02.03. Supply and Demand Flashcards
Consumer Surplus Definition
The amount that consumers benefit by being able to purchase a product for a price that is less of the price that they are willing to pay for
Producer surplus Defintion
the amount that producers benefit by selling at a market price mechanism that is higher that they would be willing to sell for
they would have sold the product for less
Whats a sunk cost?
Sunk cost is a past expenditure that cannot be recovered.
If an expenditure is sunk, it is not an opportunity cost. So we should not consider it for managerial
decisions. However, sunk costs appear in financial accounts.
If the price of automobiles were to increase substantially, the demand curve for gasoline would most
likely….
As) shift leftward.
B) shift rightward.
C) remain unchanged.
D) become steeper.
A (because they are complementary goods)
Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at
any price. The market supply curve will be a
A) vertical line where Q = 10.
B) vertical line where Q = 100.
C) vertical line where Q = 1000.
D) horizontal line where Q = 1000.
D, because total market supply is 10x100=1000
After tickets for a major sporting event are purchased at the official box office price, a market often
develops whereby these tickets sell at prices well above the official box office price. Which of the
following scenarios would NOT be able to explain this result?
A) The official price was below equilibrium from the moment the tickets were available.
B) Increased publicity causes the demand curve for the event to shift rightward.
C) The event was not a sellout.
D) Not everyone who wanted a ticket was able to buy one at the box office
C, if the event was not a sellout, it means there were more tickets available than the number of people wanting to buy at the box office price. this would NOT result in higher P since supply meets or exceeds demand
A: right bc if official price is below E, demand exceeds supply, leading to another pricy market
In the labor market, if the government imposes a minimum wage that is below the equilibrium
wage, then
A) workers who wish to work at the minimum wage will have a difficult time finding jobs.
B) firms will hire fewer workers than without the minimum wage law.
C) some workers may lose their jobs as a result.
D) nothing will happen to the wage rate or employment.
D, bc the market wage is already determined
If all conditions for a perfectly competitive market are met, a firms individual demand curve….
is horizontal (perfectly elastic)
Assume a consumer has a horizontal demand curve for a product. His consumer surplus from buying
the product
A) is maximized.
B) can’t be calculated.
C) equals zero.
D) Need more information.
C, bc he buys at any Price but wont buy more or less
What is….
- a process innovation?
- an organizational innovation?
- changes the production fct, also called technological progress: more output to be produced with same level of inputs (neutral if more output produced using the same inputs; non-neutral if it is capital or labor saving)
- may also alter prod. fct. and increase the amount of output produced by given nr of inputs
Which of the following innovations is an organizational innovation, which is a process innovation, and
which is product innovation?
a) In the past twenty years USB flash memory sticks have replaced older floppy discs that is used to
move information from one computer to another.
b) Over that same period major corporations have adopted their internal structures, with fewer layers
of middle management.
c) Fracking technology has greatly increased the amount of oil and gas than can be obtained from shell.
a) product innovation
b) organizational
c) process
A firm paid €300k for a parcel of land but the market value is now €200k. If the firm builds a plant on
this land, the value for the firm becomes €240k.
▪ Is it worth carrying out production on this land or should the land be sold for its market value of
€200k?
carry out, bc the 300k are a sunk cost anyway
Suppose the government investigates how to collect lump-sum costs from the trucking industry.
Would it make a difference to the analysis, whether the government collects these lump-sum
costs such as registration fees annually or only once when the firm starts operations. How would
each of these franchise taxes affect the firm’s long-run supply curve? Explain your answer.
- collecting annually or only once are FC -> no difference
- both increase LRAC of production by amount of fee/ output level
- In perfectly competitive markets in the long run, individual firms will produce the level of output
that occurs…. - At the long-run equilibrium, the market price will equal…
- Otherwise, if firms were earning economic profits, then…
- ….at the lowest point on their long-run average cost curve.
- …the minimum long-run
average cost of production. - …new firms would enter, and if firms were incurring losses, existing firms would exit.
An R2 close to 1
A) does not happen with real data.
B) indicates that almost all of the variation in the dependent variable is explained by the regression.
C) does not explain variation as well as an R2
that is above 2.
D) means that the regression line does not fit the data very well.
B
