103 terms


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.)
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
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.
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 _________
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
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
If elastic and price decreases, TR
If inelastic and price increases, TR
If inelastic and price decreases, TR
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)
In Long-Run Profit, when new firms enter it shifts the demand curve to the
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
When P < ATC, you incur a
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
The shutdown point is at the minimum point of the
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