Test Answers on Quizes – Flashcard

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Economics is a social science rather than a "hard" science like physics because

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Economists study human behavior, which is affected by an unpredictable and vast range of influences.

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Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can'' carry a tune, then it would be most efficient if

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Tammy specialized in singing and Bob in plowing

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Which of the following statements is correct?

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A theory may result from a tested and confirmed hypothesis

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Economists make assumptions because

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Analysis without assumptions would be impossibly complex

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During a war, a government will often draft people, most of who are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?

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The value of civilian goods no longer produced by the new soldiers

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Abstraction can be thought of as

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Omitting unimportant details in order to understand complex phenomenon

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Tools used by economists include

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All of the above are correct

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During one winter quarter at Frozen University, snow falls every Friday night. Students assume that, on their campus, Fridays cause snow. This hypothesis

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Assumes that correlation implies causation

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Economists use models in order to

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Economists use models in order to

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"The hotter it gets, the more water people drink." This statement implies the relationship between temperature and water consumption must have a

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Positive slope

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In a mixed economy

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there is some government influence over the workings of the free market.

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Comparing the United States to other economies, the United States is one of the ____ economy in the world.

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most privatized

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In the United States, the smallest percentage of workers

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Work in agriculture and farming

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The largest single source of tax revenue for the federal government is the

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personal income tax

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How does the United States compare to other advanced, industrialized economies on the issue of openness?

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It is one of the less open of them.

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Most American workers

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are employed in the service-producing sector.

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From which country does the U.S. import most of its goods and services?

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Canada

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The statement "resources employed in producing X are better suited to making Y is another way of saying resources

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are specialized

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Workers in Adam Smith's famous pin factory example, who were proficient in pin production, then faced the problem of

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having to exchange pins for other goods and services.

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The most important way in which inefficiency occurs is

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unemployment of labor and other resources.

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Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of ten monitors?

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the other goods that could be produced with the resources that produce the ten monitors.

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One popular definition of economics is the study of

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how to use limited means to meet unlimited wants.

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Scarcity is a concept which applies to all of the following EXCEPT

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human wants

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When an economy is operating efficiently, it is operating

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on the PPF

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The economic problem of scarcity

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requires that choices be made among alternatives

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According to the law of comparative advantage, a doctor who is also a talented auto mechanic should

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hire a professional mechanic to repair her car

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A PPF curve always slopes down and to the right (has a negative slope) because resources

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are limited

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For a given PPF, which points are attainable?

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points inside or on the frontier.

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The fact that resources tend to be specialized is the reason the PPF is drawn

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bowed outward

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If price rises, what happens to supply for a product?

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It does not change.

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If price rises, what happens to demand for a product?

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It does not change

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The price for labor is the wage rate. What happens to the supply of labor if wages increase?

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It does not change.

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The demand curve for a good connects points describing how much consumers

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would have been willing and able to buy at different prices during a particular period

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An upward-sloping supply curve shows that

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suppliers are willing to increase production of their goods if they can receive higher prices for them.

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A shift in the supply curve of bicycles resulting from higher steel prices will lead to

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higher prices of bicycles.

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Ticket "scalping" is an example of

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the development of a black market

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Which of the following would be most likely to cause an outward shift of the demand curve for electricity?

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an increase in the price of heating oil

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The demand curve for a typical good has

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a negative slope because some consumers switch to other goods as the price of the good rises.

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An important assumption that is made when constructing a demand schedule is that

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all other determinants of demand are held constant

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Which of the following is not a symptom associated with a price floor?

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Excess of quantity demanded over quantity supplied

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The supply curve shows

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the quantity produced as a function of the price.

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Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen,

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a larger quantity of cookies will be demanded

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Which of the following is the correct way to describe equilibrium in a market?

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At equilibrium, quantity demanded equals quantity supplied.

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For most goods and most people, marginal utility probably

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declines as consumption increases.

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Market demand curves are found by

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horizontally summing individual demand curves.

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Consumer's surplus is a measure of how much

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more utility a consumer receives from his purchases than he has to pay for them.

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An inferior good is one

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whose quantity demanded falls when the purchaser's income rises.

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The theory of consumer choice is based on the hypothesis that each consumer wants to

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maximize her total utility.

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If the marginal utility to Juan of sleeping an extra hour (from 8 a.m. to 9 a.m.) is negative,

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Juan is better off getting up at 8 a.m.

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The optimal purchase rule is stated as

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MU = P

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A bottle of wine costs $8 and a quiche, $5. At Robert's present levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should

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buy more wine and less quiche

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Total utility can be thought of as the Selected Answer: a. total satisfaction derived from a bundle of goods. Correct Answer: a. total satisfaction derived from a bundle of goods.

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total satisfaction derived from a bundle of goods.

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Which of the following factors is always present in consumer decision making?

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scarcity

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A good will tend to be more price elastic if it

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is a luxury good.

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A price cut will decrease the revenue a firm receives if the demand for its product is

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inelastic

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Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish is

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positive

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Tele-Com, Inc., the nation's largest cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. This means the

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demand for the Disney Channel is elastic in this price range.

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A demand curve is described as perfectly inelastic if

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the same quantity is purchased regardless of price.

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The demand for a new effective drug for the cure of AIDS would most likely be

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highly inelastic

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At $6 per steak, consumers are willing to buy two steaks. At a price of $2, consumers are willing to buy six steaks. The elasticity of the market demand curve between P = $6 and P = $2 (dropping all minus signs) is

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1

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Price elasticity of demand is defined as

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percentage change in quantity demanded divided by percentage change in price.

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The price elasticity of a vertical demand curve is always

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zero

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The optimal level of resource use comes when

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MRP equals input price

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Economies of scale is another term for

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increasing returns to scale.

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At a given level of wheat output, one more unit of labor would produce 10 extra bushels, and one more unit of seed would produce 30 extra bushels. A unit of labor costs $6, and a unit of seed costs $12. The farmer should

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buy more seed and less labor

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A factory produces 1,000 radios a year, AVC = $10 and TFC = $5,000. The factory's TC

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equals $15,000

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A total product curve shows the

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relationship between units of inputs and total product or total output

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Which of the following equations defines marginal revenue product?

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MRP = MPP times price of the product.

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Average cost curves have the same shape as

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marginal cost curves.

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If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing

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increasing returns to scale

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The "law" of diminishing returns

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is based on regular observations of input-output relationships over the last two centuries.

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Where marginal cost is less than average cost,

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marginal cost may be rising, falling, or constant.

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When economies of scale exist,

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production costs per unit decline as output expands.

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Total fixed cost

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is constant at all levels of output.

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Average cost curves decline because

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fixed cost is spread out over larger amounts of production

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The marginal revenue product of an hour of labor used in steel production is equal to

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its marginal physical product times the price of steel

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Which of the following is a fixed cost to farmer McDonald?

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insurance

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In the typical AC curve, the downward-sloping part is attributable to

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spreading fixed costs over larger outputs and increasing returns to the variable inputs.

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Which of the following is a fixed cost?

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mortgage on the building

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Marginal cost is the

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change in total cost resulting from the production of one more unit of output.

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One reason why critics argue that large firms should not be broken up is that in some cases

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many smaller firms would be less-efficient producers

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If a firm has a U-shaped long-run average cost curve

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it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.

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Which of the following is a variable cost for an airline?

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jet fuel

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A roller coaster operator produces thrill-packed rides using electricity and a roller coaster. For the roller coaster operator, electricity is

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a variable cost.

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When economies of scale are present,

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costs per unit decline as output expands

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To determine total cost, the businessperson must know

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input quantity and input price

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Marginal physical product can tell a producer

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how much the last input added to the total amount of production

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A firm practices input substitution when it

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replaces unskilled labor with automated machinery

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The total physical product of an input is the same thing as its

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output

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By definition, a firm that practices satisficing

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makes acceptable decisions, though not necessarily optimal ones.

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Average cost

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generally declines for some range of output, hits a minimum, and then increases.

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A grocery store sells soup for $1.50 a can, or $2.50 for two cans. To a customer, the marginal cost of buying the second can of soup is

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$1

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When a firm's fixed cost rises, its total profit curve shifts

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down at every output level.

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The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

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opportunity cost

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Marginal revenue is the addition to a firm's revenue from

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a one-unit change in output

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If MC > MR

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output should be reduced

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The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.

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total profit; utility

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Total profit is maximized

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where the difference between total revenue and total cost is greatest

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The competitive firm has no influence over price because

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its output is so insignificant relative to the market as a whole

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A firm can stay in business while taking a loss in the short run as long as it covers its

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variable costs

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We expect the demand curve in the perfectly competitive industry to be

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negatively sloped

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A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

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revenue is equal to all costs, including the opportunity cost of capital and labor

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The supply curve for a perfectly competitive industry is obtained by

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horizontally summing the supply curves of firms in the industry

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One of the following is not a characteristic of perfect competition. Which is it?

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Firms advertise to increase their market share.

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A perfectly competitive firm should continue to expand output until

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c. marginal revenue equals marginal costs.

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If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

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most effective policy action would be a tax on polluting firms

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The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

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free entry and exit

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The entry of firms into a perfectly competitive industry causes the supply curve to

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move farther toward the right

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A firm earns a profit of exactly zero at its optimal output level only if

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P = AC

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The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50. In the long run, we would expect an increase in

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the number of firms

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Pure monopoly is defined as a

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one-firm industry

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To be a natural monopoly, a firm must

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have falling average costs over a substantial range of total market demand.

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The demand curve facing a monopolist is

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identical to the market demand curve for the good.

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Which of the following is not potentially a barrier to entry into the widget market?

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high prices for widgets

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A monopolist is best described as a price

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maker

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The key element in preserving a monopoly is

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keeping potential rivals out of the market

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Compared to a perfectly competitive firm, a monopolist

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usually produces an inefficiently small level of output

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Monopolistic competition is common in

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retail selling

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Contestable markets improve the performance of imperfect markets with

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the threat of entry

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A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

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A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

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Oligopolists

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must take rivals' reactions into account

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Monopolistic competitors and perfect competitors are alike in

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zero economic profit in the long run

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In the cigarette industry either R. J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this

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price leadership

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Monopolistic competition is characterized by

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many firms selling slightly different products

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To maximize its profit, a monopolistically competitive firm produces at the output level at which

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MR = MC

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An article in The Economist reported that prices of CDs in Britain is much higher than prices in the United States or other European countries. There are only a few major companies, and a report from a Parliament committee said there is no serious price competition. The best explanation for this is that

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there are entry barriers in production and distribution of CDs.

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The distribution of income in the United States

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became significantly more unequal during the 1980s

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The basic problem with the government setting an absolute poverty line is that it is

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somewhat arbitrary

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An example of an in-kind benefit is

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public housing

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The poor are those who fall too far behind the average income. This refers to the ____ definition of poverty

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relative

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Most prophecies of the imminent exhaustion of many natural resources have not come true because

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rising prices for resources have stimulated supply and encouraged innovation

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The "greenhouse effect" is predicted to

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raise global temperatures

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Many states charge a 10-cent deposit on every can of soda sold. A purchaser pays an extra 10 cents per can and will get his money back by returning the empty can to a store. This policy encourages recycling by

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raising the opportunity cost of discarding empty cans

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If income is distributed equally in a society, the poorest fifth of the population receives

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20 percent of society's total income

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Which of the following is NOT a public good

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the latest Walt Disney movie

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An example of a positive externality is

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a blooming curbside bed of violets

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The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying. Enforcement of the company's property right is very expensive. This problem emerges because TV signals are basically

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public goods

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One of the reasons why firms pollute air and water is that

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air and water are often not priced.

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Roughly what percentage of Americans are officially considered poor?

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11 percent

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David Ricardo discovered that two countries can still gain by trading even if one country is more efficient in the production of every commodity. Ricardo's discovery is called the law of

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comparative advantage

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In the United States, most workers

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Produce services rather than goods

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A Tariff

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is a tax on imported goods

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Which of the following countries is NOT a major trading partner with the United States?

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Brazil

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Colombia produces coffee with less labor and land than any other country; it therefore surely has

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an absolute advantage in coffee production

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If a nation imposes a tariff on imports, the portion of the tax paid by citizens depends upon

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elasticity of demand

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Suppose that in the U.S. domestic market for wheat the price is lower than the International price for wheat, the U.S. would most likely:

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Export Wheat

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