Chapters 5, 6, 8, 9 T/F
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| Price elasticity of demand is calculated as the ratio of the change in quantity demanded to the change in price | True
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| The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price | True
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| Perfectly Inelastic demand is represented as a vertical line | True
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| Perfectly elastic demand is represented as a horizontal line | True
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| When the slope of a demand curve is constant, price elasticity of demand is constant as well. | False
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| A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand | False
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| A demand curve with constant slope over all quantity values can have a continuously changing price elasticity of demand. | False
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| A tax on a good whose demand is price elastic will be effective in discouraging consumption of that good. | True
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| If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic | False
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| How total revenue changes when a price changes can be predicted using price elasticity of demand. | True
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| When demand is elastic, an increase in price will result in an increase in total revenue. | False
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| When demand is elastic, a decrease in price will result in an increase in total revenue | True
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| When demand is inelastic, an increase in price will result in an increase in total revenue. | True
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| When demand is inelastic, a decrease in price will result in an increase in total revenue | False
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| When demand is unit elastic, an increase in price will result in an increase in total revenue. | False
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| When demand is unit elastic, a decrease in price will result in no change in total revenue. | True
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| Chapter 6 | :-)
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| Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market. | True
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| Homogeneous products are distinguishable from each other. | False
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| Price increase cause a decrease in a household's choice set | True
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| Income increases cause an increase in a household's choice set | True
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| The law of diminishing marginal utility implies that as a household consumes more of a product, its total utility will increase by smaller amounts, assuming marginal utility remains positive. | False
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| The law of diminishing marginal utility implies that total utility never reaches a maximum | False
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| When consumer maximum utility, they are equating the ratio of marginal utility to price across all goods consumed. | True
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| A negative marginal utility implies negative total utility | False
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| When the price of a good increase, the budget constraint does not change. | False
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| When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint | False
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| Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market | True
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| Homogeneous products are distinguishable from each other | False
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| Price increases cause a decrease in household's choice set. | True
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| Income increases cause an increase in a household's choice set | True
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| Chapter 8 | :-)
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| Average fixed costs rise continuously as quantity of output rises | False
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| The increase in total cost that results from producing one more unit of output is the marginal cost. | True
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| The best combination of inputs at one level of production may not be best at other levels. | True
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| If marginal cost is increasing, then average variable cost must be increasing simultaneously | False
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| Average total cost and average variable cost are minimized at the same level of output. | False
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| When the price of a good increases, the budget constraint does not change | False
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| When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint | False
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| Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market. | True
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| Homogeneous products are distinguishable from each other. | False
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| Price increases cause a decrease in a household's choice set | True
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| Income increases cause an increase in a household's choice set | True
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| Perfectly competitive industries are characterized by a homogeneous product | True
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| Demand for the product of an industry in perfect competition is assumed to be inelastic | False
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| The total revenue curve for a perfectly competitive firm will be a straight line with positive slope. | True
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| The marginal revenue curve for a perfectly competitive firm will be downward sloping. | False
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| Marginal costs reflect changes in variable costs | True
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| The short-run is a period of less than one year | False
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| (Ch8 Q18)The production decision is a short-run decision | **True? Maybe**
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| (Ch8 Q19)If demand in a perfectly competitive market increases, then an individual firm in that industry will see its profits fall | **False? Maybe**
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| (ch8 q20)For a perfectly competitive firm, when P=MC=ATC, te most profit the firm can earn is zero | False
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| Firms maximize their profits by producing the output level where MR=MC | True
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| Perfectly competitive firm maximize their profit by producing the output level where P = MC | True
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| The upward sloping portion of the perfectly competitive firm's average total cost curve is the firm's short run supply curve. | False
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| Perfectly competitive firms sell homogeneous products | True
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| Perfectly competitive firms are price setters | False
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| Chapter 9 | ;-)
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| Input prices fall as entry occurs in an increasing-cost industry. | False
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| Input prices fall as entry occurs in an decreasing-cost industry | True
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| Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve. | True
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| Entry of new firms in an decreasing-cost industry leads to an upward shift of the LRAC curve. | False
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| Information on MC of production is all that is necessary to obtain the long run industry supply curve, because P = MC is the profit-maximization condition for all firms | False
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| (Ch9 Q6) The long run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms. | True
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| When price is sufficient to cover average variable costs, firms suffering short-run losses will continue to operate rather than shut down | True
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| In the short run, firms suffering losses should always shut down. | False
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| At all prices below the shutdown point, optimal short-run output is zero. | True
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| The horizontal sum of marginal cost curves (above AVC) of all the firms in an industry is the short-run industry supply curve | True
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| The marginal cost curve of a firm above AVC is also its short-run supply curve. | True
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| When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale. | False
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| Economies of scale cannot be due only to the sheer size of a firm's operation. | True
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| Across different output levels, a firm can experience both economies and diseconomies of scale. | True
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| A firm's long-run average cost curve represents the minimum cost of producing each level of output when the scale of production can be adjusted. | True
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| A firm that has increasing returns to scale in the long run does not experience diminishing marginal returns in the short run. | False
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