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77 Cards in this Set

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The price elasticity of demand coefficient measures
buyer responsiveness to price changes
The basic formula for the price elasticity of demand coefficient is
percentage change in quantity demanded/percentage change in price
Which of the following is not characteristic of the demand for a commodity that is elastic
The elasticity coefficient is less than one
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will
increase the amount demanded by more than 10 percent
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range
is elastic
The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to
decrease by approximately 12 percent
The concept of price elasticity of demand measures
the sensitivity of consumer purchases to price changes
Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of
W and Y
In which of the following instances will total revenue decline?
price rises and demand is elastic
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:
relatively inelastic
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to
decrease
The total-revenue test for elasticity
does not apply to supply because price and quantity are directly related.
Price elasticity of demand is generally:
greater in the long run than in the short run
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
relatively price elastic
The demand for a necessity whose cost is a small portion of one's total income is
relatively price inelastic
The main determinant of elasticity of supply is the
amount of time the producer has to adjust inputs in response to a price change
A supply curve that is a vertical straight line indicates that
a change in price will have no effect on the quantity supplied
An antidrug policy which reduces the supply of heroin might
increase street crime because the addict's demand for heroin is highly inelastic
Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that
the price elasticity of demand for farm products is less than 1
The supply curve of antique reproductions is
A. relatively elastic
Suppose the income elasticity of demand for toys is +2.00. This means that
a 10 percent increase in income will increase the purchase of toys by 20 percent
The formula for cross elasticity of demand is percentage change in
quantity demanded of X/percentage change in price of Y
Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in
the price of some other product
We would expect the cross elasticity of demand between Pepsi and Coke to be
positive, indicating substitute goods
Based on the concept of price elasticity of demand, which of the following cases is most likely to occur?
Colleges charging lower tuition for low-income students
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it
Marginal utility can be
positive, negative, or zero
The law of diminishing marginal utility states that
beyond some point additional units of a product will yield less and less extra satisfaction to a consumer
Marginal utility is the
change in total utility obtained by consuming one more unit of a good
Total utility may be determined by
summing the marginal utilities of each unit consumed
While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice.
Alex may have to lower the price to convince Kara to buy a second slice.
The theory of consumer behavior assumes that
consumers behave rationally, attempting to maximize their satisfaction
Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy
more of X and less of Y
Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing
4 units of J and 5 units of K
Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively?
276 utils
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson
should buy less B and more A
If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer equilibrium
are $105 and $140 respectively
Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18
2 of L and 3 of M
Refer to the above data. What level of total utility does the rational consumer realize in equilibrium
51 utils
The theory of consumer behavior assumes that consumers attempt to maximize
total utility
If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy
1 units of X and 2 units of Y
How did Apple overcome consumers' diminishing marginal utility for iPods
Apple introduced new features to entice previous buyers to purchase new models
The diamond-water paradox occurs because
the price of a product is related to its marginal utility, not its total utility
Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements
Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements
The budget line shows
all possible combinations of two goods that can be purchased, given money income and the prices of the goods
Increases in product prices shift the consumer's
budget line to the left
The slope of a budget line reflects the
price ratio of the two products
Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line
is 1/5
At each point on an indifference curve:
total utility is the same
An indifference curve
is downsloping and convex to the origin
An indifference map implies that
curves farther from the origin yield higher levels of total utility
Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility
where the budget line is tangent to an indifference curve
Refer to the above diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the:
price of Y has decreased
To the economist, total cost includes
explicit and implicit costs, including a normal profit
Accounting profits equal total revenue minus
total explicit costs
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue
Normal profit is
the return to the entrepreneur when economic profits are zero
Suppose that 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 its output at $300 per unit, its accounting profits were
. $200,000 and its economic profits were zero.
To economists, the main difference between the short run and the long run is that:
in the long run all resources are variable, while in the short run at least one resource is fixed
The basic characteristic of the short run is that
barriers to entry prevent new firms from entering the industry
The law of diminishing returns indicates that
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point
Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?
AP continues to rise so long as TP is rising
Which of the following is correct?
Marginal product rises faster than average product and also falls faster than average product.
Refer to the above data. When two workers are employed
total product is 18
Which of the following is correct as it relates to cost curves?
Marginal cost intersects average total cost at the latter's minimum point
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:
$5,000
Average total cost is
total fixed cost plus total variable cost divided by quantity of output
If marginal cost is
rising, then average total cost could be either falling or rising
Economies and diseconomies of scale explain
why the firm's long-run average total cost curve is U-shaped
. If marginal cost is
. rising, then average total cost could be either falling or rising
Economies and diseconomies of scale explain
why the firm's long-run average total cost curve is U-shaped
When diseconomies of scale occur
the long-run average total cost curve rises
Which of the following is not a source of economies of scale
inelastic resource supply curves
Diseconomies of scale arise primarily because
of the difficulties involved in managing and coordinating a large business enterprise
A cost that cannot be partly or fully recovered through any subsequent action is known as a
. sunk cost.
The minimum efficient scale of a firm
is the smallest level of output at which long-run average total cost is minimized
When a firm does more of something, it gets better at it. This learning-by-doing is
a source of economies of scale