Unit 2

To calculate the price elasticity of demand using the midpoint method, you would use the following approach: -% change in price/ % change in quantity -% change in quantity minus the % change in price -% change in quantity/ % change in price -price times quantity

% change in quantity/ % change in price

The wage elasticity of labor supply can be calculated using the following approach: -% change in quantity of labor supplied/ % change in wage - % change in quantity of labor supplied/ % change in wage - The labor force participation rate/ the inflation rate - % change in wage/ % change in quantity of labor supplied

- % change in quantity of labor supplied/ % change in wage

To calculate the price elasticity of supply using the midpoint method, you would use the following approach: - % change in quantity minus the % change in price - % change in quantity/ % change in price - % change in price/ % change in quantity - price times quantity

- % change in quantity/ % change in price

If income elasticity of demand for a good is positive, we say that good is a normal good. You can use the following approach to calculate the income elasticity of demand for a good: - % change in quantity supplied/ % change in income - % change in income/ % change in quantity demanded - % change in quantity demanded/ % change in income tax rates - %change in quantity demanded/ % change in income

- %change in quantity demanded/ % change in income

You were presented with a utility maximizing rule which states: If you always choose the item with the greatest marginal utility per dollar spent, when your budget is exhausted, the utility maximizing choice should occur where the marginal utility per dollar spent is the same for both goods. That rule is expressed as follows: - % change in price/ % change in quantity - The marginal utility per dollar of good 1> the marginal utility per dollar of good 2 - (The marginal utility associated with good 1 / the price of good 1) = (the marginal utility associated with good 2 / the price of good 2) -(The marginal utility associated with good 1 / the price of good 2) = (the marginal utility associated with good 2 / the price of good 1)

- (The marginal utility associated with good 1 / the price of good 1) = (the marginal utility associated with good 2 / the price of good 2)

If demand is ___, then a given % rise in price will cause a smaller % fall in quantity demanded so that total revenue (Price × Quantity) rises. - Inelastic - elastic -unit elastic - perfectly inelastic

- Inelastic

Marginal utility is defined as the increment to total utility that results from the consumption of one more unit of some good or service. The equation for marginal utility is: - The change in total utility/ the change in total revenue - the change in quantity / the change in total quantity - total revenue/ quantity demanded - The change in total utility/ the change in quantity

- The change in total utility/ the change in quantity

A perfectly inelastic demand curve or supply curve means... - There is a 1% change in quantity demanded in response to a 1% change in price - There is an infinite change in quantity demanded or supplied in response to a change in price - If the price of one good changes by 1% the % change in quantity demanded will be greater than 1% - There is no change in quantity demanded or supplied in response to a change in price

- There is no change in quantity demanded or supplied in response to a change in price

A company discovers a new technology that allows it to substantially reduce its cost of production. The demand for the product is - a price increase - a price decrease - no change in the price of the product - a monopoly in the long run or a lower demand

- a price decrease

In general, supply and demand are often inelastic in the short run, so that shifts in either demand or supply can cause: - a relatively smaller change in prices - a monopoly situtation in all cases - a relatively greater change in prices - no change in prices

- a relatively greater change in prices

Say that a tax on alcohol leads to a higher price at the liquor store. Which of the following in NOT likely to occur? - Alcoholic beverage consumption is likely to decrease - the higher price of alcohol causes the budget constraint to pivot left - his tax on alcohol only impacts supply and demand trends within the liquor industry - consumers spend less on other food items to compensate for this expense

- his tax on alcohol only impacts supply and demand trends within the liquor industry

A horizontal demand curve or supply curve would be called: - cross elastic - perfectly inelastic - perfectly elastic -unit elastic

- perfectly elastic

What is the goal of behavioral economics? - to integrate the insights of psychology into economics to enrich our upstanding of decision-making - to study consumer behavior over time rather than behavior in moment and integrate these insights in economic analysis - to shift economic theory from a mathematical base to more of a psychological study - to eliminate the consumers' state of mind from consideration in economic analysis

- to integrate the insights of psychology into economics to enrich our upstanding of decision-making

We can describe inputs as either fixed or variable. Thinking about a company that assembles cars, which of the following would be an example of a fixed input that could not be changed in the short run? -The robots that help assemble the cars. -The electricity required to support the assembly activity. -The building where the assembly takes place. -The employees that work for the company

-The building where the assembly takes place.

The goal of the consumer is to maximize the total utility or satisfaction derived from their purchase choices, given the unique budget constraint. To calculate total utility of a given combination of T-shirts and movies, one would use the following approach: -For a given combination of T-shirts and movies, assign a number of utils to that combination. -For a given combination of T-shirts and movies, survey a group of individuals to determine an average for utils to be assigned to the number of T-shirts and movies. -Use utils as a measure of utility, assigning a specific number to T-shirts and movies, and then add those together. -For a given combination of T-shirts and movies, use Google to identify the number of utils associated with the number of T-shirts and movies and then sum them.

-Use utils as a measure of utility, assigning a specific number to T-shirts and movies, and then add those together.

How a tax burden is divided between consumers and producers is called tax incidence. Consumers bear most of the tax burden when: - Cross elasticity of demand is .35 -supply is more elastic than demand -demand is more elastic than supply - the firm decided to pass none of the tax on the consumer via a higher price

-supply is more elastic than demand

Mathematically, marginal cost is expressed as.. - Total cost divided by output -unit production costs times the change in output -the change in total cost divided by the change in output -unit production costs times the number of workers employed

-the change in total cost divided by the change in output

The long run is the period of time during which... -At least some factors of production are fixed. -Some outputs are variable. -All factors are variable. -All outputs are variable

All factors are variable.

The portion of a long run average cost curve that is downward sloping is called the range of: -Economies of scale. -Diseconomies of scale. -Unit returns to scale. -Constant returns to scale.

Economies of scale.

The factor payment for the use of financial capital (loans and equity investments) is called... -Profit. -Wages. -Rent. -Interest and dividends.

Interest and dividends.

Explain the idea of mental accounting. - Mental accounting refers to the interest rate we use when we calculate the present value of future mental assets. -Mental accounting is the way people keep track of their mental assets and liabilities. -Mental accounting is the notion of putting dollars in different mental categories where they take different values. -Mental accounting refers to the way we emotionally account for ups and downs of our lives.

Mental accounting is the notion of putting dollars in different mental categories where they take different values.

Which of the following is an example of an implicit cost? -$60,000 spent to purchase the lumber needed to create a product. -Federal taxes paid by the firm. -$25 hourly wage paid to a seasonal clerk that a firm employs on a contract basis. -The $40,000 in rental income an entrepreneur no longer receives after converting the rental space to their new storefront.

The $40,000 in rental income an entrepreneur no longer receives after converting the rental space to their new storefront.

Kimberly has $1,000 per year to spend between $50 concert tickets and $200 per night getaways. Her utility maximizing combination is 8 concerts and 3 overnight getaways. She recently received a promotion on her job and now she can spend up to $2000 per year on these two items. Her new utility maximizing combination will depend in part on what? - The substation effect - The degree to which concerts and overnight getaways are normal goods or inferior goods - the fact that concerts and getaways are fungible goods - the income effect

The degree to which concerts and overnight getaways are normal goods or inferior goods

The input factors of production include Land, Labor, Capital, Technology, and Entrepreneurial ability. Which of the following is an example of Capital? -The secret formula used to create a can of Coca Cola. -The 200 acres the factory sits on -The machines required to produce cars - The total of all workers employed by the firm

The machines required to produce cars

Which of the following best describes the income effect? -The price of designer jeans has increased, so you have less of an incentive to purchase new jeans. You purchase 3 pairs of chinos instead that year. -The price of designer jeans has increased, so the buying power of your income has been reduced. You purchase 2 new pairs of new jeans instead of 3 that year. -The gap between the rich and everyone else has gotten bigger. -The bank increases interest rates on savings accounts from .04% to 5%, so you start placing more of your monthly income in that savings account.

The price of designer jeans has increased, so the buying power of your income has been reduced. You purchase 2 new pairs of new jeans instead of 3 that year.

Mirtha owns an online jewelry store that specializes in earrings. In March, she sells 50 pairs of earrings priced at $15. The cost of materials to create the 50 pairs of earrings was $100. The website she uses to sell her wares costs her $10 a month, and she is also charged 4% on each sale by the company that processes debit/credit card purchases. Which of the following best represents Mirth's total cost? -The costs of materials minus the costs it takes to run her business through the online store, in this case the $10 website charges and the 4% payment processing charge -The cost of all the materials used to create the earrings, $100 -The sum of the materials ($100), website charge ($10), and 4% payment processing charge (4%) -The $750 Mirtha earned from earring sales minus the materials ($100), online website charge ($10), and payment processing charge (4%)

The sum of the materials ($100), website charge ($10), and 4% payment processing charge (4%)

What is loss aversion? - The ability of humans to exercise complete self control in high stakes situations to avoid losing. -The tendency of an individual to invest all of their resources to avoid losing. -The tendency to focus more on the loss than the gain -The temptation company's face to invest in questionable techniques to avoid losing money.

The tendency to focus more on the loss than the gain

Which of the following best describes marginal product? -The total number of loaves a bakery can create with 5 workers and a fixed amount of capital -Leftover output - the loaves a bakery makes but does not sell and that goes unused. -The loaves made by a bakery using a substandard quality flour that ultimately harms business profits. -When the number of bakery staff increases from 2 to 3 bakers, 5 additional loaves are made.

When the number of bakery staff increases from 2 to 3 bakers, 5 additional loaves are made.

Examine the following diagram. With this information, what kind of curve could you derive? -demand curve - supply curve -marginal revenue curve - marginal cost curve

demand curve

A production function is a mathematical expression or equation that explains the engineering relationship between: -The size of the factory and the rate of production -Inputs and outputs -New technology and its application - capital and labor

inputs and outputs