Which statement is most relevant in the market for coffee when the price of tea a substitute for coffee increases?

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Terms in this set (142)

Which one of the following statements is most relevant if buyers and/or sellers are price takers?
a. They have no influence on market price.
b. They have ultimate control over market price.
c. Buyers will be able to find prices lower than the market price.
d. They can somewhat influence the market price.

a. They have no influence on market price.

Which of the following statements is most relevant in the market for coffee when the price of tea, a substitute for coffee, increases?
a. The demand for coffee will decrease.
b. The market price of coffee will decrease.
c. The demand for coffee will increase.
d. The quantity demanded for coffee will increase.

c. The demand for coffee will increase.

Nitrogen is an important input in the production of vegetables. If the price of nitrogen decreases, all else being equal, what is mostly likely to happen in the market for vegetables?
a. The supply of vegetables will be unaffected.
b. The supply of vegetables will decrease.
c. The supply of vegetables will increase.
d. The supply of nitrogen will increase.

c. The supply of vegetables will increase.

What happens in the market for wine when an early frost damages vineyards nationwide?
a. an increase in the demand for wine and an increase in price
b. an increase in the supply of wine and a decrease in price
c. a decrease in the demand for wine and a decrease in price
d. a decrease in the supply of wine and an increase in price

d. a decrease in the supply of wine and an increase in price

If buyers are expecting higher prices for apples in the near future, what is mostly likely to happen now in the market for apples?
a. Prices for apples will fall.
b. The demand for apples will increase.
c. The demand for apples will decrease.
d. The supply of apples will decrease.

b. The demand for apples will increase.

Which of the following statements is most relevant when there is a shortage of a good at the current price?
a. Sellers are producing more than buyers wish to buy.
b. The market must be in equilibrium.
c. The price is below the equilibrium price.
d. Quantity demanded equals quantity supplied.

c. The price is below the equilibrium price.

Which of the following will cause an increase in the price of homes and a decrease in the purchases of homes?
a. The demand curve for housing has shifted rightward.
b. The supply curve for housing has shifted rightward.
c. The demand curve for housing has shifted leftward.
d. The supply curve for housing has shifted leftward.

d. The supply curve for housing has shifted leftward.

Which of the followings best explains a supply schedule?
a. the various supply curves that are possible
b. a timetable for production
c. different combinations of resources that could be used to produce a given set of output
d. a positive or direct relationship between the price of a good and quantities supplied

d. a positive or direct relationship between the price of a good and quantities supplied

Which of these statements applies to a market that is in equilibrium?
a. The buying and selling decisions of buyers and sellers are not consistent with one another.
b. The price is below the level where quantity supplied equals quantity demanded.
c. The price is above the level where quantity supplied equals quantity demanded.
d. The price has reached the level where quantity supplied equals quantity demanded.

d. The price has reached the level where quantity supplied equals quantity demanded.

If skis and ski boots are complementary goods, which of the following is most relevant when the price of skis decreases?
a. decreased demand for skis
b. decreased demand for ski boots
c. no effect on the demand for skis
d. increased demand for ski boots

d. increased demand for ski boots

Which of the following is likely to happen when the price of a substitute good increases?
a. an increase in equilibrium price and a decrease in equilibrium quantity
b. an increase in equilibrium price and an increase in equilibrium quantity
c. a decrease in equilibrium price and a decrease in equilibrium quantity
d. an increase in equilibrium price and no change in equilibrium quantity

b. an increase in equilibrium price and an increase in equilibrium quantity

Suppose there is a shortage of parking spaces in downtown Toronto during weekdays. Which of the following ways can eliminate the shortage?
a. government lowering the price
b. increasing the quantity demanded
c. allowing the price to rise
d. decreasing the supply

c. allowing the price to rise

Because Coke and Pepsi are substitutes, what is likely to happen when the price of Coke decreases?
a. the demand for Coke increases
b. the demand for Pepsi decreases
c. the demand for Pepsi increases
d. the demand for Coke decreases

b. the demand for Pepsi decreases

Which one of the followings causes a change in quantity demanded (a movement along the demand curve)?
a. income
b. consumer tastes
c. the price of the good
d. population

c. the price of the good

All of the following EXCEPT one will shift the supply curve. Which one is the exception?
a. a change in the state of technology
b. a change in taxes
c. a change in expectations about future prices
d. a change in the price of the good

d. a change in the price of the good

Which one of the following events shifts the demand curve for apple jelly to the right?
a. a decrease in the price of strawberry preserves, a substitute for apple jelly
b. a decrease in the price of apple jelly
c. an increase in income if apple jelly is a normal good
d. an increase in the price of peanut butter, a complement of apple jelly

c. an increase in income if apple jelly is a normal good

The demand for commodity X is represented by the equation QD = 50 - 5P, and supply by the equation QS = 5P - 10.
Refer to the statement. What is the equilibrium price for X?
a. $2
b. $4
c. $6
d. $7

c. $6

T/F: A change in the quantity demanded of cigarettes results from a change in the price of cigarettes.

true

T/F: An increase in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect upon equilibrium price will be indeterminate.

true

A normal good is one for which, other things being equal, an increase in income leads to a decrease in demand.

false

An inferior good is one for which, other things being equal, a decrease in income leads to an increase in demand.

true

Shortages drive prices down; surpluses drive prices up.

false

Which of the following applies if the demand for a good is inelastic?
a. Total revenue falls if the price of the good is decreased.
b. The price elasticity of demand is greater than one.
c. The percentage change in the quantity demanded is greater than the percentage change in the price.
d. Buyers are relatively responsive to price changes of the good.

a. Total revenue falls if the price of the good is decreased.

How would you describe the income elasticity of demand for a luxury good?
a. large
b. negative
c. low
d. equal to one

a. large

Suppose that, as the price of a good falls from $4.00 to $2.00, the quantity demanded increases from 10 to 30. What is the price elasticity of demand?
a. 0.50
b. 0.67
c. 1.50
d. 2.50

c. 1.50

If the demand for a given product is inelastic, which of the following is the likely effect on the quantity demanded when the price increases by 3 percent?
a. decrease the quantity demanded by more than 3 percent
b. decrease the quantity demanded by less than 3 percent
c. increase the quantity demanded by more than 3 percent
d. increase the quantity demanded by less than 3 percent

b. decrease the quantity demanded by less than 3 percent

The price elasticity of demand for a good is -0.60. Which of the following would cause quantity demanded to increase by 12 percent?
a. a 2 percent decrease in price
b. a 20 percent decrease in price
c. a 20 percent increase in price
d. a 72 percent decrease in price

b. a 20 percent decrease in price

Which of the following situations will result in a decrease in total revenue?
a. price rises and demand is elastic
b. price rises and demand is inelastic
c. price falls and demand is elastic
d. price rises and demand is of unit elasticity

a. price rises and demand is elastic

In the short run, which of the following best describes the price elasticity of supply of spaces in the university parking lot?
a. perfectly elastic
b. perfectly inelastic
c. unit elastic
d. elastic

b. perfectly inelastic

Supply is price inelastic when which of the following situations occurs?
a. A good is normal.
b. A good is inferior.
c. A good has many substitutes.
d. A large percentage change in the price of the good causes a smaller percentage change in the quantity supplied.

d. A large percentage change in the price of the good causes a smaller percentage change in the quantity supplied.

Which of the following expressions is used to describe the relationship between the price of one good and the demand for another good?
a. the income elasticity of demand
b. the cross-price elasticity of demand
c. the price elasticity of demand
d. the complementary elasticity of demand

the cross-price elasticity of demand

Which of the following best describes the long-run supply curve?
a. less elastic than the short-run supply
b. perfectly inelastic
c. more elastic than the short-run supply
d. inelastic

c. more elastic than the short-run supply

Which of the following statements is true as the time horizon increases?
a. Demand becomes more elastic.
b. Demand becomes less elastic.
c. There is no effect on demand.
d. The elasticity will change from elastic to inelastic demand.

a. Demand becomes more elastic.

Which of the following best illustrates the demand curve that is perfectly inelastic?
a. horizontal
b. vertical
c. bowed in at a constant level
d. bowed out at a constant level

a. horizontal

Which of the following combinations helps to explain why better farming technology over the past 100 years has led to farmers leaving the industry and moving to the city?
a. increased food supply coupled with elastic food demand
b. decreased food supply coupled with elastic food demand
c. increased food supply coupled with inelastic food demand
d. decreased food supply coupled with inelastic food demand

c. increased food supply coupled with inelastic food demand

T/F: A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 20 percent decrease in quantity demanded.

True

T/F: When demand is price inelastic, price and total revenue are positively related.

True

T/F: Both the slope of a linear demand curve and the price elasticity of demand are constant.

False

T/F: The elasticity of supply may be elastic at low levels of quantities supplied and inelastic at high levels of quantities supplied because firms often have a maximum capacity for production.

True

T/F: Broadly defined markets tend to have more elastic demand than narrowly defined markets because it is easier to find close substitutes for broadly defined goods.

False

T/F: Due to one's personal preferences, a necessity good may have inelastic demand even though it would generally be seen as a luxury good in the market.

true

T/F: Because quantity demanded and income move in opposite directions, inferior goods have positive income elasticities.

false

Which of the following is an in-kind transfer?
a. social services
b. housing subsidies
c. interest on federal government bonds
d. imputed rent of privately owned housing

b. housing subsidies

Which of the following arguments do critics of welfare programs make that these programs have done?
a. discouraged people from seeking retraining
b. discouraged people from seeking work
c. decreased the poverty rate
d. made people too comfortable

b. discouraged people from seeking work

Which of the following statements is in agreement with economic mobility?
a. many of the poor are poor only for short periods of time
b. education is unrelated to poverty
c. most of the poor are elderly
d. working does not reduce one's chance of being poor

a. many of the poor are poor only for short periods of time

Poverty falls disproportionately on which of the following?
a. college graduates
b. individuals 65 and over
c. families with a male head, no wife
d. families with a female head, no husband

d. families with a female head, no husband

Which of the following is an example of the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income?
a. liberalism
b. utilitarianism
c. communism
d. libertarianism

d. libertarianism

Which of the following is an example of a system that collects revenue from high-income households and gives transfers to low-income households?
a. a progressive tax system
b. a regressive tax system
c. a negative income tax system
d. a positive income tax system

b. a regressive tax system

Which of the following arguments would opponents of the negative income tax make?
a. It subsidizes those who are just lazy.
b. It simply transfers money within income classes, while only small amounts would trickle down to the poor.
c. It helps the wealthy at the expense of the poor.
d. It reduces the marginal tax rates of the poor and thereby reduces their incentives to work.

a. It subsidizes those who are just lazy.

Which of the following programs to reduce poverty is based on need?
a. a negative income tax
b. welfare
c. minimum wage
d. programs that reduce corporate taxes in order to attract industry into a region

b. welfare

Which of the following statements is true when substantial economic mobility is present?
a. Annual income data camouflage the fact that many current high-income earners had much lower incomes a few years before.
b. Income inequalities observed at a point in time are not substantially reduced when comparisons are made over a long time period, such as a decade or a lifetime.
c. There is little movement of people between income classes.
d. There will be few self-made millionaires.

a. Annual income data camouflage the fact that many current high-income earners had much lower incomes a few years before.

Which of the following is a valid argument against redistributing income to achieve complete equality?
a. It would enhance the financial incentive of individuals to produce and perform efficiently.
b. It would destroy the social cohesiveness that exists among different income groups.
c. It would eliminate the monetary incentives to work and produce.
d. The cost of obtaining the equality would be so deflationary as to promote economic instability.

c. It would eliminate the monetary incentives to work and produce.

Which of the following does the maximin criterion suggest that the government should do?
a. maximize welfare payments up to the poverty line
b. maximize opportunities for persons below the poverty line
c. maximize subsidies for education for persons below the poverty line
d. maximize the well-being of the worst-off person in society

d. maximize the well-being of the worst-off person in society

Which of the following best describes the concept of negative income tax?
a. A family with no income would pay no tax.
b. A family with limited income would pay only partial tax.
c. A family with limited income would receive a subsidy up to a minimum income level.
d. A family with excess income would pay significantly higher tax than a low-income family.

c. A family with limited income would receive a subsidy up to a minimum income level.

Suppose individuals who are more likely to claim Employment Insurance benefits paid higher premiums. Which of the following groups would be at a higher risk?
a. construction workers only
b. seasonal workers only
c. auto workers and construction workers only
d. tourist workers only

a. construction workers only

Which of the following best describes the concept of negative income tax?
a. A family with no income would pay no tax.
b. A family with limited income would pay only partial tax.
c. A family with limited income would receive a subsidy up to a minimum income level.
d. A family with excess income would pay significantly higher tax than a low-income family.

...

T/F: Incomes vary over people's lives, not only because of predictable life cycle variation, but also because of random and transitory forces.

true

T/F: Permanent income occurs because incomes do not change over one's life cycle.

false

T/F: Libertarianism is the political philosophy according to which government should be liberal in the way it redistributes income.

false

libertarianism- the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income

T/F: A negative income tax involves a tax system whereby low-income families would pay a subsidy to the government, and higher income families would pay income taxes.

false

negative income tax- a tax system that collect revenue from high-income households and gives transfers to low-income households

T/F: Marginal tax rates for the poor are relatively low, thereby making it easy to escape poverty.

false

the poor often face effective marginal tax rates that are very high. such high effective tax rates discourage poor families from escaping poverty on their own

T/F: Liberalism is the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society.

False

Liberalism-- the political philosophy accord to which the government should choose policies deemed to be just, as evaluated by an impartial observer behind a "veil of ignorance".
Utilitarianism- the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

What is poverty rate?

The poverty rate is the percentage of the population with family income below the poverty line.

What is poverty line?

The poverty line is the level of income below which a family is considered poor. Canada does not have an official measure of the poverty line. Statistics Canada uses an annual estimate called the low-income cutoff as a measure of the poverty line in Canada.

Explain economic life cycle

This is the regular pattern of income variation over a person's life. Because people can borrow and save to smooth out life cycle changes in income, their standard of living in any year depends more on lifetime income than on that year's income. The young often borrow and repay these loans when their incomes rise. People often have their highest saving rates when they are middle-aged.

What is meant by the term "welfare trap"?

A common criticism of welfare programs is that they reduce the incentive to work. This occurs when benefits are reduced when an individual earns other income

Which of the following best describes the concept of negative income tax?
a. A family with no income would pay no tax.
b. A family with limited income would pay only partial tax.
c. A family with limited income would receive a subsidy up to a minimum income level.
d. A family with excess income would pay significantly higher tax than a low-income family.

c. A family with limited income would receive a subsidy up to a minimum income level.

Which of the following statements applies to Giffen goods?
a. The substitution effect is larger than the income effect.
b. The income effect is larger than the substitution effect.
c. The income effect and the substitution effect are the same size.
d. There is no income effect.

b. The income effect is larger than the substitution effect.

Which of the following describes the budget constraint line?
a. curved
b. straight line
c. vertical
d. U-shaped

b. straight line

Which of the following statements applies to the law of demand for an inferior good?
a. It always holds.
b. It never holds.
c. It holds only when the substitution effect is stronger than the income effect.
d. It holds only when the income effect is stronger than the substitution effect.

c. It holds only when the substitution effect is stronger than the income effect.

Which of the following does an indifference curve do?
a. measures the total amount of two goods consumers could possibly consume
b. shows all combinations of two goods that give a consumer the same total utility
c. shows the amounts of two goods that an individual could purchase with a fixed amount of income
d. illustrates the negative relationship between price and quantity consumed

b. shows all combinations of two goods that give a consumer the same total utility

Which of the following statements is valid with respect to the intersection of indifference curves?
a. The total satisfaction of two bundles is equal.
b. The marginal rates of substitution for two indifference curves are equal.
c. Consumers are satiated by a particular good.
d. Indifference curves for an individual consumer never cross.

d. Indifference curves for an individual consumer never cross.

Which of the following characteristics does a normal good display?
a. an upward-sloping demand curve
b. a downward-sloping demand curve
c. a vertical demand curve
d. a horizontal demand curve

b. a downward-sloping demand curve

What does the marginal rate of substitution measure?
a. the slope of the indifference curve
b. the slope of the budget line
c. the slope of the demand curve
d. the slope of the supply curve

a. the slope of the indifference curve

At which of the following points does the consumer optimum occur?
a. at any point of intersection between the budget line and an indifference curve
b. at a point of tangency between the budget line and an indifference curve
c. at the point where the slope of the indifference curve equals the ratio of the quantities
d. at a point where the budget line cuts the curve from below

b. at a point of tangency between the budget line and an indifference curve

Which of the following best explains every point that lies to the right of the consumer's budget constraint?
a. undesirable
b. inefficient, given current income
c. unattainable, given current income
d. inferior in terms of utility to points within the constraint

c. unattainable, given current income

Which of the following does the slope of the budget constraint line equal?
a. the ratio of marginal utilities
b. the ratio of money income to the price of the good on the horizontal axis
c. the ratio of money income to the price of the good on the vertical axis
d. the relative price of the two goods—the price of one good compared with the price of the other

d. the relative price of the two goods—the price of one good compared with the price of the other

Which of the following properties of indifference curves is correct?
a. Indifference curves are upward sloping.
b. Indifference curves intersect.
c. Indifference curves are bowed outward.
d. Indifference curves are bowed inward.

d. Indifference curves are bowed inward.

Phil earns a pretty good income and decides he is going to save 10% of each paycheque. If we look at Phil's indifference curve for any two products, which of the following can we show?
a. He is consuming at a point inside his indifference curve.
b. He is consuming at a point outside his indifference curve.
c. His indifference curve extends out 10% to show his savings rate.
d. His budget line moves inward to show a 10% savings.

a. He is consuming at a point inside his indifference curve.

Which of the following reasons would make it possible to have a backward-sloping labour supply curve?
a. At full employment there are no further workers available.
b. When we are young we are generally more likely to work longer hours and have more jobs because we consume more.
c. When we are old we generally value our time more than our dollars.
d. There are some industries that only employ people on a seasonal basis.

c. When we are old we generally value our time more than our dollars.

T/F: Indifference curves can intersect because individuals will make different choices.

False

indifference curve never cross

T/F: Perfect substitutes are two goods whose indifference curves are at right angles.

False

perfect substitutes- are straight diagonal lines
perfect complements- are right angles

T/F: Two goods are perfect complements when their indifference curves are straight lines.

False

perfect substitutes- are straight diagonal lines
perfect complements- are right angles

T/F: The consumer's budget constraint shows the various bundles of goods that the consumer can afford for a given income level.

True

T/F: A Giffen good is one for which an increase in price raises the quantity demanded.

True

T/F: The substitution effect is the change in consumption that arises because a lower price makes the consumer better off.

False

Substitution effect- the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

T/F: The substitution effect is the change in consumption that results when price change moves the consumer along a given indifference curve to a point with new marginal rate of substitution.

True

T/F: Income effect is the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

True

T/F: If someone offered you two $5 bills or one $10 bill, you would have a perfect complementary indifference curve.

False

You would have a perfect substitute indifference curve because most likely, you would care only about the total monetary value of each bundle. You would be willing to trade either or.

What are the properties of indifference curves?

- higher indifference curves are preferred to lower ones because it represent larger quantities of goods than lower curves.
- most indifference curves are downward sloping, the slope reflecting the rate at which the consumer is willing to substitute one good for the other.
- they never cross because each point on the same indifference curves gives the consumer the same amount of satisfaction.
- indifference curves are bowed inward since the slope is the marginal rate of substitution (MRS) which is the rate at which the consumer is willing to trade off one good for the other.
- MRS depends on the amount of each good the consumer is currently consuming.

Why do indifference curve never cross?

they never cross because each point on the same indifference curves gives the consumer the same amount of satisfaction

What makes indifference curves bow inward?

Indifference curves are bowed inward since the slope is the marginal rate of substitution (MRS), which is the rate at which the consumer is willing to trade off one good for the other. Consumer will trade away good that they have in abundance and are less willing to trade aways good of with they have little.

What is the consumer's optimum?

This is the point on the consumer's budget constraint that lies on the highest indifference curve. At this point, the marginal rate of substitution equals the relative price of the two goods. The consumer would want to be on a higher indifference curve but is constrained by the prices of the goods and the level of the consumer's income.

Explain how an increase in income affects the consumer budget constraint.

When the consumer's income increases, the budget constraint shifts out.
If both goods are normal goods, the consumer responds to the increase in income by buying more of both of them.

Contrast the income effect with the substitution effect.

- The income effect is the change in consumption that results when the price of a good changes and moves the consumer to a higher or lower indifference curve.
- The substitution effect is the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution.
- The consumer substitutes different amounts of the two goods, one for the other.

Indifference curve

An indifference curve shows the consumption bundles that give the consumer the same level of satisfaction. Each indifference curve shows the combinations of two goods that make the consumer equally satisfied. Because a consumer prefers more of a good, points on a higher indifference curve are preferred to points on a lower indifference curve.

Marginal rate of substitution

The marginal rate of substitution shows the rate at which the consumer is willing to trade one good for another. It is the slope of the indifference curve.

Which of the following statements is relevant in the long run?
a. All costs can vary.
b. There are both fixed costs and variable costs.
c. There are only fixed costs.
d. Firms cannot respond to price signals.

a. All costs can vary.

Which of the following is an example of explicit costs?
a. payments made to labour only
b. payments made by the firm to others
c. opportunity cost of resources owned by the firm
d. same as accounting profit

b. payments made by the firm to others

Which of the following is an example of implicit costs?
a. payments made to labour only
b. payments made by the firm to others
c. opportunity cost of resources owned by the firm
d. same as accounting profit

c. opportunity cost of resources owned by the firm

Which of the following would be subtracted from a firm's revenue to measure economic profit?
a. variable costs
b. fixed costs
c. explicit costs
d. opportunity costs

d. opportunity costs

A firm has $300 million in revenues and explicit costs of $100 million. Its owners have invested $100 million in the company. This could have been invested at 10 percent per year. What is the firm's economic profit?
a. $0 million
b. $190 million
c. $200 million
d. $400 million

b. $190 million

Profit= revenue - opportunity cost
= $300 million - (100 million x10%)

Which one of the following is/are a variable cost(s) in the short run?
a. raw materials, energy costs, and hourly labour
b. a new wing on the plant
c. purchase of new equipment
d. launch of a new product line

a. raw materials, energy costs, and hourly labour

variable cost- the cost that varies with the level of output

Which of the following statements best characterizes fixed costs?
a. They are always associated with capital.
b. They are costs that do not vary with output in the long run.
c. They are costs that do not vary with output.
d. They decline as output expands.

c. They are costs that do not vary with output. (ei. rent of the factory)

Which of the following statements best defines marginal cost?
a. the cost the firm pays in the margin of its accounts
b. the change in total cost that comes from a change in output
c. total cost divided by output
d. the quantity of output that minimizes average total cost

b. the change in total cost that comes from a change in output

Which of the following best explains economies of scale?
a. Average fixed cost declines in the short run.
b. Marginal product rises in the short run.
c. Marginal cost rises in the short run.
d. Average cost declines in the long run.

d. Average cost declines in the long run.

Because no money flows out of the business to pay for opportunity costs, they never show up on the financial statements. Therefore, which of these statements follows?
a. This must be an economist's analysis of the business.
b. This must be an accountant's analysis of the business.
c. The business must have only profits as there are no costs.
d. The business does not owe any taxes to the Canada Revenue Agency.

a. This must be an economist's analysis of the business.

As production increases, how does a unit's share of fixed costs change?
a. continually rises as output increases
b. continually decreases as output increases
c. remains constant as output increases
d. becomes negligible once variable costs are covered

b. continually decreases as output increases

T/F: Marginal cost equals average total cost when average total cost is at a minimum.

True

T/F: Diminishing marginal product occurs when the average product of an input declines as the quantity of the input increases.

False

Diminishing marginal product- the property whereby the marginal product of an input declines as the quantity of the input increase

T/F: The quantity of output that minimizes the average variable cost is called the efficient scale of the firm.

False

efficient scale- the quantity of output that minimizes average total cost (not variable cost)

T/F: Marginal cost is the increase in total cost that arises from an extra unit of production.

True

T/F: Diseconomies of scale arise when the long-run average total cost falls as the quantity of output increases.

False

diseconomies of scale- the property whereby long-run average total cost rises (not, falls) as the quantity of output increases

T/F: The marginal product is essentially the additional unit of output per unit of input.

True

T/F: The wonderful thing about labour is that the more people you hire, the more units you can make.

False

less unit of output because the factory would become crowded and workers can't work properly

Describe the relationship between diminishing marginal product and marginal cost.

- When marginal product is increasing, then marginal cost will fall.
- When marginal product reaches its maximum, then marginal cost will be at its minimum.
- When marginal product falls, then marginal cost will rise.
- When marginal product reaches its minimum, then marginal cost will be at its maximum.

What is the difference between accounting profit and economic profit?

Accounting profit is total revenue minus total explicit cost, whereas economic profit is total revenue minus total cost, including both explicit and implicit costs.

Which of the following best describes producer surplus?
a. the area above the supply curve and below the market price
b. the area below the supply curve and above the market price
c. the area lying above the market price, as bounded by the supply curve
d. the area below the supply curve and above the market price

a. the area above the supply curve and below the market price

Which of the following best describes the difference between what a consumer would willingly have paid for a unit of a product and the amount actually paid?
a. income effect
b. substitution effect
c. consumer surplus
d. price effect

c. consumer surplus

Which of the following is the circumstance under which markets will allocate resources efficiently?
a. There are many buyers and sellers.
b. There are few buyers and sellers.
c. There are externalities.
d. It can only be achieved with government intervention.

a. There are many buyers and sellers.

What happens to consumer surplus when the price falls in the free market?
a. falls
b. remains constant
c. first falls and then rises
d. rises

d. rises

free market is a system in which the price for goods and services are set freely by consent between consumer and vendors.

Which of the following best explains the height of the supply curve?
a. sellers' revenues
b. sellers' costs
c. sellers' profits
d. sellers' incomes

b. sellers' costs

Which of the following is likely to occur if efficiency is exhibited?
a. Resource allocation maximizes the total surplus received by all members of society.
b. Resources are allocated fairly among members of society.
c. The market is not in equilibrium.
d. Consumer surplus is minimized.

a. Resource allocation maximizes the total surplus received by all members of society.

What is your gain if you were willing to pay $3.05 for milk at the market but were charged only $2.05?
a. a refund of $1.00 from the clerk
b. windfall profits
c. a producer surplus of $1.00
d. a consumer surplus of $1.00

d. a consumer surplus of $1.00

Which of the following can be expected if the market price of a product rises?
a. Consumer surplus will rise.
b. Producer surplus will rise.
c. Producer surplus will fall.
d. Producer surplus will remain constant.

b. Producer surplus will rise.

Free markets allocate the supply of goods to ________ .
a. the sellers who value them most highly.
b. the buyers who value them most highly.
c. the sellers who can produce them at the least cost.
d. the buyers who value them least highly.

b. the buyers who value them most highly.

Free markets allocate the demand for goods to ________ .
a. the buyers who value them most highly.
b. the sellers who value them most highly.
c. the buyers who value them least highly.
d. the sellers who can produce them at least cost.

d. the sellers who can produce them at least cost.

Which of the following is the statement economists would argue regarding legalized ticket scalping?
a. It would increase the audience for cultural and sports events.
b. It is a victimless crime.
c. It provides greater tax revenues for government.
d. It ultimately drives the price of tickets down.

b. It is a victimless crime.

Which of the following is the likely effect of moving production from a low-cost producer to a high-cost producer?
a. increased producer surplus
b. increased total surplus
c. decreased producer surplus but increased consumer surplus
d. decreased total surplus

d. decreased total surplus

Which of the following is the idea that Adam Smith is best known for?
a. the role of government in a free economy
b. the concept of the "invisible hand"
c. the role of monopolies
d. the theory of supply and demand

b. the concept of the "invisible hand"

T/F: Total surplus is the sum of consumer and producer surplus, which is the area between the supply and the demand curves up to the equilibrium quantity.

True

T/F: Free markets will NOT produce the quantity of goods that maximizes the sum of consumer and producer surplus.

False

T/F: Market failure occurs when some unregulated markets do not allocate resources efficiently.

True

T/F: Market power and externalities are examples of market failure.

True

T/F: The height of the demand curve reflects the willingness of sellers to produce a good or service.

False

it reflect the willingness of buyers to buy the good or service

T/F: John had $1000 to purchase a new computer. He found one that cost $800 and met all his needs; however, he decided not to purchase it today. John's consumer surplus is $200.

False

Since he did not purchases the item, there is no consumer surplus

T/F: Equity is related to the size of the economic pie; whereas efficiency is related to how the pie gets sliced and distributed.

False

Equity- the fairness of the distribution of well-being among the members of society

What does consumer surplus measures?

Consumer surplus measures a buyer's willingness to pay, minus the amount the buyer actually pays.

What is producer surplus?

Producer surplus is the amount a seller is paid for a good, minus the seller's costs. The area below the price and above the supply curve measures producer surplus.

Why might consumer surplus NOT be a good measure of economic well-being in some markets?

Consumer surplus may not be a good measure of economic well-being in some markets because it is based on the assumptions that consumers are rational when they make decisions and that their preferences should be respected. This may not be true of consumers of cigarettes and other addictive products.

How does a higher price affect consumer and producer surplus?

A higher price raises producer surplus and lowers consumer surplus.

Explain why the market equilibrium maximizes the sum of producer and consumer surplus.

At quantities less than the equilibrium quantity, the value to the buyers exceeds the cost to the sellers. At the same time, at quantities greater than the equilibrium quantity, the cost to the sellers exceeds the value to the buyers. Therefore, the market equilibrium maximizes the sum of producer and consumer surplus.

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