28 terms

Economics Exam # 2

The price elasticity of demand coefficient measures:
buyer responsiveness to price changes.
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:
the price elasticity of demand is 2.25.
For a linear demand curve:
demand is elastic at high prices.
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:
The demand for autos is likely to be:
less price elastic than the demand for Honda Accords.
The demand for a necessity whose cost is a small portion of one's total income is:
relatively price inelastic.
A supply curve that is a vertical straight line indicates that:
a change in price will have no effect on the quantity supplied.
Which type of goods is most adversely affected by recessions?
Goods for which the income elasticity coefficient is relatively high and positive.
The ability of a good or service to satisfy wants is called:
What do the income effect, the substitution effect, and diminishing marginal utility have in common?
They all help explain the downsloping demand curve.
The fact that most medical care purchases are financed through insurance:
increases the amount of health care consumed by reducing the price of additional units of care.
Josh will receive a salary of $300,000 next year. According to prospect theory:
Josh will only be happy with that salary if his cost of living has not increased.
can influence decision-making with irrelevant information.
Because of "mental accounting:"
people isolate purchases and sometimes make irrational decisions.
Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists:
Alex's behavior is consistent with the endowment effect.
Consider This) Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of:
diminishing marginal utility.
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?
In answering the next question(s), assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.
For a purely competitive firm, total revenue graphs as a:
straight, upsloping line.
The MR = MC rule applies:
to firms in all types of industries.
In the short run a purely competitive firm will always make an economic profit if:
P > ATC.
(Last Word) Oil wells and seasonal resorts will often shut down temporarily because:
prices for their output temporarily fall below their average variable costs of production.
The primary force encouraging the entry of new firms into a purely competitive industry is:
economic profits earned by firms already in the industry.
Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price:
and industry output will be less than the initial price and output.
Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
The firms in the market are part of a decreasing-cost industry.
Allocative efficiency is achieved when the production of a good occurs where:
P = MC.
If for a firm P = minimum ATC = MC, then:
both allocative efficiency and productive efficiency are being achieved.
The process by which new firms and new products replace existing dominant firms and products is called:
creative destruction.
(Last Word) When patents on new medications expire, the market for those drugs:
change from being monopolistic to being competitive.