Economics Questions Review – Flashcards
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1. Which of the following is most likely to be an implicit cost for Company X?
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forgone rent from the building owned and used by Company X
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To the economist, total cost includes:
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explicit and implicit costs, including a normal profit.
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Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
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$200,000 and its economic profits were zero.
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Which of the following is a short-run adjustment?
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A local bakery hires two additional bakers
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The short run is characterized by
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A. plenty of time for firms to either enter or leave the industry.
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The law of diminishing returns indicates that
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beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
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Which of the following industries most closely approximates pure competition?
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clothing
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A purely competitive seller is
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a "price taker."
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The MR = MC rule applies:
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to firms in all types of industries.
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Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:
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s realizing an economic profit of $40
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Incentives matter...
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To all human beings regardless of environment.
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Which of the following is often referred to as the basic postulate of economics?
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Incentives matter—individuals respond in predictable ways to changes in
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The expression, "There's no such thing as a free lunch," implies that...
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Opportunity costs are incurred when resources are used to produce goods and services.
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Maria wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $2.50 per gallon, the car wash costs $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the tenth gallon of gasoline and car wash is
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50 cents.
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If the market price of a good is more than the opportunity cost of producing it
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Producers will increase supply in the long run.
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Who gains in a voluntary trade?
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Both the buyer and the seller
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Economic progress...
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Reflects that people are achieving higher income levels and living standards
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Voluntary trade promotes economic progress because...
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It encourages businesses to seek lower per-unit costs by adopting mass production methods.
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High transaction costs will tend to...
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Reduce the number of mutually beneficial exchanges that occur.
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what is Middlemen
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to Reduce transactions costs.
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If the Internet allows buyers and sellers to find each other quickly and helps buyers learn easily about the products available for sale, we would expect that...
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The gains from trade will increase
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When individuals increase their personal wealth through production and exchange, they...
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Increase the wealth of others.
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The pursuit of profit will...
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Encourage firms to produce efficiently and keep their costs low. Encourage firms to produce goods and services that consumers value-highly relative to costs. Discover and develop better products and lower-cost production methods.
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Economic progress comes primarily through...
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Entrepreneurial action guided by competitive markets
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If you want to earn a high income you should figure out what others value because...
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Others will be willing to pay you for what they value.
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Negative profits and business failures
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Serve a productive function in the process of business growth and development
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Specialization in goods and services one can produce at a low cost makes it possible for trading partners to produce a larger joint output. This is called...
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The law of comparative advantage
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Adam Smith's invisible hand principle stresses...
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The tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.
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Which of the following is a predictable, secondary effect of a sharp increase in gasoline prices?
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Producers will increase the production of fuel-efficient cars.
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In a free market economy, consumption and investment decisions...
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Shape the future course of the national economy.
