econ final elzenga section 5

Question 1

Supply curves generally slope upward because of all the following except one. Which one?
a. Producers are willing to offer more of a good at higher prices.
b. A higher price attracts resources from less-valued uses.
c. Producers must be compensated for the rising opportunity cost of additional output.
d. Producers must be compensated for the rising marginal cost of additional output. e. The price of a good usually must fall to induce an increase in quantity supplied.

Answer 1

The price of a good usually must fall to induce an increase in quantity supplied.

Question 2

The price of a good usually must fall to induce an increase in quantity supplied.

Answer 2

An increase in the price of sealing wax will cause a leftward shift in the supply curve for shoe polish.

Question 3

In a market economy, a surplus of shoes will cause

Answer 3

a decrease in the price of shoes.

Question 4

Tickets to the Michigan State vs. Notre Dame football game are usually sold out in advance of game day.

Answer 4

This suggests
the price is set below the equilibrium level.

Question 5

Suppose the current equilibrium price for pizza is $5. If the federal government decides the price of pizza should be set or frozen at $4, the result of this policy would be

Answer 5

a shortage, where at the freeze price ($4) the quantity demanded would exceed the quantity supplied.

Question 6

Which factor of production earns the largest share of the income in the U.S.?

Answer 6

Labor

Question 7

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue?

Answer 7

In the area of unitary elasticity

Question 8

Perfectly elastic demand curves are

Answer 8

horizontal.

Question 9

The more broadly a good is defined

Answer 9

the fewer substitutes it has, so the less elastic is its demand

Question 10

Maryann and Don want to open their own deli. To do so, Maryann must give up her job, at which she earns $20,000 per year, and Don must give up his part-time job, at which he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and expenses for such necessities as utilities, corned beef, and pickles are $35,000 annually. What is the explicit or contractual cost per year of operating the deli?

Answer 10

$45,000

Question 11

Ron Martin advertises stereos on late-night television with the following line: “We don’t have to worry about high overhead because our volume is so great.” Ron Martin can make this statement because of his declining

Answer 11

average fixed cost.

Question 12

If total fixed costs of a firm double,

Answer 12

marginal cost remains unchanged

Question 13

The long-run average cost curve is the locus of

Answer 13

. the least-cost segments of the short-run average total cost curves for each output level.

Question 14

Homogeneous products are

Answer 14

. perceived by the consumer to be identical.

Question 15

Which of the following could not occur in a perfectly competitive market?

Answer 15

Firms face barriers to entry.

Question 16

5. Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following will happen?

Answer 16

a. The firm will not sell any output.

Question 17

In Connecticut in the fall, the apple market is perfectly competitive. Suppose that this fall (the short-run) consumer tastes change so that people like apples more than they used to. The market demand for apples will increase, and the demand curves faced by individual firms will

Answer 17

shift upward.

Question 18

Suppose, at its present rate of output, Barrel O’Biscuits, a perfectly competitive firm, finds that its marginal cost exceeds its marginal revenue and price exceeds average variable cost. To maximize profits, the firm should

Answer 18

reduce output.

Question 19

. Many country inns shut down in the off-season because
the off-season revenue can’t cover variable costs.

MaryAnn and Don provide catering services in a perfectly competitive market. When they started in business, the going rate was $50 per person per meal. After the price increased to $60, they became willing to supply more meals. Their response to the price change is shown by

Answer 19

movement up their firm’s marginal cost curve

Question 20

Patents stimulate investment

Answer 20

by giving inventors the incentive to incur the initial costs of developing new products.