 b. 2 c. 3 d. 2 and 3 e. 1, 2, 3
d
Which of the following will decrease the supply of good "X"? a. There is a technological advance that affects the production of all goods b. The price of good "x" falls c. The price of good "y" (which consumers regard as a substitute for good "x") decreases d. The wages of workers producing good "x" increase e. The demand for good "x" decreases
d
Which of the following will occur if consumers expect the price of a good to fall in the coming months? a. the quantity demanded will rise today b. the quantity demanded will remain the same today c. demand will increase today d. demand will decrease today e. no change will occur today
d
Which of the following would cause the demand for a good to be relatively inelastic? a. the good has a large number of close substitutes b. expenditures on the good represent a large share of consumer income c. there is ample time to adjust to price changes d. the good is a necessity e. the price of the good is the upper left section of a linear demand curve
d
Assume the price of an inferior good increases. In what direction will the substitution effect change the quantity demanded?
decrease
A store owner finds that customers are willing to pay more for umbrellas on rainy days. Is this a shift in demand or quantity demanded?
demand
People buy more long-stem roses the week of Valentine's Day, even though the prices are higher than at other times during the year. Is this a shift in demand or quantity demanded?
demand
Is this firm likely to experience economies of scale or diseconomies of scale? A diamond-mining company
economies of scale
Is this firm likely to experience economies of scale or diseconomies of scale? An interior design firm in which design projects are based on the expertise of the firm's owner
diseconomies of scale
A firm should continue to produce as long as its a. total revenue is less than its total costs b. total revenue is greater is greater than its total explicit costs c. accounting profit is greater than its economic profit d. accounting profit is not negative e. economic profit is at least zero
e
Economies of scale will allow which of the following types of cities to lower their average total cost of clearing snow by investing in larger snow plow fleets? Cities with a. more people b. more existing snow plows c. less snowfall d. larger budgets e. more snowfall
e
Effective price ceilings are inefficient because they a. create shortages b. lead to wasted resources c. decrease quality d. create black markets e. do all of the above
e
The slope of the total cost curve equals a. variable cost b. average variable cost c. average total cost d. average fixed cost e. marginal cost
e
To be effective, a price ceiling must be set 1. above the equilibrium price 2. in the housing market 3. to achieve the equilibrium market quantity a. 1 b. 2 c. 3 d. 1,2,3 e. none
e
Which of the following defines the short run? a. less than a year b. when all inputs are fixed c. when no inputs are variable d. when only one input is variable e. when at least one input is fixed
e
Which of the following is always considered the long run? a. 1 month b. 1 year c. 5 years d. 10 years e. none of the above
e
Which of the following is an implicit cost of attending college? a. tuition b. books c. laptop computer d. lab fees e. forgone salary
e
Which of the following is correct? a. AVC is the change in total cost generated by one additional unit of output b. MC=TC/Q c. The average cost curve crosses at the minimum of the marginal cost curve d. the AFC curve slopes upward e. AVC= ATC-AFC
e
Which of the following is likely to have the highest PED? a. eggs b. beef c. housing d. gasoline e. foreign travel
e
Which of the following statements is generally correct? 1. the long-run average total cost curve is u-shaped 2. the short-run average total cost curve is u-shaped 3. firms tend to experience economies of scale at low levels of production and diseconomies of scale at high levels of production a. 1 b. 2 c. 3 d. 1 and 2 e. 1, 2, 3
e
Which of the following statements is true? 1. marginal cost is the change in total cost generated by one additional unit of output 2. marginal cost is the change in variable cost generated by one additional unit of output 3. The marginal cost curve must cross the minimum of the average total cost curve a. 1 b. 2 c. 3 d. 1 and 2 e. 1,2,3
e
Which of the following would increase demand for a normal good? A decrease in a. price b. income c. the price of a substitute d. consumer taste for a good e. the price of a complement
e
The job at a larger furniture restorer that Karma gave up in order to run the business
implicit
Is this an explicit or implicit cost? A van that they inherited and use only for transporting furniture
implicit
Is this an explicit or implicit cost? Basement space that has been converted into a workroom
implicit
Assume the price of an inferior good increases. In what direction will the income effect change the quantity demanded?
increase
Producers in an industry find they can increase their total revenues by working together to reduce industry output. Is this elastic demand, inelastic demand, or unit-elastic demand?
inelastic
Total revenue falls when output increases. Is this elastic demand, inelastic demand, or unit-elastic demand?
inelastic
Demand by students for blue pencils. Is this elastic demand, inelastic demand, or unit-elastic demand? What is the shape of the curve?
perfectly elastic, horizontal
Demand by a snake-bite victim for an antidote. Is this elastic demand, inelastic demand, or unit-elastic demand? What is the shape of the curve?
perfectly inelastic, vertical line
A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases. Is this a shift in demand or quantity demanded?
qd
When XYZ Telecom, a long-distance telephone service provider, offered reduced rates on weekends, its volume of weekend calling increased sharply. Is this a shift in demand or quantity demanded?
qd
During a real estate boom that causes house prices to rise, more homeowners put their houses up for sale. Is this a shift in supply or quantity supplied?
qs
Many construction workers temporarily move to areas that have suffered hurricane damage, lured by higher wager. Is this a shift in supply or quantity supplied?
qs
Orange juice represents a small share of Clare's spending. She buys more lemonade and less orange juice when the price of orange juice goes up. She does not change her spending on other goods. State whether the income effect, substitution effect, or both effects are significant. If both, which direction do they move in?
substitution
Immediately after the school year begins, fewer young people are available to work. Fast-food chains must raise wages, which represent the price of labor, to attract workers. Is this a shift in supply or quantity supplied?
supply
Many strawberry farmers open temporary roadside stands during harvest season, even though prices are usually low at that time. Is this a shift in supply or quantity supplied?
supply
Since new technologies have made it possible to build larger cruise ships (which are cheaper to run per passenger), Caribbean cruise lines have offered more cabins, at lower prices, than before. Is this a shift in supply or quantity supplied?
supply
True or false A price ceiling below the equilibrium price makes all producers worse off
t
True or false A price ceiling below the equilibrium price makes some people who want to consume the good worse off
t
When price falls, the additional revenue generated by the increase in the quantity sold is exactly offset by the revenue lost from the fall in the price received per unit. Is this elastic demand, inelastic demand, or unit-elastic demand?
unit-elastic
