Economics test 2

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Total Costs

Fixed costs + variable costs

Productivity Efficiency

Is the production of any particular good in the least costly way.

Allocative efficiency

when the last unit produced costs the same as the benefit recieved by consumers , basically what consumers want when it occurs p=mc

Economice costs include

Implicit and explicit costs

Explicit Cost

show a receipt for what you spent

Implicit Cost

Economics point out that there are costs for which you can't produce a receipt, Normal cost is an implicit cost.

Efficient Market hypothesis

The theory that asset prices reflect all publicly available information about the value of the asset

As living standards improve

E) needs remain the same, and wants increases

According to economists the satisfaction people get from their consumption activities is called

B) Utility

Your total utility ? with each pie you at up to the 3rd pie

A) increased

Beyond the 3rd pie your total utility ?

B) Decreases

You got ? utility from eating the 1st pie compared with eating the 3rd

B) more

You got ? total utility from eating 4 pies compared with eating 3 pies

A) less

The law of diminishing marginal utility applies to

E) most activities, goods and services

Which of the following statements false?

D) The fourth hamburger usually increases total utility by more than the third hamburger.

Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the

A) greatest total utility

The absolute price of a good in dollar terms is

C) Nominal price

The fact that the average price of a gallon of gasoline in England is much higher than the price in the United states would lead to which of the following predictions?

D) Large cars with poorer gas mileage will be less popular with consumers in England

How many units will be sold at a price of $15?

D) $6

What is the maximum price that the buyer of the first unit is willing to pay?


At a price of $15, what is the consumer surplus for the buyer of the first unit?

D) 25$

At a price of $15, what is the consumer surplus for the buyer of the 6th unit?

A) $0

A rational seller will sell another unit if

B) the cost of making the next unit is less than the revenue gained by selling the next unit.

According to the cost-benefit principle, you should switch to another fast or job when

All the above

Your neighbors asked you to look after their dog while they are on vacation.

D) The value of one hour of leisure, which is greater than zero.

What is john's hourly opportunity cost of cleaning windows?

C) $7

His benefit from the first hour cleaning windows is

B) $14

A second hour cleaning windows will yield additional earnings of

C) $8

What is the smallest amount of money per window cleaned that would induce John to spend at least one hour per day cleaning?

E) $1

What is the seller's reservation price when producing 250 units?

B) $4

If the market price for this good is $6, how many units would this supplier produce?

D) 300

The primary objective of most private firms is to

B) maximize profit

Which of the following firms best represents a price taker?

D) a corn farmer in iowa

Of the following characteristics, which one applies exclusively to a perfectly competitive firm?

C) It can sell all it wants to at the market price

Conditions that are necessary for a market to be perfectly competitive include

A B and C

Which of the following is NOT true of a perfectly competitive firm

C) It seeks to maximize revenue

Last summer Casey took fresh vegetables to sell at the farmer's market, but this year casey did not plant any vegetables and went to work at the local bank.

C) The farmer's market's attracts a large number of vegetable farmers.

A price taker confronts a demand curve that is

D) Horizontal at the market price

One implication of the shape of the demand curve that faces a perfectly competitive firm is that

C) If the firm increases its price below the market price, it will earn higher revenue

An imperfectly competitive firm is one that

A) has some degree of influence over the price it charges for its output.

The short run is defined as

D) a period in which at least one factor of production is fixed.

The reason we observe the law of diminishing marginal returns is that

E) the production facility eventually becomes congested if the firm keeps hiring workers.

Marginal cost is calculated as

D) the change in total costs divided by the change in output

The law of diminishing returns sets in after ? workers per day

C) 3

When the pizza shop employs 3 workers per day, it will have ? of fixed cost.

C) $500

Three workers produce ? pizzas per day, with the variable cost of ? per day.

E) 150:$450

At quantities less than 50 doughnuts

D) average cost is declining because marginal cost is less than average cost.

The shutdown condition for a firm is where

B) total revenues are less than the cost of variable factors of production

Suppose the firm knows that it is not going to shutdown but is going to earn a loss. It should pick the output level where

B) price equals marginal costs.

Suppose a firm is collecting $1250 in total revenues and the total costs of its variable factors of production are $1000 at its current level of output. in the short run, once can predict that the firm will.

D) Continue to operate

A firm that is earning negative profit

C) Should continue to operate in the short run if it is earning total revenues greater than its variable costs.

IF a firm shuts down in the short run, then

E) profit will equal the negative fixed costs.

Average variable cost is defined as

C) Variable cost divided by output

Average total cost is defined as

A) total cost divided by output

Firms maximize profit when

D) marginal costs equal price

In the graph above, Average Variable cost is labeled ? Average total cost is labeled ? and Marginal cost is labeled ?


Which of the following would cause supply to shift to the left?

A) Wages rise.

Pareto Efficiency is a situation in which

D) any further trades will harm someone

THe fact that INgrid can not buy a ticket to "Mamma Mia" is evidence of

D) A situation that is not Pareto Efficient

Damage to the downstream fish is an

A) Relevant cost of production

If the firm does not have to pay for the damage to the downstream fish, the market equilibrium price will be ? and the market equilibrium quantity will be ?

C) Inefficiently low; inefficiently high

Suppose the government fines the firm an amount equal to the damage imposed on the fish. This government action

E) increases efficiency in the market

The price of $60 each will lead to an ? of ? pairs of jeans per day.

B) Excess supply; 16

THe concept of efficiency is illustrated by which of the following statements?

B) At equilibrium, all mutually beneficial transactions have taken place.

The price of $4 per pound will lead to a(n) ? of ? pounds of oranges per day.

D) Excess demand; 20

Suppose that the quantity initially being purchased is 10 pounds per day. If the supplier sells an extra pound of oranges to the most eager buyers for $8 then the seller is ? better off than before and the buyer is ? better off than before.

C) $4;4

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

E) Efficiency maximizes total economic surplus and thereby allows other goals to be more fully achieved.

Except in the extreme cases of perfectly inelastic or elastic demand and/or supply curves, the burden of a per unit tax imposed on sellers falls.

B) Partially on consumers and partially on producers.

If demand is perfectly price inelastic

C) the burden of a tax falls entirely on the buyer.

The more elastic demand is, the ? the burden of the tax borne by ?

A) smaller; consumers

IF a tax of one dollar per unit is imposed on the producers of this commodity, the price consumers will pay in the market will

B) Increase by less than one dollar

If the legislature's primary goal in increasing taxes is to raise money most efficiently, it should tax

B) drugs because demand is price inelastic

In an effort to battle obesity, the school board has decided to tax candy sold at the high school snack bar.

D) Demand for candy at the market price is price elastic

Your state legistlature is considering increasing the sales tax on two different commodities:

D) fall by 0.08%

A tax on Commodity A will generate ? deadweight loss relative to an equivalent tax on Commodity B.

B) Less

A tax on commodity A will generate ? tax revenue relative to an equivalent tax on Commodity

A) More

A tax on Commodity B will be more effective at ? than an equivalent tax on commodity A.

C) Reducing consumption

The economic theory of business behavior assumes that the goal in a firm is to

E) Maximize its profits

Explicit Costs

C) measure the payments made to the firm's factors of production

Which of the following is not an example of explicit costs?

B) Personal savings of the owner invested in the firm

Implicit Costs

C) Measure the forgone opportunities of the owners of the business.

Which of the following is not an example of Implicit costs?

E) The salary of the CEO

You determine that your true profit that month was negative $200. Why?

C) You accounted for lost salary of 1000

If a firm is earning zero economic profits

C) Equal to total revenue minus both explicit and implicit costs

It is always true that

E) Accounting profits greater than or equal to economic profits.

Normal profits occur when

D) Economic profits are zero

What is Chris's Explicit annual costs?

E) 51g's

Chris's opportunity cost of running her own business is ? which is the ?

C) 40g; implicit cost

Chris's accounting profit is

D) 49g

Chris's economic profit is

E) 9g's

Economic losses are

D) a signal that reallocation of resources out of the industry needs to occur.

In a perfectly competitive industry over the long run

E) Economic profits and losses are driven towards zero by entry and exit.

If resources are misallocated then the presence of opportunities to profit.

A) will exist and self interests will ensure someone will profit

The copyright of Frank Bernanke's Principles of Economics Textbook

C) Serves as a minor barrier to other publishers.

The ability of the invisible hand to allocate resources efficiently is

E) Reduced by the presence of barriers to entry.

Adam Smith claimed that an efficient allocation of resources was the byproduct of

E) Involvement of self-interested buyers and sellers.

In the short run, Charlie's Reduction in cost will ? the market price of lettuce

D) have no impact on

In the short run, Charlie's total revenue will ? and total cost will ?

C) Be the same as before; decrease

The long run supply curve for the industry will shift ? by ? per harvesting period.

A) Downward; 5g's

According to the textbook, when airlines were regulated with respect to airfares, they competed with each other on the basis of

D) number of flights to and from a particular city

During the era of regulated airfares

D) Economic profits were inefficiently driven towards zero.

Which of the following would not have been predicted to occur upon deregulation of the airline industry?

C) Accident rates would soar

If the government began to set a relatively high price for SUV's based solely on their gas mileage one could predict.

B) SUV manufactures would soon start offering extras.

YOu have just won the lottery! You may take your winnings in either a single immediate payment of 1million or in annual payments of 25g's forever. At what interest rate would you be indifferent between these two choices?

C) 2.5%

A share of IBM stock is an

A) Claim to a fraction of the current and future accounting profits of IBM

According to the textbook, when the Wall street Journal compared the performance of stocks picked by experts to randomly picked stocks,

E) the performance of the two sets of stocks was about the same.

The efficient-markets hypothesis suggests

D) Information in stock tip newsletters is too outdated to be useful.

Which of the following statements is not implied by the efficient-markets hypothesis?

D) The same experts will always outperform the market average

Amazon.coms stock price has been consistently high while the company repeatedly reports accounting losses. Apparently, investors

B) expect Amazon to very profitable in the future.

Suppose a Ph. D mathematician from MIT discovers "the formula" for picking stocks, using well-known statistical models and publicly available data, One an predict that.

D) as his success becomes well known, other investors will mimic his choices and thereby drive his return down.

Adam smith believed that the individual pursuit of self-interest

D) Sometimes worked to advance social benefits.

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