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Statistics > Microeconomics Modules 1-4 > Flashcards

Microeconomics Modules 1-4 Flashcards

1
Q

There is a market for bread; wheat flour is an ingredient for making bread. Now, the price of wheat flour rises. What changes in equilibrium price and quantity of bread is seen?

A

Price increases, quantity decreases (demand curve does not move and supply curve shifts to the left)

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2
Q

T/F: There is a market for bread; wheat flour is an ingredient for making bread. Now, the price of wheat flour rises. This will cause the demand curve for bread to shift to the left.

A

False: Any change in price of flour will not change the demand for bread. At given prices, consumers demand particular quantities of bread.

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3
Q

T/F: There is a market for bread; wheat flour is an ingredient for making bread. Now, the price of wheat flour rises. The supply curve for bread shifts to the left.

A

True: As the price of flour increases, the cost for producing bread also increases. Hence, there will be an upward/left shift of the supply curve.

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4
Q

T/F: A consumer buys either burgers or hot dogs and does not prefer one over the other. Given a market for burgers, an increase in the price of hot dogs will cause the demand curve for burgers to shift left

A

False

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5
Q

Consider the market for oil. Suppose a war breaks out in a country that is a large supplier of oil, and the war shuts down production of all oil in this country. What can we expect to occur?

A

There will be a decrease in the supply of oil.

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6
Q

T/F: Universities frequently decide to set the price of attending sporting events to zero for their students. This is an example of reducing scarcity for these activities

A

False

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7
Q

Imagine there is an innovation that allows milk cows to double their daily production of fluid milk. When we consider the market for milk, which of the following can we anticipate?

A

There will be a shift to the right in the supply curve

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8
Q

A consumer buys either burgers or hot dogs and does not prefer one over the other. Given a market for burgers, an increase in the price of hot dogs will cause the supply curve for burgers to shift to the right.

A

False

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9
Q

T/F: Economists believe that scarcity exists for all things; including the air we breathe.

A

True

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10
Q

Coffee and tea are close substitute goods. A _____ in the price of tea will tend to _____ the demand for _____.

A

rise / increase / coffee

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11
Q

All of the following factors are held constant when price changes on a demand curve :

A

population, tastes, income (NOT quantity demanded)

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12
Q

What are some effects of the imposition of a price floor?

A
  1. Supply exceeds demand, creating surplus

2. The floor price is higher than that set by free-market equilibrium

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13
Q

T/F: The equilibrium price of a good seen by producers and consumers after imposition of an excise tax is the same.

A

False: The equilibrium price paid by consumers is given by the intersection of the demand and the new supply curves. But the price as seen by suppliers is the equilibrium price minus the excise tax.

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14
Q

Imposition of an excise tax on a good has what effect on the demand curve of the good?

A

Demand curve does not move

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15
Q

Price elasticity of demand is defined as which of the following?

A

Ratio of percentage change in quantity demanded to percentage change in price

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16
Q

T/F: Along a linear demand curve with some downward slope, exactly half of the points on the curve will be inelastic

A

True

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17
Q

T/F: The price elasticity of demand for goods with close substitutes is lower than price elasticity of demand for goods with no close substitutes

A

False: Products with close substitutes will have very elastic demand

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18
Q

The price of a product changes from $8 to $9, and as a result, the quantity of the product demanded falls from 20 to 15. What do you know about the price elasticity of this good?

A

This is an example of an elastic good

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19
Q

Imposition of an excise tax on a good has what effect on the supply curve of a good?

A

Supply curve shifts to the left

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20
Q

The price of good X increases by 50%, and the consumption of good X decreases by 25%. What is the price elasticity of demand of X?

A

0.5

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21
Q

Assuming upward sloping supply curve and downward sloping demand curve, imposition of an excise tax has which of the following effects on the equilibrium quantity of a good?

A

Quantity decreases

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22
Q

T/F: A price floor is a government mandated minimum price in a market, and a price ceiling is a government mandated maximum price in a market

A

True

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23
Q

T/F: Absolute value of elasticity along a linear demand curve decreases from left to right.

A

True

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24
Q

The price of potatoes is $5 and the equilibrium quantity is 250. Now, the government imposes an excise tax of $1.50 on potatoes. The quantity demanded at the new equilibrium is 200. The tax revenue for the government as a result is this tax is $300.

A

True

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25
Q

Which of the following factors crucially determines the magnitude of incidence of an excise tax on the consumers?

A

Slope of a demand curve

26
Q

The equilibrium price of laptops is $200. The government imposes an excise tax of %50 on the production of laptops. Assuming demand is downward sloping and supply is upward sloping, which of the following statements is true?

A

Incidence of tax will be seen both on the consumers as well as the producers.

27
Q

Assuming upward sloping supply curve and downward sloping demand curve, imposition of an excise tax has which of the following effects on the equilibrium price of a good?

A

Equilibrium price that producers retain falls

28
Q

Which of the following are effects of the imposition of a price ceiling?

A
  1. Demand exceeds supply, creating shortage.

2. Equilibrium price is lower than that set by free-market equilibrium.

29
Q

Short-run marginal cost is equal to:

A
  1. The change in total cost divided by the change in output
  2. The slope of the total cost curve
  3. The change in total variable cost divided by the change in output
30
Q

T/F: The marginal cost curve will be equal to the average fixed cost curve at the minimum of average fixed cost.

A

False

31
Q

If the ATC curve is decreasing, then which of the following is always true?

A

MC is smaller than ATC

32
Q

If the output levels at which short-run marginal and average cost curves reach a minimum are listed in order from largest to smallest, then the order would be:

A

ATC, AVC, MC

33
Q

T/F: Of all forms of business organizations, corporations are the only form which never face the long run

A

False

34
Q

Short-run average variable cost is equal to

A

Average total cost minus average fixed cost

35
Q

For our course, the symbol pi represents economic profit. Accounting profit is denoted by the symbol pi sub Accy. Which of the following is true:

A

pi is equal to pi sub Accy minus opportunity costs

36
Q

Which of the following short-run cost curves decreases continuously?

A

Average fixed cost

37
Q

Which of the following short-run cost curves would not be affected by an increase in the wage paid to a firm’s labor?

A

AFC

38
Q

Goodproduct Corp has a production function of Q = f(L,K), where K is capital and L isolator, the firm’s only inputs. Which of the following are true?

A
  1. The firm has the ability to change both L and K in the long run,
  2. If the firm can change L but not K, the firm is in the short run
39
Q

Output as a function of inputs _____ at _____ rate initially and then ____ at ___ rate

A

Increases, an increasing, increases, a decreasing

40
Q

T/F: As we increase output, the vertical distance between AVC and ATC curves also increases

A

False

41
Q

Which of the following is a reason for the U-shape of the ATC curve?

A
  1. Output as a function of input increases at an increasing rate and then increases at a decreasing rate,
  2. TC as a function of output rises at a decreasing rate and then increases at an increasing rate.
  3. Law of diminishing marginal product holds
42
Q

Which of the following is NOT a reason for the U-shape of the ATC curve?

A

AFC declines continuously

43
Q

T/F: In some industries, the emergence of new technological advances have eliminated the law of demising marginal product

A

False

44
Q

If a firm organized as a corporation is making long run decisions, which of the following is true?

A

ATC > ACVC and FC are some constant amount

45
Q

Which of the following best describes the total revenue graph when a firm faces an exogenously given price, P0?

A

The total revenue is a linear function which slope of P0 AND as the firm increases output, total revenue will increase by the level of price for each extra unit of production

46
Q

T/F: If a firm is facing an exogenously given price, P0, and has found its profit maximizing output point, a reduction in fixed cost will lead the firm to increase output in the short run

A

False

47
Q

Which of the following best describes marginal revenue when a firm faces an exogenously given price?

A

The price of one unit AND the revenue earned by selling an additional unit

48
Q

A firm facing an exogenously given market price P0 will shut down its operations in the short run when the market price falls below its:

A

Average variable cost

49
Q

T/F: The short run profit maximizing output is the one that maximizes the difference between marginal revenue and marginal cost

A

False

50
Q

Assuming P > AVC, a firm would find it profitable to increase its production when:

A

its marginal revenue exceeds its marginal cost

51
Q

A firm will shutdown in the short run if its revenues fail to cover its

A

Variable costs

52
Q

T/F: In this module, the firm had no control over the exogenously given price P0, the market paid for its output. This means the profit maximizing output for the firm is independent of this price the firm has no control over

A

False

53
Q

T/F: A graph showing marginal revenue and marginal cost will allow you to discover the firm’s profit maximizing output as well as a graphical representation of this level of profit

A

False

54
Q

Suppose firm X is facing an exogenously given price, P0, and has found its profit maximizing output point Q0. Further, suppose that at this output, profits are zero. An increase in fixed cost with no other changes to cost curves will result in which of the following?

A

The firm will continue to produce Q0 in the short run.

55
Q

Which of the following is optimal for a firm in the long run if that firm is facing negative profits?

A

Exit the market

56
Q

T/F: If a firm is facing an exogenously given price P0, and has found its profit maximizing output point, an increase in fixed cost will not change this profit maximizing output level for the firm in the short run

A

True

57
Q

Which of the following describes a firm’s profits?

A
  1. Quantity times the difference between price and the average total cost,
  2. (price times quantity) - (quantity times ATC), where all variables are at the profit maximizing quantity
  3. total revenue minus total cost
58
Q

T/F: If a firm is facing an exogenously given price, P0, and has found its profit maximizing output point, an increase in fixed cost will cause the firm to increase its output to help cover these higher fixed costs

A

False

59
Q

A firm facing an exogenously given market price P0 will find its short run profit maximizing output is always where:

A

Marginal cost is equal to marginal revenue at a level greater than average variable cost

60
Q

T/F: If a firm is maximizing profit at Q0, a change in fixed cost, either up or down, will have no impact on short run profit maximizing output

A

True

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