The equilibrium value of the marginal product of a factor is the additional value produced by the _____ unit of that factor employed in the factor market as a whole. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal? Jim being paid $7.25 an hour to work at a restaurant is an example in the circular flow of a: household selling a resource in the factor market. The table shows the maximum amount of fish and coconuts that Tom and Hank can produce if they produce only one good. There is often a trade-off between equity and efficiency. If the price of hamburger decreased, it would probably result in _____ in the demand for hamburger buns. Which group of U.S. workers had the highest median earnings in 2011? The demand for strawberry ice cream tends to be relatively price-elastic because: for most people there are many close substitutes for strawberry ice cream. If the price of cameras is equal to the price of coffee, then the marginal utility of cameras is equal to the marginal utility of coffee. The reasons why free trade is desirable can be developed by extending the discussion of the Crusoe economy that is commonly used to illustrate production-possibilities frontiers. This industry could best be described as one with: What makes it more difficult for oligopolistic firms to enforce tacit collusion? When a good is nonrival in consumption, the most efficient price for the consumption of the good is: The efficient level of provision of a public good is the level at which its marginal social benefit is equal to the marginal social cost of its production. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production. A Giffen good must be such that the substitution effect outweighs the income effect for an inferior good. If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would: Firms in monopolistic competition can acquire some market power: All advertising is clearly a waste of resources. Christine has a linear demand curve for candy. The Bountiful Bakery is considering hiring another pastry chef. The marginal product of labor is the change in: total output divided by the change in the quantity of labor. For consumers, pizza and hamburgers are substitutes. How will this affect an economy? Which of the folowing is an example of the failure of a system of property rights to assign ownership to the appropriate party? The _____ illustrates the trade-offs facing an economy that produces only two goods. Tara notices that studying for one hour after class increases her economics grade by 11 points. Based on the information given, once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal: be more elastic than the short-run industry supply curve. The Coase theorem asserts that, in the right circumstances, inefficiencies created by externalities can be dealt with through, One example of a source of external benefits is. Good X and good Y are related goods. But, you could also choose to lay in the sun all day and get nothing done. The _____ tomatoes will decrease if fertilizer prices rise. If New York City had no medallion system for taxicabs, assuming that the supply curve of taxicab rides is upward sloping and the demand curve of taxicab rides is downward sloping, the price of a taxicab ride would: the demand price to be greater than the supply price. A statement that says that the minimum wage should be increased is a(n): simplify reality in order to highlight what really matters. Kookie's friends give her gift cards that she forgets to use before they expire. The curve shows the maximum quantity of fish Tom can catch during a week given … He notices that every time the largest airline changes the price, smaller airlines follow, but the smaller airlines are always priced slightly below the fare of the largest airline. Each has a linear production possibility frontier in both goods. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. If the price is less than the average variable cost at the quantity of output where MR = MC, then in the short run, a perfectly competitive firm will: In the long run, a perfectly competitive firm will earn? Which of the following is most likely to be higher for a regulated natural monopoly than for an unregulated natural monopoly? If the demand for beef is perfectly elastic, this rancher's quantity demanded will: Jane is a utility-maximizing consumer who is consuming the optimal quantity of wallets and eyeglasses and spending her entire budget. Status quo bias is the tendency to avoid making a decision and sticking with the status quo. Taxes are a more effective method of controlling pollution than environmental standards because: taxes encourage reducing pollution at the lowest possible cost. The table below shows the production potential of Katniss and Peeta. For a perfectly competitive firm in the short run, if the firm produces the quantity at which: If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: In the short run, if P > ATC, a perfectly competitive firm: produces output and earns an economic profit. Which of the following best describes a monopolistic competitor's demand curve? If the output of military goods is increased, the output of civilian goods: If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and he faces a linear production possibility frontier for his farm, the opportunity cost of producing an additional pound of potatoes is _____ pound(s) of cabbage. This firm is experiencing: When long-run average total cost is constant as output increases, the firm is experiencing constant returns to scale. Concepts covered include efficiency, inefficiency, economic growth and contraction, and recession. Actual wage differentials can be partially explained by which example? Based on your reading about oligopoly in this section, firms in which the following firms have been prosecuted for creating illegal cartel? What type of irrational behavior does this best represent? When an economy is in a recession, it is operating inside the PPC. Bluefin tuna travel in schools throughout the world's oceans. Because people will behave rationally in most markets. (Table: Fish and Coconut Production Possibilities) Look at the table Fish and Coconut Production Possibilities. (Table: Comparative Advantage I) Examine the table Comparative Advantage I. Finland has a comparative advantage in producing: The other things equal assumption allows economists to, A decrease in the price of butter would most likely decrease the demand for. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel. Both have been policemen in Memphis for 10 years. An important assumption underlying the marginal productivity theory of income distribution is that: factor markets are perfectly competitive. the number of firms and whether or not products are differentiated. Choose one answer. Which statement is an example of bounded rationality? It also believes that the next chef hired will produce an extra 12 dozen croissants per day. has an income effect that is always negative with respect to the quantity of labor supplied. Programs designed to only help those with low incomes are called. When it is at full employment, it operates on the PPC. Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity. The broccoli market is perfectly competitive. If tortilla chips are a normal good, what happens to equilibrium price and quantity when there is an increase in income? Assuming that American and French wines are substitutes in consumption, if the U.S. government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium, the price of French wine in the United States will ____ while the U.S.-produced wine will _____. Scarcity is the basis of many economic concepts because it constrains or limits our behavior. The table shows the maximum number of fish … At market equilibrium in a competitive market, which of the follow is necessarily true? If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by: The marginal revenue received by a firm in a perfectly competitive market: In the short run, if a perfectly competitive firm chooses to produce, then its profits are maximized by producing the quantity of output where marginal cost equals marginal revenue. Juan spends all of his income on baseball cards and candy. Consider gas stations where customers pay inside before they pump gasoline. The price elasticity of demand (using the midpoint formula) between the prices of $10 and $8 is approximately: On a linear demand curve, demand at lower prices will be: The demand for agricultural output is price inelastic. If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would _____ and output would _____. The marginal benefit from pollution _____ as the quantity of pollution emissions _____. The table shows the maximum amount of fish and coconuts that Tom and Hank can produce if they produce only one good. The schools of bluefin tuna are best described as a(n): An individual is MORE likely to be a free-rider when a good is: Which of the following is true of the U.S. poverty rate? Suppose that you prefer reading a book you already own to watching TV and that you prefer watching TV to listening to music. google_ad_width = 120; Learning effects often result in _____ marginal costs. If Gehrig buys the cap for $71, he will have an individual consumer surplus of $71. (Figure: Production Possibilities and Circular-Flow Diagram) Examine the figure Production Possibilities and Circular-Flow Diagram. It will decrease the level of income of other people, because one person's spending becomes someone else's income. Quantity demanded will decrease; total revenue will rise. paint, because you need it in an amount sufficient to paint at least one entire room. If the price of chocolate-covered peanuts is $0.60, the price will: Which of the following is certainly true if demand and supply increase at the same time? In the short run, a perfectly competitive firm produces output and earns an economic profit if: A firm should continue to produce in the short run as long as price is at least equal to. A firm finds that its long-run average total costs increase as it produces more output. Which of the options will he choose? Economists use models to explain real-life situations because: simplifications and assumptions often yield results that can help to explain the more difficult real-life situations. the purchase of stocks and bonds by a business. Which statement is correct about celebrity spokespersons advertising products? Suppose at a price of $10 the quantity demanded is 100. Within the circular-flow diagram, the market for goods and services is the place where. Compared to the condition before the increase in marginal costs, the monopolist will _____ its price and _____ its level of production. //-->. Many customers will walk right past a diner that serves shade-grown coffee and go to Starbucks, where they pay more for a cup of shade grown java. There was a decrease in demand or a decrease in supply. If the price of good X is $2: An increase in the price of contact lenses will increase the supply of contact lenses. The opportunity cost of Gilligan catching an addition fish is 1 coconut. Supply of DVD players shifts to the right. The problem of determining what goods and services society should produce: exists because there are not enough resources to provide all of the goods and services that people want to purchase. Big Island can produce either 100 fish per day and 0 baskets per day or 0 fish per day and 200 baskets per day. charging different prices to buyers of the same good. In order to encourage consumption of a good that generates positive externalities, the best option for policymakers would be to: provide a subsidy per unit of the good consumed in order to achieve the socially optimal level. The table shows the maximum amount of fish and coconuts that Tom and Hank can produce if they produce only one good. The production-possibilities frontier separates outcomes that are possible for an individual (or a group) to produce from those that cannot be produced. Because monopoly firms are price-setters, they: When a monopolist practices price discrimination, the monopolist's profits will decrease compared to the monopolist's profits in a single-price monopoly. Because of monopoly, consumers experience _____ than with perfect competition. If it uses all of its resources to produce steel, it can produce 250 tons of steel and 0 tons of wheat. A negative relationship between the quantity demanded of a good and its price is called the law of: Which statement will NOT cause an increase in demand for good X? Equilibrium quantity will always increase if: Assuming that hardcover books are a normal good, which statement could cause a decrease in demand for hardcover books? Money flows from households to firms in exchange for the factors of production that households offer for sale. Which characteristic makes an industry more conducive to collusive behavior? The federal government pays for 46% of U.S. health care costs. The table gives five production possibilities, options A through E. Each option shows what alternative mixes of cars and airplanes that society can choose to produce. If these are your only three choices, what is the opportunity cost of reading? Kookie has made which of the following mistakes in economic decision making? The Production Possibilities Curve (PPC) is a model used to show the tradeoffs associated with allocating resources between the production of two goods. Sam's salary as a policeman is $800 per month higher than Bob's salary. amount of fish and coconuts that Tom and Hank can produce if they produce only one . If at a given quantity _____, the decision maker should do _____ of the activity. In the long run, when a firm adds physical capital, its variable cost will decrease. As Jake consumes more turkey relative to mashed potatoes, the _____ of turkey eventually decreases. Next we see what production-possibilities frontiers tell us about exchange. the firm has time to change the level of all inputs. Big Island can also produce any combination of goods that lies on its linear PPC. A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, such as wheat farming, are alike in that: increasing returns to scale in the industry. Keynesians argue that low levels of spending: "Many economists agree that income taxes should be increased for rich people" is a positive statement. If a monopolist is producing a quantity that generates MC < MR, then profit: can be increased by increasing production. What type of irrational behavior does this represent? In perfect competition, a change in fixed cost will: encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits. Suppose a drought destroys one-third of the nation's peanut crop. If a tax system is poorly designed, it may be possible to increase: equity without causing inefficiency or increase efficiency without sacrificing equity. An increase in the demand for steak will lead to an increase in which of the following? Factor market demand is called derived demand because it. Having large enterprises as buyers of the products supplied by the oligopoly. Suppose that Robinson Crusoe, living on an almost deserted desert isle, can either catch four fish a day or find eight coconuts. If goods A and B are substitutes, a decrease in the price of good B will: The demand for meals at a local Applebee's will shift to the left if: the Olive Garden offers a 10% discount coupon in the local newspaper. A dozen croissants sell for $30. C) point C (a decrease in coconut production). The _____ effect of a _____ wage causes individuals to substitute _____. Suppose Jon pays $8 to see Tom Cruise in his next movie. The slope of the frontier in the graph above measures the costs facing Crusoe. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a _____ in the equilibrium quantity of hamburgers. The opportunity cost of spending one year in college for Margo is: whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college. He pays for it with his credit card rather than with money from his checking account. In terms of labor supply, the substitution effect of a higher wage will: A labor market in which there is only one firm hiring labor is called an oligopoly. If the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is _____ units of consumer goods per period. If the two countries specialize and trade, which of the choices below describes the countries' imports? People who have higher levels of human capital will tend to: receive higher salaries than those who have lower levels of human capital. In the absence of trade, Tom produces and consumes nine fish and two coconuts, and Hank produces and consumes three fish and two coconuts. (Table: Production of Good Z and Good X in Urbanville) Examine the table Production of Good Z and Good X in Urbanville. One reason that wage discrimination based on gender or ethnicity could continue is: the existence of higher than equilibrium wages due to market interference or market failure. Which of the follwing is true regarding equity and efficiency in competitive markets? Two countries, A and B, produce two goods, wheat (W) and steel (S). Which strategy is a form of strategic behavior defined as behavior intended to influence the future actions of other players? Which statement is FALSE concerning the circular-flow diagram? This results in a significant increase in the output of both coconuts and fish. If they spend all night making sunglasses, Laurence can make 6 whereas Carrie Anne can make 4. Which statement is true about advertising for Budweiser? These tradeoffs are present both in individual choice and in the production decisions of entire economies.. A monopolist responds to an increase in demand by _____ price and _____ output. So, no fish and no coconuts are also within your PPF. The table shows the maximum amount of fish and coconuts that Tom and Hank can produce if they produce only one good. At the optimal consumption bundle, which statement is correct? When the price falls to $8, the quantity demanded increases to 130. The line along which values of the x-variable are measured is called the _____. Which of the following government actions is the most common for a natural monopoly in the United States? Figure 3.1 shows a hypothetical production possibilities curve for Tom, a castaway alone on an island, who must make a trade-off between fish production and coconut production. For both to become better off, each should specialize in the production of some good. The lack of property rights and inaccuracy of prices as economic signals often lead to: If macroeconomic policy has been successful over time, it is likely that the economy has not seen: a shift to the left of the entire supply curve. The quantity demanded is the same as the quantity supplied. B Coconuts and fish are perfect substitutes when consumed. An example of a government transfer is a(n): Which is NOT included in investment spending in the national income accounts? Generally, each successive unit of a good consumed will cause marginal utility to. The maximum number of bags of peanuts that he can purchase is: over which a firm can consider all inputs as variable. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be: If the price of mozzarella cheese (an ingredient in pizza) declines, there would be: A technological advance in the production of automobiles will: (Table: The Market for Chocolate-Covered Peanuts) Examine the table The Market for Chocolate-Covered Peanuts. People may be uninsured for all of these reasons EXCEPT: they are too old to qualify for health insurance. if she feels that the first (Table: Supply of Lemonade) Examine the table Supply of Lemonade. The effect of a tremendous natural disaster can be shown by: an inward shift of the production possibility frontier. At his current consumption bundle, the marginal utility of baseball cards is 20 and the marginal utility of candy is 10. increases in absolute value as the price rises. Demand for Wendy's hamburgers is more inelastic than the demand for all fast food. If someone did not regard health care as very important, often using home remedies and other substitutes, compared to other people and holding all other things equal, his or her demand curve for health care would most likely be _____ over the relevant range of prices for health care. shift the production possibility frontier outward. each additional unit of an input used will increase output, but by smaller and smaller amounts. Externalities are side effects on the welfare of others not involved in the production or consumption of a good or service that markets don't take into account. Suppose he finds such a cap for $71 on eBay. (Table: Fish and Coconut Production Possibilities) Examine the table Fish and Coconut Production Possibilities. Let us explore the notion of constrained behavior by starting with the simplest sort of economic structure, Robinson Crusoe alone on his island. Which of the following is likely to have the highest price elasticity of demand? This means that the marginal _____ of studying decreases with study hours. The production possibilities frontier (PPF for short, also referred to as production possibilities curve) is a simple way to show these production tradeoffs graphically. A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is: greater than average variable cost and less than average total cost. Responds to an increase in the quantity of output to: focus on the possibility... Estimated to be higher for a perfectly competitive industry is a typical in. Of Indiana residents with a college student is faced with a difficult decision how. Devote some time to both decreasing production labor hours of economists is that base. Of these reasons EXCEPT: they are too old to qualify for health.. Entire economies an upward movement along the labor supply curve Shifts downward, what happens to equilibrium price equilibrium! 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