ECO 2305 Exam 2 TTU - Custom Scholars
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ECO 2305 Exam 2 TTU

question
The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is:
answer
perfectly inelastic
question
The 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 in 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 ____________ than the flatter curve.
answer
less elastic than
question
If the price of cheese falls by 1% and the quantity demanded rises by 3%, then the price elasticity of demand for cheese is equal to:
answer
3
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
To increase total revenue, ______ demand should lower price, and firms with ________ demand should increase price.
answer
elastic; inelastic
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
answer
0
question
Which of the following would be considered a factor of production in the provision of bus service?
answer
bus drivers
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
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
If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is:
answer
2
question
Which of the following is most likely to be a fixed factor of production at a pizza restaurant?
answer
the size of the seating area
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 the price equals marginal cost.
answer
variable cost
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
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
Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin 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 is only possible in the short run
question
Assume that the production technology required to produce goods X and 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 the following is a defining characteristic of all perfectly competitive markets?
answer
All firms sell the same standardized product
question
If a 1% increase in the price of oranges leads to a 5% increase in the quantity supplied, the price elasticity for the supply of 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
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
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 equals price
question
Mary Jane is 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 of resources
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 the quantity demanded of that good, then the demand for that good is:
answer
unit elastic
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 value them the most highly is known 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 an:
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 earning an economic profit. One would expect that, over time, the number of firms in the industry 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
The championship game will be 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
1 of 48
question
The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is:
answer
perfectly inelastic
question
The 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 in 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 ____________ than the flatter curve.
answer
less elastic than
question
If the price of cheese falls by 1% and the quantity demanded rises by 3%, then the price elasticity of demand for cheese is equal to:
answer
3
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
To increase total revenue, ______ demand should lower price, and firms with ________ demand should increase price.
answer
elastic; inelastic
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
answer
0
question
Which of the following would be considered a factor of production in the provision of bus service?
answer
bus drivers
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
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
If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is:
answer
2
question
Which of the following is most likely to be a fixed factor of production at a pizza restaurant?
answer
the size of the seating area
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 the price equals marginal cost.
answer
variable cost
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
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
Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin 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 is only possible in the short run
question
Assume that the production technology required to produce goods X and 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 the following is a defining characteristic of all perfectly competitive markets?
answer
All firms sell the same standardized product
question
If a 1% increase in the price of oranges leads to a 5% increase in the quantity supplied, the price elasticity for the supply of 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
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
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 equals price
question
Mary Jane is 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 of resources
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 the quantity demanded of that good, then the demand for that good is:
answer
unit elastic
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 value them the most highly is known 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 an:
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 earning an economic profit. One would expect that, over time, the number of firms in the industry 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
The championship game will be 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

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