Econ Test Bank Quiz #2

A demand shift affects

buyers' willingness to purchase at various prices.

The long-lived physical equipment and structures that a business uses in its production process are called

capital.

A profit-maximizing business will increase production as long as

marginal revenue exceeds marginal cost.

If a town begins requiring builders to build on one-acre lots, instead of on smaller quarter-acre lots, the supply curve for new homes will

shift to the left.

In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.

short-term cost function

Variable costs are also known as

short-term costs.

Variable costs are relevant for

short-term everyday decision making.

In a movement along the demand curve, the demand schedule

stays the same, but the price changes.

The additional money a business gets from producing and selling one more unit of output is

marginal revenue.

In 2004, the worldwide demand curve for cement moved to the right. What does this mean?

At any price, the quantity demanded was higher.

In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?

Average product would rise, and marginal product would rise.

Because of global warming, countries that are cooler may see ________ in the supply of grain and agricultural products.

A shift to the right

To determine whether a particular good is a normal good, a luxury good, or an inferior good, you would want to observe what happens to demand for the good when __________ changes.

income

Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?

It must be less than 18.

The total cost of production is determined by adding the costs of which of the following?

Labor, capital, land, intermediate inputs, and business know-how

In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact on output of adding an additional input in the form of a gas self-propelled mower (capital)?

Output would increase.

What name is given to the economic process of turning inputs into outputs that a business will sell to customers?

Production

If a frost suddenly destroyed a big portion of this year's crop of oranges, a good with highly elastic demand, what would be the impact on quantity demanded and price?

Quantity demanded would decrease a lot, and price would remain stable or rise slightly.

What word describes the money that customers pay for the output of a business?

Revenue

________ is the amount of money a company receives for selling its product or service.

Revenue

When a business expands production and increases sales, what generally happens to revenue?

Revenue rises because the business is selling more output.

Which of the following is LEAST likely to be an example of a normal good?

Store-brand breakfast cereal

Stricter loan standards in the mortgage lending sector could cause

a demand shift to the left in the housing market.

After Hurricane Katrina, the supply curve for oil shifted to the left, and as a result

a new equilibrium price was reached.

What word describes the money that a business pays for its inputs?

Cost

If more and more states legalize casino gambling in the future, what will likely happen to the market for casino gambling in the states where it is currently legal?

The demand curve will shift to the left.

If the interest rates on new car loans increase, the quantity of new cars supplied will

decrease.

When a demand curve shifts to the right

demand has increased, so equilibrium price increases, and equilibrium quantity increases.

Higher interest rates can cause the ________ curve for new cars to ________.

demand; shift to the left.

A demand shift to the right generally leads to

higher prices and higher quantities.

Inputs to production do NOT include

average product.

The technology or knowledge necessary for a production process is called

business know-how.

In the long run,hotel room prices that are falling as a result of excess supply will ______ the quantity of hotel rooms supplied in a market.

decrease

If you add too many inputs, your business may experience

diminishing marginal product.

Most markets, if left alone, will tend toward

equilibrium price.

Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. If the current price in this market is $2 then there is

excess demand and pressure on the price to rise.

If the supply of a good increases, the equilibrium price of that good

falls while quantity demanded rises.

Price Quantity Demanded Quantity Supplied $0 200 0 $1 150 40 $2 100 80 $3 50 120 $4 0 160 Refer to the table. In this market, the equilibrium price occurs where quantity demanded and quantity supplied are both

greater than 80 but less than 100.

When necessary, a higher price will simultaneously ________ the quantity supplied and ________ the quantity demanded, thus reducing the amount of excess ________.

increase; decrease; demand

The added expense of producing one more unit of output is called the

marginal cost.

As the market price of a good rises, businesses will respond by producing more of that good because

marginal revenue exceeds marginal cost after the price increase.

Economists generally assume that the main goal of most businesses in the economy is to

maximize profits.

In response to an increase in income, a buyer's demand for a particular good

may rise or fall.

Businesses can raise their average product by investing in new equipment, by reorganizing work to be more efficient, or by

outsourcing labor.

The __________ summarizes the output of the business, given the level of inputs.

production function

Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the

production function.

The main objective of a business in a market economy is

profit maximization.

Market equilibrium is the point where quantity supplied and ________ are reasonably in balance.

quantity demanded

Marginal ________ is the added revenue from producing and selling one more unit of output.

revenue

A luxury good is one whose demand ______ as income increases.

rises sharply

After Hurricane Katrina, the supply curve for gasoline

shifted to the left.

If a new major oil field is discovered in Africa, the world __________ curve for oil would shift to the __________.

supply; right

In the process of long-term profit maximization, the business makes decisions under the assumption that it can

vary all the inputs.

The short-term cost function assumes that

fixed costs can't be changed.

If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?

$80

If by selling one more unit of a good, a certain business can increase revenue from $500 to $525. What is the marginal revenue in this case?

$25

Movies delivered over the Internet might have what effect on the market for movies in movie theaters?

A demand shift to the left

How does a lower price alleviate the problem of excess supply?

A lower price decreases the number of potential sellers and increases the number of potential buyers.

Graph of Medium Cheese Pizzas Demanded and Supplied: Refer to the figure. Which of the following is true?

At a price of $5, there would be neither excess demand for nor excess supply of pizza.

Which is NOT an example of inelastic supply?

Bottled water