Exam 2

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

Jennifer’s explicit costs falls, and her implicit costs rises

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1% increase in the price of the good causes quantity demanded to decrease by 3%

What is the difference between total cost and variable cost in the long run?

The total cost of product = The variable cost of production

Common resources differ from public goods in that

Unlike public goods, common resources are rivalrous in consumptions

A firm increased its production and sales because the firm’s manager rearranged the layout of his factory floor. This is an example of

Positive Technological Change

Who controls a partnership

The Owners

If the marginal cost curve is below the average variable cost curve, then

Average variable cost is decreasing

Which of the following statements explains the difference between diminishing returns and diseconomies of scale

Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run

Which of the following is a key determinant of the price elasticity of supply

The time it takes to change output in response to a change in price

An insurance agent rents a building and has a three-year lease. An increase in the rent for the building increases the agent’s

Total fixed cost and average fixed cost

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A 1% decrease in the price of grapefruit juice leads to a 6% decrease in orange juice consumption

Which type of business is the most difficult to set up?

Corporation

As a firm hires more labor in the short run, the

Extra output of an additional worker may rise at first, but eventually must fall

What are the assumptions behind the Coase Theorem?

1. Low Transaction Cost

2. Clear Assignment of Property Rights

Who hires the managers of a corporation?

The Board of Directors

Which of the following is an example of a quasi-public good?

Cable Television

When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

Moral Hazard

Which of the following displays rivalry and excludability in consumption?

Private Goods

If tolls on a toll road can be raised significantly before commuters consider using a free alternative, then an increase in tolls with result in

An increase in total revenue

Government-imposed quantitative limits on the amount of pollution firms are allowed is an example of

A command-and-control approach to pollution reduction

At that amount of output where diminishing marginal returns first sets in

Marginal Product will begin to decline

Economies to Scale refer to

The range of output over which the long run average cost falls as output increases

Which of the following pairs of goods is likely to have a negative cross-price elasticity of demand

Pancake and Syrup

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

a Pigovian Tax

A key difficulty facing insurance companies is that people know more about their health than do insurance companies. What is the phenomenon called

Asymmetric Information

By tying the salaries of top corporate managers to the price of the corporation’s stock, corporations hope to avoid

The principal-agent problem

The demand for gasoline in the short run is

Inelastic because there are very few good substitutes for gasoline

A tragedy of the commons occurs when a resource is

Rival and Non-excludable

Which of the following explains why the marginal cost curve has a U shape

Initially, the marginal product of labor rises, then falls