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ECON > Econ Finals > Flashcards

Econ Finals Flashcards

1
Q

In the short run:

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate

TVC will increase by the same absolute amount for each additional unit of output produced

once cannot generalize concerning the behaviour of TVC as output increases

A

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

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1
Q

Which is most likely to be a natural monopoly?

aircraft manufacturing
auto production
electrical utilities
steel companies

A

electrical utilities

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2
Q

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

be unaffected
shift to the left
become more elastic
shift to the right

A

shift to the right

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3
Q

the budget line shows:

the amount of product A which a consumer is willing to give up to obtain one more unit of product B

all possible combinations of two goods which can be purchased, given money income and the prices of the goods

all equilibrium points on an indifference map

all possible combinations of two goods which yield the same level of utility to the consumer

A

all possible combinations of two goods which can be purchased, given money income and the prices of the goods

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4
Q

A consumer is maximizing her utility with a particular money income when:

the total utility derived from each product consumed is the same

MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn

MUa = MUb = MUc = … = MUn

Pa = Pb = Pc = … = Pn

A

MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn

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5
Q

A positive statement is one which is:

derived by induction
derived by deduction
subjective and is based on a value judgement
objective and is based on facts

A

objective and is based on facts

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6
Q

Marginal revenue is the:

A

change in total revenue associated with the sale of one more unit of output

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7
Q

Diminishing marginal utility explains why:

the income effect exceeds the substitution effect
the substitution effect exceeds the income effect
supply curves are upsloping
demand curves are downsloping

A

demand curves are downsloping

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8
Q

The profit maximizing behaviour for a price-taking firm requires it to operate where:

A

P=MC=AFC

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9
Q

Diseconomies of scale means that:

a firm’s long run average total cost curve is rising
a firm’s long run average total cost curve is declining
the advantages of specialization are being more fully realized
a given increase in inputs results in a more than proportionate increase in output

A

a firm’s long run average total cost curve is rising

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10
Q

If price of normal good X rises, the income:

and substitution effects will both induce the consumer to buy less of X
and substitution effects will both induce the consumer to buy more of X
effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less
effect will induce the consumer to buy less of X and the substitution will induce him to buy more

A

effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less

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11
Q

Refer to the above graph, which shows the market for chicken where D1 and D2 represent different demand curves. A change from E1 to E2 is most likely to result from:

a decrease in consumer incomes
an increase in the wages of chicken workers
an increase in the price of beef products
improved technology in the chicken industry

A

a decrease in consumer incomes

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12
Q

Public choice economists:

analyze the incidence of taxes

are also known as Keynesian economists

use the tools of economics to analyze decision making in the public sector

are economists employed by federal, provincial, and local governments

A

use the tools of economics to analyze decision making in the public sector

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13
Q

Marginal revenue for a perfectly competitive firm:

is equal to price
is less than price
is greater than price
may be either greater or less than price

A

is equal to price

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14
Q

Marginal utility is the:

sensitivity of consumer purchases of a good to changes in the price of that good

change in total utility realized by consuming one more unit of a good

change in total utility realized by onsuming another unit of a good divided by the change in the price of that good

total utility associated with the consumption of a certain number of units
of a good divided by the number of units consumed

A

change in total utility realized by consuming one more unit of a good

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15
Q

Refer to the graph above. In the short run, this monopolistically competitive firm will set price at:

65 and produce 45 units of output
65 and 35
50 and 35
50 and produce 50 units of output

A

50 and produce 50 units of output

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16
Q

Refer to the above supply and demand graph for a public good. Point C on the graph shows where the:

(supply and demand x marks the spot)

A

marginal benefit equals the marginal cost of the public good

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17
Q

For most producing firms:

marginal cost rises as output is carried to a certain level, and then begins to decline
total costs rise as output is carried to a certain level, and then begin to decline
ATC decline as output is carried to a certain level, and then begin to rise
ATC rise as output is carried to a certain level, and then begin to decline

A

ATC decline as output is carried to a certain level, and then begin to rise

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18
Q

the substitution effect indicates that:

a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods

consumer equilibrium can only be achieved when the consumer is buying substitute goods

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products

when the price of a product falls, a consumer will be able to buy more of it with a specific money income

A

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products

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19
Q

A normal good is defined as one:

whose amount demanded will increase as its price decreases

whose amount demanded will increase as its price increases

whose demand curve will shift leftward as incomes rise

the consumption of which varies directly with incomes

A

the consumption of which varies directly with incomes

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20
Q

Price discrimination refers to:

selling a given product for different prices at two different points in time
any price above that which is equal to a minimum ATC
the selling of a given product at different prices which do not reflect cost differences
the difference between the prices a perfect competitive seller and a purely monopolistic seller would charge

A

the selling of a given product at different prices which do not reflect cost differences

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21
Q

A monopolist will maximize profits by producing that output at which marginal cost is equal to:

average total cost
marginal revenue
average variable cost
average cost

A

marginal revenue

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22
Q

In comparing the changes in TC and TVC associated with an additional unit of output, we find that:

the change in TVC is equal to MC< while the change in TC is equal to TFC
the change in TC exceeds the change in TVC
the change in TVC exceeds the change in TC
both are equal to MC

A

both are equal to MC

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23
Q

The economic perspective entails:

rational behaviour by individuals and institutions
a comparison of marginal benefits and marginal costs in decision and making
the altering of behaviour when marginal benefits and marginal costs change
all of the above

A

a comparison of marginal benefits and marginal costs in decision and making

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24
Q

assume a firm closes dowm in the short run and produces no output. under these conditions:

TVC is positive but TFC and TC are zero
TFC is positive, but TVC and TC are zero
TFC and TC are positive, but TVC is zero
TFC, TVC, and TC will all be positive

A

TFC and TC are positive, but TVC is zero

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25
Q

a one-firm industry is known as:

monopolistic competition
oligopoly
pure monopoly
perfect competition

A

pure monopoly

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26
Q

The MR=MC rule applies:

in the short run, but not in the long run
in the long run, but not in the short run
in both the short run and the long run
only to a perfectly competitive firm

A

in both the short run and the long run

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27
Q

The key economic concept that serves as the basis for the study of economics is:

A

scarcity

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28
Q

Which of the figures correctly depicts a firm which does not experience diseconomies of scale?

graph A
graph B
graph C
graph D

A

graph A

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29
Q

Refer to the diagram above. At the profit maximizing output, total variable cost is equal to:

0AHE
0CFE
0BGE
ABGH

A

0CFE

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30
Q

The law of diminishing marginal utility states that:

A

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer

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31
Q

One of the major barriers to entry under monopoly arises from:

the availability of close substitutes for a product
ownership of essential resources
the price taking ability of the firm
diseconomies of scale

A

ownership of essential resources

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32
Q

Refer to the diagram above. At the profit-maximizing output, total revenue will be:

0AHE
0BGE
0CFE
ABGE

A

0AHE

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33
Q

A negative externality or external cost occurs when:

firms fail to achieve allocative efficiency
firms fail to achieve productive efficiency
price exceeds marginal cost
the total cost of producing a good exceeds the costs borne by the producer

A

the total cost of producing a good exceeds the costs borne by the producer

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34
Q

Which of the following statements is incorrect?

a monopolist’s 100 percent market share ensures economic profits
the monopolist’s marginal revenue is less than price of any given output greater than 1
a monopolistic firm produces a product having no close substitutes
a monopolist’s demand curve is the industry demand curve

A

a monopolist’s 100 percent market share ensures economic profits

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35
Q

Marginal analysis means that decision-makers compare the extra benefits with the extra costs of a specific choice

T/F

A

True

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36
Q

Clearly defined property rights and liability rules reduce negative costs by:

threatening the perpetrators with lawsuits
shifting the perpetrators market supply curve rightward
shifting the perpetrators market demand curve leftward
creating a market for externality rights

A

creating a market for externality rights

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37
Q

An “increase in the quantity demanded” means that:

given supply, the price of the product can be expected to decline

price has declined and consumers therefore want to purchase more of the product

the demand curve has shifted to the right

the demand curve has shifted to the left

A

price has declined and consumers therefore want to purchase more of the product

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38
Q

A monopolistically competitive’s firm’s marginal revenue curve:

is downward sloping and coincides with the demand curve
coincides with the demand curve and is parallel to the horizontal axis
is downward sloping and lies below the demand curve
does not exist because the firm is a “price maker”

A

is downward sloping and lies below the demand curve

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39
Q

In the diagram above, curves 1,2, and 3 represent the

average, marginal and total product curves respectively
marginal, average, total product
total, average, and marginal product
total, marginal, and average product

A

marginal, average, total product

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40
Q

Which of the following would not shift the demand curve for beef?

a widely publicized study which indicates beef increases one’s cholesterol
a reduction in the price of cattle feed
an effective advertising campaign by pork producers
a change in the incomes of beef consumers

A

a reduction in the price of cattle feed

41
Q

An industry comprised of a small number of firms, each of which considers the potential reaction sof its rivals in making price-output decisions is called:

monopolistic competition
oligopoly
monopoly
perfect competition

A

oligopoly

42
Q

in a perfectly competitive industry:

there will be no economic progits in either the short run or the long run
economic profits may persist in the long run if consumer demand is strong and stable
there may be economic profits in the short run but not in the long run
there may be economic profits in the long run, but not in the short run

A

there may be economic profits in the short run but not in the long run

43
Q

In the long-run average total cost curve the:

movement from A to B reflects diseconomies of scale
Movement from B to C reflects diseconomies of scale

A

Movement from B to C reflects diseconomies of scale

43
Q

Monopolists are said to be allocatively inefficient because:

they produce where MR > MC

at the profit-maximizing output price is greater than AVC

they produce only the type of product they desire and do not consider the consumer

at the profit-maximizing output the marginal benefit to society of additional output is greater than the marginal cost to society

A

at the profit-maximizing output the marginal benefit to society of additional output is greater than the marginal cost to society

43
Q

Diseconomies of scale arise primarily because:

the short run average total cost curve rises when marginal product is increasing

of the difficulties involved in managing and coordinating a large business enterprise

firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available

beyond some point marginal product declines as additional units of a variable factor of production (labour) are added to a fixed factor of production

A

of the difficulties involved in managing and coordinating a large business enterprise

44
Q

Refer to the above graph of the representative firm in monopolistic competition. THe long-run equilibrium price and output for this firm will be:

P1 and Q1
P2 and Q2
P3 and Q3
P4 and Q1

A

P4 and Q1

44
Q

In perfect competition, the average revenue of a firm always equals

A

average total cost

44
Q

If a technological advance increases a firm’s labour productivity, we would expect its

average total cost curve to rise
average total cost curve to fall
total cost curve to rise
average total cost curve to be unaffected

A

average total cost curve to fall

44
Q

A firm finds that at its MR=MC output, TC=$1000, TVC=$800, TFC=$200, and total revenue is $900. This firm should:

shut down in the short run
produce because the resulting loss is less than its TFC
produce because it will realize an economic profit
liquidate its assets and go out of business

A

produce because the resulting loss is less than its TFC

45
Q

Which statement is correct?

The income effect for a change in the price of any normal good offsets the substitution effect
The income effect shows a decrease in real income is associated with a decrease in the price of a good
The income effect of a normal good will reinforce its substitution effect
The substitution effect measures the increase in the quantity demanded of a good because of a decrease in the price of all other goods

A

The income effect for a change in the price of any normal good offsets the substitution effect

46
Q

Refer to the diagram above for a monopolist. Monopoly output will be:

between f and g
h
g
f

A

f

47
Q

Refer to the diagram above for a monopolist. Monopoly “price” will be

e
c
b
a

A

b

48
Q

The graph below shows a profit-maximizing perfectly competitive firm operating in the short run. Which area in the graph represents the amount the firm can save by continuing to produce in the short run rather than closing down immediately?

0beg
0cdg
acdf
abef

A

0beg

49
Q

The profit-maximizing output of a monopoly is economically inefficient because in equilibrium:

price equals minimum average total cost
marginal revenue equals marginal cost
marginal cost exceeds price
price exceeds marginal cost

A

price exceeds marginal cost

50
Q

A market for pollution rights can be expected to:

eliminate all pollution
produce a shortage of pollution
encourage potential polluters to increase emissions
provide potential polluters with a monetary incentive to reduce emissions

A

provide potential polluters with a monetary incentive to reduce emissions

51
Q

Which is a characteristic of a public good:

A

non-rivalry and non-excludability

52
Q

Refer to the budget line shown in the diagram below. If the consumer’s money income is $20, the

prices of C and D cannot be determined
price of C is 2 and the price of D is 4
consumer can obtain a comnination of 5 units of both C and D
price of C is 4 and the price of D is 2

A

price of C is 4 and the price of D is 2

53
Q

A perfectly competitive firm’s short run supply curve is:

the upward sloping portion of its marginal cost curve
the upward sloping portion of its average variable ocst curve
its marginal cost curve above average variable cost
its average total cost curve

A

its marginal cost curve above average variable cost

54
Q

The demand curve of a perfectly competitive firm is:
(elasticity)

A

perfectly elastic

55
Q

If production is occurring where MC exceeds price, the perfectly competitive firm will:

maximize profit, but resources will be underallocated to the product

maximize profit, but resources will be overallocated to the product

fail to maximize profit and resources will be overallocated to the prodcut

fail to maximize profit and resources will be underallocated to the product

A

fail to maximize profit and resources will be underallocated to the product

56
Q

a market in which a single seller is required for efficient producdtion is called a

regulated industry
natural monopoly
oligopoly
competitive market

A

natural monopoly

57
Q

Economic profit is:

total revenues minus fixed costs
total revenues from sales minus the cost of materials
total revenues minus the opportnity cost of the inputs
gross profit mius selling and operating expenses

A

total revenues minus the opportnity cost of the inputs

58
Q

“Minimum efficient scale”

occurs at some output greater than Q3
is achieved at Q1
is achieved at Q3
cannot be identified in this diagram

A

is achieved at Q1

59
Q

Which statement is correct?

in the short run the plant capacity is variable
in the long run the plant capacity is variable
in the long run the plant capacity is fixed
in the short run all factors of production are variable

A

in the long run the plant capacity is variable

60
Q

If consumer incomes increase, the demand for product X:

will necessarily remain unchanged
may shift either to the right or left
will necessarily shift to the right
will necessarily shift to the left

A

may shift either to the right or left

61
Q

The study of economics exists because:

government interferes with the efficient allocation of scarce resources

resources are scarce in relation to human material wants

the market system is an obstacle to the efficient use of plentiful resources to satisfy constrained wants

resources are overly abundant as compared to wants; thus an allocation problem exists

A

resources are scarce in relation to human material wants

62
Q

Cost-benefit analysis attempts to:

compare the real worth, rather than the market values, of various goods and services

compare the relative desirability of alternative distributions of income

determine whether it is better to cut government expenditures or reduce taxes

compare the benefits and costs associated with any economic project or activity

A

compare the benefits and costs associated with any economic project or activity

63
Q

An inferior good is:

one whose demand curve will shift righward as income rise
one whose price and quantity demanded varies directly
one which has not been approved by the federal Ministry of Agriculture
one whose demand curve will shift leftward as income rise

A

one whose demand curve will shift leftward as income rise

64
Q

Oligopoly is difficult to analyze primarily because:

the number of firms is too large to make collusion understandable
the price and output decisions of any one firm depend on the reactions of its rivals
output may be either homogenous or differentiated
neither allocative nor productive efficiency is achieved

A

the price and output decisions of any one firm depend on the reactions of its rivals

65
Q

Refer to the above diagram. The highest price that buyers will be wiling and able to pay for 100 units of this product is:

$30
$60
$40
$20

A

$60

66
Q

Refer to the above diagram. A price of $20 in this market will result in:

equilibrium
a shortage of 50 units
a surplus of 50 units
a shortage of 100 units

A

a shortage of 100 units

67
Q

The moral hazard problem arises primarily because of

individual bargaining
negative externalities
asymmetric information
poorly defined property rights

A

asymmetric information

68
Q

The monopolistic competitionmodel predicts that:

allocative efficiency will be achieved
productive efficiency will be achieved
firms will engage in nonprice competition
firms will realize economic profits in the long run

A

firms will engage in nonprice competition

69
Q

A constant-cost industry is one in which:

resource prices fall as output is increased
resource prices rise as output is increased
resource prices remain unchanged as output is increased
small and large levels of output entail the same total costs

A

resource prices remain unchanged as output is increased

70
Q

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

taxed
prohibited
subsidized
left alone

A

subsidized

71
Q

Refer to the diagram above. To maximize profits or minimize losses this firm should:

E units and charge price C.
E units and charge price A.
M units and charge price N.
L units and charge price LK.

A

E units and charge price A.

72
Q

Refer to the diagram above. In equilibrium total revenue will be:

NM times OM.
0AJE.
0EGC
0EHB

A

0AJE

73
Q

The MR = MC rule can be restated for a perfectly competitive seller as P - MC
because:

each additional unit of output adds exactly its price to total revenue.
the firm’s average revenue curve is downward sloping.
the market demand curve is downward sloping.
the firm’s marginal revenue and total revenue curves will coincide.

A

each additional unit of output adds exactly its price to total revenue.

74
Q

In perfect competition, the demand for the product of a single firm is:

between zero and one.
perfectly inclastic.
perfectly elastic.
greater than one.

A

perfectly elastic.

75
Q

Other things equal, the provision of a per unit subsidy for a product will:

increase its supply.
increase its price.
decrease the quantity sold. decrease its demand.

A

increase its price.

76
Q

If the price of labour or some other variable factor of production decreased, the:

AVC curve would shift upward.
AFC curve would shift downward.
AFC curve would shift upward.
MC curve would shift downward.

A

MC curve would shift downward.

77
Q

Which of the following would be evidence of price discrimination at a local bar called the Stabilizer?

changing higher prices than under perfect competition

charging higher prices for imported than for domestic beer

charging lower prices to customers wearing Stabilizer T-shirts

charging lower prices to people who bring their own glasses and pitchers

A

changing higher prices than under perfect competition

78
Q

If the variable costs of a profit-maximizing monopolist decline, the firm should:

produce more output and charge a higher price.
produce more output and charge a lower price.
reduce both output and price.
raise both output and price.

A

produce more output and charge a lower price.

79
Q

Given the graph below, the competitive firm’s supply curve is the:

MC curve above F.
MC curve above G.
MC curve above H.
MC curve above J.

A

MC curve above G.

80
Q

Consumer demand for digital video dise (DVDs) has increased over time because the price ofDVD players has:

decreased, and DVDs and DVD players are substitute goods.
decreased, and DVDs and DVD players are complementary goods.
increased, and DVDs and DVD players are substitute goods.
increased, and DVDs and DVD players are complementary goods.

A

decreased, and DVDs and DVD players are substitute goods.

81
Q

Competition means that:

sellers can cause artificial product scarcities and thereby manipulate market price.

there are large numbers of independently acting buyers and sellers in each market.

a given product can be purchased at a number of different prices.

there is more than one seller in a market.

A

there are large numbers of independently acting buyers and sellers in each market.

82
Q

Refer to the above diagram for a perfectly competitive producer. The firm will produce at a loss at all prices:

above P1
above P3
above P4
between P2 and P3

A

between P2 and P3

83
Q

Average revenue is:

total revenue minus total cost.

marginal revenue minus marginal cost.

marginal revenue divided by the quantity of output.

total revenue divided by the quantity of output.

A

total revenue divided by the quantity of output.

84
Q

The price ratio of the two products is the:

marginal rate of substitution.
slope of the budget line.
point of tangency for equilibrium.
clasticity of demand for the two products

A

slope of the budget line.

85
Q

Which of the following statements is correct?

Private goods yield direct benefits to the purchaser and are financed by
government

Public goods yeld widespread external benefits and are purchased by government

Public goods are bought voluntarily out of private incomes and yield no significant
external benefits.

extermal benefire bought voluntarily out of private incomes and yield widespread
external benefits.

A

Public goods yeld widespread external benefits and are purchased by government

86
Q

In the long run:

all costs are variable costs.
all costs are fixed costs.
variable costs equal fixed costs.
fixed costs are greater than variable costs.

A

all costs are variable costs.

87
Q

When the economist says that material wants are insatiable, this means that:

economic resources are valuable only because they can be used to produce consumer goods.

economic resources - land, labour, capital, and entrepreneurial ability - are scarce.

these wants are virtually unlimited and therefore incapable of complete satisfaction.

the structure of consumer demand varies from time to time and from country to country.

A

economic resources - land, labour, capital, and entrepreneurial ability - are scarce.

88
Q

The fact that a perfectly competitive firm’s total revenue curve is linear and upward sloping to the right impliss taso

product price increases as output increases.

product price decreases as output increases.

product price is constant at all levels of output.

marginal revenue declines as more output is produced.

A

product price is constant at all levels of output.

89
Q

When a consumer is maximizing total utility,

the average utility from each dollar spent is the same.

total utility cannot be increased by reallocating expenditures among various products.

the total utility obtainable from each product is at a maximum.

the marginal utility of the last unit of each product purchased is zero.

A

total utility cannot be increased by reallocating expenditures among various products.

90
Q

If the short-run average variable cost of production for a firm is decreasing, then it follows that:

average variable cost must be above average fixed cost. marginal cost must be below average variable cost.
average fixed cost must be constant. marginal cost must be decreasing.

A

marginal cost must be decreasing.

91
Q

Refer to the diagram. Diseconomies of scale:

begin at output Qi.
occur over the Q1Q3, range of output.
begin at output Q3.
are in evidence at all output levels.

A

begin at output Q3.

92
Q

There is a shortage in a market for a product when:

the increase in supply is greater than the increase in demand.

the increase in demand is greater than the increase in supply.

quantity demanded is less than quantity supplied.

quantity demanded is greater than quantity supplied.

A

quantity demanded is greater than quantity supplied.

93
Q

A market is in equilibrium:

provided there is no surplus of the product.

at all prices above that shown by the intersection of the supply and demand curves.

if the amount producers want to sell is equal to the amount consumers want to buy.

whenever the demand curve is downsloping and the supply curve is upsloping.

A

if the amount producers want to sell is equal to the amount consumers want to buy.

94
Q

The inefficiency brought about by monopoly is referred to as:

price discrimmination
reduction in output through government regulation
deadweight loss
monopoly’s gain

A

price discrimmination

ECON (5 decks)

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