Final Exam Study Set
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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| Which statement is correct about the market system? | In a market system, prices serve to ration goods and services to consumers.
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| Define the law of demand? | The negative (inverse) relationship between price and quantity demanded.
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| 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.
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| 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.
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| What is the equation for Total Revenue? | P (price) by Q (quantity sold)
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| In which of the following instances will total revenue decline? | price rises and demand is elastic
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| 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
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| 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)
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| 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.
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| Given the demand curve, the consumer surplus is... | decreased by higher prices and increased by lower prices.
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| 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.
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| 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
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| When a firm is experiencing economies of scale... | long-run average total cost is decreasing.
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| The demand curves for firms in a purely competitive industry are perfectly elastic. | True
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| What are some characteristics of Pure Competition? | Very large numbers (farm commodities)
Standardized product
"Price takers"
Free entry and exit
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| In moving down the elastic segment of the monopolist's demand curve, total revenue is... | increasing, and marginal revenue is positive.
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| The supply curve for a pure monopolist... | is upsloping across relevant ranges of output.
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| 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.
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| 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
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| 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
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| Suppose a $0.25 tax is levied on cigarettes. Under what circumstances will cigarette producers pay the full amount? | If supply is perfectly inelastic
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| 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
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| 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.
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| A recurring theme in economics is that people... | have unlimited economic wants, but limited resources.
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| How do workers typically express self-interest | By seeking jobs with the best combination of wages and benefits
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| 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.
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| A public good... | Can't be provided to one person without making it available to others as well
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| Total utility is best defined by which of the following? | The total satisfaction received from consuming a particular amount of a product
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| An industry is expected to expand if firms in the industry are earning positive... | economic profits
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| In which market model would there be a unique product for which there are no close substitutes? | Pure monopoly
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| 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.
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| 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.
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| Productive efficiency refers to... | Cost minimization, where P= minimum ATC
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| 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.
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| 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
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| 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
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| Because of the free-rider problem: | the market demand for a public good is nonexistent or understated.
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| 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
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| 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.
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| 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.
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| A demand curve for a public good is determined by... | summing all individuals' marginal willingness-to-pay at each quantity of the public good.
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| 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.
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| Cost-benefit analysis attempts to... | compare the benefits and costs associated with any economic activity.
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| According to the marginal-cost-marginal-benefit rule... | the optimal project size is one for which marginal benefit equals marginal cost
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| A negative externality, or spillover cost, occurs when... | producers do not bear the full cost of producing the good
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| 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.
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| Opportunity cost is defined as | the value of the best foregone alternative
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| 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
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| In the simple circular flow model | households provide land, labor and capital to firms in resource markets.
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| A market is defined as | a mechanism that coordinates the actions of consumers and producers to determine equilibrium prices and quantities.
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| 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
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| Which of the following is a determinant of demand for good X? | the price of related good Y
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| 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
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| If a decreased beef price leads to decreased demand for chicken, this means that beef and chicken are | substitutes
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| 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
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| ______ would cause an increase in the quantity of a product supplied at a given price. | A new, cost-saving production technology
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| Refer to the table 1 above. The equilibrium price is: | both b and c? $5 and $25
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| Refer to table 1 above. A shortage will occur whenever | price is less than the equilibrium price
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| Refer to table 1 above. A surplus will occur whenever | price is greater than $25
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| A supply curve that is a vertical straight line indicates that | a change in price will have no effect on the quantity supplied.
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| If price and total revenue are directly (not inversely) related, demand is inelastic. | true
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| Refer to table 2 above. If the government sets a price ceiling of $80 per bottle of wine, the result will be | market equiliprium
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| 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
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| A government subsidy per unit of ourput increases supply | true
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| The law of demand states that | all else unchanged, quantity demanded decreases as price increases
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| 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
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| Which of the following will not shift the supply curve for good X | a change in consumer preferences for good X
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| 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
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| A normal good is one | for which demand always increases as income increases
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| In product markets | businesses sell products to households
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| 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
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| 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
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| REfer to the graph in figure 1. As the quantiy of bread produced increases, the opportunity cost of an additional unit of bread | increases
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| A cross elasticity of demand and coefficient of +2.5 indicates that the two product are substitutes | true
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| 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
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| Surpluses drive market prices up; shortages drive them down | false
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| A point to the left of the budget line is | attainable, but a point to the right of it is unattainable
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| Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product. | true
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| If demand increases and supply simultaneously decreases, equilibrium price will rise. | true
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| markets in which firms sell their output of goods are called | product markets
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| if two goods are close substitutes | a decrease in the price of one will decrease the demand for the other
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| An increase in quantity supplied might be caused by an increase in production coss. | false
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| An income elasticity coefficient of -1.8 means that the product is a normal good. | false
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| 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
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| The consumer demand curve for a product is downward-sloping because marginal utility is constant when price declines. | false
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| Allocative efficiency occurs where the collective sum of consumer and producer suprlise is at a maximum. | true
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| The rationing function of prices refers to the fact that government must distribute any surplus goods that maybe left in a competitive marekt | false
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| If competitive industry Z is making substantial economic profit, output will | expand in industry Z, as more resources will move to that industry.
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| 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
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| In a competitive market economy, firms will select the least-cost production technique because | to do so will maximize the firms profits.
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| Along a single demand curve, product price and consumer surplus are inversely related. | true
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| 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.
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| 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.
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| The basic formula for the price elasticity of demand coefficient is | percentage change in quantity demanded/percentage change in price
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| 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
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| The concept of price elasticity of demand measures | the sensitivity of consumer purchases to price changes
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| 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.
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| If the demand for farm products is inelastic, a good harvest will cause farm revenues to | decrease
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| IN which of the following cases will total revenue increase? | price rises and demand is inelasitc
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| The limited money income of consumers results in a so-called ubdgedt constraint | true
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| WHy do prices of agricultural products drop drastically when crop yields are high>? | Becasue demand for agricultural products is very inelastic
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| Demand for luxuries is _______ than demand for _____ | more elastic; necessities
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| A price floor in a market will... | cause a surplsue
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| 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
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| If demand and supply both increase, but supply increases more than demand, the equilibrium quantity will ________ and the equilibirum price will _____. | increase; decrease
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| Determinants of supply include.... | factor prices, technology, and produce expectations
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| 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.
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| When the total product curve is falling, the | marginal product of labor is negative
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| 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.
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| Marginal cost can be defined as the | amount which one more unit of output adds to toal cost
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| To get credit for this question, mark the answer I gave you during the reivew. | poindexter
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| In pure competition, the demand for the product of a single firm is perfectly | elastic because many other firms produce the same product
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| Average revenue is | total revenue divided by the quantity of output
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| 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
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| 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
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| Based on the graph above, the firm is earning | zero economic profits (becasue MR or D is below ATC)
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| 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
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| 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
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| Which of the following is a short-run adjustment? | A local bakery hires two additional bakers
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| When total product is increasing at an increasing rate, marginal product is: | postiive and increasing
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| 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
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| A firm reaches a break-even point (normal profit position) where: | total revenue and total cost are equal
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| If a firm in a purely competitive industry is confvronted with an equilibrium price of $5, its marginal revenue: | will also be $5
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| Monopolistic competition is characterized by a: | large number of firms, low entry barriers, and a differentiated product
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| Which is a characteristic of monopolistic competiton? | Relativiely easy entry
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| 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
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| The term imperfect competition refers to every market structure besides pure competition. | true
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| Entry into a monopolistically competitive industry is typically blocked | false
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| 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.
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| REfer to the above diagram. At output C production will result in an economic profit. | True (it is at equilibrium :))
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| 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
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| Which of the following is correct? | If marginal utility is diminishing and is positive amount, total utility will increase.
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| 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.
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| 29. The satisfaction one gets from consuming a good or service is . . . | b. utility.
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| 30. The utility of a specific product . . . | c. varies from person to person using the product
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| 32. Which of the following defines marginal utility? | d. The additional satisfaction received from consuming one additional unit of a product.
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| 33. Refer to the table above. Marginal utility begins to diminish with the consumption of the | b. fourth unit.
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| 35. The marginal utility of a second copy of today’s newspaper vending machine is . . . | close to zero
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| Which of the following is an assumption of the marginal-utility theory of consumer behavior? | EAch good and service has a price
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| 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
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| 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
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| 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
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| 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
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| 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
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| 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
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| To the economist, total cost includes... | explicit and implicit costs, including a normal profit
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| Which of the following is correct? | implicit costs refer to non-expenditure costs, and explicit costs refer to monetary payments
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| 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
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| 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
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| T Pbegins to decline when MP is maximized | False
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| The law of diminishing returns describes the.... | relationship between resource inputs and product outputs in the short run.
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| Total output of a firm will be at a maximum where... | MP is zero
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| Fixed cost is... | any cost which does not vary when the firm changes its outpu
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| If you owned a small farm, which of the following would most likely be a fixed cost? | hail insurance premium.
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| 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)
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| 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.
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| Total fixed cost... | does not change as total ouput increases or decreases
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| KNOW the CURRRRVES |
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| 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.
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| The primary force encouraging the entry of new firms into a purely competitive industry is | economic profits earned by firms already in the industry
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| In a purely competitive industry... | there may be economic profits in the short run, but not in the long run
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| 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.
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| 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.
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| 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.
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| 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
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| Creative destruction is.... | the process by which firms and new products replace existing firms and products.
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| Pure monopoly refers to... | a single firm producing a product for which there are no close substitutes.
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| A firm in pure monopoly... | faces a downsloping demand curve
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| Barriers to entering and industry.... | are the basis for monoplyg
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| If a nondiscriminating imperfectly competitive firm is selling is 100th unit of ouput for $35, its marginal revenue.... | will be less than $35
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| 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
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| The demand curve faced by a monopolist.... | is less elastic than that faced bya single purely competitive firm
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| Imperfect competitiors do not compete with each other. | false
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| Monopolistic competition means.... | many firms producing differentiated products
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| REfer to the diagram above. At the profit-maximizing level of output, the firm will receive | an economic profit of AB times BH
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| In the short run, a monopoolist's economic profits... | may be positive or negative depending on market demand and cost conditions.
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| A monopolistically competitive firm has a .... | highly elastic demand curve
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| A monopolistically competitive firm's marginal revenue curve... | is downsloping and lies below its demand curve
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| 28. The long-run price charged by the monopolistically competitive firm attempting to maximize profits . . . | will be equal to ATC
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| P > minimum ATC for a monopolistically competitive firm in long-run equilibrium | true
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| Is price quals minimum average total cost a characteristic of long-run equlibrium under monopolistic competition? | no
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| The term "oligopoly" indicates.... | a few firms producing either a differentiated or a homogeneous product
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| In an oligopolistic market... | products may either be standardized or differentiated
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| 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
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| The demand for a resource dependes primarily upon.. | the demand for the product or service the resource helps produce
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| The labor demand curve of a purely competitive seller... | slopes downward because of diminishing marginal productivity.
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| 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
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| 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
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| 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
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| 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
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| Employers will hire more units of a resource if the... | productivity of the resource increases
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| 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
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| 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
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| When the elasticity coefficient for resource demand is greater than one, resource demand is | elastic
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| 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
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| 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
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| The concept of "wages" includes: | direct money payments, bonuses and royalties, fringe benefits, but not amounts spent by workeers.
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| Real wages would rise if the... | prices of goods and services remained constant while the nominal wage rate increased.
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| A rising rate of labor productivity growh is a valid explanation for real wage growth. | Truth.
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| The individual firm hiring labor under competitive conditions faces a labor supply curve which.... | is perfectly elastic
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| 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
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| Th eprofit-maximizing rule for hiring both labor and capital under conditions of imperfect competition is... | MRPl/MRCl = MRPc/MRCc = 1
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| 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
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| 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
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