Pre-Assessment

Question 1

Which factor of production are power tools, hammers, steel, and other building materials examples of?

Answer 1

Capital

Question 2

What economic assertion is described by a statement of fact?

Answer 2

Positive statements

Question 3

A town chooses to use most of its budget for road repair instead of fire protection. What is this scenario an example of?

Answer 3

Scarcity

Question 4

A student has been working extra hours at a part-time job and is debating subtracting an hour from work for extra studying.
How is this student making this decision, according to economists?

Answer 4

At the margin

Question 5

What will happen if something other than price affects production for sellers?

Answer 5

The seller will have a new supply curve.

Question 6

The market for dog food is in equilibrium. Then both the supply and the demand for dog food increases.

What effect will this change have on the equilibrium price and quantity for dog food?

Answer 6

The change in equilibrium price is ambiguous, and the quantity increases.

Question 7

Which kind of line represents a perfectly inelastic supply curve?

Answer 7

Vertical

Question 8

In price elasticity of demand, how much will quantity demanded decrease if demand is elastic and there is a 9% increase in price?

Answer 8

10%

Question 9

A seller offers hay and has to raise the price by 10% because of increased cost of production. The price elasticity of demand for hay is 0.5.

By how much will this seller’s sales drop?

Answer 9

5%

Question 10

What is true if the quantity demanded of meals eaten at restaurants falls by 25% when income falls by 10%?

Answer 10

Restaurant meals are normal goods.

Question 11

A seller would like to raise revenues and can be somewhat flexible with prices. The good’s price elasticity of demand is 0.75.

What should this seller do to raise revenues?

Answer 11

Raise the price

Question 12

What describes the relationship between eggs and bacon if the cross price elasticity between these goods is a negative number?

Answer 12

They are complements.

Question 13

How should a seller feel when the cross elasticity between the seller’s product and another is positive and when the price of the other good decreases?

Answer 13

Concerned because the seller’s good is a substitute for the other

Question 14

A new kind of smartphone is selling for $500. The first cell phone costs $300 to produce, and each subsequent phone costs $325 to produce.

What is the producer surplus for this market when selling four cell phones at this rate?

Answer 14

$725

Question 15

The equilibrium price in a market is $5, but the government has legally mandated that price must be $12.

What two events will happen?

Answer 15

There will be a surplus because of the mandate.
and
Fewer goods will be exchanged than without the mandate.

Question 16

What will happen to consumer surplus because of price floor?

Answer 16

It will decrease.

Question 17

A factory that converts wood pulp into high-purity cellulose is dumping millions of gallons of waste into a local wetland. In response, which amount will be equal to what the government taxes the polluter?

Answer 17

Marginal external cost

Question 18

A factory that manufactures tires produces a pollutant that it emits into the air. The air pollution affects the surrounding neighborhoods, causing illness and property damage.

What is a characteristic of this externality?

Answer 18

It is a market failure.

Question 19

Before the financial crisis of 2007–2008, the government of the United States was buying risky home loans from banks, which led to the massive default of subprime loans.

What economic concept is described?

Answer 19

Moral hazard

Question 20

An individual has eaten two ice cream cones. Each ice cream cone costs $3 and even though he has enough money, he chooses not to buy a third ice cream cone because it would not satisfy him as much.

What economic concept is exemplified?

Answer 20

Law of diminishing marginal utility

Question 21

A customer buys coffee and tea every week at the grocery store. This week she discovers that the price of tea has fallen significantly. Because she is spending less on tea, she is able to buy more tea and coffee, and she does so.

What economic concept is exemplified?

Answer 21

Income effect

Question 22

ABC Manufacturing has an accounting profit of $150,000 and an economic profit of $120,000. The company’s explicit costs are $100,000.

What are the implicit costs of this company?

Answer 22

$30,000

Question 23

A hot dog company produces and sells specialty hot dogs. Last year, it produced 8,000 Chicago style, New York style, and tofu hot dogs and sold each one for $8. The company incurred variable costs of $24,000 and a total cost of $30,000.

What was this company’s average fixed cost to produce 8,000 specialty hot dogs?

Answer 23

$0.75

Question 24

A firm employs three workers who produce an output of 100 units. The firm decides to then add a fourth worker, who increases output to 102 units. The additional output of the fourth worker is 2 units, which is fewer than the 10 additional units when the firm added the third worker.

What would economists attribute this change to?

Answer 24

Diminishing marginal returns

Question 25

What is a firm’s average variable cost?

Answer 25

Variable cost divided by quantity produced

Question 26

When will a firm decide to shut down in the short run?

Answer 26

If its price is less than its average variable costs

Question 27

As a firm’s plant size and output continue to increase, per unit costs begin to rise.

What would economists attribute this to?

Answer 27

Diseconomies of scale

Question 28

Pablo will give up his job that pays $60,000 per year to start a new business.

Which two economic terms describe what Pablo is giving up?

Answer 28

Implicit cost and opportunity cost

Question 29

How does the demand curve of a firm in perfect competition look?

Answer 29

Perfectly elastic

Question 30

Which term represents a demand curve for a firm in perfect competition?

Answer 30

Marginal revenue

Question 31

How do the output and price of a monopoly market compare to those of a perfectly competitive market?

Answer 31

Output is smaller and its price is higher.

Question 32

What is an example of a monopsony market in a given town?

Answer 32

A single mining company hiring workers

Question 33

What is a necessary condition to practice price discrimination?

Answer 33

Consumers must have different demand elasticities.

Question 34

What is a defining characteristic of the monopolistic competition firm’s demand curve?

Answer 34

It is downward sloping.

Question 35

Do economic profits exist for a monopolist competitive firm in the long run?

Answer 35

No, there is no economic profit.

Question 36

What must a monopolistic competitor determine in the first step of deciding on what price to charge?

Answer 36

The profit-maximizing quantity to produce

Question 37

What do concentration ratios calculate relative to a market?

Answer 37

Whether several firms dominate sales in a given market