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In economics, the pleasure, happiness, or satisfaction received from a product is called:
In economics, the pleasure, happiness, or satisfaction received from a product is called:
When economists say that people act rationally in their self interest, they mean that individuals:
look for and pursue opportunities to increase their utility
According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because:
productive resources are limited.
Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:
Economics may best be defined as the:
social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
The study of economics is primarily concerned with:
choices that are made in seeking the best use of resources.
The economic perspective entails:
a comparison of marginal benefits and marginal costs in decision making.
Economics involves marginal analysis because:
most decisions involve changes from the present situation.
Marginal costs exist because:
the decision to engage in one activity means forgoing some other activity.
The assertion that "There is no free lunch" means that:
all production involves the use of scarce resources and thus the sacrifice of alternative goods.
Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:
If someone produced too much of a good, this would suggest that:
the good was produced to the point where its marginal cost exceeded its marginal benefit.
Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:
implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.
In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:
scarcity and opportunity costs.
Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $2 to spend?
Janice will purchase 3 with her original $5.00 of income.
Janice will purchase 2 when her income is $2.00.
Potatoes cost Janice $1.25 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $3.00 to spend?
Janice will purchase 1 with her original $5.00 of income.
Janice will purchase 1 when her income is $3.00.
Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?
Refer to the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases.
Will the MC curve shift up or down? MC will shift down.
Will the optimal amount of pizza increase or decrease? The optimal amount of pizza will increase.
On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates.
Instructions: Refer to the diagram on the left.
Which point best represents the combination of present and future goods in the U.S.? A
Which dashed production possibilities curve best represents future growth in the U.S.? PPC2
Instructions: Refer to the diagram on the right.
Which point best represents the combination of present and future goods in China? B
Which dashed production possibilities curve best represents future growth in China? PPC3
Which of the following is a distinguishing feature of a market system?
wide-spread private ownership of capital.
An economic system:
is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
The term laissez-faire suggests that:
government should not interfere with the operation of the economy.
Economic systems differ according to which two main characteristics?
Who owns the factors of production, and the methods used to coordinate economic activity.
A fundamental difference between the command system and the market system is that, in command systems:
the division of output is decided by central planning rather than by individuals operating freely through markets.
Which of the following is not a characteristic of the market system?
government ownership of major industries.
Property rights are important because they:
encourage cooperation by improving the chances of mutually agreeable transactions.
encourages owners to maintain or improve their property, so as to preserve or enhance value.
Broadly defined, competition involves:
independently acting buyers and sellers and freedom to enter or leave markets.
Markets, viewed from the perspective of the supply and demand model:
assume many buyers and many sellers of a standardized product.
The law of demand states that, other things equal:
price and quantity demanded are inversely related.
Economists use the term "demand" to refer to:
a schedule of various combinations of market prices and amounts demanded.
The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____.
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:
In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:
the price of the product itself.
An increase in the price of a product will reduce the amount of it purchased because:
consumers will substitute other products for the one whose price has risen.
When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:
the substitution effect.
When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:
the income effect.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:
One reason that the quantity demanded of a good increases when its price falls is that the:
lower price increases the real incomes of buyers, enabling them to buy more.
When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?
the substitution effect
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:
the income effect.
A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:
beer and marijuana are complementary goods.
The basic formula for the price elasticity of demand coefficient is:
percentage change in quantity demanded/percentage change in price.
The demand for a product is inelastic with respect to price if:
consumers are largely unresponsive to a per unit price change.
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
increase the quantity demanded by about 25 percent.
Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
Which of the following is not characteristic of the demand for a commodity that is elastic?
The elasticity coefficient is less than one.
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
decrease the quantity of X demanded by less than 4 percent.
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.
The larger the coefficient of price elasticity of demand for a product, the:
smaller the resulting price change for an increase in supply.
Most demand curves are relatively elastic in the upper-left portion because the original price:
from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.
The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:
20 percent reduction in price.
Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
demand will become less price elastic.
The price elasticity of demand of a straight-line demand curve is:
elastic in high-price ranges and inelastic in low-price ranges.
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
more inelastic the demand for the product.
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
increase the amount demanded by more than 10 percent.
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range:
The above diagram shows two product demand curves. On the basis of this diagram we can say that:
over range P1P2 price elasticity of demand is greater for D1 than for D2.
Market failure is said to occur whenever:
private markets do not allocate resources in the most economically desirable way.
Which of the following is an example of market failure?
Demand-side market failures occur when:
the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:
demand-side market failure
Supply-side market failures occur when:
the demand and supply curves don't reflect the full cost of producing a good or service.
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:
costs more to produce than it provides in benefits.
The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?
Supply-side market failure
What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?
The benefit surpluses shared between consumers and producers will be maximized.
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.
Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:
a consumer surplus of $9 and Nathan experiences a producer surplus of $3.
Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:
a consumer surplus of $10 and Tony experiences a producer surplus of $190.
Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:
under the demand curve and above the actual price.
Refer to the above diagram. Assuming equilibrium price P1, producer surplus is represented by areas:
c + d
Refer to the above diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is:
a + b + c + d.
Refer to the above diagram. If actual production and consumption occur at Q1:
an efficiency loss (or deadweight loss) of b + d occurs.
Refer to the above diagram. If actual production and consumption occur at Q2:
efficiency is achieved.
Refer to the above diagram. If actual production and consumption occur at Q3:
an efficiency loss (or deadweight loss) of e + f occurs.
Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:
The law of diminishing marginal utility states that:
beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
8 units of utility.
If the price of product X rises, then the resulting decline in the amount purchased will:
increase the marginal utility of the last unit consumed of this good.
Economic cost can best be defined as:
payments that must be received by resource owners to insure the resources' continued supply.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
use of savings to pay operating expenses instead of generating interest income
Which of the following is most likely to be an implicit cost for Company X?
forgone rent from the building owned and used by Company X
What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
All are opportunity costs.
Implicit and explicit costs are different in that:
the former refer to non-expenditure costs and the latter to monetary payments.
Accounting profits are typically:
greater than economic profits because the former do not take implicit costs into account.
Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:
Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000:
it would earn a normal profit but not an economic profit.
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?
Economists use the term imperfect competition to describe:
those markets which are not purely competitive.
In which of the following industry structures is the entry of new firms the most difficult?
An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:
An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of:
An industry comprised of a very large number of sellers producing a standardized product is known as:
An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called:
Which of the following statements applies to a purely competitive producer?
It will not advertise its product.
Which of the following is not a basic characteristic of pure competition?
considerable nonprice competition
The demand schedule or curve confronted by the individual purely competitive firm is:
Which of the following is characteristic of a purely competitive seller's demand curve?
Price and marginal revenue are equal at all levels of output.
Refer to the above information. For a purely competitive firm, total revenue graphs as a:
straight, upsloping line.
Refer to the above information. For a purely competitive firm, marginal revenue graphs as a:
straight line, parallel to the horizontal axis.
Refer to the above information. For a purely competitive firm:
the demand and marginal revenue curves will coincide.
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
will also be $5.
Price is constant or given to the individual firm selling in a purely competitive market because:
each seller supplies a negligible fraction of total supply.
Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run, but not in the short run.
The primary force encouraging the entry of new firms into a purely competitive industry is:
economic profits earned by firms already in the industry.
In a purely competitive industry:
there may be economic profits in the short run, but not in the long run.
Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:
should continue producing in the short run, but leave the industry in the long run if the situation persists.
Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
new firms will enter this market.
Which of the following statements is correct?
Economic profits induce firms to enter an industry; losses encourage firms to leave.
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.
Which of the following statements is correct?
The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.
A constant-cost industry is one in which:
if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
Which of the following will not hold true for a competitive firm in long-run equilibrium?
P equals AFC
Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed product price will be:
higher and total output will be larger than originally.
Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will:
leave the industry and price and output will both decline.
Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?
The diagrams portray short-run equilibrium, but not long-run equilibrium.
Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect:
firms to leave the industry, market supply to fall, and product price to rise.
Refer to the above diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by:
a technological improvement in production methods.
Pure monopoly refers to:
a single firm producing a product for which there are no close substitutes.
Which of the following is correct?
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
A natural monopoly occurs when:
long-run average costs decline continuously through the range of demand.
Large minimum efficient scale of plant combined with limited market demand may lead to:
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
The nondiscriminating monopolist's demand curve:
is less elastic than a purely competitive firm's demand curve.
If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
will be less than $35.
For an imperfectly competitive firm:
the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
When a firm is on the inelastic segment of its demand curve, it can:
increase profits by increasing price.
Refer to the above diagram. If price is reduced from P1 to P2, total revenue will:
increase by C minus A.
Refer to the above diagram. The quantitative difference between areas A and C for reducing the price from P1 to P2 measures:
Refer to the above data. At the point where 3 units are being sold, the coefficient of price elasticity of demand:
is greater than unity (one).
Under monopolistic competition entry to the industry is:
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
Monopolistic competition resembles pure competition because:
barriers to entry are either weak or nonexistent.
Which of the following is not a basic characteristic of monopolistic competition?
recognized mutual interdependence
Nonprice competition refers to:
advertising, product promotion, and changes in the real or perceived characteristics of a product.
The restaurant, legal assistance, and clothing industries are each illustrations of:
If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes:
the industry would more closely approximate pure competition.
Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:
of product differentiation and consequent product promotion activities.
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:
A significant difference between a monopolistically competitive firm and a purely competitive firm is that the:
former sells similar, although not identical, products.
A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:
a relatively large number of firms and the monopolistic element from product differentiation.
Monopolistically competitive and purely competitive industries are similar in that:
there are few, if any, barriers to entry.
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?
The monopolistically competitive seller's demand curve will become more elastic the:
larger the number of competitors.
The larger the number of firms and the smaller the degree of product differentiation the:
more elastic is the monopolistically competitive firm's demand curve.
The demand curve of a monopolistically competitive producer is:
more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
A monopolistically competitive firm's marginal revenue curve:
is downsloping and lies below the demand curve.
Resource pricing is important because:
resource prices are a major determinant of money incomes.
resource prices allocate scarce resources among alternative uses.
resource prices, along with resource productivity, are important to firms in minimizing their costs.
Which of the following statements best illustrates the concept of derived demand?
A decline in the demand for shoes will cause the demand for leather to decline.
When economists say that the demand for labor is a derived demand, they mean that it is:
related to the demand for the product or service labor is producing.
The demand for airline pilots results from the demand for air travel. This fact is an example of:
the derived demand for labor.
We say that the demand for labor is a derived demand because:
we demand the product that labor helps produce rather than labor service per se.
The demand for a resource depends primarily on:
the demand for the product or service that it helps produce.
In the United States professional football players earn much higher incomes than professional soccer players. This occurs because:
consumers have a greater demand for football games than for soccer games.
Marginal revenue product measures the:
amount by which the extra production of one more worker increases a firm's total revenue.
The purely competitive employer of resource A will maximize the profits from A by equating the:
price of A with the MRP of A.
The labor demand curve of a purely competitive seller:
slopes downward because of diminishing marginal productivity.
Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is:
If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:
marginal revenue product of the second worker is $20.
A firm will find it profitable to hire workers up to the point at which their:
marginal resource cost is equal to their MRP.
Refer to the above information. Harry should:
hire the second barber because he will add $28 to profits.
Real wages in the United States in the long run:
have increased at about the same rate as increases in output per worker.
If the nominal wages of carpenters rose by 5 percent in 2010 and the price level increased by 3 percent, then the real wages of carpenters:
increased by 2 percent.
Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of:
output per worker.
Real wages in the United States are:
relatively high, but not as high as in some other industrially advanced nations.
According to international comparisons, which nation had the highest hourly wages in U.S. dollar terms in 2007?
The productivity and real wages of workers in industrially advanced economies have risen historically partly because:
workers have been able to use larger quantities of capital equipment.
If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the real wage will:
fall by 3 percent.
If the nominal wage rises by 6 percent, and the price level falls by 2 percent, the real wage will:
rise by 8 percent.
Long-run real wages in the United States have:
risen, because growth in the demand for labor has exceeded growth in the supply of labor.
Marginal revenue product (MRP) of labor refers to the:
increase in total revenue resulting from the hire of one more unit of labor.
Marginal resource cost refers to the:
amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
If a firm is hiring a certain type of labor under purely competitive conditions:
the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.
The market supply curve for labor is upsloping because:
of the opportunity cost of labor in housekeeping, leisure, or alternative employments.
A firm operating in a purely competitive resource market faces a resource supply curve that is:
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