Principles of Microeconomics (Ch. 9,11,12,13)

The explicit cost of production is called

Accounting cost.

A characteristic of the long run is

All inputs can be varied.

All of the following statements are true of the minimum efficient scale except one. Which one?

An increase in the output level will reduce profit.

A situation in which a country does not trade with other countries is called

Autarky.

The marginal product of labor is defined as

The additional output that results when one more worker is hired, holding all other resources constant.

Why is the price elasticity of demand for toothpaste (-0.45) so low?

There are few close substitutes for toothpaste.

If a 26 percent increase in the price of Cheerios causes a 22 percent reduction in the number of boxes of cereal demanded, the price elasticity of demand for Cheerios is ____. Is it elastic or inelastic?

-0.85; inelastic.

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded.

0.5

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. What is the price elasticity?

0.5; Inelastic.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand?

1.62

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

2 chairs.

Calculate the absolute value of the price elasticity of demand between e (60) and f (100). P=16%

3.125

Suppose the value of the price elasticity of supply is 4. What does this mean?

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Which of the following is a factor of production that generally is fixed in the short run?

A factory building.

The graph in which elasticity changes at every given point looks like

A straight line sloping downward.

_______ advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors when using the same amount of resources.

Absolute.

Why do goods that countries import and export change over time?

Because the goods in which they have comparative advantage change over time.

Marginal cost is equal to the

Change is total cost divided by the change in output.

Which of the following products comes closest to having a perfectly price inelastic demand?

Cholesterol medication in general.

Among the main sources of comparative advantage are the following:

Climate and natural resources, relative abundance of labor and capital, technology, external economies.

A country will always be an exporter of a good where it has a ______ advantage in production.

Comparative.

_______ advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Comparative.

If the cross-price elasticity of demand for goods X and Y is negative, this means the two goods are

Complements.

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run than it is in the short run.

Economic cost of production differ from accounting costs in that

Economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _____ in this range.

Elastic.

If raising the price of gasoline would cause the the owner to receive less total revenue, the demand for gasoline is

Elastic.

Income elasticity means

How a good's quantity demanded responds to change in buyers' incomes.

Price elasticity of supply is used to gauge

How responsive suppliers are to price changes.

The demand for gasoline in the short run is

Inelastic because there are no good subtitles for gasoline.

Suppose the price elasticity of demand for cereal is -0.88. Is it inelastic or elastic?

Inelastic.

If a good has a negative income elasticity of demand, this indicates that the good is

Inferior.

Which of the following explains why the marginal cost curve has a U shape?

Initially, the marginal product of labor rises, then falls.

What makes comparative advantage such a powerful insight?

It explains why if individuals, firms, and countries specialize and trade they will be better off.

What does the graph of a perfectly inelastic demand curve look like?

It is a straight vertical line.

The demand for all carbonated beverages is likely to be ____ the demand for Dr. Pepper.

Less elastic than.

If demand is inelastic, the absolute value of the price elasticity of demand is

Less than one.

The long run refers to a time period

Long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.

In the short run, if marginal product is at its maximum, then

Marginal cost is at it's minimum.

If marginal product is greater than average product, then

Marginal product could either be increasing or decreasing.

If the number of orders of puzzles hasn't been enough to offset the price cuts, what is the demand for these puzzles?

Must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.

Cross-price elasticity of demand is calculated as the

Percentage change in quantity demanded of one good divided by percentage change in price of a different good.

The price elasticity of an upward-sloping curve is always

Positive.

Total revenue equals

Price per unit times quantity sold.

The price elasticity of supply is usually a positive number because

Quantity supplied increases in response to price increases.

When there are few close substitutes available for a good, demand tends to be

Relatively inelastic.

Which of the following is an implicit cost of production?

Rent that could have been earned on a building owned and used by the firm; the loss in the value of capital equipment due to wear and tear.

Which of the pairs listed will have a negative cross-price elasticity?

Shampoo and conditioner; iPhones and earbuds.

The law of diminishing marginal returns states

That at some point, adding more of a variable input to a give amount of a fixed input, will cause the marginal product of the variable input to decline.

The midpoint method for calculating price elasticity of demand is

The change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.

At the minimum efficient scale,

The firm has achieved the lowest possible average cost of production.

When demand is price elastic, a fall in price causes total revenue to rise because

The increase in quantity sold is large enough to offset the lower price.

What is the advantage of the midpoint method?

The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.

Implicit costs can be defined as

The non-monetary opportunity cost of using the firm's own resources.

The formula for the price elasticity of demand is

The percentage change in quantity demanded divided by the percentage change in price.

Suppose a decrease in the supply of wheat resulted in an increase in revenue. This indicates that

The resulting increase in price is proportionately greater than decrease in quantity sold.

Why isn't elasticity just measured by the slope of the demand curve?

The slope can change dramatically, depending on the units chosen for quantity and price.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

The two brands of detergent are close substitutes.

Which of the following cost will not change as output changes?

Total fixed cost.

T or F. The more substitutes available for a product, the greater the price elasticity of demand.

True.

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for the product is

Unit-elastic.

How else can you calculate the price elasticity of demand?

Using final values for price and quantity and using initial values for price and quantity.

Which of the following is an example of a long run adjustment?

Wal-Mart builds another Supercenter.

Which of the following is an example of a short run adjustment?

Your Wal-Mart hires two more associated.