Scarcity arises because _____.
resources are finite and are inadequate to meet all human wants and needs
In the production of goods and services, trade-offs exist because _____.
society has only a limited amount of productive resources
Scarcity implies that people must _____.
is not a shortage
The difference between scarcity and a shortage is that _____.
scarcity always is a part of human life while shortages usually are temporary
The value of the best alternative sacrificed to obtain something you want is referred to as _____.
Fred and Ann both decide to see the same movie when they are given free movie tickets. We know that _____.
both bear an opportunity cost since they could have done other things instead of see the movie
The concept of opportunity cost exists because _____.
An efficient use of resources is represented by by a point ______ the production possibilities curve.
If all resources were perfectly adaptable for alternative uses, the production possibilities curve would _____.
be a straight line
A country operates inside its production possibilities curve; this may be caused by _____.
All points inside the PPC indicate _____.
inefficiency in production
Generally, is a nation produces more consumer goods than capital goods _____.
less of all goods may be produced in the future
A movement along the PPC would imply that _____.
society has chosen a different set of outputs
The law of demand states that _____.
at lower relative prices, a larger quantity of a good will be purchased than at higher relative prices
In economics, “demand” refers to _____.
the quantities of a good that people will buy at various prices
A fundamental principle in demand analysis is that a change in price leads to _____.
movement along the demand curve
A demand curve _____.
slopes down because of the inverse relationship between price and quantity demanded
Which of the following is an example of the law of demand?
An increase in the price of gasoline is followed by a reduction in the amount of gasoline consumed
The only variable considered when we move along the demand curve is _____.
the price of the good itself
Market demand is _____.
the total quantities demanded of all consumers of a particular item at various prices
A schedule of amounts of a good that people will purchase at various prices during a specific time period holding other factors constant is _____.
According to the law of demand _____.
price and quantity demanded move in opposite directions
If more buyers came into the market for a good, we would expect to see the market demand curve _____.
shift outward and to the right
If a demand curve shifts, we know that _____.
the price of the good itself is not a factor
Suppose that an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are _____.
a normal good
In economic terminology, an inferior good is a good _____.
for which demand increases as income decreases
Which of the following is NOT a determinant of demand?
Cost of inputs in production
Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause _____.
an increase in the demand for coffee
Assume that milk is an input into the production of ice cream. Holding the demand for ice cream constant, what will happen to the equilibrium price and quantity of ice cream if the price of milk increases?
The equilibrium price will rise and quantity will decrease
The determinants of demand are: _____, _____, _____, _____, and _____.
Income (normal/inferior), Number of Buyers, Price of Related Goods (substitutes/complements), Taste preferences, Future expectations
The determinants of supply are: _____, _____, _____, _____, and _____.
Technology/Production, Number of firms in the Market, Inputs, Price of Related Goods, Future expectations
Which of the following terms describes the situation in which too few or too many resources go to a specific economic activity because of external benefits or costs?
a market failure
Market failures _____.
prevent the price system from attaining economic efficiency
Market failures occur when _____.
Market failure occurs when _____.
the price system fails to generate an efficient allocation of resources
A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called _____.
Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that _____.
resources are over-allocated to the industry
When an Australian citizen enjoys military protection in Australia without contributing to the cost of Australia’s defense budget, then _____.
this citizen is a free rider
The principle feature of private goods is that _____.
consumption by one person reduces the quantity available to others
Public goods are unlikely to be provided by the private sector because ______.
no one can be excluded from the consumption of the good
The free-rider problem is encountered when _____.
someone benefits from the consumption of a public good without paying his or her full share
The marginal tax rate shows _____.
the extra tax due on an extra dollar of income
The marginal income tax rate is equal to _____.
the change in the tax payment divided by the change in income
Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The margina tax rates faced by the two families are _____.
40 percent on A and 20 percent on B
The marginal tax rate and the average tax rate are the same under a _____.
proportional income tax system
A tax rate system characterized by higher marginal tax rates as income increases is known as _____.
a progressive tax system
An example of a regressive tax is the _____.
Social Security tax
The average tax rate is defined as _____.
total tax due/total taxable income
A tax system in which the average and marginal tax rates are the same for every level of taxable income and every change in income is an example of _____.
The price elasticity of demand is a measure of _____.
the responsiveness of the quantity demanded of a good to a change in the price of the good
Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink falls 5%. Based on this information, what is the approximate absolute price elasticity of demand for soft drink?
If the price elasticity of demand for good A is -1, then a 1% increase in _____.
the market price of good A will result in a 1% decrease in the quantity demanded of good A
An absolute price elasticity of demand equal to 0.4 indicates that a _____.
10 percent decrease in the price leads to a 4 percent increase in quantity demanded
The responsiveness of quantity demanded of a good to changes in its price is the _____.
price elasticity of demand
The actual value of the price elasticity of demand is always _____.
negative because of the law of demand
If the price of oil goes up by 50% and the quantity demanded goes down by 25%, the absolute value of the price of price elasticity of demand is _____.
Suppose that the absolute price elasticity for cookies equals 0.53. We could then say that the demand for cookies is _____.
Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root bear are _____.
complements, with a cross price elasticity of 2.0
If goods X and Y are complements, then the cross price elasticity of demand will be _____.
The cross price elasticity between X and Y is -1.8. We can conclude that _____.
goods X and Y are complements
Income elasticity relates to _____.
a horizontal shift in a demand curve.
Income elasticity of demand is defined as _____.
the percentage in demand divided by the percentage change in income
The determinants of price elasticity of demand are: _____, _____, _____, and _____.
Luxuries vs. Necessities, Availability of a Close Substitute, Share of a Budget, Time
A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer’s quantity demanded falls to zero in the price rises even a fraction of a cent. Explain how this is possible.
The good is perfectly elastic
If the price of corn chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is _____. The firm should lower the price in order to increase total revenue because corn chips are an elastic good.
Ed= .667/.4 = 1.668 (Q2-Q1/Q1+Q2/2, P2-P1/P1+P2/2)
In economics, another term for satisfaction is _____.
Suppose that Homer derives 45 utils of total utility from eating 4 donuts and 55 utils of total utility from eating 5 donuts. What is Homer’s marginal utility from eating the 5th donut?
The utility that people experience from the consumption of a good depends on _____.
their taste and preferences
Marginal utility is measured as _____.
extra utility from each additional good consumed
If total utility is decreasing, then marginal utility is _____.
When the total utility from consuming one good is maximized, marginal utility is _____.
Kathleen eats 3 TV dinners. The third TV dinner makes Kathleen sick. This means that for Kathleen _____.
the third TV dinner has negative utility
If the price of a good is zero, a rational consumer will _____.
stop consuming the good when total utility is maximized
The principle that “as more of a good is consumed, its extra benefit declines” is known as _____.
the law of diminishing marginal utility
The law of diminishing marginal utility implies that the margina utility for a particular product _____.
decreases as more of the product is consumed
For good A and B, the consumer maximizes personal satisfaction when _____.
MUa/Pa = MUb/Pb
For any two goods, X and Y, if MUx divided by Px equals 2.5 and MUy divided by Py equals 4.0, then with given income and prices the consumer should _____.
buy more of good Y and less of good X
Economists generally define the short run as being _____.
that period of time in which at least one of the firm’s inputs usually plant size, is fixed
A basic distinction between the long run and the short run is that _____.
in the short run, complete adjustment of all inputs is impossible while in the long run all inputs can be adjusted
Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 65 cookies together. What is the marginal product of the 2nd worker?
The law of diminishing marginal product indicates that _____.
marginal product will eventually decrease
The change in output caused by a one-unit change in labor is referred to as the _____.
marginal physical product of labor
The observation that beyond some point, successive increases in a variable factor of production added to a fixed factor of production lead to smaller and smaller increases in output is _____.
the law of diminishing marginal product
Which of the following in correct?
TC = TFC + TVC
Assume it takes 10 units of labor to produce 4 units of output. When the price of labor is $6 per unit and fixed costs equal $60, what is the total cost of those 4 units of output?
When Super Stuff Corporation produces 5,000 units, total costs equal $150,000 and total variable costs equal $75,000. At this level of output, what is Super Stuff’s average fixed cost?
The change is total costs due to a one-unit change in the production rate is _____.
Suppose a firm is operating in the downward sloping portion of the long-run average total cost curve, what should the firm do, in terms of size, to be more efficient? Why?
The firm should become larger, since it is an economy of scale, in order to become more effcient
A monopolist is defined as _____.
a single supplier of a good or service for which there is no close substitute
A firm can be the sole supplier of a good and is still not a monopolist if _____.
there are very close substitutes for the good
In order for a firm to receive monopoly profits, there must be _____.
barriers to market entry
To be able to engage in profit-maximizing price searching/setting, a monopoly firm must be able to _____.
prevent the entry of the other firms into the market for its product
If there are no barriers to entry into an industry, _____.
long-run economic profits must be zero
A monopolist can earn economic profits in the long run because _____.
barriers to entry prevent new firms from entering the industry
A natural monopoly usually arises when _____.
there are large economies of scale relative to the industry’s demand
If a monopolist wishes to increase its output and quantity sold, _____.
it must reduce its price, so its marginal revenue is less than its price
Compared to perfectly competitive firms, the demand curve for a monopolist will be _____.
Which of the following conditions is true for a monopolist?
MR < P
If a firm sells 10 units of output at $100 per unit and 11 units of output when price is reduced to $99, its marginal revenue for the last unit sold is _____.
The monopolist’s marginal revenue is less than price since _____.
additional units can only be sold if the price is lowered on all units sold
A firm that faces a downward sloping demand curve is _____.
a price searcher/setter
A monopolist _____.
is constrained in its pricing decisions by the demand curve it faces
Which of the following is NOT a characteristic of monopolistic competition?
barriers to entry into the market
The main objective of advertising for a monopolistically competitive firm is _____.
to differentiate the product and boost demand
The demand curve for the product of a monopolistic competitor is _____.
In general, the demand for the product of a monopolistic competitor is _____.
In the short run, a monopolistically competitive firm can earn _____.
zero, positive or negative profits
In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which _____.
MR = MC
In the long run, in a monopolistically competitive market, price will be _____.
equal to ATC
Which of the following is a characteristic of oligopoly?
A merger between firms that are in the same industry is called a _____.
Within a game theory model, if a change in decision-making raises corporation A’s profits by $50 and lowers corporation B’s profits by $50, the game is a _____.
All firms, regardless of their market structure, will operate where? Why?
All firms will operate where marginal cost equal marginal revenue in order to maximize profit
Consumer surplus is _____.
the difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay
The three methods in which barriers to entry can be erected are: _____, _____, and _____.
Natural monopoly (economies of scale), Government Regulations, and Actions Taken by the Firm
Why would a firm practice price discrimination?
A firm practices price discrimination to maximize profit
The three requirements for price discrimination are: _____, _____, and _____.
Must face a downward sloping demand curve, predict price elasticity of individuals/groups of individuals, must be able to prevent resale
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