2305-Economics Exam 2 - Custom Scholars
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# 2305-Economics Exam 2

question
The price of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is
answer
perfectly in elastic.
question
A market equilibrium is only efficient if:
answer
all relevant costs and benefits are reflected in the market supply and demand curves.
question
A firm earns a normal profit when its:
answer
economic profit is zero.
question
Which of the following will cause an increase market supply?
answer
A technological innovation that lowers the marginal cost of producing the good.
question
Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve.
answer
less elastic than
question
Accounting profit is equal to:
answer
total revenue minus explicit costs
question
John is trying to decide how to divide his time between his job as a stoker in the local grocery store, which pays \$7 per hour for as many hours as he chooses to work, and cleaning windows for the business downtown. He makes \$2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he sends cleaning in a day, as shown in the table below:

The first hour John spends cleaning windows cost him ________ that could have earned in the grocery store.
answer
\$7
question
If all firms in a perfectly competitive industry are experiencing economic losses, then:
answer
some firms will exit the industry, until economic profits equal zero.
question
If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:
answer
3.
question
Generally, ______ motivate firms to enter an industry while ______ motivate firms to exit an industry.
answer
economic profit; economic loss
question
The tendency for consumers to purchase more of a good or service as its price falls is captured by:
answer
the law of demand
question
On a given linear demand curve, as price increases demand becomes____.
answer
more elastic.
question
In general, when the price of a variable factor of production increases:
answer
the profit-maximizing level of output falls.
question
To increase total revenue, firms with demand should lower price, and firms with _____ demand should increase price.
answer
elastic; inelastic
question
If your income elasticity of demand for hot dogs is negative, then:
answer
hot dogs are inferior good for you.
question
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:
answer
earning a normal profit.
question
Refer to the table below. As the firm increases the number of employee-hours each day from 1 to 2, output increases by:
answer
33 units.
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
answer
0.
question
The following graph depicts demand.

The price elasticity of demand at point D is:
answer
2/5
question
Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is ______.
answer
relatively inelastic
question
Which of the following would be considered a factor of production in the provision of bus service?
answer
Bus drivers.
question
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
answer
experiencing diminishing returns.
question
If a firm's total revenue is less than its variable cost when the firm produces the level of output at who=ich price equals marginal cost, then the form should:
answer
shut down.
question
One difference between the long run and the short run in a perfectly competitive industry is that:
answer
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
question
One difference between the long run and short run in a perfectly competitive industry is that:
answer
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
question
John is trying to decide how to divide his time between his job as a stoker in the local grocery store, which pays \$7 per hour for as many hours as he chooses to work, and cleaning windows for the business downtown. He makes \$2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he sends cleaning in a day, as shown in the table below:

A second hour cleaning windows will yield additional earnings of _____.
answer
\$8
question
In general, when the price of a fixed factor of production increases:
answer
the profit-maximizing level of output does not change.
question
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
answer
decrease by 3%
question
When the price of hot dogs is \$1.50 each, 500 hot dogs are sold every day. After the price falls to \$1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?
answer
0.2
question
A situation is efficient if it is:
answer
not possible to find a transaction that will make at least one person better off without harming others.
question
If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand?
answer
2.
question
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?
answer
The size of the seating area.
question
The following graph depicts demand.

The slope of the demand curve (ignore negative sign) is:
answer
0.5.
question
A firm should shut down if its total revenue is less than its ____even when the firm produces the level of output at which price equals marginal cost.
answer
variable cost.
question
The following graph depicts demand.

At point A, demand is:
answer
elastic
question
The price elasticity of demand is a measure of:
answer
the change in quantity demanded of a good that results from a change in its price.
question
Demand tends to be ______ in the short run than in the long run.
answer
less elastic
question
The table below shows a pizzeria's fixed cost and variable cost different levels of output. Pizza's sell for \$20 each.

When the pizzeria makes 100 pizzas a day, its fixed cost is _____ and its total cost is _____.
answer
\$500; 1.350
question
If the absolute value of slope of the demand curve is 2.5, price is \$6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
answer
0.3
question
Frans runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices.
answer
9 doughnuts
question
Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is
answer
inelastic
question
One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:
answer
positive economic profit only possible in the shirt run.
question
The price elasticity of demand is measure of:
answer
the change in quantity demanded of a good that results from a change in its price.
question
Assume that the produce technology required to produce goods X & Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:
answer
shift into producing good Y.
question
Which of following is defining characteristic of all perfectly competitive markets?
answer
All firms sell the same standardized product.
question
If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.
answer
5
question
One implication of the shape of the demand curve facing a perfectly competitive firm is that:
answer
if the firm increases its price above the market price, it will earn zero revenue.
question
For a given seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?
answer
\$4
question
Angelina Jolie's economic rent from starring in a movie is equal to the difference between:
answer
her final salary and the least she would be willing to accept to star in the movie
question
A rational seller will sell another unit of output:
answer
If the cost of making another unit is less than the revenue gained from selling another unit.
question
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
answer
complements.
question
The figure below shows a single consumer's demand for ice cream at the student union.

An increases in the number of students on this campus would cause:
answer
The market demand curve for ice cream from the student union to shift to the right.
question
Economic theory assumes that a firm's goal is to:
answer
maximize its economic profit
question
In general, perfectly competitive firms maximize their profit by producing the level of output at which:
answer
marginal cost equal price.
question
Mary Jane willing to babysit for \$6 an hour. Her neighbor has asked her to babysit for \$8 an hour. Assuming Mary Jane accepts the offer:
answer
her economic rent will be \$2 per hour
question
Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:
answer
often lead to the most efficient allocation resources
question
If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.
answer
5
question
A firm that produces a good with many substitutes will most likely find that:
answer
lowering its price will increase total revenue.
question
The long run is best defined as:
answer
a period of time sufficiently long that all factors of production are variable
question
If the percentage change in the price of a good is equal to the percentage change in quantity demanded of that good, then the demand for that good is:
answer
unit elastic.
question
The following graph depicts demand.

The price elasticity of demand at point A is:
answer
5/2
question
According to the law of demand, when the price of shoes ____ people will consume______ shoes.
answer
falls, more
question
The role that prices play in distributing scarce goods and services to those consumers who valued them the most highly is know as the ____ function of price.
answer
rationing
question
An increase in consumers' demand for espresso will lead to an increase in ____, while an increase in the number of firms producing espresso will lead to a(n) ______.
answer
quantity supplied; increase in supply
question
The price elasticity of demand equals 1:
answer
at the midpoint of a straight-line demand curve.
question
Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will ____ and the market price will _____.
answer
rise; fall
question
When the price of a perfectly competitive firm's output rises:
answer
the firm will produce more.
question
Individual supply curves generally slope _____ because_____.
answer
upward; of increasing opportunity costs.
question
As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand:
answer
becomes less elastic
question
Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require:
answer
more than 30 additional employee-hours.
question
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:
answer
earning a normal profit.
question
The championship game will held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:
answer
is perfectly inelastic.
question
If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:
answer
elastic
question
When Acme Dynamite produces 250 units of output, its variable cost is \$2,000, and its fixed cost is \$500. It sells each unit of output for \$25. When Acme Dynamite produces 250 units of output, its profit is:
answer
\$3,750
question
Refer to the figure below. If Laura and Chris are the only two consumers in this market, then at a price of \$2.00 per pound, the market demand for hamburger is:
answer
6 pounds per week
question
One implication of the shape of demand curve facing a perfectly competitive firm is that:
answer
If the firm increases its price above the market price, it will earn zero revenue.
1 of 76
question
The price of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is
answer
perfectly in elastic.
question
A market equilibrium is only efficient if:
answer
all relevant costs and benefits are reflected in the market supply and demand curves.
question
A firm earns a normal profit when its:
answer
economic profit is zero.
question
Which of the following will cause an increase market supply?
answer
A technological innovation that lowers the marginal cost of producing the good.
question
Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve.
answer
less elastic than
question
Accounting profit is equal to:
answer
total revenue minus explicit costs
question
John is trying to decide how to divide his time between his job as a stoker in the local grocery store, which pays \$7 per hour for as many hours as he chooses to work, and cleaning windows for the business downtown. He makes \$2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he sends cleaning in a day, as shown in the table below:

The first hour John spends cleaning windows cost him ________ that could have earned in the grocery store.
answer
\$7
question
If all firms in a perfectly competitive industry are experiencing economic losses, then:
answer
some firms will exit the industry, until economic profits equal zero.
question
If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:
answer
3.
question
Generally, ______ motivate firms to enter an industry while ______ motivate firms to exit an industry.
answer
economic profit; economic loss
question
The tendency for consumers to purchase more of a good or service as its price falls is captured by:
answer
the law of demand
question
On a given linear demand curve, as price increases demand becomes____.
answer
more elastic.
question
In general, when the price of a variable factor of production increases:
answer
the profit-maximizing level of output falls.
question
To increase total revenue, firms with demand should lower price, and firms with _____ demand should increase price.
answer
elastic; inelastic
question
If your income elasticity of demand for hot dogs is negative, then:
answer
hot dogs are inferior good for you.
question
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:
answer
earning a normal profit.
question
Refer to the table below. As the firm increases the number of employee-hours each day from 1 to 2, output increases by:
answer
33 units.
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
answer
0.
question
The following graph depicts demand.

The price elasticity of demand at point D is:
answer
2/5
question
Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is ______.
answer
relatively inelastic
question
Which of the following would be considered a factor of production in the provision of bus service?
answer
Bus drivers.
question
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
answer
experiencing diminishing returns.
question
If a firm's total revenue is less than its variable cost when the firm produces the level of output at who=ich price equals marginal cost, then the form should:
answer
shut down.
question
One difference between the long run and the short run in a perfectly competitive industry is that:
answer
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
question
One difference between the long run and short run in a perfectly competitive industry is that:
answer
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
question
John is trying to decide how to divide his time between his job as a stoker in the local grocery store, which pays \$7 per hour for as many hours as he chooses to work, and cleaning windows for the business downtown. He makes \$2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he sends cleaning in a day, as shown in the table below:

A second hour cleaning windows will yield additional earnings of _____.
answer
\$8
question
In general, when the price of a fixed factor of production increases:
answer
the profit-maximizing level of output does not change.
question
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
answer
decrease by 3%
question
When the price of hot dogs is \$1.50 each, 500 hot dogs are sold every day. After the price falls to \$1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?
answer
0.2
question
A situation is efficient if it is:
answer
not possible to find a transaction that will make at least one person better off without harming others.
question
If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand?
answer
2.
question
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?
answer
The size of the seating area.
question
The following graph depicts demand.

The slope of the demand curve (ignore negative sign) is:
answer
0.5.
question
A firm should shut down if its total revenue is less than its ____even when the firm produces the level of output at which price equals marginal cost.
answer
variable cost.
question
The following graph depicts demand.

At point A, demand is:
answer
elastic
question
The price elasticity of demand is a measure of:
answer
the change in quantity demanded of a good that results from a change in its price.
question
Demand tends to be ______ in the short run than in the long run.
answer
less elastic
question
The table below shows a pizzeria's fixed cost and variable cost different levels of output. Pizza's sell for \$20 each.

When the pizzeria makes 100 pizzas a day, its fixed cost is _____ and its total cost is _____.
answer
\$500; 1.350
question
If the absolute value of slope of the demand curve is 2.5, price is \$6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
answer
0.3
question
Frans runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices.
answer
9 doughnuts
question
Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is
answer
inelastic
question
One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:
answer
positive economic profit only possible in the shirt run.
question
The price elasticity of demand is measure of:
answer
the change in quantity demanded of a good that results from a change in its price.
question
Assume that the produce technology required to produce goods X & Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:
answer
shift into producing good Y.
question
Which of following is defining characteristic of all perfectly competitive markets?
answer
All firms sell the same standardized product.
question
If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.
answer
5
question
One implication of the shape of the demand curve facing a perfectly competitive firm is that:
answer
if the firm increases its price above the market price, it will earn zero revenue.
question
For a given seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?
answer
\$4
question
Angelina Jolie's economic rent from starring in a movie is equal to the difference between:
answer
her final salary and the least she would be willing to accept to star in the movie
question
A rational seller will sell another unit of output:
answer
If the cost of making another unit is less than the revenue gained from selling another unit.
question
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
answer
complements.
question
The figure below shows a single consumer's demand for ice cream at the student union.

An increases in the number of students on this campus would cause:
answer
The market demand curve for ice cream from the student union to shift to the right.
question
Economic theory assumes that a firm's goal is to:
answer
maximize its economic profit
question
In general, perfectly competitive firms maximize their profit by producing the level of output at which:
answer
marginal cost equal price.
question
Mary Jane willing to babysit for \$6 an hour. Her neighbor has asked her to babysit for \$8 an hour. Assuming Mary Jane accepts the offer:
answer
her economic rent will be \$2 per hour
question
Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:
answer
often lead to the most efficient allocation resources
question
If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.
answer
5
question
A firm that produces a good with many substitutes will most likely find that:
answer
lowering its price will increase total revenue.
question
The long run is best defined as:
answer
a period of time sufficiently long that all factors of production are variable
question
If the percentage change in the price of a good is equal to the percentage change in quantity demanded of that good, then the demand for that good is:
answer
unit elastic.
question
The following graph depicts demand.

The price elasticity of demand at point A is:
answer
5/2
question
According to the law of demand, when the price of shoes ____ people will consume______ shoes.
answer
falls, more
question
The role that prices play in distributing scarce goods and services to those consumers who valued them the most highly is know as the ____ function of price.
answer
rationing
question
An increase in consumers' demand for espresso will lead to an increase in ____, while an increase in the number of firms producing espresso will lead to a(n) ______.
answer
quantity supplied; increase in supply
question
The price elasticity of demand equals 1:
answer
at the midpoint of a straight-line demand curve.
question
Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will ____ and the market price will _____.
answer
rise; fall
question
When the price of a perfectly competitive firm's output rises:
answer
the firm will produce more.
question
Individual supply curves generally slope _____ because_____.
answer
upward; of increasing opportunity costs.
question
As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand:
answer
becomes less elastic
question
Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require:
answer
more than 30 additional employee-hours.
question
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:
answer
earning a normal profit.
question
The championship game will held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:
answer
is perfectly inelastic.
question
If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:
answer
elastic
question
When Acme Dynamite produces 250 units of output, its variable cost is \$2,000, and its fixed cost is \$500. It sells each unit of output for \$25. When Acme Dynamite produces 250 units of output, its profit is:
answer
\$3,750
question
Refer to the figure below. If Laura and Chris are the only two consumers in this market, then at a price of \$2.00 per pound, the market demand for hamburger is:
answer
6 pounds per week
question
One implication of the shape of demand curve facing a perfectly competitive firm is that:
answer
If the firm increases its price above the market price, it will earn zero revenue.

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