Test 2

Question 1

What does the sociopsychiatric explanation suggest?

Answer 1

It suggests that our desire for goods and services arises from our needs and social acceptance (or envy), security, and ego gratification.

Question 2

What does the economic explanation suggest?

Answer 2

It suggests that prices and income are just as relevant to consumption decisions as more basic desires and preferences.

Question 3

What is the concept of demand?

Answer 3

attempts to encompass all relevant influences on why we purchase what we do.

Question 4

What do economists accept consumers’ tastes as?

Answer 4

as outcomes of sociopsychiatric and cultural influences

Question 5

Is the pleasure or satisfaction obtained from a good or service.

Answer 5

Utility

Question 6

Is the amount of satisfaction obtained from entire consumption of a product.

Answer 6

Total utility

Question 7

is the change in total utility obtained by consuming one additional (marginal) unit of a good or service.

Answer 7

marginal utility

Question 8

marginal utility =

Answer 8

change in total utility / change in quantity

Question 9

what is the law of diminishing marginal utility?

Answer 9

the marginal utility of a good declines as more of it is consumed in a given time period.

Question 10

what does the law of demand state?

Answer 10

the quantity of a good demanded in a given time period increases as its price falls.

Question 11

what is the price elasticity of demand?

Answer 11

the percentage change in quantity demanded divided by the percentage change in price.

Question 12

what is price elasticity?

Answer 12

the response of consumers to a change in price is measured by the price elasticity of demand.

Question 13

if absolute value of E is larger than 1,

Answer 13

the demand is elastic, consumer response is large relative to the change in price

Question 14

if absolute value of E is less than 1,

Answer 14

demand is inelastic, consumers aren’t very responsive to price changes.

Question 15

if absolute value of E equals 1,

Answer 15

demand is unitary elastic

Question 16

the price of a product multiple by the quantity sold in a given time period.

Answer 16

total revenue

Question 17

a price cut decreases total revenue if __________.

Answer 17

demand is price inelastic

Question 18

a price cut increases total revenue if _________.

Answer 18

demand is price elastic

Question 19

a price cut does not change in total revenue if _____________.

Answer 19

demand is unitary elastic

Question 20

is something we would like to have but aren’t likely to buy unless our income jumps or the price declines sharply

Answer 20

luxury good

Question 21

some goods are so critical to our everyday life that we regard them as ________.

Answer 21

necessities

Question 22

demand for necessities is ______.

Answer 22

relatively inelastic

Question 23

demand for luxury goods is _______.

Answer 23

elastic

Question 24

the greater the availability of substitutes, ______.

Answer 24

the higher the price of elasticity of demand

Question 25

the smaller the availability of substitutes, ______.

Answer 25

the lower of the price elasticity of demand.

Question 26

if the price of a product is very high relative to the consumer's income, _________.

Answer 26

the demand will tend to be elastic

Question 27

if the price of a product is very low relative to the consumer's income, __________.

Answer 27

the demand will tend to be inelastic

Question 28

the demand for a good increases when the price of a substitute for the good goes up.

Answer 28

substitute goods

Question 29

the demand for a good decreases when the price of a complement to the good goes up.

Answer 29

complementary goods

Question 30

what is a successful advertising campaign?

Answer 30

one that shifts the demand curve to the right.

Question 31

resource inputs used to produce goods and services, such as land, labor, capital, entrepreneurship.

Answer 31

factors of production

Question 32

a technological relationship expressing the maximum quantity of a good attainable from different combinations of factors inputs.

Answer 32

production function

Question 33

- Output per unit of input | - The productivity of a factor of production depends on the other resources available to it.

Answer 33

productivity

Question 34

maximum output of a good from the resources used in production

Answer 34

efficiency (technical)

Question 35

the period in which the quantity and quality of at least one input cannot be changed, i.e. fixed.

Answer 35

short run

Question 36

what does labor determine?

Answer 36

- how much output we get from fixed inputs. | - in general, as the amount of labor used increase, output also increases

Question 37

all inputs are fixed except for ______

Answer 37

labor

Question 38

the change in total output associated with one additional unit of input

Answer 38

marginal physical product (MPP)

Question 39

marginal physical product (MPP) =

Answer 39

change in total output/ change in input quantity

Question 40

When the MPP of labor is positive (MPPL>0), then _________.

Answer 40

the total output increases

Question 41

the marginal physical product of a variable input declines as more of it is employed with a given quantity of other fixed inputs

Answer 41

law of diminishing returns

Question 42

the MPP starts to decline also because ______.

Answer 42

of the ratio of the variable inputs to the fixed inputs increases

Question 43

tells us how much a firm is capable of producing (its production capacity) but not how much it should produce to maximize profits.

Answer 43

a production function

Question 44

what is the most desirable rate of output?

Answer 44

the one that maximizes total profit

Question 45

the market value (in dollars) of all resources used to produce a good or service

Answer 45

total cost

Question 46

costs of production that do not change when the rate of output is altered (e.g. the cost of basic plant and equipment)

Answer 46

fixed costs

Question 47

costs of production that change when the rate of output is altered (e.g. labor and material costs)

Answer 47

variable costs

Question 48

the difference between total revenue and total cost

Answer 48

profit

Question 49

profit =

Answer 49

Total revenue - total costs

Question 50

Is equal to fixed costs when output is zero because no variable costs are incurred when output is zero

Answer 50

total cost

Question 51

total fixed cost divided by the quantity produced in a given time period.

Answer 51

average fixed cost (AFC)

Question 52

AFC =

Answer 52

total fixed costs / total output = TFC / q

Question 53

total variable cost divided by the quantity produced in a given time period

Answer 53

average variable cost (AVC)

Question 54

AVC=

Answer 54

total variable cost / total output

Question 55

Total cost divided by the quantity produced in a given time period

Answer 55

average total cost (ATC)

Question 56

ATC=

Answer 56

total cost / total output

Question 57

in order to lower the AFC for a short run, what must be done?

Answer 57

increase output

Question 58

in order to lower AFC for a long run, what must be done?

Answer 58

reduce fixed resources

Question 59

refers to the change in total costs associated with one more unit of output.

Answer 59

marginal cost

Question 60

marginal cost (MC)=

Answer 60

change in total cost/ change in output

Question 61

If MC > ATC, then

Answer 61

ATC is increasing

Question 62

IF MC < ATC, then

Answer 62

ATC is decreasing

Question 63

IF MC = ATC, then

Answer 63

ATC at minimum

Question 64

the output decision has to be based not only on the capacity to produce (the production function) but also on the costs of production (the cost functions)

Answer 64

a cost summary

Question 65

the supply decision has two dimensions:

Answer 65

- a short run horizon | - a long run horizon

Question 66

the short run horizon concerns ______.

Answer 66

the production decision

Question 67

the long run horizon concerns ______.

Answer 67

the investment decision

Question 68

what is the long run investment decision?

Answer 68

the decision to build, buy, or lease plant equipment: to enter or exit an industry

Question 69

in the long run investment, __________.

Answer 69

- businesses have no lease or purchase commitments | - there are no fixed costs in the long run

Question 70

the short run production decision is characterized by the ________.

Answer 70

existence of fixed costs

Question 71

the short-run production decision is ________.

Answer 71

the election of the short-run rate of output (with existing plant and equipment)

Question 72

long run:

Answer 72

a period in time long enough for all inputs to be varied (no fixed costs)

Question 73

the long-run curve is __________.

Answer 73

the summary of our best short-run cost possibilities, using existing technology and facilities

Question 74

a payment made for the use of a resource, money is exchanged

Answer 74

explicit cost

Question 75

the value of resource used, even when no direct payment is made, money is NOT exchanged.

Answer 75

implicit costs

Question 76

the value of all resources used to produce a good or service; opportunity cost

Answer 76

economic cost

Question 77

economic cost=

Answer 77

explicit costs + implicit costs

Question 78

some possible ways of increasing productivity are:

Answer 78

- increasing education - vocational training - increase capital investment

Question 79

THE ATC and MC curves shift down when _______.

Answer 79

productivity increases

Question 80

five common types of market structure:

Answer 80

- perfect competition - monopolistic competition - oligopoly - duopoly - monopoly

Question 81

a perfectly competitive firm is ________-.

Answer 81

one without market power

Question 82

a competitive market is

Answer 82

one in which no buyer or seller has market power

Question 83

is one that produces the entire market supply of a particular good or service.

Answer 83

a monopoly firm

Question 84

what characteristics does a monopoly firm have?

Answer 84

- it is a price setter, not a price taker - it has no direct competitors - it has complete market power; it can alter the market price of a good or service

Question 85

only two firms supply a product

Answer 85

duopoly

Question 86

a few large firms supply all or most of a particular product

Answer 86

oligopoly

Question 87

many firms supply essentially the same product but each enjoys significant brand loyalty.

Answer 87

monopolistic competition

Question 88

the demand curve facing a perfectly competitive firm is _____.

Answer 88

horizontal

Question 89

the market demand curve for a product is _____.

Answer 89

always downward sloping

Question 90

is the price of a product multiplied by the quantity sold in a given time period:

Answer 90

total revenue

Question 91

price > MC, then

Answer 91

increase output rate

Question 92

price = MC, then

Answer 92

maintain output rate

Question 93

price < MC, then

Answer 93

decrease output rate

Question 94

a competitive firm wants to ______.

Answer 94

to expand the rate of production whenever price exceeds marginal cost.

Question 95

profit per unit =

Answer 95

p - ATC

Question 96

the ability and willingness to sell specific quantities of a good at alternative prices in a given time period.

Answer 96

supply

Question 97

is the total quantity of a good that seller are willing and able to sell at alternative prices in a given time period

Answer 97

market supply

Question 98

what are the determinants of the market supply of a competitive industry?

Answer 98

1. The price of factor inputs 2. Technology 3. Expectations 4. The number of firms in the industry

Question 99

is the total quantity of a good or service people are willing and able to buy at alternative prices in a given time period.

Answer 99

market demand

Question 100

is the change in total revenue that results from a one-unit increase in quantity sold.

Answer 100

marginal revenue

Question 101

what does the monopolist use to determinate its rate of output?

Answer 101

maximization rule

Question 102

how do you calculate a profit?

Answer 102

total profit= TR-TC

Question 103

A monopolist produces _______ and charges a ______ price than a competitive industry.

Answer 103

less & higher

Question 104

is a government grant of exclusive ownership of an innovation.

Answer 104

patent

Question 105

what is the source of a monopoly power?

Answer 105

patent

Question 106

A monopolist sets price at a point on the ______ curve, corresponding to the rate of output determined by the intersection of _______.

Answer 106

Demand; marginal revenue and marginal cost.

Question 107

A monopolist sets its price:

Answer 107

At the rate of output where marginal revenue equals marginal costs.

Question 108

For a monopolist, the demand curve facing the firm is:

Answer 108

the same as the market demand curve.

Question 109

``` Which of the following is not a characteristic of a monopoly? A. High barriers to entry B. Differentiated product C. Ownership of essential resources D. Large economics of scale ```

Answer 109

B. Differentiated product

Question 110

temporary price reductions designed to drive out competition.

Answer 110

predatory pricing

Question 111

is an industry in which one firm can achieve economies of scale over the entire range of market supply.

Answer 111

natural monopoly

Question 112

is an imperfectly competitive industry subject to potential entry if prices or profits increase.

Answer 112

contestable market

Question 113

Are present if average costs falls as the size (scale) of plant and equipment increases

Answer 113

economies of scale