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48 terms

Econ Final Exam

STUDY
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Economics
the study of how people choose to allocate scarce resources
In economics, the cost of something is
what you give up to get it
A rational decision maker
takes an action only if the marginal benefit is greater than the marginal cost
The gains from trade
are a result of more efficient resource allocation
If a good is normal
then an increase in income will result in an increase in the demand for the good
An example of an inferior good might be
Ramen noodles
If the price of a substitute to good x increases
then the demand for good X will increase
Two goods are complements
if a decrease in the price of one good raises the demand for the other good
What would not shift the demand curve for a good or service?
A change in the price of the good or service
A leftward shift in supply is
a decrease in supply
A decrease in resource costs to firms in a market will result in
a decrease in equilibrium price and an increase in equilibrium quantity
An early frost in the vineyards of Napa Valley would cause
a decrease in in the supply of wine, increasing price
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
Price will fall and the effect on quantity is ambiguous
Beef is a normal good. You observe that both the equilibrium price & quantity of beef has fallen over time. What is consistent with this observation?
consumer tastes have changed so as to prefer beef less than before
Demand for a good would tend to be more inelastic
the fewer the available substitutes
Suppose the price of Twinkies is reduced from $1.45 to $1.25 and as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price of demand for Twinkies in the given price range is
.64
If the price elasticity of demand for a good is 4.0, then a 10% increase in price would result in
a 40% decrease in quantity demanded
When demand is inelastic a decrease in price will cause
a decrease in total revenue
An example of an implicit cost of production would be
the income an entrepreneur could have earned working for someone else.
Accounting profit is equal to
total revenue minus the explicit cost
Economic profit
will never exceed accounting profit
Economists normally assume that the goal of a firm is
to maximize its profit
The marginal product of labor can be defined as
a change in output/change in labor
When adding another unit of labor lead to an increase in output that is smaller than increases in output that resulted from adding previous units of laor
we have the property of diminishing marginal product
Which of these assumptions is often realistic for a firm in the short run?
The firm can vary the number of workers it employs but not the size of its factory
If marginal cost is rising
marginal product must be falling
When marginal cost is less than average total cost
average total cost is falling
In the long run inputs that were fixed in the short run
become variable
Economies of scale occur when
minimum average total costs fall as the scale of output increases.
In a competitive market
no single producer can influence the market price because many other sellers are offering a product that is essentially identical.
When a profit-maximizing firm in a competitive market has zero economic profit
accounting profit is positive
The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit
by choosing the quantity at which market price is equal to the farm's marginal cost of production
The short-run supply curve for a firm in a perfectly competitive market
is its marginal cost curve (above the average variable cost)
When profit maximizing firms in perfectly competitive markets are earning profits
new firms will enter the market
The fundamental cause of monopoly is
barriers to entry
The practice of selling the same goods to different customers at different prices is known as
price discrimination
The prisoner's dilemma
provides insights into the difficulty of maintaining cooperation
The likely outcome of the prisoners' dilemma
is that both prisoners confess
In a two-person repeated game, a tit-for-tat strategy starts with cooperation and then
each player mimics the other player's last move
Consumer surplus
measures the amount of a product a consumer can buy at a price below equilibrium price
We can say that the allocation of resources is efficient
if total surplus is maximized
The minimum wage is an example of
a price floor
A newly imposed minimum wage set above the equilibrium wage in a labor market will cause
some workers to get a raise and some workers to lose their job
Internalizing an externality refers to
making buyers and sellers take into account the external effects of their actions
A positive externality will cause
a private market to produce less than is socially desirable
A tax imposed on a market with an inelastic demand and an elastic supply will cause
buyers to pay the majority of the tax
Correct statement about tax burdens
A tax burden falls most heavily on the side of the market that is inelastic
The amount of deadweight loss from taxes depends on
the price elasticity of demand and supply