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Economics Exam 2
| Question | Answer |
|---|---|
| Price elasticity of demand is the measure of | consumers response to a change in a good's price |
| If the price elasticity of demand for a good is greater than one, then the demand for that good , with respect to price, is | elastic |
| Small budget items such as soap have ____ price elasticity of demand compared to big-ticketed items such as a TV | lower |
| The responsiveness of quantity demanded for one good when the price of a different good changes is measured by the: | cross-price elasticity of demand |
| If a 1% increase in the price of oranges leads to a 5% increase in the quantity supplied, the price elasticity of supply for oranges is | 5 |
| A change in consumers' income levels: | changes demand |
| Oil and oil products remain the main fuel for cars. The amount of oil still in the earth is finite, According to this info, the supply of gasoline is relatively | inelastic |
| The tendency for consumers to purchase more of a good or service as its price falls is called | law of demand |
| According to economists, the satisfaction people get from their consumption activities is called | utilities |
| You competed in a pie eating contest. You enjoyed the first two pies, the third was okay, and the forth you got sick. You got____ utility from eating the forth pie than eating the second. | less |
| Donald has vast riches and consumes thousands of dollars worth of consumer goods a week, yet he is never satisfied. Why not? | wants are unlimited, but resources are finite |
| How to calculate MU from a chart | the amount in-between each Total Utility |
| The tendency for MU to decline as consumption increases beyond some point is called | Law of diminishing MU |
| Dusty had a $30 income, the price of bread is 1.50, and the price of jam is 3. if the income increases to $45, the rational spending rule would predict that dusty will buy | more bread and more jam |
| Carly earns 150 a week and consumes only fish and shrimp. fish = 3 shrimp = 5. if her income increases to 210, the rational spending rule would predict she would buy | more fish and more shrimp |
| For the two good case, the rational spending rule requires that | the ratio for MU to price be equal for the two goods |
| The rational spending rule for two goods is expressed as | (MUa/Pa)=(MUb/Pb) |
| MU(coffee)/P(coffee) =4 MU(scones)/P(scones) = 3. the consumer should | purchase more coffee and fewer scones |
| A person's reservation price for preforming a task equals | the value of the most attractive activity that the person could be doing during that time |
| If you plot John's opportunity cost per window on the vertical axis and the number of windows cleaned each day on the horizontal axis, you would have John's ____ curve for window-cleaning services | supply |
| An individual's supply curve shows his or her | opportunity cost of producing at each quantity |
| The primary objective for most private firms it to | maximize profit |
| What is a condition that is necessary for a market to be perfectly competitive? | Firms can easily buy and sell the productive resources needed to compete in the market |
| What is one implication of the shape of the demand curve that faces a perfectly competitive firm? | If the firm increased their price above the market price, it will earn zero revenue |
| Jenny sells lemonade by the street during the summer time. Sever other kids also do it. If the lemonade is perfectly competitive and the price is already at the equilibrium level, Jenny can increase her revenue if she | Keeps the price the same and increases her output |
| A fixed factor of production | is fixed only in short run |
| To produce 150 units of outputs, the firm must have 3 employees-hours. To produce 300 units the firm must have 8 employee-hours. Apparently, this firm is | Experiencing diminishing marginal returns |
| Relative to the cost when equipment cost 10, if the price of equipment increased to 20 and nothing else changed | MC would not change |
| If a firm spends 400 to produce 20 units of output and spends 880 to produce 40 units, then between 20 and 40 units of outputs , the MC of production is | 24 |
| What is an example of fixed costs? | rent |
| The P=MC rule for profit maximization is a specific example of which cost principal | Cost-benefit |
| The shutdown condition applies | in the long and short run |
| Fred runs a fishing lodge and had very successful business during the summer. In the fall, the number of guests at the lodge starts to decline, and by November, very few people stay at Fred's lodge. Fred should: | keep the lodge open during the months where revenues exceeds total costs |
| If a perfectly competitive firm produces an output level where price is greater than MC, then the firm should | reduce output to earn greater profits or smaller losses |
| MC curve slopes upward because: | the first few bushels found are easy but as time goes on they get harder and harder to find |
| How do you calculate total revenue | Take the area of the square from where set price hits the MC curve for quantity |
| How do you calculate the total cost | Find where the line intersects ATC and multiply that to the quantity |
| How do you find how much the producer is earning? | find the area of the square from where the intersection is on ATC and the quantity |
Created by:
Alexandra7