Test 2 Microeconomics
A key ingredient of a perfectly competitive market is: members sell identical goods. there are many buyers and sellers. entry into the industry is easy (not costly). members are well informed and mobile. all of the above.
all of the above.
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. The price elasticity of demand is (point formula): a. -1.25 b. -1 c. -0.8 d. -0.6
c. -0.8
"Normal profit": a. attracts competitors. b. leads to net industry exit. c. yields net revenue equal to implicit opportunity costs d. means revenue is equal to operating expenses plus fixed costs
c. yields net revenue equal to implicit opportunity costs
"Constant returns to scale" describes a situation where expanding all inputs does not change the average cost of production. a larger-scale firm can produce at a lower cost than a smaller-scale firm. expanding all inputs changes the average cost of production. the quantity of output rises and the average cost of production falls. all of the above
expanding all inputs does not change the average cost of production.
In the ________, the perfectly competitive firm will react to losses by __________________________ . short run; reducing production or shutting down long run; reducing production or shutting down short run; increasing physical inputs long run; increasing capital inputs none of the above
long run; reducing production or shutting down
In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ . total revenue; total cost marginal revenue; marginal cost total revenue; marginal cost marginal revenue; total cost none of the above
marginal revenue; marginal cost
Nearly always, to maximize profit, a firm's price should be: on an inelastic section of the firm's demand line. where TR is maximized. on an inelastic section of the market demand line. where the elasticity is one. on an elastic section of the firm's demand line.
on an elastic section of the firm's demand line.
In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ . long run; increasing production and market entry is possible. short run; fixed costs can be reduced short run; losses are smallest long run; fixed costs can be eliminated none of the above
short run; losses are smallest
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ price taking point shutdown point marginal point opportunity margin none of the above
shutdown point
As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left. high-skill labor lower wage technology market None of the above
technology
You typically get an income elasticity of demand around 0.2 for: luxury goods. inferior goods. consumption substitutes. 'basic' goods consumption complements.
'basic' goods
For sugar (A) and coffee (B), you expect a cross price elasticity of demand (εAB) around: 4.0 1.0 0.4 -1.0 -0.1
-0.1
For apples (A) and oranges (B), you expect a cross price elasticity of demand (εAB) around: 4.0 2.0 0.4 -1.0 -0.1
0.4
A really low price elasticity of demand (again, think absolute value) for a competitively provided good is an indication that: output is inefficiently low. output is inefficiently high. equilibrium is on the lower half of the demand line. there is little or no regulation. none of the above.
equilibrium is on the lower half of the demand line.
Businesses selling goods with an income elasticity of demand equal to 3.0 can expect sales to: fluctuate in proportion to the business cycle. fluctuate much more than the business cycle. sales to change in a countercyclical manner; up in recessions and vice versa. sales to fluctuate much less than the business cycle. none of the above
fluctuate much more than the business cycle.
Improvements in the productivity of labor will tend to: decrease wages. decrease the supply of labor. increase wages. increase the supply of labor.
increase wages.
A monopoly may be found selling its output at a price at which demand is elastic because: it maximizes profit by choosing a price on the elastic half of the demand line. of high market entry barriers. of diseconomies of scale. all of the above.
it maximizes profit by choosing a price on the elastic half of the demand line.
Typically, the price elasticity of demand is ____ for ____ time frames (again, think absolute value) smaller; shorter smaller; zero larger; shorter larger; longer not predictable
larger; longer
A natural monopoly may be found selling its output at a price at which demand is very inelastic because: of regulation. it maximizes profit to choose a price on the inelastic half of the demand line. of high market entry barriers. of diseconomies of scale. all of the above.
of regulation.
Marcie quit her job as a preschool teacher, which paid an annual salary of $58,000, and became a street food vendor. She used $10,000 out of her savings account that paid a 8% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $12,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $77,000. Marcie's accounting profit is and economic profit is . A $55,000; -$3000 B $65,000; $6200 C $54,200; $6200 D $65,000; -$3000 E none of the above
B $65,000; $6200
The maximum profit can be a loss that does not lead to immediate closure of the business firm when: a. P > Average Total Cost (AC) b. MR > MC c. AC > P > AVC d. MR = MC with P = AC min e. all of the above
AC > P > AVC
The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied. Price Demand supply Quantity
Price
It is true that ______________ include all of the costs of production that increase with the quantity produced. Fixed costs Variable costs Average costs Average variable costs none of the above
Variable costs
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. In the new equilibrium, the total revenue spent/collected is: a. $1080 b. $1000 c. $900 d. $800
a. $1080
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. At the new equilibrium, total revenue equals a. $972 b. $1000 c. $1028 d. $1250
a. $972
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. Using the point formula, you determine the price elasticity of demand to be: a. -0.5 b. -0.75 c. -1 d. -2 e. not enough information to know
d. -2
As the price decreases, typically the price elasticity of demand (think absolute value): stays the same. increases. decreases. depends on the economic golden rule. depends on the slope of 'D'.
decreases
In economics, labor demand is synonymous with market demand. average demand. marginal demand. derived demand. none of the above
derived demand.
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point? divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be divide the total costs of production by the quantity of output divide the variable costs of production by the quantity of output divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be all of the above
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will take a long-run perspective on costs, when such costs cannot be adjusted. take a short-run perspective on labor costs which cannot be immediately changed. breakdown its cost structure according to short-run adjustments. do so regardless of what type of competition exists in a market. none of the above
do so regardless of what type of competition exists in a market.
In an industry in long-run equilibrium: a. typical firms make an economic profit. b. the long-run supply line is flat; constant cost industry. c. profit is maximized with MR = MC and P = AVC. d. firms have maximized the difference between MR and MC. e. none of the above
e. none of the above
The phrase __________________ describes a situation where the quantity of output rises, but the average cost of production falls. diminishing marginal returns marginal cost output economies of scale diseconomies of scale none of the above
economies of scale
If the supply curve for a product is vertical, then the elasticity of supply is equal to zero. equal to 1. greater than 1 but less than infinity. equal to infinity.
equal to zero.
A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production. fixed costs; do not change, variable costs; are constantly changing, fixed costs; are consistently changing, variable costs; do not change, none of the above
fixed costs; do not change,
Idaho farmers can sell as large a quantity of their potato crop as they wish, price takers find market analysis is too costly they are very small players in the overall market high degree of similarity to competitor's products they can increase output without affecting quality none of the above
high degree of similarity to competitor's products
Total cost incorporates: implicit and explicit costs. implicit costs only. explicit costs (documentable expenses) only. neither explicit nor implicit costs. none of the above
implicit and explicit costs.
If the demand curve is perfectly elastic, then an increase in supply will: decrease the price but result in no change in the quantity exchanged. increase the quantity exchanged but result in no change in the price. increase the price but result in no change in the quantity exchanged. increase both the price and the quantity exchanged.
increase the quantity exchanged but result in no change in the price.
In microeconomics, the term _____________________ is synonymous with economies of scale. diminishing marginal returns increasing returns to scale decreasing returns to scale constant returns to scale none of the above
increasing returns to scale
Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. elastic; unit elastic elastic; inelastic inelastic; elastic unit elastic; inelastic
inelastic; elastic
The most significant trade-off created by a minimum wage policy is that old-timers will displace newcomers workers gain at the expense of big businesses the economy benefits at the expense of low income households it gives some workers a raise, but costs others their jobs prejudice declines but jobs are lost
it gives some workers a raise, but costs others their jobs
The term _____________ is used to describe the additional cost of producing one more unit. average cost fixed cost variable cost marginal cost none of the above
marginal cost
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then marginal cost is above average variable cost. marginal cost is below average fixed cost. marginal cost is below average variable cost. average fixed cost is constant. none of the above
marginal cost is below average variable cost.
What happens in a perfectly competitive industry when economic profit is greater than zero? existing firms may expand their operations firms may move along their LRAC curves to new outputs there may be pressure on the market price to fall new firms may enter the industry and all of the above none of the above
new firms may enter the industry and all of the above
The units of an elasticity are: dollars. dollars/physical unit. it depends on the definition of 'Q' physical unit/dollar. none of the above
none of the above
In their calculation of profit, accountants typically do not take into account: variable costs. fixed costs. opportunity costs. explicit costs. none of the above
opportunity costs
Firms will enter an industry when the: price rises above the minimum of the marginal cost curve. price rises above the minimum of the average total cost curve. marginal cost rises above the minimum of the average total cost curve. average cost rises above the minimum of the marginal cost curve. none of the above
price rises above the minimum of the average total cost curve.
The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. price setter business entity price taker trend setter None of the above
price taker
If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent _____________________ price, measured in dollars; quantity of goods produced total costs measured in dollars; quantity of goods produced quantity produced; both total revenue and total costs, measured in dollars. quantity produced; total revenue and total variable costs, measured in dollars. none of the above
quantity produced; both total revenue and total costs, measured in dollars.
The price elasticity of demand measures the: responsiveness of quantity demanded to a change in quantity supplied. responsiveness of price to a change in quantity demanded. responsiveness of quantity demanded to a change in price. responsiveness of quantity demanded to a change in income.
responsiveness of quantity demanded to a change in price.
The ACTUAL job loss from WMIN > WE will exceed the NET job loss because old-timers (employed at WE) drive out newcomers full-time jobs are split into multiple part-time jobs some newcomers will get hired newcomers have lower opportunity costs none of the above (the actual job loss is less than the net job loss)
some newcomers will get hired
For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ demand curve supply curve average total cost curve average variable cost curve none of the above
supply curve
A $50/ton tax increases the market equilibrium price from $300/ton to $340/ton, which means that:
the deadweight loss is reduced by the short-run result being quite close to the long-run effect. the buyers have close available substitutes for the good bearing the $50/ton tax. the short-run is actually quite long; it takes a long time to enter the industry or build new facilities. static analysis, not dynamic analysis, was used to estimate the burden. the buyers' share of the tax burden is 80%.
A tax on a good, say Concrete, will impose a larger short-term (same long-term) burden on Concrete consumers: the higher the price elasticity of demand for Concrete. the lower the price elasticity of demand for Concrete. the higher the income elasticity of demand. the larger the cross-price elasticity of demand of each of Concrete's consumption substitutes. a. and d. are both correct.
the lower the price elasticity of demand for Concrete.
Note in the graphs below that the equilibrium wage differs for male and female applicants for an entry-level job that men and women are equal capable of doing
there are reasons why the graphs could describe an economically efficient outcome.
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? what quantity to produce what price to charge what quantity of labor is needed what quality to produce none of the above
what quantity to produce
Past increases in the federal minimum wage have appeared to have little or no impact on employment levels because - the federal WMIN can directly affect only a tiny share of total employment typical job growth (increases in demand) offsets the decrease in quantity demanded resulting from the higher minimum wage the federal WMIN was irrelevant in many regional labor markets All of the above
All of the above
Firms earn 'economic profit' when a. P > Average Total Cost (AC) with MR = MC. b. AVC < P < AC. c. their industry is in long-run equilibrium. d. they are in a decreasing cost industry. e. none of the above
P > Average Total Cost (AC) with MR = MC.
A low negative cross price elasticity of demand is what we would expect for a. rarely combined consumption complements. b. close consumption substitutes c. production complements d. weakly inferior, inferior goods
a. rarely combined consumption complements.
As the _____________ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right. Technology Low-skill labor Market Lower wage None of the above
Technology
When the minimum wage rises, the losers (those who suffer) are: some unskilled workers. the general public through lower total income businesses that employ unskilled labor. potential crime victims. all of the above
all of the above
Based on this information, create an Income (Labor)-Leisure Budget Constraint. The weekly hours available for paid employment is 70. Kate earns $20/hour. A full-time job (40 hrs/week) yields Kate: (note that a week has 168 hours). $1400/week and 30 hours of additional leisure. $800/week and 30 hours of additional leisure. $1400/week and 128 hours of leisure. $600/week and 40 hours of paid work. $800/week and 118 hours of leisure.
$800/week and 30 hours of additional leisure.
The maximum profit can be a loss that leads to immediate closure of the business firm when: a. that loss is more than fixed costs. b. revenue does not cover operating expenses. c. P < Average Variable Cost (AVC) d. MR = MC with with MC < AVC e. all of the above
*e. all of the above
You pay a consulting firm to determine the price elasticity of demand. They determine that an 8% change in price will lead to a 6% change in the amount you sell. The price elasticity of demand is ____. A price cut would _____ total revenue. +2.0; increase -2.0; decrease -0.75; decrease -1.33; increase
-0.75; decrease Analogy: Since the percentage Change in quantity demanded (6%) is less than the percentage change in price (8%) this means the price elasticity of demand is inelastic.
____________ tells a firm whether it can earn profits given the price in the market. Marginal cost Total cost Average cost Average marginal cost none of the above
Average cost
Suppose Kate is working 40 hours per week. Then she gets a raise to $25/hour, and then Kate opts for income at $900. the Income-Leisure Budget Constraint makes a parallel shift leftward. the Income-Leisure Budget Constraint makes a parallel shift rightward. Kate reacts by sacrificing leisure for income. Kate must be on the upward bending part of her labor supply curve. Kate must be on the backward bending part of her labor supply curve.
Kate must be on the backward bending part of her labor supply curve.
The term, ___________________________ refers to the additional revenue gained from selling one more unit Marginal revenue Total revenue Economic profit Accounting profit none of the above
Marginal revenue
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. Total revenue Total profits Average profit margin Total cost none of the above
Total revenue
Another term for excess labor supply is surplus supply Unemployment Disenfranchisement Alienation Exploitation
Unemployment
Which of the following results in a rightward shift of the market demand curve for labor? a decrease in labor productivity a decrease in the firm's product price an increase in the wage rate an increase in demand for the firm's product
an increase in demand for the firm's product
Which of the following probably has a low price elasticity of supply: a. an inferior good b. antique furniture c. consumption substitutes d. production complements e. all of the above will have low price elasticities of supply
b. antique furniture Analogy: Antique furniture is the answer because it is no longer being produced, meaning it is in low supply.
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. The supply increase will cause the typical seller to: a. shutdown immediately. b. see increased profits. c. see decreased profits. d. expect additional competition. e. not enough information to choose 'a' - 'd'
c. see decreased profits.
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $181.00, ____________________. will likely cause the firm to reach its shutdown point immediately will cause the firm to recover some of its opportunity costs could likely result in a notable loss of sales to competitors is a sure sign the firm is raising the given price in the market none of the above
could likely result in a notable loss of sales to competitors
Two very close (easily swapped out) consumption substitutes will: From which of the following elasticities might we conclude that a one-product business is recession-proof: a. low price elasticity of supply b. high income elasticity of demand c. high cross price elasticity of supply d. low income elasticity of demand
d. low income elasticity of demand
Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. You expect typical sellers of the good to: a. shutdown immediately b. see reduced profits c. see increased profits d. face increased competition, soon. e. not enough information given for 'a' - 'd' to be selected
e. not enough information given for 'a' - 'd' to be selected
When __________________ exist, doubling of all inputs will result in more than doubling output, which means_________ economies of scale; a larger factory can produce at a lower average cost than a smaller company. economies of scale; a smaller factory can produce at a lower average cost than a larger company. low labor inputs; larger scale of production leads to higher costs. labor inputs; economies-of-scale curve is U-shaped. none of the above
economies of scale; a larger factory can produce at a lower average cost than a smaller company
Why are some producers forced to sell their products at the prevailing market price? price takers find market analysis is too costly they are very small players in the overall market high degree of similarity to competitor's products they can increase output without affecting quality none of the above
high degree of similarity to competitor's products
If the demand for software engineers _______ slower than does supply, then wages of software engineers will _______. increases; remain constant increases, rise increases; fall decreases; fall
increases; fall
Diminishing ____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. variable returns average returns marginal returns marginal costs none of the above
marginal returns
A $50/ton tax increases the market equilibrium price from $300/ton to $340/ton, which means that: price elasticity of supply is higher than price elasticity of demand (again, think absolute value). price elasticity of supply is lower than price elasticity of demand (again, think absolute value). price elasticity of supply equals price elasticity of demand (again, think absolute value). static analysis, not dynamic analysis, was used to estimate the burden. tax revenue will rise 80%.
price elasticity of supply is higher than price elasticity of demand (again, think absolute value).
The tax revenue yield of a tax on a good, say Concrete, will be larger the higher the price elasticity of demand for Concrete. the lower the price elasticity of demand for Concrete. the lower the income elasticity of demand. the lower the cross-price elasticity of demand of each of Concrete's consumption substitutes. c. and d. are both correct.
the lower the price elasticity of demand for Concrete.
If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals that if the market price exceeds average cost, profits will be positive. that if the market price is below average cost, then profits will be negative. total revenues are the quantity produced multiplied by the price. whether the firm is earning profit if fixed costs are left out of the calculation. none of the above
whether the firm is earning profit if fixed costs are left out of the calculation.
