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69 Cards in this Set
- Front
- Back
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As we move downward along the demand curve (as quantity demanded increases), the price elasticity (in absolute value) will
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Become Smaller
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If the price increases from 8 to 12, and the quantity decreases from 20 to 10, the price elasticity is
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1.66
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If the elasticity is 2.5, and the price decreases from 11 to 9, we would expect quantity demanded to increase by
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50%
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1.) Which of the following are things to consider when deciding whether to go to college
a.) The total cost of tuition, books, rent, food etc. b.) The opportunity cost of foregone wages c.) The change in future earnings after college compared to without d.) B and C e.) All of the above |
B and C
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2.) Economists often disagree due to
a.) Differences in values (political beliefs) b.) Imperfect Measurements/estimates of effects c.) Scienfitic disagreement about how the world works d.) All of the above |
All the above
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3.) Which of the following is NOT a misconception
a.) The US imports a great deal relative to the size of its economy b.) Corporate profits represent about a third of prices on average c.) US taxes are generally higher than other developed countries d.) Per capita income is generally higher than median income e.) None of the above |
Per capita income is generally higher than median income
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4.) If price decreases, given upward sloping supply and downward sloping demand, demand will generally
a.) Increase b.) Decrease c.) Remain unchanged d.) The change will be ambiguous |
Remain Unchanged
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5.) Which of the following is consistent with a decrease in price and a decrease in quantity for a normal good
a.) An increase in technology b.) An increase in the price of a complimentary good c.) An increase in income d.) An increase in input prices e.) An increase in the price of a substitute good |
An increase in the price of a complimentary good
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6.) Which of the following is NOT a likely consequence of a binding price floor
a.) A surplus b.) Black markets c.) Under-investment d.) A lower volume of transactions |
Under-Investment
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7.) If the price of a hamburger from McDonald’s goes up, what happens to the price and quantity sold of hamburgers from Burger King?
a.) Price and quantity will increase b.) Price and quantity will decrease c.) Price will increase and quantity will decrease d.) Price will decrease and quantity will increase |
Price and quantity will increase
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8.) What is the equation for the following Demand curve
Price Quantity 1 80 2 70 3 60 4 50 5 40 6 30 7 20 a.) P = -10Q + 9 b.) P = -10Q + 90 c.) P = (-1/10)Q + 9 d.) P = (-1/10)Q + 90 |
P = (-1/10)Q + 9
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9.) If the price of materials needed to produce refrigerators (a normal good) increase, and consumers’ incomes fall, what will happen to the price and quantity sold?
a.) Price and quantity will both decrease b.) Price will increase and quantity will decrease c.) Quantity will decrease, but the effect on price is ambiguous d.) Price will decrease, but the effect on quantity will be ambiguous e.) Price will increase, but the effect on quantity will be ambiguous |
Quantity will decrease, but the effect on price is ambiguous
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If a consumer purchases a certain quantity of pizza where their marginal utility of the last and next pizza is less than the price, they could improve their consumer surplus by
a.) Purchasing less until marginal utility rose to match price b.) Purchasing more until marginal utility fell to equal price c.) Purchasing less until price rose to match marginal utility d.) Purchasing more until marginal utility rose to match price |
Purchasing less until marginal utility rose to match price
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18.) The water/diamond paradox can be resolved by
a.) People getting more total utility from diamonds than water b.) The greater scarcity of diamonds than water c.) The marginal utility of diamonds is lower than water d.) Diamonds are an inferior good |
The greater scarcity of diamonds than water
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19.) If the budget curve changes from y= -1x +100 to y= -3x +100, this could be explained by
a.) Only consumer income increasing b.) Only the price of good y increasing c.) Only the price of good y decreasing d.) Only the price of good x increasing e.) Only the price of good x decreasing |
Only the price of good x increasing
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20.) If the budget curve changes from y= -1x + 100 to y = -1x + 75, this could be explained by
a.) Only consumer income increasing b.) Only consumer income decreasing c.) Only the price of good y increasing d.) Only the price of good y decreasing e.) Only the price of good x decreasing |
Only consumer income decreasing
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As we move downward along a negatively-sloped, straight-line demand curve (as quantity demanded increases), the price elasticity (in absolute value) will
a.) Stay constant b.) Become smaller c.) Become larger d.) Become larger then smaller e.) Become smaller then larger |
Become smaller
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23.) As we move downward along a negatively-sloped, straight-line demand curve (as quantity demanded increases), the revenue will
a) Stay constant b) Become smaller c) Become larger d) Become larger then smaller e) Become smaller then larger |
Become larger then smaller
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If the price increases from 9 to 11, and the quantity decreases from 20 to 10 , the price elasticity is
a.) .3 b.) 1.0 c.) 1.66 d.) 3.33 e.) 4.5 |
3.33
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25.) If the elasticity is 3, and prices increase from 8 to 10, we would expect quantity demanded to decrease by
a.) 7.4% b.) 33% c.) 67% d.) 75% e.) 250% |
67%
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27.) If a business raises the price on a good, and expects their revenue to increase by the same amount, then they think the demand is
a.) Perfectly inelastic b.) Inelastic (but not perfectly) c.) Unit elastic d.) Elastic (but not perfectly) e.) Perfectly elastic |
Perfectly inelastic
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28.) If the cross-price elasticity of demand is positive it is a ________ good; if the income-elasticity is positive it is a(n) _________ good
a.) Complementary; normal b.) Substitute; normal c.) Complementary; inferior d.) Substitute; inferior |
Substitute; normal
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If the state government cuts taxes by 20%, and expects the revenue to stay constant, they think
a.) Demand is inelastic b.) Demand is elastic c.) Demand is unit elastic d.) Demand is perfectly inelastic e.) Demand is perfectly elastic |
Demand is unit elastic
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Which of the following is more likely to be inelastic
a.) Demand for goods with close substitutes b.) Demand for luxuries c.) Demand for items which are a small portion of one’s budget d.) Demand as more time has passed |
Demand for items which are a small portion of one’s budget
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4.) The reason the long-run average cost curve eventually begins to rise as production is increased is due to
a.) Diminishing returns to a single input b.) Administrative costs c.) Increasing average fixed costs d.) Increasing returns to scale |
Administrative costs
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5.) The returns to scale going from 1-2 units of each output are ______, going from 2-3 they are _______
a.) Constant, constant b.) Constant, increasing c.) Decreasing, decreasing d.) Increasing, decreasing e.) Decreasing, increasing |
Decreasing, increasing
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6.) Industries with larger size firms typically
a.) Have lower fixed costs b.) Have higher fixed costs c.) Have decreasing returns to scale sooner d.) Have greater marginal fixed costs |
Have higher fixed costs
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7.) If the MRP/P of input A equals one, and is less than the MRP/P of input B, you should
a.) Use less of input A b.) Use less of input B c.) Use more of input A d.) Use more of input B e.) Cannot be determined without more information |
Use more of input B
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8.) If the Demand curve is P = -Q + 30, when P = 10, Total Revenue will be
a.) 10 b.) 100 c.) 200 d.) 300 e.) None of the above |
200
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9.) If two inputs are NOT substitutes, the production indifference curve will be
a.) A negatively sloped straight line b.) L-shaped c.) A negatively sloped curved line d.) A positively sloped straight line e.) A positively sloped curved line |
L-shaped
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10.) For a production indifference graph with L on the Y-axis, and K on the X-axis, the slope of the production indifference curve is ______, and the slope of the budget line is ______
a.) -MPP of K/ MPP of L, -P of K/P of L b.) –MPP of L/MPP of K, -P of L/P of K c.) –P of K/ P of L, -MPP of K/MPP of L d.) –P of L/ P of K, -MPP of L/ MPP of K |
-MPP of K/ MPP of L, -P of K/P of L
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11.) If the Demand curve is downward sloping, Total Revenue for a company will
a.) Always decrease with quantity b.) Always increase with quantity c.) Initially decrease with quantity and then increase d.) Initially increase with quantity and then decrease e.) Increase but at a decreasing rate eventually plateauing |
Initially increase with quantity and then decrease
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13.) If the marginal revenue is lower than the marginal cost you should
a.) Produce more until the marginal revenue increases to equal marginal cost b.) Produce more until the marginal revenue falls to equal marginal cost c.) Produce less until the marginal revenue increases to equal marginal cost d.) Produce less until the marginal revenue falls to equal marginal cost |
Produce less until the marginal revenue increases to equal marginal cost
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14.) Assume a business is producing at its optimal quantity, and then its rent is raised. What should they do to maximize profits?
a.) Raise price to make some of this money back b.) Lower price to sell more c.) It depends whether demand is elastic or inelastic d.) None of the above |
None of the above
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15.) The demand curve for a perfectly competitive firm is ______, and for a perfectly competitive industry is generally
a.) Downward sloping; downward sloping b.) Upward sloping; downward sloping c.) Downward sloping; Horizontal d.) Horizontal; downward sloping e.) Horizontal; Horizontal |
Horizontal; downward sloping
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16.) Which of the following is NOT a condition for perfect competition are
a.) Numerous firms and customers b.) Identical products c.) Freedom of firms to enter and exit d.) Perfect information e.) None of the above |
None of the above
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17.) A firm should shut down immediately if
a.) Its profits are negative b.) Its TR < TFC c.) Its TR < TC d.) Its TR < TVC e.) Its TVC < TFC |
Its TR < TVC
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18.) The short-run for an individual firm means ______, and the short-run for an industry means ______
a.) Some costs are pre-committed, firms are not entering or exiting b.) Firms are not entering or exiting, some costs are pre-committed c.) There are profits, profits equal zero d.) Price is greater than marginal cost |
Some costs are pre-committed, firms are not entering or exiting
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19.) If there are losses in the short-run in a perfectly competitive market
a.) There will be losses in the long-run b.) Firms will exit until profits equal zero c.) Firms will enter until profits equal zero d.) Firms will enter and profits will increase e.) None of the above |
Firms will exit until profits equal zero
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20.) If the government wants to reduce pollution in an industry they should
a.) Raise taxes on production in that industry b.) Give them money (a subsidy) to produce less c.) Lower the taxes on production in that industry d.) A or B e.) B or C |
Raise taxes on production in that industry
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21.) One benefit of a perfectly competitive market is that, in the long-run it is ______ meaning ________
a.) Efficient, produces the desired output at the greatest profit b.) Efficient, produces the desired output at the lowest cost c.) Successful, earns positive economic profits d.) Successful, produces some output |
Efficient, produces the desired output at the lowest cost
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23.) Which of the following is NOT true of a pure monopoly
a.) There is only one firm b.) There are no close substitutes c.) There are reasons entry and survival of new firms is unlikely d.) Profits persist in the long-run e.) None of the above |
None of the above
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25.) The supply curve for a Monopoly
a.) Is vertical b.) Is horizontal c.) Is downward sloping d.) Is not fixed |
Is not fixed
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26.) Compared to perfect competition, which is NOT true
a.) A monopoly will advertise less b.) A monopoly cannot increase production without influencing price c.) A monopoly’s economic profits can persist in the long-run d.) A monopoly’s marginal revenue is less than the price e.) None of the above |
A monopoly will advertise less
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27.) The Demand curve for the monopolist
a.) Is horizontal b.) Is vertical c.) Is upward sloping d.) Is the same as demand for the good e.) None of the above |
Is the same as demand for the good
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Assume there are two types of customers, A and B, a firm can maximize profit by following the condition MC =______
a.) MR of A = MR of B b.) TR of A = TR of B c.) MC of A = MC of B d.) TC of A = TC of B e.) P of A = P of B |
MR of A = MR of B
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1.) The conditions for perfect competition are 1) many buyers and sellers 2) free entry and exit 3) homogeneous products and 4) perfect information. Monopolistic competition shares
a.) 1 and 2 b.) 1 and 3 c.) 2, 3 and 4 d.) 1, 2 and 3 e.) 1, 2 and 4 |
1, 2 and 4
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2.) If a monopolistically competitive firm is producing at a profit, in the long run
a.) It will still have a profit b.) Its quantity produced will decrease until demand is tangent to the average cost curve at its minimum and profits equal zero c.) Its revenue will decrease and average costs will rise d.) Its revenue will increase and average costs will rise e.) Its revenue will decrease and average costs will fall |
Its revenue will decrease and average costs will rise
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3.) The kink demand curve model explains infrequent price changes as due to
a.) A horizontal demand b.) A vertical demand c.) Competitors following you if you raise price but not if you lower it d.) Competitors following you if you lower price but not if you raise it e.) None of the above |
Competitors following you if you lower price but not if you raise it
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4.) If the Demand curve is P = -Q + 10, and the cost curve is C= (1/2)Q^2, how much profit is lost from sales maximization vs. profit maximization
a.) 0 b.) 2.5 c.) 3 d.) 4 e.) None of the above |
4
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8.) Consider the decision for a firm to expand its factory. If they keep their smaller factory, and a new firm enters the market, the existing firm will get a (an economic) profit of 3,000 per month, and the new firm will get a profit of 1,000. If a new firm does not enter, the existing firm will get a profit of 10,000 per month. If it builds the larger firm and the new firm enters, the existing firm will get a profit of 2,000 per month, and the new firm will earn profits of -1,000. If the firm builds the larger firm and the new firm does not enter, the existing firm will earn profits of 3,500 per month. What should the existing firm do and what profit will it get? (Hint: it may be helpful to draw the decision tree)
a.) Build the larger factory, earn profit of 4,000 b.) Build the larger factory, earn profit of 3,500 c.) Don’t build the larger factory, earn profit of 3,000 d.) Don’t build the larger factory, earn profit of 10,000 |
Build the larger factory, earn profit of 3,500
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9.) If the Demand curve is P = -3Q + 15 and the Supply curve is Q + 3, the consumer surplus is _____, and the producer surplus is _____
a.) 16, 8 b.) 8, 16 c.) 13.5, 4.5 d.) 4.5, 13.5 e.) None of the above |
13.5, 4.5
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10.) The coordination task which central planner’s found most difficulty with was
a.) Deciding the distribution of the goods b.) Rationing of goods c.) Deciding what inputs to use (production planning) d.) A and B e.) None of the above |
Deciding what inputs to use (production planning)
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11.) Consider two industries which are interdependent. To produce one dollar worth of good X requires 50 cents of good Y, and to produce one dollar of good Y requires 50 cents of good X. If demand from all other industries and consumers for good X is 3, and if the demand from all other industries and consumers for good Y is 1.5, what quantities of X and Y should a central planner select? (Hint: begin by writing down the two equations for X and Y with both variables in each equation)
a.) X=9, y= 12 b.) X=12, y=9 c.) X=4, y=5 d.) X=5, y=4 e.) None of the above |
X=5, y=4
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y efficiency with regard to consumer and producer surplus we mean that it maximizes
a.) Producer surplus b.) Consumer surplus c.) The Sum of producer and consumer surplus d.) The product of producer and consumer surplus e.) The ratio of consumer to producer surplus |
The Sum of producer and consumer surplus
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13.) If the Demand curve is P = -Q + 10, and the Supply curve is P = Q + 0, and the price is initially $4, what will happen to get back to equilibrium? (hint: draw the graphs and find the consumer surplus at $4 and at the equilibrium, if they are not one and the same)
a.) Price will increase, decreasing consumer surplus b.) Price will increase, increasing consumer surplus c.) Price will decrease, decreasing consumer surplus d.) Price will decrease, increasing consumer surplus e.) The price is already at equilibrium and consumer surplus will not change |
Price will increase, decreasing consumer surplus
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14.) Inefficient allocations of resources occur when
a.) No one can be made better off without making someone else worse off b.) Someone can be made better off without making some else worse off c.) Production occurs at a high point on the production possibility frontier d.) Production occurs at a low point on the production possibility frontier |
Someone can be made better off without making some else worse off
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15.) When a surplus occurs in the market for a good
a.) Quantity demanded exceeds supplied and the price will be pushed up lowering desired consumption and increasing production b.) Quantity demanded exceeds supplied and the price will be pushed down lowering desired consumption and increasing production c.) Quantity supplied exceeds demanded and the price will be pushed down raising consumption and decreasing desired production d.) Quantity supplied exceeds demanded and the price will be pushed up raising consumption and decreasing desired production |
Quantity supplied exceeds demanded and the price will be pushed down raising consumption and decreasing desired production
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16.) When you buy a new car, the second you drive it off the lot it typically loses a significant portion of its value (up to 20%). This can be explained by
a.) A negative externality b.) Moral hazard c.) Inefficiency d.) Asymmetric information e.) The Coase theorem |
Asymmetric information
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17.) A good with a negative externality has _______, and is likely to be _______ by the free market
a.) MSC > MPC, under-provided b.) MSC>MPC, over-provided c.) MSC<MPC, under-provided d.) MSC<MPC, over-provided e.) MSC>MPC, efficiently provided |
MSC>MPC, over-provided
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18.) The cost disease of services can in part be explained by which of the following ideas I) More people work in services today than in the past II) real wages increase with productivity III) Many services do not increase their productivity much over time IV) In the long-run wages need to rise equally across industries
a.) I and II b.) II and III c.) I, III, and IV d.) II, III, and IV e.) I, II, III and IV |
II, III, and IV
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19.) Coase Theorem requires which of the following conditions to hold I) perfect information II) Many customers and firms III) no transaction costs IV) well defined property rights V) no externalities
a.) I, II, III b.) I, II, III, and IV c.) I, III, and IV d.) II, III, IV, and V e.) I, II, III, IV, and V |
I, III, and IV
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20.) If you wanted to move the market toward the socially efficient outcome, in a market where the MSB>MPB, you would
a.) Subsidize the industry to increase quantity b.) Tax the industry to decrease quantity c.) Subsidize the industry to decrease quantity d.) Tax the industry to increase quantity e.) B or C |
Subsidize the industry to increase quantity
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21.) Health care costs tend to be increased by which of the following
a.) Asymmetric information (Adverse selection) b.) Moral Hazard c.) The Cost Disease d.) A and C e.) A, B, and C |
A, B, and C
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22.) Which of the following are NOT imperfections of the free market
a.) Unemployment b.) Inequality c.) Monopoly inefficiencies d.) Over-pollution e.) None of the above |
None of the above
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23.) Public goods are likely to be under or unprovided by a private business because of which of the following characteristics
a.) Non-excludability b.) Non-depletability c.) Moral Hazard d.) A and B e.) A, B, and C |
A and B
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24.) An example of the principle agent problem is
a.) Politicians representing voters b.) Sales maximization c.) Over-pollution d.) A and B e.) All of the above |
A and B
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25.) Markets allocate between the present and the future through
a.) Increased savings causing interest rates to rise b.) Decreased savings causing interest rates to fall c.) Increased savings causing interest rates to fall d.) Changing savings having no impact on interest rates e.) A and B |
Increased savings causing interest rates to fall
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26.) The near extinction of the American Bison is a classic example of the
a.) Moral Hazard b.) Adverse Selection c.) Tragedy of the Commons d.) Public Goods e.) The Cost Disease |
Tragedy of the Commons
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