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A vert flat demand curve indicates that the commodity

has many substitutes

Along a downward-sloping linear demand curve,

the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases

For consumers who opt to pay a $10 monthly fee to have unlimited texting on their cell phones, but choose not to pay a $5 monthly fee to have unlimited call minutes, the unlimited texting option has a ___________ than the unlimited minutes option.

lower price elasticity of demand

The figure above shows the market for gasoline at a gas station. Supply curve shift from $1 to $2 because of a $1/gallon unit tax introduced by government. All of he statements below are correct, except

The demand is now lower because of the higher price

Suppose the price of gasoline is $3.50 per gallon, the quantity demanded is 150 billion gal/year, the price elasticity of demand for gasoline is -0.06, and the government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the market price of gasoline by $0.5 per gallon. How much revenue does the federal government receive from the tax? (Note: Do not use the midpoint formula for elasticity.)

$148.27

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?

The more elastic the supply curve, the smaller the price decrease.

If Canada imports fishing oles from Mexico and Mexico imports bacon from Canada, which of the following would explain this pattern of trade?

The opportunity cost of producing fishing poles in Canada is higher than the opportunity cost of producing bacon in Mexico

Under autarky, the deadweight loss is

$0

Below are the correct comparisons between tariff and quota policies on import, except

The government is indifferent between the two policies

The "Buy American" provision in the 2009 stimulus package requires that stimulus money be spent only on U.S.-made goods. In the market for steel, the "Buy American" provision would _________ the price of steel in the US and ________ the quantity of steel demanded in the US.

icrease;decrease

In the context of a consumer trying to maximize his happiness by buying two goods, with a given budget, we can use the indifference curve vs. budget constraint analysis. Below are correct statements, except

The maximum utility will be reached when the marginal utility per dollar spent is the same between the two goods

The Dorrell twins, Mia and Molly, each are given $500 for Christmas by their Dad. They are told that they can do whatever they want with the money. Based on the diagrams above, what can you conclude about their preferences?

Mia values saving more than Molly

The absolute value of the slope of the budget constraint is equal to

the price of good on the horizontal axis divided by the price of good on the vertical axis

The figure above shows the US market for leather footwear. Suppose the government allows imports of leather footwear into the US. The only correct statement below is

The US economy will gain as much as T+U if the US government opens the market

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

Sales revenue rises

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

wants to buy more ankle socks and fewer bandanas

Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest J.K. Rowling novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 60 books per day. Do some calculation, but do not use the mid-point formula. Select the correct implication from your work.

The demand for the J.K. Rowling book is elastic. Revenue will rise if the price is lowered.

The picture above is the market of gasoline at a particular gas station. A $1 unit tax is introduced by the government and caused the supply curve to shift from $1 to $2. All statements below are incorrect, except

The demand is more inelastic than the supply when the quantity changes from 11,500 to 10,730

Michael is given $5 million budget for ads and has only 2 options: TV ads and radio ads. These ads come in packages where each package is worth 1 hour total running time of the ads. He has the estimates of the impact of buying these ads on his company's total revenue. The prices of a TV ad package and a radio ad package are $1 million and $0.5 million respectively. The only correct statement below is

If his company increases his advertisement budget by $1.5 million, his best decision will be buying 4 TV ads and 5 radio ads

Which of the following is common to both tariffs and quotas?

Tariffs and quotas are both designed to reduce foreign competition faced by domestic firms

The table to the right represents a straight line demand curve for a particular good. These statements about this demand curve below are correct, except

The slope of the curve is 1/20

A standard consumer's utility-maximizing combination of goods is given by the bundle that corresponds to a point where

one of the indifference curves touches the budget constraint at that point exactly

Of the following, which is the best example of good with a perfectly inelastic demand?

a diabetic's demand for insulin

If Brazil has a comparative advantage relative to Cuba in the production of sugar cane, then

the opportunity cost of production for sugar cane is lower in Brazil than in Cuba

International trade

helps consumers but hurts firms who can't compete with their foreign competitors

In a standard consumer's maximization utility problem, suppose the price of pizza increases while the price of hamburger remains constant. Then, the consumer's

the budget constraint rotates inward toward the origin on the pizza axis while the hamburger intercept remains the same

If the US government implements a tariff on Chinese tire imports, the price of Chinese-made tires in the US will __________, the US quantity demanded will _________, and the US consumer surplus will _________

increase;decrease;decrease

Suppose Joe is maximizing his satisfaction with his budget. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then the extra satisfaction received from the last shirt must be

80 units

What is the slope of an indifference curve?

the rate at which the consumer is willing to trade one good for another without any loss in utility

Suppose the US government imposes a $0.75 per pound tariff on coffee imports. The figure above shows the impact of this tariff. Based on the figure above, these statements are incorrect, except

The efficiency loss from this policy is $4.875 (efficiency loss=deadweight loss)

If a perfectly competitive firm sells its product at a lower price than the market price, which of the following is the most likely outcome?

The firm's output will be sold out quickly

Suppose that corn market is perfectly competitive. The price that a corn farmer receives for its output

will increase if the demand for ethanol made of corn keeps increasing

A perfectly competitive firm has to charge the same price as every other firm in the market because

it produces a small fraction of the total market supply

Which of the following is true for a firm in perfect competition?

Its unit price equals its average revenue

The table below provides the information about the total cost and total revenue for different level of production for a firm operating in a perfectly competitive market. All statements below are correct, except

If the product's market price goes up to $9, the firm's maximum profit is $5

The figure above illustrates the cost curves of a perfectly competitive firm. If the market price is P1 and it's profit maximizing

the firm will experience a loss as much as it's fixe cost (b/c ATC is above MC in this case)

If the market pice is P3 and the firm is profit maximizing, the firm

will have (P3-P2) as its profit per unit

The table above lists estimated revenues and costs (per week) for plastic vials (1000 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories. Which is the correct statement below?

Victoria doesn't produce the 5th box because its extra loss from doing so is -$3,000/week

The following statements describe the behavior of a monopolistically competitive firm depicted in the diagram below. Find the incorrect statement

Its currently minimizing its losses by producing Qy units and selling them at $P0/unit

Compared to a monopolistically competitive firm, the demand curve facing a perfectly competitive firm is

Much more elastic because its market share is only a little fraction of the market

Gardener has been the market eager for shampoo with their product called Protifiying Dsaily Care. The company has managed to keep their own sizable market share mainly by spending a lot of money on TV ads that feature Andie McDonald. In the picture, D1 and MR1 describe its "current" demand and marginal revenue Find the incorrect statement about the "current" situation

It's accounting profit is less than $30million/week

In the picture above, a new mopetition by a new shampoo, Pantana, produced by P&Q has changed the market for Portifying Daily Care. Gardener's "new" demand is D2. Find the incorrect statement

Its new profit is $10.56million/week

A monopolistically competitive firm that urns an accounting profit in the short run

could earn an economic profit, break even, or suffer an economic loss in the short run

At the start of the game each firm charges a high price and each earns a profit of $10,000. Is the current situation a Nash Equilibrium? If not, why and what is the Nash Equilibrium?

No, the current situation is not a Nash Equilibrium. It is "prisoner's dilemma"

Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?

Yes, it will drive BMW out of the market

If a perfectly competitive firm sells its product at a lower price than the market price, which of the following statements is incorrect?

The firm's revenue will not change because some consumers will be willing to pay at the market price

The demand curve faces by an individual seller's product in perfect competition is

perfectly elastic

Which of the following is not true for a profit maximizing firm in perfect competition?

To increase its profit, it should sell its product at a slightly lower price than all other firms do

Table: assume that output can only be increased in batches of 100 units. The only correct statement below is

If the price is slightly higher than its shutdown price, its loss will not be as much as $1,000

Still based on the table in the previous question, if the firm finds that its profit maximizing level of output is 500 units, these statements below are correct, except

Its marginal revenue must be $12.4

Suppose in a perfectly competitive market, a profit maximizing firm is breaking even. This means that

it will experience a loss if it produces more

Refer to the picture above. if the firm is producing 200 units,

it is making a loss

The following statements describe the behavior of a monopolistically competitive firm depicted in the diagram below. Find the incorrect statement

if the firm is able to increase the demand for its product, it will be able to sell more than Qy and it should sell them at $P1/unit

When a firm faces a downward sloping demand curve, marginal revenue

is less than price because a firm must lower its price to sell more

MR=

change in TR/ change in Q

Income Elasticity: Normal Good is

positive (+)

Income Elasticity: Inferior Good is

negative (-)

cross-price elasticity: Substitutes are

positive (+)

cross-price elasticity: Compliments are

negative (-)

If demand is more inelastic than supply,

consumers bear more burden of tax

If supply is more inelastic than demand,

producers bear more burden of tax

If income increases and you consume more, the good is

normal (+)

If income increases and you consume less, the good is

inferior (-)

If elastic and price increases, TR

decreases

If elastic and price decreases, TR

increases

If inelastic and price increases, TR

increases

If inelastic and price decreases, TR

decreases

Supply curve is the _______ ______ curve ________ the lowest point on the AVC (aka above the shut down point)

marginal cost;above

Shutdown point is

the minimum point of on a firms AVC curve

Sunk cost is a

cat that has already been paid and c/n be recovered

Fixed costs in the short run are

sunk costs

Everything over the ATC is

economic profit

Accounting Profit _____ Economic profit

>

zero economic profit=

normal profit

In a Perfectly Competative Market,

P=MR=AR (profit maximizing)

In a Monopollissticly Competative Market,

P>MC (profit maximizing)

Profit=

TR-TC

In Long-Run Profit, when new firms enter it shifts the demand curve to the

left

What is the shutdown point?

Where AVC=P (lowest point)

Explicit cost involves

spending money (wages/payments)

Implicit costs involve

nonmenetary opportunity costs

Elasticity of Demand=

%change in Qd/%change in P

Substitutes have

high elasticity of demand (elastic)

Necessities have

low elasticity of demand (inelastic)

When P > ATC, you incur a

profit

When P < ATC, you incur a

loss

When P = ATC, you

break even

Minimum point of the AVC is the

shutdown point

Minimum point of the ATC is the

break even point

The break even point is at the minimum point of the

ATC

The shutdown point is at the minimum point of the

AVC

To maximize total utility:

1) Budget Constraint
2) Equal Marginal Utility per $ spent across products

Total Utility equation

Mu of good A/Price of good A * Mu of good B/Price of good B

Autarky means

w/o any trade

If demand more inelastic than supply,

consumer surplus loss > producer surplus loss

If supply more inelastic than demand,

producer surplus loss > consumer surplus loss

The figure above shows the US market for leather footwear. Suppose the government allows imports of leather footwear into the US. What happens to the market price and what is the quantity of imports?

The price equals $24 and imports equals Q2-Q0

Suppose the vertical axis measures the price per lbs, Q1=2 billion lbs, and the supply equation is P=10+10Qs. All of these statements below are correct, except

The US producers will lose $10 billion because of free trade

Under autarky, the equilibrium price is _________, the consumer surplus is _______ and the producer surplus is ________

$30;consumer surplus area R; producer surplus=area S + V

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