econ exam 2 - Custom Scholars
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econ exam 2

question
-responsiveness of quantity demanded
-price
answer
Price elasticity of demand measures the change in ________ due to change in ________
question
it measures the responsiveness of quantity demanded
answer
What does the price elasticity of demand measure?
question
perfectly inelastic
answer
If a friend says, "I am never going to buy another Avicii remix again!" his or her price elasticity of demand for Avicii remixes is __________.
question
-inelastic
-elastic
answer
Salima is a devoted Coca-Cola consumer, whereas Antonia can drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be ________, while Antonia's demand will be relatively more ________.
question
nah
answer
Is 'the cost of producing the good' following a good's price elasticity of demand?
question
-2
answer
Suppose that when the price of cereal rises by 10%, the quantity demanded of cereal falls by 20%. Based on this information, what is the approximate price elasticity of demand for cereal?
question
unitary
answer
When the price increases by 20% and the quantity demanded drops by 20%, the price elasticity of demand is _________ elastic
question
percentage change in the quantity demanded divided by the percentage change in the price
answer
Price elasticity of demand is measured as the
question
-1
answer
Nicolette raised her quantity demanded of hockey pucks from 100 to 150 when the price fell from $6 to $4 per puck. Using the midpoint method, her price elasticity of demand is ________.
question
inelastic
answer
Suppose that the price elasticity of demand is -0.80 for aspirin. We could then say that the demand for aspirin is
question
infinite elasticity (perfect elasticity)
answer
When the demand curve is perfectly horizontal, the price elasticity of demand has
question
Zero/perfectly inelastic
answer
When the demand curve is vertical, the price elasticity of demand is positive, negative or zero
question
Because more options become available and people can make different choices.
answer
Why demand is almost always more price-elastic in the long run
question
If a business finds that demand for its good is very price elastic, it knows that price is very important
answer
What is the responsiveness of quantity consumers buy to price changes, If a business finds that demand for its good is very price elastic?
question
perfectly inelastic
answer
"No matter the price, I will always buy five gallons of ice cream a week. I love ice cream!" This statement reflects a price elasticity of demand that is
question
upper, lower
answer
In a typical demand curve, the price-elastic portion of demand is found in the ________ region and the price-inelastic portion of demand is found in the ________ region of the graph.
question
decreases
answer
As we move downward along the demand curve, the price elasticity of demand
question
when the demand is elastic
answer
When can a firm lower price and still increase revenue?
question
increase the quantity demanded and the price per unit decreases
answer
When the price elasticity of demand is - 0.36, a decrease in price will
question
perfectly elastic
answer
A price change does not affect the firm's total revenue when the price elasticity of demand is
question
increase, inelastic
answer
A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will ________ because the price elasticity of demand for cookies is ________.
question
perfectly ineleastic
answer
A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good must have been
question
inelastic, elastic
answer
Pepsi vendors who raise their price at professional sporting events increase total revenue because the price elasticity of demand is ________. When they raise their prices at gas stations, they decrease total revenue because the price elasticity of demand is ________.
question
increases, elastic
answer
When Heavenly Cookies prices its sugar cookies at $1.00, it sells 75 cookies. It lowers the price to $0.50 and sells 200 cookies. Its total revenue ________ because the price elasticity of demand for sugar cookies is ________.
question
3%
answer
If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?
question
instant noodles
answer
What good amongst gourmet pizza, steak, designer/fancy clothing or instant noodles is most likely to have a negative income elasticity of demand?
question
five-star hotel
answer
Between a five-star hotel, a doctor's visit, used clothing, toilet paper. What good is most likely to have an income elasticity of demand equal to 8?
question
1.2
answer
When her income increases from $10,000 to $20,000, as shown in the accompanying table, Juanita increases the quantity demanded from 3 rolls of sushi to 7 rolls at a price of $3 each. From the midpoint method, income elasticity of demand for sushi is ________.
question
greater than zero
answer
When two goods are substitutes for each other, what will the cross-price elasticity be?
question
the % change in the quantity demanded of one good divided by the % change in the price of the other good
answer
The cross-price elasticity is measured by
question
cross-price elasticity of demand
answer
When you measure the change in the quantity demanded of one good because of a change in the price of another good, you are measuring
question
complements
answer
If the cross-price elasticity of demand is -3, Goods A and B are
question
substitutes
answer
If the cross-price elasticity of demand is 4, Goods A and B are
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positive because Pepsi and Coke are substitutes.
answer
Pepsi and Coke is likely to have a positive or negatively cross-price elasticity of demand?
question
negative because shoes and socks are complements
answer
Shoes and Socks is likely to have a negative or positive cross-price elasticity of demand?
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-20% or -0.2
answer
If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?
question
0.25
answer
A local bakery gives information on consumer purchasing habits for muffins and cupcakes. It says that when the price of a muffin is $1, people buy 55 cupcakes. When the price of a muffin is raised to $2, cupcake purchases increase to 65 cupcakes. The cross-price elasticity of demand using the midpoint method is ________.
question
to zero
answer
If the supply of a good is perfectly inelastic, then the price elasticity of supply will equal
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measures the responsiveness of the quantity supplied to a change in price
answer
What is price elasticity of supply?
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False. It becomes more elastic.
answer
Over time, the price elasticity of supply becomes more inelastic. True or False?
question
perfectly
answer
A vertical supply curve can be described as _________ inelastic.
question
horizontal
answer
A perfectly elastic supply curve is vertical or horizontal.
question
elastic
answer
Over time, the price elasticity of supply for sunglasses will become more elastic, inelastic or unchanged.
question
horizontal
answer
As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve becomes - more horizontal, more vertical, or completely vertical
question
2.33
answer
When the price of a basketball is $15, the quantity supplied is 5,000. When the price increases to $20, the quantity supplied is 10,000. Using the midpoint method, the price elasticity of supply is ________.
question
relatively elastic
answer
If the price elasticity of supply is 1.5, we know that supply is ______ elastic.
question
the costs or benefits of a market activity that affect a 3rd party
answer
What are externalities?
question
the costs of a market activity paid only by an individual participant
answer
What are internal costs?
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internal cost
answer
The amount an individual pays for gasoline for his or her car is an example of what type of cost?
question
internal cost
answer
Suzanne drives to work each day. The amount Suzanne pays to maintain her car is an example of what type of cost?
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The costs of a market activity paid only by an individual participant
answer
What are external costs?
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external
answer
An ______ cost is best defined as the cost of an activity imposed on third party
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paid
answer
For a market where external costs exist to work efficiently the external costs must be
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external
answer
The pollution emitted by a car is an example of a(n) ________ cost
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$20
answer
Refer to the accompanying table to answer the next question. Note that Q represents the quantity produced, the internal cost and social cost are given for various quantities, and D represents the price consumers are willing to pay for various quantities.
Q Internal Cost Social CostD 100 $40 $60 $80 200 $50 $70 $70 300 $60 $80 $60 400 $70 $90 $50 500 $80 $100 $40 600 $90 $110 $30
What is the external cost per unit?
question
social costs = external costs + internal costs
answer
What is the relation between social costs, internal costs and external costs?
question
positive externality, negative externality
answer
Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of ________; for the other roommate, it is an example of ________.
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external
answer
Negative externalities have what kind of costs for third parties?
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a negative externality
answer
What kind of externality exists when production of a good creates an external cost.
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the market good quantity will overproduce their goods
answer
For a market with a negative externality, what will happen to the market good quantity when the market participants tend to ignore external cost of their decision?
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true
answer
For negative externality some costs are borne by a third party. Is this statement true or false?
question
requiring externality
1. change production techniques to reduce emissions and waste-by products
2. the government can levy a tax on the refinery as a disincentive to produce
3. the government can require the firm to pay for any environmental damage it causes
answer
When pollution (a negative externality) is created by firms who produce good X, what are the valid ways for the government to restore the social optimum?
question
produces too little
answer
Consider a market where production of a good generates a positive externality. In the market equilibrium, what happens to the quantity of good being produced?
question
the demand curve shifts out to the right causing an increase along the quantity axis
answer
Government can correct for the positive externality associated with vaccines by subsidizing consumers. What will be the effect of this on the demand curve for vaccines?
question
tax the product
regulate production
find substitutes
answer
What are the ways that government can correct for the externality of a polluting firm?
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negative externalities
answer
When a firm is required to internalize the pollution costs associated with production, what will be the subsequent causes of this?
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positive externality
answer
What kind of externality exists whenever production of good creates an external benefit?
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cost-benefit anaylsis
answer
Global warming (filling the air with CO2) is an example of what economic concept?
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occurs when a rival (and non-excludable) good becomes depleted or ruined
answer
When does tragedy of commons occurs?
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-rival
-nonexcludable
answer
The tragedy of the commons occurs for goods that are rival or nonrival? Excludable or nonexcludable?
question
A club good
answer
The music you buy on the internet is a ___ good.
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nonexcludable
answer
The challenge of public good provision and the tragedy of the commons are two problems associated with which characteristic of good?
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common resource
answer
Clean air is a ________ good.
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-large shared popcorn at a movie theater
-alaskan king crab
-congested roads
-fish in the ocean
answer
Give examples of a common-resource good.
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false
answer
Common-resource goods are nonrival, like public goods, and nonexcludable, like private goods. Is this true or false?
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overused
answer
Common resources are overused or underused?
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-nonrival
-excludable
answer
Can a club good be defined as rival or nonrival? Excludable or non-excludable?
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the demand curve will shift to the right showing an increase
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The city decides to offer a subsidy to each homeowner's association that plants flowers in their common areas. In the market for flowers, what will be its effect on the demand curve?
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Common Resouces
answer
Free public parking spaces is an example of what kind of good?
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club good
answer
Is entertainment television a public good?
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public
answer
Any passerby can enjoy the show without paying. This factor contributes to making street performances a _____ good.
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rival, excludable (private good)
answer
Assume there are no externalities. The market works efficiently if the good is rival or nonrival? Excludable or non-excludable?
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public
answer
________ goods can be jointly consumed by more than one person, and nonpayers are difficult to exclude
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-nonrival
-nonexcludable
answer
Which characteristics best define a public good? Rival or nonrival? Excludable or nonexcludable?
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profit (or loss)
answer
Total revenue minus total cost is equal to what?
question
a. false
b. false
c. true
d. false
e. false
answer
Determine which statements are true or false from following:
a. Economists consider only explicit costs.
b. Implicit and explicit costs are always equal.
c. An implicit cost is an opportunity cost.
d. All costs are explicit costs
e. An implicit cost is monetary
question
explicit
answer
_____ costs are tangible out-of-pocket expenses.
question
a. false
b. false
c. true
d. false
e. false
answer
Determine whether the following statements are true or false with respect to explicit costs:
a. They are not included when measuring accounting profit.
b. They are not included when measuring economic profit
c. They are tangible out-of-pocket expenses
d. They are not measured in terms of dollars.
e. They are more difficult to calculate and easier to miss than implicit costs
question
explicit costs
answer
For a business that manufactures bicycles wages paid by the business to its employees is example of what type of costs?
question
$370,000
answer
If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?
question
$66,000
explicit cost= rent+wages paid+cost of ingredients/ overhead charges
(3000x12)+(2000x12)+(500x12)
answer
Remi owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients averages $500 per month. Remi could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His explicit costs last year were ________.
question
43,000
(145000-12000-65000-25000)
answer
Lisette is the owner of a bakery that earns zero economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her other monetary expenses were $25,000. From this information, we know that her explicit costs were ________.
question
they cant be observed directly
cover opportunity costs as well as explicit costs
answer
Why can implicit costs be difficult to measure for business owners?
question
80,000
120000=280000-(80000+implicit costs)
answer
If a firm generates $280,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?
question
marginal product
answer
What is the change in total output divided by the change in input known as?
question
marginal product of labor
answer
What is the change in total output known as when a firm hires another employee and, as a result, total output increases?
question
1
answer
Lester owns a candy equipment store that produces, among other things, chocolate fountains. He currently has 5 employees; with 5 employees, his candy equipment store can produce 8 chocolate fountains per day. If he hired a sixth employee, he'd be able to produce 9 chocolate fountains per day. What is the marginal product of the sixth employee in terms of chocolate fountain(s)?
question
2
answer
Fatima owns a car shop that repairs, among other things, spoilers. She currently has 6 employees; with 6 employees, her repair shop can repair 9 spoilers per day. If she hired a seventh employee, she'd be able to repair 11 spoilers per day. Therefore, the marginal product of the seventh employee is ________ car spoilers.
question
when price is larger then the atc
answer
What do MC, ATC, AVC tell you about economic profits? In other words, given MC, ATC, AVC, how do you determine if firms are earning economic profits?
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MC is an increase in total cost from producing one more unit of production
Specialization limits ones work to a particular area/field
answer
What is the relationship between MC and specialization?
question
as marginal cost increases, the marginal product will decrease. vice versa
answer
What does MC says about marginal product?
question
AVC=TVC/Q
ATC=TC/Q
answer
What is the relationship between AVC, ATC, and Total fixed cost?
question
output, wages, prices
answer
Which inputs are often assumed to be fixed (variable) in the short run?
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total costs are the sum of fixed and variable costs
fixed costs dont vary with output
variable costs change with the amount of output
answer
What is the relationship between total costs, fixed costs, and variable costs?
question
no
answer
Would fixed costs change as you increase total output?
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employee wages, costs of raw materials
answer
What are good examples of a variable cost in the short run?
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AVC=TVC/Q
AFC=TFC/Q
ATC=TC/Q
answer
How to calculate AVC, AFC (average fixed costs), ATC?
question
when the marginal cost curve intersects the atc curve
answer
When is the average total cost curve at its minimum?
question
it is below the average total cost curve
answer
When the average total cost curve is downward sloping, what must be true about the marginal cost curve?
question
no, ATC is higher than price, which creates a loss
answer
Should a firm always produce at the level of output where marginal cost is lowest?
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the quantity of output that minimizes the average total cost in the long run
answer
Where would we find a firm's efficient scale of production?
question
firms are price takers in competitive markets
answer
What is a price taker and in which type of market can we find them?
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customers will switch to a different seller
answer
What would happen if a firm set its price higher above the market price in a perfectly competitive market?
question
the interaction of market demand and supply because firms and consumers are price takers
answer
How is the market price determined in a competitive market?
question
1. many buyers/sellers
2. firms are price takers
3. free entry and exit
answer
List three main characteristics of a competitive market
question
there are not a lot of sellers, therefore sellers set their prices higher
answer
What make a farmers' market not perfectly competitive?
question
firms must decide whether to operate or temporarily shut down
answer
What happens when firms are incurring losses in a perfectly competitive market?
question
marginal revenue is the change in total revenue when a firm produces an additional unit of output.
Marginal revenue must be greater than marginal cost so that the firms expand outputs which maximizes profits
MR=MC (where you want to produce)
answer
What is marginal revenue and what is its role in profit maximization?
question
profit is maximized by choosing the level of output such that MR=MC
Locate the point at which the firm will maximize its profits: MR = MC.
Look for the profit-maximizing output: move down the vertical dashed line to the x axis at point Q. Any quantity greater than or less than Q would result in lower profits.
answer
What is the profit maximization rule and how to determine economic profits?
question
attract more entry by more firms, which lowers the price
answer
What would happen if perfectly competitive firms are earning economic profits?
question
when you operate a loss
answer
When should firms exit a perfectly competitive market in the short run?
question
So that no individual can control the price
answer
Why do we need many buyers and sellers in competitive market
question
price>average total cost, when they make profits
answer
When should firms enter a perfectly competitive market in the short run?
question
MR=MC, which equals average total cost
answer
What define the long-run competitive equilibrium?
question
accounting profit=revenues-explicit costs
economic profit=accounting profit -implicit costs
**economic profit is less than accounting profit
answer
What are accounting profits and economics profits? How to calculate them?
question
an explicit cost is the expenses that a company pays for with their own money...tangible, while opportunity costs are implicit costs
answer
What is the difference between an explicit cost and an opportunity cost?
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the portion of its marginal cost curve that lies above the average variable cost
answer
What is the short-run supply curve of a perfectly competitive firm?
question
unrecoverable costs that have been incurred as a result of past decisions
NO- do not consider (sunk-cost fallacy)
answer
What is sunk cost? Should it change our decision?
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a single firm that sells a product w/out close substitutes
-one seller, high barriers to entry, price making
answer
What is a monopolist? What characterizes a monopolist?
question
1. control of resources
2. problems raising capital
3. economics of scale
answer
what are barriers to entry?
question
ability to set price.
ex: microsoft and gas companies
answer
What are the reasons of monopoly power? List examples.
question
can result in an inefficient level of output, provide fewer choices to consumers, and encourage monopoly firms to lobby for government protection
answer
What are the consequences of monopoly?
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profit= total revenue -total cost
answer
How to solve for monopolist price, output, and profits? How to present them on a graph?
question
...
answer
What are the welfare losses associated with monopoly? How to present the losses on a graph?
question
...
answer
What are the pros and cons of government oversight and management of monopolies?
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chose output level
answer
how would a monopolist set prices?
question
1. breaking up the monopoly
2. reducing the barriers
3. regulating markets
answer
What are the ways to restore competitiveness in a monopoly marker?
question
firm forgoes transactions w/ consumers. The DWL is the potential gains that did not go to the producer or consumer.
answer
Why is there deadweight loss in a monopoly
question
-competitive firm: many firms, produce efficient output, cannot earn long-run economic profits, haas no market power (price taker)
-monopoly: one firm, produce less than efficient output, may earn long run economic profits, has significant market power (price maker)
answer
What are the differences between a competitive firm and a monopolist? How do they behave differently?
1 of 139
question
-responsiveness of quantity demanded
-price
answer
Price elasticity of demand measures the change in ________ due to change in ________
question
it measures the responsiveness of quantity demanded
answer
What does the price elasticity of demand measure?
question
perfectly inelastic
answer
If a friend says, "I am never going to buy another Avicii remix again!" his or her price elasticity of demand for Avicii remixes is __________.
question
-inelastic
-elastic
answer
Salima is a devoted Coca-Cola consumer, whereas Antonia can drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be ________, while Antonia's demand will be relatively more ________.
question
nah
answer
Is 'the cost of producing the good' following a good's price elasticity of demand?
question
-2
answer
Suppose that when the price of cereal rises by 10%, the quantity demanded of cereal falls by 20%. Based on this information, what is the approximate price elasticity of demand for cereal?
question
unitary
answer
When the price increases by 20% and the quantity demanded drops by 20%, the price elasticity of demand is _________ elastic
question
percentage change in the quantity demanded divided by the percentage change in the price
answer
Price elasticity of demand is measured as the
question
-1
answer
Nicolette raised her quantity demanded of hockey pucks from 100 to 150 when the price fell from $6 to $4 per puck. Using the midpoint method, her price elasticity of demand is ________.
question
inelastic
answer
Suppose that the price elasticity of demand is -0.80 for aspirin. We could then say that the demand for aspirin is
question
infinite elasticity (perfect elasticity)
answer
When the demand curve is perfectly horizontal, the price elasticity of demand has
question
Zero/perfectly inelastic
answer
When the demand curve is vertical, the price elasticity of demand is positive, negative or zero
question
Because more options become available and people can make different choices.
answer
Why demand is almost always more price-elastic in the long run
question
If a business finds that demand for its good is very price elastic, it knows that price is very important
answer
What is the responsiveness of quantity consumers buy to price changes, If a business finds that demand for its good is very price elastic?
question
perfectly inelastic
answer
"No matter the price, I will always buy five gallons of ice cream a week. I love ice cream!" This statement reflects a price elasticity of demand that is
question
upper, lower
answer
In a typical demand curve, the price-elastic portion of demand is found in the ________ region and the price-inelastic portion of demand is found in the ________ region of the graph.
question
decreases
answer
As we move downward along the demand curve, the price elasticity of demand
question
when the demand is elastic
answer
When can a firm lower price and still increase revenue?
question
increase the quantity demanded and the price per unit decreases
answer
When the price elasticity of demand is - 0.36, a decrease in price will
question
perfectly elastic
answer
A price change does not affect the firm's total revenue when the price elasticity of demand is
question
increase, inelastic
answer
A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will ________ because the price elasticity of demand for cookies is ________.
question
perfectly ineleastic
answer
A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good must have been
question
inelastic, elastic
answer
Pepsi vendors who raise their price at professional sporting events increase total revenue because the price elasticity of demand is ________. When they raise their prices at gas stations, they decrease total revenue because the price elasticity of demand is ________.
question
increases, elastic
answer
When Heavenly Cookies prices its sugar cookies at $1.00, it sells 75 cookies. It lowers the price to $0.50 and sells 200 cookies. Its total revenue ________ because the price elasticity of demand for sugar cookies is ________.
question
3%
answer
If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?
question
instant noodles
answer
What good amongst gourmet pizza, steak, designer/fancy clothing or instant noodles is most likely to have a negative income elasticity of demand?
question
five-star hotel
answer
Between a five-star hotel, a doctor's visit, used clothing, toilet paper. What good is most likely to have an income elasticity of demand equal to 8?
question
1.2
answer
When her income increases from $10,000 to $20,000, as shown in the accompanying table, Juanita increases the quantity demanded from 3 rolls of sushi to 7 rolls at a price of $3 each. From the midpoint method, income elasticity of demand for sushi is ________.
question
greater than zero
answer
When two goods are substitutes for each other, what will the cross-price elasticity be?
question
the % change in the quantity demanded of one good divided by the % change in the price of the other good
answer
The cross-price elasticity is measured by
question
cross-price elasticity of demand
answer
When you measure the change in the quantity demanded of one good because of a change in the price of another good, you are measuring
question
complements
answer
If the cross-price elasticity of demand is -3, Goods A and B are
question
substitutes
answer
If the cross-price elasticity of demand is 4, Goods A and B are
question
positive because Pepsi and Coke are substitutes.
answer
Pepsi and Coke is likely to have a positive or negatively cross-price elasticity of demand?
question
negative because shoes and socks are complements
answer
Shoes and Socks is likely to have a negative or positive cross-price elasticity of demand?
question
-20% or -0.2
answer
If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?
question
0.25
answer
A local bakery gives information on consumer purchasing habits for muffins and cupcakes. It says that when the price of a muffin is $1, people buy 55 cupcakes. When the price of a muffin is raised to $2, cupcake purchases increase to 65 cupcakes. The cross-price elasticity of demand using the midpoint method is ________.
question
to zero
answer
If the supply of a good is perfectly inelastic, then the price elasticity of supply will equal
question
measures the responsiveness of the quantity supplied to a change in price
answer
What is price elasticity of supply?
question
False. It becomes more elastic.
answer
Over time, the price elasticity of supply becomes more inelastic. True or False?
question
perfectly
answer
A vertical supply curve can be described as _________ inelastic.
question
horizontal
answer
A perfectly elastic supply curve is vertical or horizontal.
question
elastic
answer
Over time, the price elasticity of supply for sunglasses will become more elastic, inelastic or unchanged.
question
horizontal
answer
As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve becomes - more horizontal, more vertical, or completely vertical
question
2.33
answer
When the price of a basketball is $15, the quantity supplied is 5,000. When the price increases to $20, the quantity supplied is 10,000. Using the midpoint method, the price elasticity of supply is ________.
question
relatively elastic
answer
If the price elasticity of supply is 1.5, we know that supply is ______ elastic.
question
the costs or benefits of a market activity that affect a 3rd party
answer
What are externalities?
question
the costs of a market activity paid only by an individual participant
answer
What are internal costs?
question
internal cost
answer
The amount an individual pays for gasoline for his or her car is an example of what type of cost?
question
internal cost
answer
Suzanne drives to work each day. The amount Suzanne pays to maintain her car is an example of what type of cost?
question
The costs of a market activity paid only by an individual participant
answer
What are external costs?
question
external
answer
An ______ cost is best defined as the cost of an activity imposed on third party
question
paid
answer
For a market where external costs exist to work efficiently the external costs must be
question
external
answer
The pollution emitted by a car is an example of a(n) ________ cost
question
$20
answer
Refer to the accompanying table to answer the next question. Note that Q represents the quantity produced, the internal cost and social cost are given for various quantities, and D represents the price consumers are willing to pay for various quantities.
Q Internal Cost Social CostD 100 $40 $60 $80 200 $50 $70 $70 300 $60 $80 $60 400 $70 $90 $50 500 $80 $100 $40 600 $90 $110 $30
What is the external cost per unit?
question
social costs = external costs + internal costs
answer
What is the relation between social costs, internal costs and external costs?
question
positive externality, negative externality
answer
Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of ________; for the other roommate, it is an example of ________.
question
external
answer
Negative externalities have what kind of costs for third parties?
question
a negative externality
answer
What kind of externality exists when production of a good creates an external cost.
question
the market good quantity will overproduce their goods
answer
For a market with a negative externality, what will happen to the market good quantity when the market participants tend to ignore external cost of their decision?
question
true
answer
For negative externality some costs are borne by a third party. Is this statement true or false?
question
requiring externality
1. change production techniques to reduce emissions and waste-by products
2. the government can levy a tax on the refinery as a disincentive to produce
3. the government can require the firm to pay for any environmental damage it causes
answer
When pollution (a negative externality) is created by firms who produce good X, what are the valid ways for the government to restore the social optimum?
question
produces too little
answer
Consider a market where production of a good generates a positive externality. In the market equilibrium, what happens to the quantity of good being produced?
question
the demand curve shifts out to the right causing an increase along the quantity axis
answer
Government can correct for the positive externality associated with vaccines by subsidizing consumers. What will be the effect of this on the demand curve for vaccines?
question
tax the product
regulate production
find substitutes
answer
What are the ways that government can correct for the externality of a polluting firm?
question
negative externalities
answer
When a firm is required to internalize the pollution costs associated with production, what will be the subsequent causes of this?
question
positive externality
answer
What kind of externality exists whenever production of good creates an external benefit?
question
cost-benefit anaylsis
answer
Global warming (filling the air with CO2) is an example of what economic concept?
question
occurs when a rival (and non-excludable) good becomes depleted or ruined
answer
When does tragedy of commons occurs?
question
-rival
-nonexcludable
answer
The tragedy of the commons occurs for goods that are rival or nonrival? Excludable or nonexcludable?
question
A club good
answer
The music you buy on the internet is a ___ good.
question
nonexcludable
answer
The challenge of public good provision and the tragedy of the commons are two problems associated with which characteristic of good?
question
common resource
answer
Clean air is a ________ good.
question
-large shared popcorn at a movie theater
-alaskan king crab
-congested roads
-fish in the ocean
answer
Give examples of a common-resource good.
question
false
answer
Common-resource goods are nonrival, like public goods, and nonexcludable, like private goods. Is this true or false?
question
overused
answer
Common resources are overused or underused?
question
-nonrival
-excludable
answer
Can a club good be defined as rival or nonrival? Excludable or non-excludable?
question
the demand curve will shift to the right showing an increase
answer
The city decides to offer a subsidy to each homeowner's association that plants flowers in their common areas. In the market for flowers, what will be its effect on the demand curve?
question
Common Resouces
answer
Free public parking spaces is an example of what kind of good?
question
club good
answer
Is entertainment television a public good?
question
public
answer
Any passerby can enjoy the show without paying. This factor contributes to making street performances a _____ good.
question
rival, excludable (private good)
answer
Assume there are no externalities. The market works efficiently if the good is rival or nonrival? Excludable or non-excludable?
question
public
answer
________ goods can be jointly consumed by more than one person, and nonpayers are difficult to exclude
question
-nonrival
-nonexcludable
answer
Which characteristics best define a public good? Rival or nonrival? Excludable or nonexcludable?
question
profit (or loss)
answer
Total revenue minus total cost is equal to what?
question
a. false
b. false
c. true
d. false
e. false
answer
Determine which statements are true or false from following:
a. Economists consider only explicit costs.
b. Implicit and explicit costs are always equal.
c. An implicit cost is an opportunity cost.
d. All costs are explicit costs
e. An implicit cost is monetary
question
explicit
answer
_____ costs are tangible out-of-pocket expenses.
question
a. false
b. false
c. true
d. false
e. false
answer
Determine whether the following statements are true or false with respect to explicit costs:
a. They are not included when measuring accounting profit.
b. They are not included when measuring economic profit
c. They are tangible out-of-pocket expenses
d. They are not measured in terms of dollars.
e. They are more difficult to calculate and easier to miss than implicit costs
question
explicit costs
answer
For a business that manufactures bicycles wages paid by the business to its employees is example of what type of costs?
question
$370,000
answer
If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?
question
$66,000
explicit cost= rent+wages paid+cost of ingredients/ overhead charges
(3000x12)+(2000x12)+(500x12)
answer
Remi owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients averages $500 per month. Remi could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His explicit costs last year were ________.
question
43,000
(145000-12000-65000-25000)
answer
Lisette is the owner of a bakery that earns zero economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her other monetary expenses were $25,000. From this information, we know that her explicit costs were ________.
question
they cant be observed directly
cover opportunity costs as well as explicit costs
answer
Why can implicit costs be difficult to measure for business owners?
question
80,000
120000=280000-(80000+implicit costs)
answer
If a firm generates $280,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?
question
marginal product
answer
What is the change in total output divided by the change in input known as?
question
marginal product of labor
answer
What is the change in total output known as when a firm hires another employee and, as a result, total output increases?
question
1
answer
Lester owns a candy equipment store that produces, among other things, chocolate fountains. He currently has 5 employees; with 5 employees, his candy equipment store can produce 8 chocolate fountains per day. If he hired a sixth employee, he'd be able to produce 9 chocolate fountains per day. What is the marginal product of the sixth employee in terms of chocolate fountain(s)?
question
2
answer
Fatima owns a car shop that repairs, among other things, spoilers. She currently has 6 employees; with 6 employees, her repair shop can repair 9 spoilers per day. If she hired a seventh employee, she'd be able to repair 11 spoilers per day. Therefore, the marginal product of the seventh employee is ________ car spoilers.
question
when price is larger then the atc
answer
What do MC, ATC, AVC tell you about economic profits? In other words, given MC, ATC, AVC, how do you determine if firms are earning economic profits?
question
MC is an increase in total cost from producing one more unit of production
Specialization limits ones work to a particular area/field
answer
What is the relationship between MC and specialization?
question
as marginal cost increases, the marginal product will decrease. vice versa
answer
What does MC says about marginal product?
question
AVC=TVC/Q
ATC=TC/Q
answer
What is the relationship between AVC, ATC, and Total fixed cost?
question
output, wages, prices
answer
Which inputs are often assumed to be fixed (variable) in the short run?
question
total costs are the sum of fixed and variable costs
fixed costs dont vary with output
variable costs change with the amount of output
answer
What is the relationship between total costs, fixed costs, and variable costs?
question
no
answer
Would fixed costs change as you increase total output?
question
employee wages, costs of raw materials
answer
What are good examples of a variable cost in the short run?
question
AVC=TVC/Q
AFC=TFC/Q
ATC=TC/Q
answer
How to calculate AVC, AFC (average fixed costs), ATC?
question
when the marginal cost curve intersects the atc curve
answer
When is the average total cost curve at its minimum?
question
it is below the average total cost curve
answer
When the average total cost curve is downward sloping, what must be true about the marginal cost curve?
question
no, ATC is higher than price, which creates a loss
answer
Should a firm always produce at the level of output where marginal cost is lowest?
question
the quantity of output that minimizes the average total cost in the long run
answer
Where would we find a firm's efficient scale of production?
question
firms are price takers in competitive markets
answer
What is a price taker and in which type of market can we find them?
question
customers will switch to a different seller
answer
What would happen if a firm set its price higher above the market price in a perfectly competitive market?
question
the interaction of market demand and supply because firms and consumers are price takers
answer
How is the market price determined in a competitive market?
question
1. many buyers/sellers
2. firms are price takers
3. free entry and exit
answer
List three main characteristics of a competitive market
question
there are not a lot of sellers, therefore sellers set their prices higher
answer
What make a farmers' market not perfectly competitive?
question
firms must decide whether to operate or temporarily shut down
answer
What happens when firms are incurring losses in a perfectly competitive market?
question
marginal revenue is the change in total revenue when a firm produces an additional unit of output.
Marginal revenue must be greater than marginal cost so that the firms expand outputs which maximizes profits
MR=MC (where you want to produce)
answer
What is marginal revenue and what is its role in profit maximization?
question
profit is maximized by choosing the level of output such that MR=MC
Locate the point at which the firm will maximize its profits: MR = MC.
Look for the profit-maximizing output: move down the vertical dashed line to the x axis at point Q. Any quantity greater than or less than Q would result in lower profits.
answer
What is the profit maximization rule and how to determine economic profits?
question
attract more entry by more firms, which lowers the price
answer
What would happen if perfectly competitive firms are earning economic profits?
question
when you operate a loss
answer
When should firms exit a perfectly competitive market in the short run?
question
So that no individual can control the price
answer
Why do we need many buyers and sellers in competitive market
question
price>average total cost, when they make profits
answer
When should firms enter a perfectly competitive market in the short run?
question
MR=MC, which equals average total cost
answer
What define the long-run competitive equilibrium?
question
accounting profit=revenues-explicit costs
economic profit=accounting profit -implicit costs
**economic profit is less than accounting profit
answer
What are accounting profits and economics profits? How to calculate them?
question
an explicit cost is the expenses that a company pays for with their own money...tangible, while opportunity costs are implicit costs
answer
What is the difference between an explicit cost and an opportunity cost?
question
the portion of its marginal cost curve that lies above the average variable cost
answer
What is the short-run supply curve of a perfectly competitive firm?
question
unrecoverable costs that have been incurred as a result of past decisions
NO- do not consider (sunk-cost fallacy)
answer
What is sunk cost? Should it change our decision?
question
a single firm that sells a product w/out close substitutes
-one seller, high barriers to entry, price making
answer
What is a monopolist? What characterizes a monopolist?
question
1. control of resources
2. problems raising capital
3. economics of scale
answer
what are barriers to entry?
question
ability to set price.
ex: microsoft and gas companies
answer
What are the reasons of monopoly power? List examples.
question
can result in an inefficient level of output, provide fewer choices to consumers, and encourage monopoly firms to lobby for government protection
answer
What are the consequences of monopoly?
question
profit= total revenue -total cost
answer
How to solve for monopolist price, output, and profits? How to present them on a graph?
question
...
answer
What are the welfare losses associated with monopoly? How to present the losses on a graph?
question
...
answer
What are the pros and cons of government oversight and management of monopolies?
question
chose output level
answer
how would a monopolist set prices?
question
1. breaking up the monopoly
2. reducing the barriers
3. regulating markets
answer
What are the ways to restore competitiveness in a monopoly marker?
question
firm forgoes transactions w/ consumers. The DWL is the potential gains that did not go to the producer or consumer.
answer
Why is there deadweight loss in a monopoly
question
-competitive firm: many firms, produce efficient output, cannot earn long-run economic profits, haas no market power (price taker)
-monopoly: one firm, produce less than efficient output, may earn long run economic profits, has significant market power (price maker)
answer
What are the differences between a competitive firm and a monopolist? How do they behave differently?

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