Ch 17-21 Flashcards
As you go on more and more ski weekends, your total utility ____ and your marginal utility___.
rises;declines
As you buy more and more of an item, your total utility ____ and your marginal utility ___.
Rises;rises
Mr. Fefferberg had determined that the marginal utility of the last dollar he spend on cowboy boots is greater than the marginal utility of the last dollar that he spent on Nikes. Since he is a rational fellow, he will
buy more cowboy boots and fewer Nikes.
Total Utility is maximized when marginal utility is zero. (t/f)
True
If total utility is decreasing, then
marginal utility is less than zero.
If you were in the middle of the desert, came upon a lemonade stand, and paid $5 for a glass of lemonade,
you would have gotten at least $5 of utility from the lemonade.
As a person buys increasing amounts of a good, her marginal utility ____ and her consumer surplus _____.
decreases; increases.
If water became very scares and diamonds became very plentiful
the marginal utility of water would rise and the marginal utility of diamonds would fall.
A person who wishes to maximize his or her satisfaction from the consumption of a product should consume until
marginal utility is equal to zero.
Kelly eats 5 slices of pizza on Friday night but admits each slice of pizza doesn’t taste as good as the previous one. This suggests that for Kelly,
the marginal utility of a slice of pizza is positive but decreasing.
According to the general utility formula, the marginal utility of a good divided by the price of that good is_____.
equal to one.
When marginal utility is zero, total utility
is maximized.
we are maximizing our utility when the ____ of each good and service we purchase is equal to _____.
Marginal utility; its price
Melissa says she will have to be paid in order to even try Jason’s cooking, so her marginal utility for Jason’s cooking is
negative.
Alfred Marshal discovered the concept of
consumer surplus
A person would be maximizing her total utility when
her marginal utility was zero.
When total utility is increasing, marginal utility is
positive.
As long as total utility is increasing, we know that marginal utility is
positive
If your marginal utility from your last session with your personal trainer is equal to the price she charges you, then
you have had exactly the right number of sessions.
If a restaurant served free steaks, people would consume more and more steaks until their ____ fell to zero.
marginal utility
As you consume more and more of a service,
your consumer surplus is definitely increasing.
We will keep buying blank audio cassettes until the marginal utility of a cassette
falls to the price of a cassette
The water-diamond paradox is resolved once we realize that the marginal utility of the last gallon of water consumed is very __ and the marginal utility of the last diamond carat purchased is very ____.
low;high
if the marginal utility is declining but still greater than zero, then total utility is
increasing.
The economist most closely associated with consumer surplus is
Alfred Marshall.
A drop in the price of oil will result in
both an increase in the demand and an increase in the quantity demanded.
If good A and good B are substitutes and the price of good A decreases. the demand for good B will
decrease.
An increase in the price of Coors is likely to cause
an increase in the demand for Budweiser.
A normal good is defined as a good for which demand increases
as the income of consumers increases
As income falls, the demand for normal goods ___ and the demand for inferior goods___.
falls;rises
Computers and computer software are complements. A decrease in the price of computers is likely to
increase the demand for computer software.
Changes in demand are caused by each of the following except
changes in supply.
A shift of the supply curve does not shift the demand curve.(T/F)
True
A move form D1 to D2 is an
an increase in demand
When the demand for CDs rises, Buyers will purchase more CDs at
all prices.
As the price of an item goes up, the quantity demanded
falls
As income rises, the demand for inferior goods
falls
The law of demand holds
for both individual and for markets.
The price of a car is not a complementary good.(T/F)
True
If the price of Diet Pepsi rises, what happens to the price of Diet Coke?
it will rise.
If coffee is a substitute for tea, and the price of coffee rises, what will happen?
Demand for tea will increase.
A shift in the demand curve for gasoline would occur if
people decided to travel more by car.
Chicken and pork are substitutes. Other things being equal, an increase in the price of chicken will
increase to demand for pork.
When we go from one demand curve to another, there has definitely been
a change in demand.
When Pope Paul VI issued a decree allowing American Catholic bishops to end year-round meatless Fridays, except during Lent, the effect in terms of supply and demand was to cause
a decrease in demand.
Id beans are inferior goods, a decrease in income will
shift the demand curve for beans to the left
The advertiser wants to push her product’s demand curve
to the right and make it less elastic.
An elasticity of 1.5 means that a 1% change in price will lead to a ___% change in quantity demanded.
1.5
Unit elasticity on a graph is the middle. (T/F)
True
A perfectly inelastic demand curve is
a vertical line
If price falls from $100 to $99 and quantity demanded rises from 2 to 3, the demand is
very elastic
Advertisers try to make the demand for their products less elastic.(T/F)
true
A demand curve that is perfectly horizontal is
perfectly elastic.
If a 1% change in price leads to a 0.5% change in quantity demanded then elasticity of demand is
0.5.
Total revenue will increase if price
falls and demand is elastic
Demand is elastic when
percentage change in quantity is greater than percentage change in price.
If a car dealership decides to offer a rebate to reduce the selling price of its car and as a result finds as increase in its total revenues then, then the demand for cars from the dealership is
price elastic
curve on a graph is
perfectly elastic demand curve
If demand is inelastic and price is raised
quantity demanded will fall and total revenue will rise.
D2 is more elastic than D1. (T/F)
true
Cross elasticity of demand measures the response in
the quantity of one good demanded to a change in the price of another good.
If more substitutes become available demand tends to become ____ elastic and over time demand tends to become ___ elastic.
more; more
If demand is inelastic and price is lowered, total revenue will
fall
An elasticity of 0.75 means that a 1% change in price will lead to a ___% change in quantity demanded.
0.75
Which of these elasticities is the least elastic
0.1
Income elasticity of demand measures how______.
the consumption of various goods and services respond to change in income.
An elasticity of 2 would be considered
elastic.
If consumers are price sensitive, then
they will have elastic demand curves.
In general, the more the substitutes available for a good
the more elastic the demand for the good.
When the price of CD players increases 5%, quantity demanded decreases 5%. The price elasticity for CD players is
unit elastic.
The AFC curve is U-shaped.(T/F)
False
Which is most clearly a variable cost?
wages of production workers
The phrase “spreading the overhead” refers to
the decrease in average fixed cost that occurs as a firm increase its output.
In the short run
some costs are fixed costs.
AFC declines with output.(T/F)
True
As output rises,
AFC falls.
Going out of business or not going out of business are long run options. (T/F)
True
A firm has a fixed cost of $2,000, and at an output of one, variable cost is $1,500. How much is marginal cost at an output of 1?
$1,500.
Average total cost is found by dividing
total cost by output.
The basic characteristic of the short run is that
the firm does not have sufficient time to cut its rate of output to zero.
Jimmy, Walter, Mike, and Bill run a school for political candidates. The school has fixed cost of $10 million, variable cost of $4 million, and total revenue of $15 million. In the short run the school will ___ and in the long run the school will___.
operate; stay in business.
Fixed cost is sometimes referred to as
sunk cost.
As output rises, average fixed cost
falls
If fixed cost is $5,000, and, at an output of 3 variable cost is $4,000, how much is average total cost at an output of 3?
$3,000
In the long run
all costs become variable.
Only variable cost varies with output. (T/F)
True
A variable input is an input that can change
in both the long run and the short run
in the short run, the ATC curve is ____ above the AVC curve.
always
The average fixed cost curve
slopes downward and to the right as output rises.
Average variable cost is equal to
average total cost minus average fixed cost.
Fixed costs are best defined as
costs that will not vary with the firm’s output level over some period of time.
If fixed cost is $8,000, variable cost is $5,000 at an output of 2 and $9,000 at an output of 3, how much is marginal cost at an output of 3?
$4,000
If a firm cannot cover its variable cost, it will
shut down in the short run and go out of business in the long run
Average variable cost is found by dividing
variable cost by output.
The minimum possible average total cost of a computer repair shop is $40 and the minimum possible average variable cost is $30. If you operate this shop, you will shut it down immediately if the equilibrium price of computer repairs fall below
$30
A consultant has advised Consolidated Fish, INC. that it should cut back its production in order to increase its profits. We can conclude from this that
CF’s marginal cost must be greater than the price of its production.
When MC>MR, the firm should
decrease production
If the firm operates in the short run and goes out of business in the long run, then the price
must be between the shutdown point and the break-even point
The lowest point on a firm’s short run supply curve is at the
shut down point
A company is operating most efficiently when it is at
break-even point
To find the output at which the firm maximizes its profits you MUST know its firms
MC
A firm will go out of business if price is below
Average Total Cost
The minimum point on the firm’s average variable cost curve is to shutdown point.(T/F)
True
We say that a business is operating at peak efficiency when its _______ is held to a minimum
average total cost
Which curve tells us the output at which firm is producing at peak efficiency?
ATC
Firms most productive output is 63…
…
Marginal analysis is useful to a firm that seeks to
both maximize its profits and maximize its losses
Firms shut down point occurs at an output of 44…
…
A firm produces at the output at which marginal cost =marginal revenue
all of the time
A firm will operate in the short run if total revenue is greater than variable cost.(T/F)
true
The lowest point on the firm’s long-run supply curve is
the break-even point
The firms break even point occurs at an output of
about 58
The firm’s long run supply curve runs along its ___curve.
MC
If price is between the shutdown and the break-even points, in the short run the firm will___ and in the long run the firm will___.
operate;go out of business.
If marginal cost is equal to marginal revenue
the firm should hold output constant
Total revenue divided by output equals
price
In the short run if price is below average variable cost the firm will
shut down
If price is above the break-even point, in the short run the firm will ____ and in the long run the firm will___.
operate; stay in business
To maximize profit, a firm should produce at an output up to the point where
price equals marginal cost.
