ECON 2 – Exam 2

Flashcard maker : Millie Miller
If the government decided to legalize the purchase and sale of marijuana, the equilibrium quantity would _________ and the price would ________ if the supply of marijuana increased by _______ than the demand for marijuana increased.
Rise; rise; less
if a college sets its tuition ____ below the equilibrium tuition, then it will have to use some form of nonprice rationing device to determine who will be accepted for admission to the college
Below
If the quantity demanded of medical care is higher at a zero price than at some positive price, then it follows that the demand for the specific items that make up health care will be higher (than it would be if the quantity demanded of medical care were lower)
True
The space on the freeway is fixed at any instant of time. A supply curve that shows this is:
Perfect vertical
In a given community, if the government builds more freeways, then the supply curve for freeway space shifts rightward and the demand curve for freeway space shifts leftward.
False
The main different between the short run and the long run is that
in the short run, one or more inputs are fixed
The demand for seats in 10 a.m. classes at the university is higher than the demand for seats in 8 a.m. classes. the supply is fixed. If the university can only charge a single price and wished to maximize the total number of seats purchased during the day, it should set the price:
At equilibrium for 8 a.m. classes.
If the purchased and sale of a currently illegal drug, such as marijuana, were decriminalized, we would expect:
An increase in demand and supply of this drug
The longer the period of time allowed for the producer of a good to adjust to a change in the price of the good, the ____________ the price elasticity of supply will be. This statement assumes that the quantity supplied __________ be altered with time.
More elastic; can
if the demand for a good is unit elastic then,
The percentage change in quantity demanded is equal to the percentage change in price.
At the price of a good falls from $5 to $3, the quantity supplied of good falls from 400 units to 300 units. Price elasticity of supply is:
0.57
A normal good is:
a good for which the demand rises as income rises
The producer of X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for X is 0.75. You advice to the producer is to:
Increase price to raise total revenue.
Cross elasticity of demand measures the responsiveness of changes in the quantity _____ of one good to changes in _____
Demanded; the price of the another good.
Airlines that try to lower fares to increase revenue believe the demand for airline service is:
Price elastic
Which of the following statements is false?
If total utility rises, so much marginal utility and if If total utility falls, so much total utility
Indifference curves are convex to the origin if:
Both “a person’s marginal rate of substitution declines as he she consumes more of a good,” and the “law of diminishing marginal utility holds” are correct
The marginal rate of substitutions is illustrated by the
Slope of the indifference curve
If a person’s income and the price of both goods all rise by the same percentage, then her budget constraint:
Move outward away from the origin, and its slope remains the same
The diamond-water paradox holds that often things that have high ____ have a ____ price and things that have a low ____ have a ____ price
Value in use; low; value in use; high
There is a link between production and cost. We know this because:
What happens to MPP directs what happens to MC
If the owners of a firms earn accounting profit, it follows that
none of these answers is correct
If the marginal cost curve for a firm first declines and then rises, it follows that the MPP of the variable input:
first rises and then declines.
Working alone, a person who shirks receives ____ the benefits of shirking and pays ____ the costs of shirking.
all; all
Marginal cost in the change in
total cost that results from a change in output and total variable cost that results from a change in output
Diseconomies of scales are said to exit wen inputs are increased by some percentage and output increases by a(n) ____ percentage, causing unit costs to ____
smaller; rise
If the government sets out to make home buying easier for more people by forcing lenders to accept down payments and interest rates, the result will likely be in housing prices.
If the government sets out to make home buying easier for more people by forcing lenders to accept down payments and interest rates, the result will likely be in housing prices.
The NCAA rule governing the limits on the amount of a scholarship a college can offer an athlete is an effective price floor.
False
The demand for seats in 10 am. classes at the university is higher than the demand for seats in 8 am. classes. The supply is fixed. If the university prices classes at the price required to achieve equilibrium at 10 am, there will be:
A surplus at 8 am.
If there is freeway congestion at 8 a.m., we can reduce (or eliminate) the congestion by:
Building more freeways, raising the price to drive on the freeway at 8 am, and encouraging workers to carpool
If income elasticity of demand is 2.12, it means that quantity demanded will by 2.12% for every in income.
Rise; 1.0% rise
An inferior good is:
A good for which the demand rises as income fails
If supply is perfectly inelastic, it follows that a:
Both “rise in price will not change quantity supplied,” and “fall in price will not change quantity supplied” are correct
If supply is inelastic, it follows that:
– Quantity supplied always changes more than price changes
– A rise in price will not change quantity supplied
– A fall in price will not change quantity supplied
– Consumers will pay 100% of any tax placed on sellers
None of these answers is correct.
Airlines that try to lower fares to increase revenue believe the demand for airline service is:
Price elastic
The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X______ and the marginal utility of good Y_______
Falls, rises
The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?
$240
The 100th game of chess gives Jones more utility than the 32nd game of chess. It follows that:
The law of diminishing marginal utility may hold, since the 32nd game of chess might have been a different “good” than the 100th game of chess (after all, it could have been played with a different person)
When people treat some dollars differently than others, they are said to be compartmentalizing.
T
Research conducted by Nicholas Epley and his colleagues at Harvard showed that people will spend a ______ percentage of money given to them if it is _______rather than ______
Greater; termed a bonus; a rebate
Minimum efficient scale refers to the
lowest output level at which average total costs are minimized.
If the government places a $2 tax on each unit of good X that is produced by Firm A, it follows that the tax will not affect _____cost, but will affect _____cost.
fixed/variable and average fixed/average variable
An indifference curve shows:
The bundles of two goods that give an individual equal total utility
In the long run;
all costs are variable costs
There is a link between production and cost. We know this because
what happens to MPP directs what happens to MC.
A fixed input is an input whose quantity
cannot be changed as output changes in the short run
If the marginal cost curve for a firm first declines and then rises, it follows that the MPP of the variable input
first rises and then declines.
A fixed input, X, and a variable input, Y, are used to produce good A. If the marginal physical product (MPP) of Y is constant, it follows that the
– total variable cost curve is downward sloping.
– total fixed cost curve is vertical.
– total fixed cost curve is vertical and the total variable cost curve is downward sloping.
– marginal cost curve is upward sloping.
none of these answers is correct
When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,
it naturally:
Produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue
In a perfectly competitive market, the market demand curve is perfectly elastic.
False
Marginal revenue is:
The change in total revenue brought about by selling an additional unit of the good
For a perfectly competitive firm, the demand curve is horizontal at the price determined in the market.
True
A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result:
The marginal revenue curve for each firm shifts upward, and the demand curve for each firm shifts upward
If, for a perfectly competitive firm, marginal cost is greater than marginal revenue for the 100th unit, then it follows that:
Producing the 100th unit adds more to total cost than it does to total revenue; and the firm is not maximizing profit, or minimizing losses, if it produces the 100th unit
In long-run competitive equilibrium, firms:
Have no incentive to make any changes
One of the reasons why economies of scale exist is that the opportunity for labor specialization increases as the size of the firm grows.
True
The space on the freeway is fixed at any instant of the time. A supply curve that shows this is :
Perfect vertical
Economic profit is the difference between total revenue and implicit costs
False
A cost of resources used in production for which no actual monetary payment is made is a(n) ____cost
implicit
University A sets tuition at the equilibrium level based on price and then imposes entrance requirements in the form of minimum high school GPA and SAT scores. Enrollment at this school will likely be:
Below equilibrium because of the nonprice rationing
The longer the period of time allowed for the producer of a good to adjust to a change in the price of the good, the ________ the price elasticity of supply will be. This statement assumes that the quantity supplied _______ be altered with time.
More elastic; can
The demand for seats in 10 am. classes at the university is higher than the demand for seats in 8 am. classes. The supply is fixed. If the university can only charge a single price and wishes to maximize the total number of seats purchased during the day, it should set the price:
At equilibrium for 8 a.m. classes
Consumer equilibrium occurs at the point where the slope of the budget constraint is equal to the slope of the
True
ones buys two goods, A and B. Currently, Jones receives marginal utility of 24 utils from good A and pays a price of $1.50 per unit. Jones receives a marginal utility of 43 utils from good B and pays a price of $1.99 per unit. Jones receives ________ per dollar from good B as he does from good A.
More marginal utility
For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.
True
Working alone, a person who shirks receives ______ the benefits of shirking and pays _______ the costs of shirking.
all; all

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