Microeconomics

economies of scale

When the long-run average total cost decreases as output increases

diseconomies of scale

When the long-run average total cost increases as output increases

1. Which of the following demonstrates the law of demand? a. After Qyatt got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his raise. b. Adrian buys fewer pastries at $0.75 per pastry than at $1 per pastry, other things equal. c. Haidy buys more donut holes at $0.25 per donut hole than at $0.50 per donut hole, other things equal. d. Trinity buys fewer Mounds at $0.60 per candy bar after the price of M&Ms falls to $0.50 per bag

a. After Qyatt got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his raise.

14. For which of the following goods is the income elasticity of demand likely lowest? a. Clothing b. Pineapples c. Sapphire pendant necklaces d. Limousines

a. Clothing

26. Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs. a. Tyler says his costs are $25,900, and Greg says his costs are $66,500. b. Tyler says his costs are $25,000, and Greg says his costs are $65,000. c. Tyler says his costs are $66,500, and Greg says his costs are $66,500. d. Tyler says his costs are $75,000, and Greg says his costs are $41,500.

a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.

5. Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would a. decrease. b. increase. c. be unaffected. d. change but you don't know how without more information.

a. decrease.

18. If a price floor is not binding, then a. the equilibrium price is above the price floor. b. the equilibrium price is below the price floor. c. there will be a surplus in the market. d. there will be a shortage in the market.

a. the equilibrium price is above the price floor.

17. Which of the following observations would be consistent with the imposition of a price ceiling that is higher than equilibrium price? After the price ceiling is established, a. there will be no effect on the market price or quantity sold. b. a smaller quantity of the good is demanded. c. a larger quantity of the good is supplied. d. the price rises above the previous equilibrium

a. there will be no effect on the market price or quantity sold.

27. Refer to Table 13-2. At which number of workers does diminishing marginal product begin? a. 1 b. 2 c. 3 d. 4

b. 2

13. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.85. Which of the following events is consistent with a 20 percent decrease in the quantity of the good demanded? a. An increase of 17.0 percent in the price of the good b. An increase of 23.53 percent in the price of the good c. An increase in the price of the good from $17.00 to $20 d. An increase in the price of the good from $20 to $37.00

b. An increase of 23.53 percent in the price of the good

19. Consumer surplus is equal to the following: a. Amount paid by buyers - Costs of sellers. b. Value to buyers - Amount paid by buyers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers.

b. Value to buyers - Amount paid by buyers.

12. A good will have a more inelastic demand, the a. greater the availability of close substitutes. b. broader the definition of the market. c. longer the period of time. d. more it is regarded as a luxury.

b. broader the definition of the market.

20. If a consumer places a value of $11 on a particular good and if the price of the good is $13, then the a. consumer enjoys consumer surplus if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market. d. price of the good will fall due to market forces.

b. consumer does not purchase the good.

22. Refer to Figure 7-1. When the price rises from P1 to P2 , consumer surplus a. decreases by an amount equal to A. b. decreases by an amount equal to B+C. c. increases by an amount equal to B+C. d. increases by an amount equal to C.

b. decreases by an amount equal to B+C.

7. Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the a. market demand curve. b. market supply curve. c. equilibrium curve. d. surplus or shortage depending on market conditions.

b. market supply curve.

25. A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a. maximizes both the total revenue for firms and the quantity supplied of the product. b. maximizes the combined welfare of buyers and sellers. c. minimizes costs and maximizes output. d. minimizes the level of welfare payments

b. maximizes the combined welfare of buyers and sellers.

6. The law of supply states that, other things equal, when the price of a good a. falls, the supply of the good rises. b. rises, the quantity supplied of the good rises. c. rises, the supply of the good falls. d. falls, the quantity supplied of the good rises.

b. rises, the quantity supplied of the good rises.

8. If the supply of a product increases, then we would expect equilibrium price a. to increase and equilibrium quantity to decrease. b. to decrease and equilibrium quantity to increase. c. and equilibrium quantity to both increase. d. and equilibrium quantity to both decrease.

b. to decrease and equilibrium quantity to increase.

21. Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is a. $150. b. $425. c. $500. d. $850.

c. $500.

28. Refer to Table 13-3. The marginal product of the second worker is a. 90 units. b. 85 units. c. 80 units. d. 20 units.

c. 80 units.

24. Refer to Figure 7-9. At equilibrium, producer surplus is represented by the area a. F. b. F+G. c. D+H+F. d. D+H+F+G+I.

c. D+H+F.

30. Refer to Table 13-12. Which firm has constant returns to scale over the entire range of output? a. Firm 1 b. Firm 2 c. Firm 3 d. Firm 4

c. Firm 3

15. For which pairs of goods is the cross-price elasticity most likely to be positive? a. Peanut butter and jelly b. Bicycle frames and bicycle tires c. Pens and pencils d. Digital college textbooks and iPhones

c. Pens and pencils

10. Suppose the United States had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage? a. The government would provide tax incentives to encourage people to become farmers. b. The government would subsidize the production of food. c. The prices of food and the wages of farmers would adjust. d. There are no market mechanisms to remove the shortage.

c. The prices of food and the wages of farmers would adjust.

4. If muffins and bagels are substitutes, a higher price for bagels would result in a. an increase in the demand for bagels. b. a decrease in the demand for bagels. c. an increase in the demand for muffins. d. a decrease in the demand for muffins.

c. an increase in the demand for muffins.

23. Producer surplus measures the a. costs to sellers of participating in a market. b. price that buyers are willing to pay for sellers' output of a good or service. c. benefits to sellers of participating in a market. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

c. benefits to sellers of participating in a market.

29. In the short run, a firm that produces and sells house paint can adjust a. where to produce along its long-run average-total-cost curve. b. the size of its factories. c. how many workers to hire. d. the location of its factory.

c. how many workers to hire.

16. Minimum-wage laws dictate a. the exact wage that firms must pay workers. b. only a maximum wage that firms may pay workers. c. only a minimum wage that firms may pay workers. d. both a minimum wage and a maximum wage that firms may pay workers.

c. only a minimum wage that firms may pay workers.

2. If something happens to alter the quantity demanded at any given price, then a. the demand curve becomes steeper. b. the demand curve becomes flatter. c. the demand curve shifts. d. we move along the demand curve.

c. the demand curve shifts.

11. Demand is said to be inelastic if a. buyers respond substantially to changes in the price of the good. b. demand shifts only slightly when the price of the good changes. c. the quantity demanded changes only slightly when the price of the good changes. d. the price of the good responds only slightly to changes in demand.

c. the quantity demanded changes only slightly when the price of the good changes.

3. Soup is an inferior good if the demand a. for soup falls when the price of a substitute for soup rises. b. for soup rises when the price of soup falls. c. curve for soup slopes upward. d. for soup falls when income rises.

d. for soup falls when income rises.

9. Suppose liles are currently selling for $35 per dozen, but the equilibrium price of liles is $45 per dozen. We would expect a a. surplus to exist and the market price of liles to decrease. b. surplus to exist and the market price of liles to increase . c. shortage to exist and the market price of liles to decrease. d. shortage to exist and the market price of liles to increase.

d. shortage to exist and the market price of liles to increase.