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79 Cards in this Set

  • Front
  • Back
A linear demand curve:
A) has price elasticity of demand equal to one.
B) can have both elastic and inelastic price elasticities of demand.
C) has a constant price elasticity of demand.
D) has price elasticity of demand that is positive.
B) Can have both elastic and inelastic price elasticities of demand.
Suppose the local real estate market is in equilibrium. Recently a recession has caused local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these 2 changes, we can predict the price of real estate will _____ and the quantity of real estate bought and sold will _____.
A) rise if the supply increase is larger than the demand increase; fall.
B) fall: fall if the demand decrease is larger than the supply increase.
C) fall; rise if the demand decrease is larger than the supply increase.
D) fall if the demand decrease is larger than the supply increase; rise.
B) The price of real estate will fall and the quantity of real estate bought and sold will fall.
A newspaper story recently reported the price of new cars has decreased, and the quantity of new cars sold has dropped. The price and quantity changes were probably caused by:
A) a decrease in production costs.
B) an increase in production costs.
C) a decrease in buyers' income.
D) an increase in buyers' incomes.
C) A decrease in buyers' income.
If the absolute value of the price elasticity of demand is found to be 6, then the demand is:
A) Price unit-elastic.
B) price-inelastic.
C) horizontal.
D) price-elastic.
D) Price elastic
Supply curves tend to be more _____ the greater the time period facing the producer.
A) inflexible
B) price-inelastic
C) price-elastic
D) steeply sloped
C) price-elastic
The best example of making a choice at the margin:
A) attending college.
B) buying a new computer.
C) quitting your job.
D) eating another slice of pizza.
D) eating another slice of pizza.
When a chef creates a dinner place of food for a customer, which of the following represents the physical capital resource?
A) the oven.
B) the chef's training and experience.
C) the chef himself.
D) the food ingredients.
A) the oven.
Although water is very abundant in most places, it is scarce because:
A) it is a free good.
B) scarce goods in general are not all that costly.
C) there is not enough of it to meet all needs.
D) it has no alternative uses.
C) there is not enough of it to meet all needs.
As part of an anti-obesity program, the government places an excise tax on high-fat foods. We would expect consumer to pay almost all of this tax if demand is:
A) elastic and supply is elastic.
B) inelastic and supply is inelastic.
C) elastic and supply is inelastic.
D) inelastic and supply is elastic.
D) inelastic and supply is elastic.
Assume the price elasticity of demand for tobacco is 0.5, and the income elasticity of demand for tobacco is 0.4. Then:
A) a 20% increase in the price of tobacco will decrease the quantity demanded of tobacco by 8%.
B) tobacco is an inferior good.
C) a 50% increase in income will increase the quantity demanded of tobacco by 20%.
D) an increase in the price of tobacco will decrease total revenue from sales of tobacco.
C) a 50% increase in income will increase the quantity demanded of tobacco by 20%

Price elasticity of demand = % change in quantity demanded/ % change in price

Income elasticity of demand = % change in quantity demanded/ % change in income.
If the state government allocates additional spending on education, the opportunity cost is:
A) measured in terms of the alternatives used for that money.
B) zero.
C) the dollar amount of the additional spending.
D) only considered if additional taxes need to be raised to fund the spending.
A) measured in terms of the alternatives used for that money.
Given that chicken and beef are substitute goods, if the price of chicken decreases substantially, there would be:
A) a decrease in the quantity of beef.
B) no change in the demand for beef.
C) a decrease in the demand for beef.
D) an increase in the demand for beef.
C) a decrease in the demand for beef.
Suppose the price of university sweatshirts increases $10 to $20, and the quantity supplied increases from 20 to 30. Using the midpoint formula you can calculate the price elasticity of supply to be:
A) 1.50
B) 0.60
C) 1.66
D) 0.66
B) 0.60

Midpoint formula:
((Q2 - Q1)/average value of Q)/((P2-P1)/average value of P)
Technological improvements will:
A) shift the production possibility frontier outward.
B) leave the production possibility frontier unchanged.
C) necessarily lead to increase unemployment.
D) shift the production possibility frontier inward.
A) shift the PPF outward.
The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15% in a period, how will that affect total revenue from peaches in that period, all other things unchanged?
A) Not enough info is given to answer the question.
B) Total revenue will remain unchanged.
C) TR will rise.
D) TR will fall.
C) TR will rise.
Economists usually make the assumption that production is subject to increasing opportunity costs because:
A) individuals desire constantly increasing opportunities to make themselves better off.
B) higher production usually results in more inflation.
C) if production is efficient it is not possible to increase the production of all goods simultaneously.
D) all resources are not equally suited to producing every good.
D) all resources are not equally suited to producing every good.
In the market for wheat, what would happen if the price of ethanol (which is made from corn) increases dramatically?
A) an increase in demand of wheat.
B) a decrease in demand of wheat.
C) a decrease in supply of wheat.
D) an increase in supply of wheat.
C) a decrease in the supply of wheat.
If the estimated price elasticity of demand for foreign travel is 4, then:
A) demand for foreign travel is inelastic.
B) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.
C) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.
D) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
D) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed.
A) inelastic; elastic.
B) inelastic; inelastic
C) elastic; elastic
D) elastic; inelastic
B) inelastic; inelastic
Suppose the government imposes a $4 excise tax on Good X. If the demand for Good X is perfectly elastic and the supply curve is elasic, then the price of Good X will:
A) increase, but by less than $4.
B) remain constant.
C) increase by exactly $4.
D) increase by more than $4.
B) remain constant.
Suppose the government of Coffeeland set coffee prices at $1 per pound, when the market price is $10. The government's actions will:
A) result in coffee surpluses even in a coffee-rich country
B) cause coffee shortages even in a coffee-rich country
C) improve equality between rich and poor since the poor can now afford coffee.
D) improve efficiency since the low prices will force producers to find cheaper production methods.
B) cause coffee shortages even in a coffee-rich country.
When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this info implies that for Joe:
A) demand for pizza is price-elastic.
B) pizza is a normal good and a luxury.
C) pizza is a normal good and a necessity.
D) pizza is an inferior good since his expenditure rose by less than the increase in income.
B) pizza is a normal good and a luxury.
The deadweight loss from an excise tax comes about because:
A) a quota rent exists.
B) the number of transactions in the market is reduced.
C) the number of transactions in the market is reduced and because some mutually beneficial transactions do not take place.
D) some mutually beneficial transactions do not take place.
C) the number of transactions in the market is reduced because some mutually beneficial transactions do not take place.
Which of the following is not a factor is determining the price elasticity of demand?
A) the time period involved
B) the slope of the supply curve.
C) the number of available substitutes
D) the proportion of the budget spent on the item.
B) the slope of the supply curve.
A market equilibrium occurs when:
A) thre is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.
B) there is no incentive for the prices to change in the market.
C) quantity demanded equals quantity supplied.
D) the market clears
A) There is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.
The Cozy Chair Co. believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, you can calculate that the price elasticity of demand (to the nearest tenth) for Cozy Chairs is:
A) 0.5
B) 0.7
C) 2.5
D) 1.4
D) 1.4
It is certain that the equilibrium price will fall when:
A) the supply curve shifts to the right and the demand curve shifts to the left.
B) supply decreases and demand stays the same.
C) the supply curve and demand curve both shift to the right.
D) supply and demand both increase.
A) the supply curve shifts to the right and the demand curve shifts to the left.
You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that:
A) your bouncer this demand for drinks is inelastic, while you bartender thinks the demand for drinks is elastic.
B) both the bouncer and the bartender think the demand for drinks is elastic.
C) both the bouncer and bartender think the demand for drinks is inelastic.
D) your bouncer thinks the demand for drinks is elastic, while your bartender thinks the demand for drinks is inelastic.
A) your bouncer this demand for drinks is inelastic, while you bartender thinks the demand for drinks is elastic.
An increase in supply of a good is caused by:
A) expectations of future price increases.
B) an increase in the number of sellers.
C) resource prices rising.
D) a fall in the price of a good.
B) an increase in the number of sellers.
The incidence of a tax:
A) Is a measure of the deadweight loss from the tax.
B) refers to who in reality pays the tax to the government.
C) is a measure of the revenue the government receives from the tax.
D) refers to who writes the check to the government
B) refers to who in reality pays the tax to the government.
If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n):
A) complementary good.
B) normal good.
C) substitute good.
D) inferior good.`
B) normal good.
Which of the following demonstrates how people respond to incentives to make themselves better off?
A) Students and faculty are encouraged to wear college apparel to support the college athletic teams.
B) Students are encouraged to donate blood because it is the "right thing to do."
C) More students major in economics when they hear salaries for economists are rising.
D) Students are assigned dorm rooms through a lottery system.
C) More students major in economics when they hear salaries for economists are rising.
To say that 2 goods are substitutes, their cross-oruce elasticities of demand should be:
A) equal to 0.
B) less than 0.
C) greater than 0.
D) negative, yet almost equal to 0.
C) greater than 0.
Cross price elasticity of demand between goods A and B = (% change in quantity of A demanded)/(% change in price of B)
The _____ principle implies that people with _____ should pay more taxes.
A) ability-to-pay, higher incomes
B) ability-to-pay; greater benefits received
C) benefits; fewer benefits
D) benefits; higher incomes
A) ability-to-pay; higher incomes
The problem of determining what goods and services society should produce:
A) exists because there are not enough resources to provide all the goods and services that people want to purchase.
B) would not exist if the government owned all of the resources
C) exists because we can produce more than we need/want.
D) would not exist if all goods and services were scarce.
A) exists because there are not enough resources to provide all the goods and services that people want to purchase.
Which situation would most likely cause a decrease in consumer surplus in the toy market?
A) There is an unexpected baby boom.
B) A new assembly line design increases worker productivity.
C) Consumer income increases.
D) The cost of shipping increases due to higher oil prices.
D) The cost of shipping increases due to higher oil prices.
When moving along the production possibility frontier, the opportunity cost to society of getting more of one good:
A) is measured by the amount of the other good that must be given up.
B) usually decreases.
C) is measured in dollar terms.
D) is constant.
A) is measured by the amount of the other good that must be given up.
The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If it imposes the price ceiling above the equilibrium price:
A) there will be no change to either the price or quantity in the market.
B) consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price.
C) producers will respond to the higher price and therefore offer fewer units for sale.
D) consumers will purchase less of the good after the price ceiling is imposed.
A) there will be no change to either the price or quantity in the market.
All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided for free at the county health clinic. This statement best represents the economic concept of:
A) resources should be used as efficiently as possible to achieve society's goals.
B) when markets don't achieve efficiency, government intervention can improve society's welfare.
C) government policies can change spending.
D) people usually exploit opportunities to make themselves better off.
B) when markets don't achieve efficiency, government intervention can improve society's welfare.
A good is likely to have an inelastic demand curve if:
A) the good has few available substitutes.
B) the good accounts for a large share of consumer income.
C) the consumer has significant time to respond to the price change.
D) the good is a luxury.
A) the good has few available substitutes.
Which of the following is a reason for governments imposing or maintaining price controls?
A) The government benefits from price controls.
B) Both consumers and producers benefit from price controls.
C) Price controls imporve the efficiency of the market.
D) It may be politically expedient to impose price controls that benefit influential voting groups.
D) It may be politically expedient to impose price controls that benefit influential voting groups.
The average total cost curve in the short run slopes upward due to:
A) economies of scale
B) diseconomies of scale
C) increasing returns
D) diminishing returns
D) Diminishing returns
In perfect competition, the assumption of easy entry and exit implies that:
A) in the long run all firms in the industry will earn 0 economic profits
B) in the short run all firms in the industry will earn positive economic profits
C) in the short run all firms in the industry will earn 0 economic profits
D) in the long run all firms in the industry will earn 0 economic profits and in the short run all firms in the industry will earn positive economic profits.
A) in the long run all firms in the industry will earn 0 economic profits
The short run is period that is
A) less than 1 week
B) less than 1 month
C) long enough in which to vary output but not plant capacity
D) long enough in which to make all economic adjustments
C) long enough in which to vary output but not plant capacity
A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should:
A) increase output
B) reduce output, but continue to produce a positive amount of output
C) shut down
D) do nothing, the firm is already maximizing profits
C) shut down
A monopoly can be temporary because of:
A) high barriers to entry
B) a lack of substitutes for the monopolist's product
C) economies of scale
D) Technological change
D) technological change
If a consumer moves downward along an indifference curve, his or her total utility:
A) remains constant
B) first decreases, then increases
C) decreases
D) first increases, then decreases
A) remains constant
An individual gets 5 units of utility from 1 slice of pizza and 9 units of utility from 2 slices of pizza. The principle of diminishing marginal utility implies that the total utility from 3 slices of pizza will be:
A) exactly 12 units
B) less than 13 units
C) less than 9 units
D) more that 14 units
B) less than 13
The following are 4 differences between monopoly and perfect competition. Which is incorrect?
A) A monopolist has market power while a perfect competitor does not
B) Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run
C) A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure
D) Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry
D) Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry
The substitution effect of a price change is described by which of the following statements?
A) When the price of a good falls, consumers have more real income with the same normal income and will now buy more of the good
B) When the price of a good falls, consumers will now substitute this lower-priced good for a relatively higher-priced good.
C) The substitution effect is the relative change in the amount of a good consumed when the price of another good changes
D) The substitution effect shows how a change in income will affect the quantity of a good purchased
B) When the price of a good falls, consumers will now substitute this lower-priced good for a relatively higher-priced good.
Suppose Sarah's pottery studio is currently charging the market price that is just higher than her minimum total cost. This means Sarah will:
A) is breaking even
B) should shut down immediately
C) is earning a small economic profit
D) is incurring a small economic loss
C) is earning a small economic profit
Sid is thinking of mowing lawns over the summer. His friend Jason currently mows lawns, and says the marginal cost of the 4th lawn mown in a day is $40. Sid then realizes the cost of mowing 4 lawns is:
A) 160
B) 40
C) 80
D) not possible to determine from the info provided
D) not possible to determine from the info prodived
Which of the following is not a barrier to entry?
A) control of an input essential for production
B) government-created barriers such as patents
C) a ban on certain kinds of advertising
D) the existence of significant economies of scale
C) a ban on certain kinds of advertising
John consumes only 2 goods, pizza and pasta. Both goods are normal goods for John. He is currently maximizing his utility in consumption of both goods. Now assume the price of pasta rises. As he adjusts the this event, the marginal utility of pizza:
A) and of pasta will rise
B) and of pasta will fall
C) will fall and the marginal utility of pasta will rise
D) will rise, and the marginal utility of pasta will fall
C) will fall and the marginal utility of pasta will rise
Sunk costs:
A) are not considered in marginal analysis
B) help to determine the optimal quantity of an activity
C) can dramatically increase marginal costs
D) are the same as variable costs
A) are not considered in marginal analysis
In an industry characterized by extensive economies of scale:
A) small companies are more profitable than large co.
B) large cos are more profitable than small cos.
C) small and large companies are equally profitable
D) small cos will drive out large cos.
B) large cos are more profitable than small cos.
A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are $100. Then:
A) average fixed cost is equal to $1.50
B) profit per bushel is equal to $2.75
C) average variable cost is equal to $1.25
D) economic profit is equal to $250
B) profit per bushel is equal to $2.75
Provided that there are no external benefits or casts, resources are efficiently allocated when:
A) P=MR
B) P=AVC
C) P=MC
D) MC=AVC
C) P=MC
The short-run supply curve for a perfectly competitive firm is:
A) the ATC curve above the break even price
B) the AVC curve above the shut down price
C) the marginal cost curve above the ATC curve
D) the marginal cost curve above the AVC cost curve.
D) the marginal cost curve above the AVC cost curve.
Economic profits in a perfectly competitive industry induce _____, and losses induce _____.
A) exit, entry
B) entry, entry
C) entry, exit
D) exit, exit
C) entry, exit
Diminishing returns to an input set in:
A) when all inputs are fixed
B) when some inputs are fixed and some are variable
C) when all inputs are variable
D) only in the long run
B) when some inputs are fixed and some are variable
If marginal cost is equal to ATC, then:
A) ATC is increasing
B) ATC is at its maximum
C) ATC is at its minimum
D) marginal cost is increasing
C) ATC is at its minimum
In the perfectly competitive guidebook industry, the market price is $35. A firm is currently producing 10,000 guidebooks; ATC is $38, MC is $30, and AVC is $30. The firm should:
A) raise the price of guidebooks, because the firm is losing money
B) keep the output the same, because the firm is producing at minimum AVC
C) produce more guidebooks, because the next guidebook produced increases profit by $5
D) shut down, because the firm is losing money
C) produce more guidebooks, because the next guidebook produced increases profit by $5
If economic profits exist in perfect competition, in the long run firms will enter because of easy entry, the _____ curve will shift to the right, and the _____ in the market will ______.
A) supply, output, increase
B) demand, supply, fall
C) supply, demand, also shift to the right
D) demand: price: increase
A) supply, output, increase
A firm that experiences economies of scale:
A) at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly
B) over the entire range of outputs demanded is called a natural monopoly
C) at any particular level of output is called a natural monopoly
D) has a continually rising long-run average cost curve
B) over the entire range of outputs demanded is called a natural monopoly
Because monopoly firms are price-setters:
A) they can only sell more by lowering price
B) they sell more at higher prices than at lower prices
C) they take the market-determined price as given and sell at they can at that price
D) they charge the highest price possible
A) they can only sell more by lowering price
If regulation of a monopoly results in a price equal to marginal cost, but price is below ATC:
A) the firm can still make economic profit
B) the firm will earn only a 0 economic profit
C) efficiency in allocation will me less
D) the firm will require subsidization or it will go out of business
D) the firm will require subsidization or it will go out of business
A decreasing cost industry is one in which:
A) contraction of the industry will decrease unit costs
B) input prices fall or technology improves as the industry expands
C) the long run supply curve is perfectly elastic
D) the long run supply curve is up-sloping
B) input prices fall or technology improves as the industry expands
You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a decision most likely to make in the long run at your deli:
A) you order more breadsticks from the local bakery
B) you ask your beverage distrubuter to deliver more soft drinks next week
C) you renovate the second floor of your building to increase the dining room
D) you place a newspaper advertisement to attract part-time workers from the local college
C) you renovate the second floor of your building to increase the dining room
If total utility is rising as more of Good X is consumed, we can definitely say that marginal utility:
A) falling
B) constant
C) rising
D) greater than 0
D) greater than 0
For a perfectly competitive firm, MR:
A) is less than price
B) is greater than price
C) decreases as the firm increases output
D) is equal to price
D) is equal to price
Price discrimination leads to a _____ price in the market with a _____ demand.
A) higher;less elastic
B) higher; more elastic
C) higher; perfectly elastic
D) lower; less elastic
A) higher;less elastic
A monopoly is producing where ATC = $30, MR = $40, and P=$50. If ATC is at its minimum level and the ATC curve is U-shaped, in order to maximize profits the firm should:
A) increase output
B) reduce output
C) do nothing, it's already maximizing profits
D) shut down
A) increase output
Which of the following is true?
A) If price falls below ATC the firm will shut down in the short run
B) P and MR are the same in perfect competition
C) Economic profit per unit is found by subtracting AVC from price
D) Economic profit is always positive in the short run
B) P and MR are the same in perfect competition
A monopoly is likely to _____ and ______ than a perfectly competitive firm.
A) produce more; charge more
B) produce less; charge more
C) produce more; charge less
D) produce less; charge less
B) produce less; charge more
Benny spends all his money buying wine and cheese. The MU of the last bottle of wine is 60, and the MU of the last block of cheese is 30. The price of wine is $3 and the price of cheese is $2. Benny:
A) is buying wine and cheese in the utility- maximizing amounts
B) should buy more wine and less cheese
C) should buy more cheese and less wine
D) is spending too much money on wine and cheese
B) should buy more wine and less cheese
The net present value of a project is the difference between:
A) current benefits and the present value of future costs
B) the present value of current benefits and the current value of future costs
C) the present value of future benefits and the present value of future costs
D) the present value of current and future benefits and the present and current value of future costs
D) the present value of current and future benefits and the present and current value of future costs
A firm that is able to more efficiently utilize by-products as it increases production in the long run is an example of:
A) economies of scale
B) diseconomies of scale
C) labor-intensive production
D) capital-intensive production
A) economies of scale
Price-takers are individuals in a market who:
A) select a price from a wide range of alternatives
B) select the lowest price available in a competitive market
C) select the average of prices available in a competitive market
D) have no ability to affect the price of a good in a market
D) have no ability to affect the price of a good in a market