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ECON 201 (Micro)

Final Exam Study Set

QuestionAnswer
Which statement is correct about the market system? In a market system, prices serve to ration goods and services to consumers.
Define the law of demand? The negative (inverse) relationship between price and quantity demanded.
In a competitive market for corn, the law of demand states that, other things equal, as... the price of corn decreases, the quantity of corn demanded will increase.
The increase in the supply of pink salmon has been greater than the decrease in demand. As a result, the equilibrium price of pink salmon has... decreased, and the equilibrium quantity has increased.
What is the equation for Total Revenue? P (price) by Q (quantity sold)
In which of the following instances will total revenue decline? price rises and demand is elastic
If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will: Increase quantity demanded by five percent
What is the price-elasticity coefficient and formula? Ed = (change in quantity demanded of X/original quantity demanded of X) / (change in price of X/original price of X)
How do we interpret Ed? Demand is elastic if it is greater than one. Demand is inelastic if it is less than one. Demand is unit elastic if it is exactly equal to one.
Given the demand curve, the consumer surplus is... decreased by higher prices and increased by lower prices.
Suppose that Ms. Thompson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24. These data suggest that Ms. Thompson... Should buy less B and more A.
Betty Johnson is maximizing her satisfaction from consuming two goods, A and B. IF the marginal utility of A is twice that of B, what is the price of A if the price of B is $.80? $1.60
When a firm is experiencing economies of scale... long-run average total cost is decreasing.
The demand curves for firms in a purely competitive industry are perfectly elastic. True
What are some characteristics of Pure Competition? Very large numbers (farm commodities) Standardized product "Price takers" Free entry and exit
In moving down the elastic segment of the monopolist's demand curve, total revenue is... increasing, and marginal revenue is positive.
The supply curve for a pure monopolist... is upsloping across relevant ranges of output.
A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from... a relatively large number of firms and the monopolistic element from product differentiation.
What are some characteristics of Monopolistic Competition? Relatively large number of sellers Small market shares No collusion (no setting of prices) Independent action Easy entry
Assuming a competitive resource market, a firm is hiring resources in the profit-maximizing amount when the... marginal revenue product of each resource is equal to its price
Suppose a $0.25 tax is levied on cigarettes. Under what circumstances will cigarette producers pay the full amount? If supply is perfectly inelastic
The supply of meat is more elastic in the long run than in the short run. Ceteris paribus, as time goes by, a tax on cattle will be increasingly passed on to the... Consumer
Refer to the graph above. What is the area that represents the total amount of tax revenue going to the government? WXZU (equilibrium of S+T curve slash Demand curve) downwards and in the shape of a box.
A recurring theme in economics is that people... have unlimited economic wants, but limited resources.
How do workers typically express self-interest By seeking jobs with the best combination of wages and benefits
When economists say the demand for a product has decreased, they mean that... the product has become more expensive and thus consumers are buying less of it.
A public good... Can't be provided to one person without making it available to others as well
Total utility is best defined by which of the following? The total satisfaction received from consuming a particular amount of a product
An industry is expected to expand if firms in the industry are earning positive... economic profits
In which market model would there be a unique product for which there are no close substitutes? Pure monopoly
If a firm has at least some control over the price of its product, then the firm cannot be in which of the following market models. It CAN be Oligopoly, Pure Monopoly, and Monopolistic competition. CAN'T be pure competition.
The long-run supply curve under pure competition will be... downward sloping in a decreasing cost industry and upward sloping in an increasing-cost industry.
Productive efficiency refers to... Cost minimization, where P= minimum ATC
There is asymmetric information for private purchases in the used car market because... used car sellers have better information about the car condition than buyers.
Refer to the figure about, which is the output schedule of a firm using input X. Under pure competition, the market price of output is $3. If the price of input X is $12, how many units of input X will the firm employ to maximize profits? SEVEN 7 SEVEN 7 SEVEN 7
According to the marginal productivity theory of resource demand, the labor demand schedule for producer selling in a purely competitive market is... the same as the marginal revenue product schedule
Because of the free-rider problem: the market demand for a public good is nonexistent or understated.
Alex, Kara, and Susie are the only three people in a community and Alex is willing to pay $20 for the 5th unit of a public good; Kara $15, and Susie $25. Government should produce the 5th unit of the public good if the marginal cost is less than: $60
In a cap-and-trade market for pollution rights and increase in demand would: raise the price of pollution rights, but leave the quantity unchanged.
The market system does not produce public goods because... private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
A demand curve for a public good is determined by... summing all individuals' marginal willingness-to-pay at each quantity of the public good.
Suppose that Mick and Cher are the only two members of society, and are wiling to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of producing the third unit is $17. We can conclude that... the third unit should be produced.
Cost-benefit analysis attempts to... compare the benefits and costs associated with any economic activity.
According to the marginal-cost-marginal-benefit rule... the optimal project size is one for which marginal benefit equals marginal cost
A negative externality, or spillover cost, occurs when... producers do not bear the full cost of producing the good
The Coase theorem states that... bargaining between private parties will remedy externality problems where property rights are clearly defined, the number of people involved is limited, and bargaining costs are low.
Opportunity cost is defined as the value of the best foregone alternative
When a U.S. senator says, "We should raise the minimum wage so people can have a decent living," this is an example of a normative economic statement
In the simple circular flow model households provide land, labor and capital to firms in resource markets.
A market is defined as a mechanism that coordinates the actions of consumers and producers to determine equilibrium prices and quantities.
If the price of hand calculators falls from $10 to $9, and as a result, the quantity demanded increases from 100 to 125, then demand is elastic
Which of the following is a determinant of demand for good X? the price of related good Y
The elasticity of supply coefficient of product X is one if the price of X rises by 8 percent and quantity supplied rises by 8 percent
If a decreased beef price leads to decreased demand for chicken, this means that beef and chicken are substitutes
A schedule showing the varying amounts of a good producers are willing and able to produce at a series of possible prices in a given time frame is supply
______ would cause an increase in the quantity of a product supplied at a given price. A new, cost-saving production technology
Refer to the table 1 above. The equilibrium price is: both b and c? $5 and $25
Refer to table 1 above. A shortage will occur whenever price is less than the equilibrium price
Refer to table 1 above. A surplus will occur whenever price is greater than $25
A supply curve that is a vertical straight line indicates that a change in price will have no effect on the quantity supplied.
If price and total revenue are directly (not inversely) related, demand is inelastic. true
Refer to table 2 above. If the government sets a price ceiling of $80 per bottle of wine, the result will be market equiliprium
Refer to the table 2 above. If the government sets a price floor fo $80 per bottle of wine, the result will be a surplus of 230 million bottles of wine
A government subsidy per unit of ourput increases supply true
The law of demand states that all else unchanged, quantity demanded decreases as price increases
If the price elasticity of demand for gasoline is 0.20 a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent
Which of the following will not shift the supply curve for good X a change in consumer preferences for good X
Assuming demand is held constant, a decrease in supply will result in a new market equilibrium in which price is increased and quantity sold is reduced
A normal good is one for which demand always increases as income increases
In product markets businesses sell products to households
Refer to the graph in figure 1. Starting at point !, what is the opportunity cost of producing one additional unit of bread? 1 drill press
Refer to the graph in figure 1. Starting at point D, what is the opportunity cost of producing one additional unit of bread? 4 drill presses
REfer to the graph in figure 1. As the quantiy of bread produced increases, the opportunity cost of an additional unit of bread increases
A cross elasticity of demand and coefficient of +2.5 indicates that the two product are substitutes true
The production possibilities curve represents All efficient combinations of two goods attainable with a fixed set of resources and every possible combination of two goods that can be produced when the set of fixed resources is fully emoployed
Surpluses drive market prices up; shortages drive them down false
A point to the left of the budget line is attainable, but a point to the right of it is unattainable
Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product. true
If demand increases and supply simultaneously decreases, equilibrium price will rise. true
markets in which firms sell their output of goods are called product markets
if two goods are close substitutes a decrease in the price of one will decrease the demand for the other
An increase in quantity supplied might be caused by an increase in production coss. false
An income elasticity coefficient of -1.8 means that the product is a normal good. false
An increase in demand accompanied by an increase in supply will increase the equilibrium quantity but the effect on equilibrium price will be indeterminate true
The consumer demand curve for a product is downward-sloping because marginal utility is constant when price declines. false
Allocative efficiency occurs where the collective sum of consumer and producer suprlise is at a maximum. true
The rationing function of prices refers to the fact that government must distribute any surplus goods that maybe left in a competitive marekt false
If competitive industry Z is making substantial economic profit, output will expand in industry Z, as more resources will move to that industry.
If consumer desire for prouct X increases, all of the following will occur except a decrease in the quantity of resources employed in industry X
In a competitive market economy, firms will select the least-cost production technique because to do so will maximize the firms profits.
Along a single demand curve, product price and consumer surplus are inversely related. true
An increase in the price of a product will result in a decrease in the quantity of the product purchased becasue consumers will substitute other products for the one whose price has risen.
One reason the quantity of a good demanded rises when its price falls is that: lower price increases the real income of buyers, enabling them to buy more.
The basic formula for the price elasticity of demand coefficient is percentage change in quantity demanded/percentage change in price
If the demand or product X is inelastic, a 4 percent increase in the price of X will decrease the quantity of X demanded by less than 4 percent
The concept of price elasticity of demand measures the sensitivity of consumer purchases to price changes
Which of the following statements is not correct In the range of prices in which demand is elastic, total reveue will diminish as price decreases.
If the demand for farm products is inelastic, a good harvest will cause farm revenues to decrease
IN which of the following cases will total revenue increase? price rises and demand is inelasitc
The limited money income of consumers results in a so-called ubdgedt constraint true
WHy do prices of agricultural products drop drastically when crop yields are high>? Becasue demand for agricultural products is very inelastic
Demand for luxuries is _______ than demand for _____ more elastic; necessities
A price floor in a market will... cause a surplsue
An increase in demand is represented bya ______ shift of the demand cuve, while an increase in supply is reperesented by a ______ shift of the supply curve rightward; rightward
If demand and supply both increase, but supply increases more than demand, the equilibrium quantity will ________ and the equilibirum price will _____. increase; decrease
Determinants of supply include.... factor prices, technology, and produce expectations
To economists the main differences between "the short run" and "the long run" are that: in the long run all resources are variable, while in the short run at least one resource is fixed.
When the total product curve is falling, the marginal product of labor is negative
Which of the above properly depicts the relationships TP, AP AND MP? The one where MP intersects AP at it's maximum, and the one where TP reaches a maximum when MP reaches zero.
Marginal cost can be defined as the amount which one more unit of output adds to toal cost
To get credit for this question, mark the answer I gave you during the reivew. poindexter
In pure competition, the demand for the product of a single firm is perfectly elastic because many other firms produce the same product
Average revenue is total revenue divided by the quantity of output
Assume the price of a product sold by a purely competivie firm is $5. Given the data in the table above, at what output is total profit highest in the short run? forty units. Highest profit.... subtract and minus
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do? Shut down if the minimum possible average variable cost is $5.25
Based on the graph above, the firm is earning zero economic profits (becasue MR or D is below ATC)
The market demand curve for a purely competitive market is downwrad-sloping. The demand curve faced by a single firm in a purely competivie market it a horizontal line equal to marginal revenue
A rule that cna be used to determine the profit maximizing level of ourput, regardless of market structure is Profit is maximized when marginal cost equals marginal revnue
Which of the following is a short-run adjustment? A local bakery hires two additional bakers
When total product is increasing at an increasing rate, marginal product is: postiive and increasing
Which of the following statements is correct? The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competivie industry is downsloping
A firm reaches a break-even point (normal profit position) where: total revenue and total cost are equal
If a firm in a purely competitive industry is confvronted with an equilibrium price of $5, its marginal revenue: will also be $5
Monopolistic competition is characterized by a: large number of firms, low entry barriers, and a differentiated product
Which is a characteristic of monopolistic competiton? Relativiely easy entry
If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5 true
The term imperfect competition refers to every market structure besides pure competition. true
Entry into a monopolistically competitive industry is typically blocked false
Refer to the above diagram. This firm will maximize profits by producing output D False because it is not at MC = MR. It is waaay over that.
REfer to the above diagram. At output C production will result in an economic profit. True (it is at equilibrium :))
The concept of diminishing marginal utility is best exemplified by which of the following statements? The more bags of potato chips a person eats, the less additional satisfaction she gets from consuming another bag
Which of the following is correct? If marginal utility is diminishing and is positive amount, total utility will increase.
To maximize utility a consumer should allocate money income so that the b. marginal utility obtained from the last dollar spent on each product is the same.
29. The satisfaction one gets from consuming a good or service is . . . b. utility.
30. The utility of a specific product . . . c. varies from person to person using the product
32. Which of the following defines marginal utility? d. The additional satisfaction received from consuming one additional unit of a product.
33. Refer to the table above. Marginal utility begins to diminish with the consumption of the b. fourth unit.
35. The marginal utility of a second copy of today’s newspaper vending machine is . . . close to zero
Which of the following is an assumption of the marginal-utility theory of consumer behavior? EAch good and service has a price
37. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 utils and the marginal utility of product Y is 16 utils. The price of X is $5 per unit. What is the price of Y? $2 per unit
When the price of a product that is a normal good falls, the.... income and substitution effects will both encourage consumers to purchase more of the product
If the price of a good increases, it will make th emarginal utility per dollar for the good rise, and the good will become more attractive to the consumer false
A person paying $800 to fly from on city to another instead of $100 for a bus trip between the same two cities is making an irrational choice, and is not maximizing his utility False
42. If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, the maximum quantity of X the consumer could possibly purchase is . . . 40
43. If a consumer has an income of $200, the price of X is $5, and the price of Y is $10If the consumer buys 8 units of X, the maximum amount of Y she could also buy is . . . 16
To the economist, total cost includes... explicit and implicit costs, including a normal profit
Which of the following is correct? implicit costs refer to non-expenditure costs, and explicit costs refer to monetary payments
46. Suppose a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of output and $300 per unit, its accounting profits were . . . $200,000 and its economic profits were zero
Which of the following represents a long run adjustment? unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
T Pbegins to decline when MP is maximized False
The law of diminishing returns describes the.... relationship between resource inputs and product outputs in the short run.
Total output of a firm will be at a maximum where... MP is zero
Fixed cost is... any cost which does not vary when the firm changes its outpu
If you owned a small farm, which of the following would most likely be a fixed cost? hail insurance premium.
If you operated a small bakery, which of the following would most likely be a variable cost in the short run? baking supplies (flour, salt, etc)
Other things equal, if the prices of a firm's variable inputs were to fall... marginal cost, average variable cost, and average total cost would all fall.
Total fixed cost... does not change as total ouput increases or decreases
KNOW the CURRRRVES
Which of the following distinguishes the short run from the long run in pure competition? firms can enter and exit the market in the long run, but not the short run.
The primary force encouraging the entry of new firms into a purely competitive industry is economic profits earned by firms already in the industry
In a purely competitive industry... there may be economic profits in the short run, but not in the long run
Suppose a purely competitive increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. AFter all resulting adjustments have been completed, the new equilibirum price... and industry output will be less than the initial price and output.
Assume a perfectly competitive firm is maximiznig profit at some output at which long-run average total cost is at a minimum. Then... there is no tendnecy for the firm's industry to expand or contract.
If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources... rise as the industry expands.
9. A firm is producing output at a level where the benefit of producing one more unit is more than the cost of producing that additional unit. This means the firm is . . . producing less output than allocative efficiency requires
Creative destruction is.... the process by which firms and new products replace existing firms and products.
Pure monopoly refers to... a single firm producing a product for which there are no close substitutes.
A firm in pure monopoly... faces a downsloping demand curve
Barriers to entering and industry.... are the basis for monoplyg
If a nondiscriminating imperfectly competitive firm is selling is 100th unit of ouput for $35, its marginal revenue.... will be less than $35
A firm in a pure monopoly has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts output to 9 garages per week it can sell these at $11,000 each. The marginal revenue of the 10 unit of sales is... $1,000
The demand curve faced by a monopolist.... is less elastic than that faced bya single purely competitive firm
Imperfect competitiors do not compete with each other. false
Monopolistic competition means.... many firms producing differentiated products
REfer to the diagram above. At the profit-maximizing level of output, the firm will receive an economic profit of AB times BH
In the short run, a monopoolist's economic profits... may be positive or negative depending on market demand and cost conditions.
A monopolistically competitive firm has a .... highly elastic demand curve
A monopolistically competitive firm's marginal revenue curve... is downsloping and lies below its demand curve
28. The long-run price charged by the monopolistically competitive firm attempting to maximize profits . . . will be equal to ATC
P > minimum ATC for a monopolistically competitive firm in long-run equilibrium true
Is price quals minimum average total cost a characteristic of long-run equlibrium under monopolistic competition? no
The term "oligopoly" indicates.... a few firms producing either a differentiated or a homogeneous product
In an oligopolistic market... products may either be standardized or differentiated
Resource pricing is important because.... resource prices are a major determinant of money incomes, resource prices allocate scare resources among alternative uses, resource price, along with resource productivity are important in minimizing their costs
The demand for a resource dependes primarily upon.. the demand for the product or service the resource helps produce
The labor demand curve of a purely competitive seller... slopes downward because of diminishing marginal productivity.
40. The general rule for hiring any input (labor, for example) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the firm is hiring labor under purely competitive conditions
ssume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that . . . profits will be increased by hiring fewer workesr
Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be found by... multiplying product by product price
43. Suppose the demand for strawberries rises sharply, resulting in an increased price of strawberries. As it relates to demand for strawberry pickers, we would expect the . . . MRP curve to shift to the right
Employers will hire more units of a resource if the... productivity of the resource increases
The substitution effect indicates that a profit-seeking firm will use... more of an input whose price has fallen and less of other inputs in producing a given outp
change in one input price will alter both production costs and the profit maximizing output. Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase demand for labor. this is output effect
When the elasticity coefficient for resource demand is greater than one, resource demand is elastic
48. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that . . . labor demand is unit-elastic
If a firm is hiring a certain type of labor under purely competitive conditions... the labor supply and marginal labor (resource) cost curves will concide and be perfectly elastic
The concept of "wages" includes: direct money payments, bonuses and royalties, fringe benefits, but not amounts spent by workeers.
Real wages would rise if the... prices of goods and services remained constant while the nominal wage rate increased.
A rising rate of labor productivity growh is a valid explanation for real wage growth. Truth.
The individual firm hiring labor under competitive conditions faces a labor supply curve which.... is perfectly elastic
The wage rate the firm must pay varies directly with the number of workers it employs describes a labor market that is a monopsony. True
Th eprofit-maximizing rule for hiring both labor and capital under conditions of imperfect competition is... MRPl/MRCl = MRPc/MRCc = 1
If a firm has to raise the wage rate of its workers in order to employ more labor, then the mraginal labor cost curve of the mployer.... lies above teh supply curve of labor
60. Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would . . . increase unemployment in the labor market
Created by: Jodi Boe Jodi Boe on 2012-05-09



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