ECO 2023 Final review UCF

The four types of economic goods discussed at the beginning of the semester included:

public goods, club goods, private goods, and common goods (or common property resources)

If a good is non-rival in consumption then:

one individual's consumption of the good does not affect the amount available for others to consume

Interstate 4 (I-4) and State Road 408 are two major highways that affect traffic flows in Orlando. Motorists are not required to pay a toll (user fee) to drive on Interstate 4, whereas they are required to pay a toll (user fee) to drive on State Road 408. If at a given time of day Interstate 4 is uncongested, then it could be considered to possess the properties of a:

public good

Some sub-Saharan nations of Africa have resource stocks that have been depleted over time to the point where much of the landscape has turned from productive farmland to desert. This suggests that:

the production possibilities curves of such nations have shifted inward

If a country has a comparative advantage in the production of a good over another country, then it can:

i. engage in mutually beneficial trade with other countries

ii. increase the variety of products that it can consume without increasing its use of resources

iii. consume a combination of goods that lies outside its production possibilities frontier

iv. produce a combination of goods that lies outside its production possibilities frontier

i, ii, and iii

Suppose that for each bottle of wine France produces it must forego the production of 25 pounds of cheese and that for each bottle of wine Italy produces it must forego the production of 10 pounds of cheese. It follows that:

France has a comparative advantage in the production of cheese

From a production possibilities curve (or frontier) it may be concluded that:

if an economy's resources are fully employed, then production of some goods must be sacrificed if resources are allocated to the production of other goods

Consider a country that uses it resources to produce consumer goods (e.g., cars and housing) and to provide infrastructure (e.g., roads and bridges). If a change in government policy results in greater production of consumer goods and infrastructure with the same amount of available resources (e.g., the size of the labor force and stocks of natural resources do not change), then:

the country's resources were under-utilized or resources were being used inefficiently prior to the policy change

If a country has a comparative advantage in the production of a good over another country, this means that it has the ability to produce the good:

at a lower opportunity cost than the other country

Suppose an individual has an absolute advantage over other individuals in completing a particular task. It follows that the individual:

can accomplish the task using fewer resources than other individuals

Markets for goods and services appear in a number of forms. In perfectly (or purely) competitive markets:

i. there are large numbers of independently acting buyers and sellers

ii. the good that is produced and traded is homogenous or standardized

iii. an individual buyer can affect the market price whereas an individual seller can not

iv. an individual seller can affect the market price whereas an individual buyer can not

i and ii

The income effect, substitution effect, and diminishing marginal utility are all explanations for:

-the effect that changing a good from being rival to being non-rival has on quantity supplied

-the effect that changing a good from being non-rival to being rival has on quantity demanded

-why demand curves are upward sloping (i.e., positively sloped)

-why supply curves are downward sloping (i.e., negatively sloped)

none of the above are correct

From an individual's demand curve for a good, which of the following may be determined?

i. the quantity demanded at a given price, holding all other factors constant

ii. the total expenditures on the good at a given price, holding all other factors constant

iii. how quantity demanded changes if the price of the good changes, holding all other factors constant

i, ii, and iii

A good's 'choke price' is the dollar amount at which none of the good will be purchased and below which units will be purchased. If an individual's demand function for a good is given by the linear equation Q = 80 - 0.25P, then the choke price is:

$320

Consider the market for two goods, say X and Y, each of which has a downward sloping market demand curve. Suppose the amount of X that consumers purchase per period depends upon its price and the price of Y; similarly, the amount of Y that consumers purchase per period depends upon its price and the price of X. Given this information, which of the following is/are true?

i. if consumers confront an increase in the price of Y, the demand for Y will decrease

ii. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are substitutes

iii. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are substitutes

iv. if consumers confront an increase in the price of Y, the demand for X will increase if Y and X are complements

v. if consumers confront an increase in the price of Y, the demand for X will decrease if Y and X are complements

iii and v

If the demand for a good declines as a result of an increase in consumer income, then the good is said to be:

an inferior good

If the demand curve for a good is vertical, then it may be concluded that:

quantity demanded is completely insensitive to changes in price and the law of demand fails to hold

Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant:

the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300

The law of supply states that:

i. as the price of a good increases, quantity supplied will increase, holding all other factors constant

ii. as the price of a good decreases, quantity supplied will decrease, holding all other factors constant

iii. as the price of a good increases, supply will increase

iv. as the price of a good decreases, supply will decrease

v. as the price of a good increases, quantity supplied will increase

vi. as the price of a good decreases, quantity supplied will decrease

vii. as the price of a good increases, supply will increase, holding all other factors constant

viii. as the price of a good decreases, supply will decrease, holding all other factors constant

i and ii

A firm's supply curve for a good indicates:

i. the minimum quantity supplied at each price, holding all other factors constant

ii. the maximum quantity supplied at each price, holding all other factors constant

iii. the firm's maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

iv. the firm's minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

ii and iv

The determinants of supply are:

i. factors that affect a producer's maximum willingness-to-accept (WTA) to produce various quantities of a good

ii. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce

iii. factors that affect a producer's minimum willingness-to-accept (WTA) to produce various quantities of a good

ii and iii

As discussed in class and the readings, the determinants of supply (DOS) include:

i. input (or resource) prices

ii. the prices of 'substitutes in production'

iii. expectations about the future

iv. the level of technology used in production

v. taxes and subsidies

i, ii, iii, iv and v

The market supply curve may be derived from a collection of individual supply curves by:

i. horizontally summing the individual supply curves

ii. vertically summing the individual supply curves

iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices

i and iii

If a firm upgrades its machinery and in so doing it increases the level of technology embedded in the production process, then:

i. the firm must have increased its plant size and its market share

ii. more output may be obtained with a given amount of inputs compared to before the improvement

iii. a given amount of output may be obtained with fewer inputs compared to before the improvement

ii and iii

Consider a market for a good that is comprised of two identical buyers whose demand functions are P = 30 - 4Q. Given this information, the market demand function is:

P = 30 - 2Q

From the framework developed and discussed in class and the readings it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:

seller minimum willingness-to-accept is less than or equal to buyer maximum willingness-to-pay

A surplus of a good (or commodity) will arise in a market if its price is sustained:

above the equilibrium price, resulting in the quantity supplied exceeding the quantity demanded

Consider a perfectly competitive market described by the demand function P = 80 - 0.1Q and supply function P = 20 + 0.3Q. The equilibrium price and quantity are:

P = $65 and Q = 150

Suppose that a perfectly competitive market is initially in equilibrium. If market demand increases and market supply simultaneously decreases, then the equilibrium:

price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged

An ongoing concern regards the affects of sustained summer droughts (water shortages) on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:

the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase

Suppose that changes in market conditions (i.e., market demand and/or supply) cause the equilibrium market price to increase and the quantity of output produced and traded each period to decrease. Which of the following could have caused such a change?

i. a decrease in demand and an increase in supply

ii. a decrease in demand and a decrease in supply

iii. an increase in demand and an increase in supply

iv. an increase in demand and a decrease in supply

ii and iv

Consumer surplus (CS) is a monetary measure of _________________, whereas maximum willingness-to-pay (WTP) is a monetary measure of _________________.

net value (or net benefit); total value (or total benefit)

Consumer surplus in a perfectly competitive market appears graphically as:

the area below the demand curve and above the market price

The producer surplus that results from a firm producing and selling some quantity of a good:

is the difference between the minimum amount the firm was willing to accept on each unit that it sold and the price it actually received for each unit

Suppose the market demand for a good is described by the equation P = 80 - 0.5Q. If the equilibrium price in the market is P = $60, then the consumer surplus is:

$400

Suppose the market supply for a good is described by the equation P = 40 + 2Q. If the equilibrium price in the market is P = $80, then the producer surplus is:

$400

Suppose the market supply for a good is described by the equation P = 20 + Q. If a change in market demand results in price increasing from P0 = $50 to P1 = $60, then the resulting change in producer surplus is:

$350

If the government intervenes in a perfectly competitive market and imposes a price ceiling below the unregulated equilibrium price, then compared to the unregulated market:

i. the quantity of the good demanded will decrease and the quantity supplied will increase

ii. the quantity of the good demanded will increase and the quantity supplied will decrease

iii. a surplus of units will result in the market

iv. a shortage of units will result in the market

ii and iv

Consider a perfectly competitive market described by the demand function P = 80 - 0.3Q and supply function P = 30 + 0.2Q. Suppose the market is initially in equilibrium. If the government intervenes in the market and imposes of a price restriction of P = $65, the result rounded to the nearest unit will be a:

surplus of 125 units

An example of a specific tax is:

i. a 6.5% sales tax charged by a local grocery store on products other than food

ii. a $2 per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand

iii. the 18.3 cent federal tax charged on each gallon of gasoline purchased

iv. a residential property tax paid by a homeowner that depends upon the property's market value as determined by a county tax appraiser

ii and iii

Suppose a specific tax or ad valorem tax is imposed directly upon sellers in a perfectly competitive market. As a result:

-the equilibrium market price will rise

-the equilibrium quantity of the good that is produced and traded will fall

-total economic surplus (consumer surplus + producer surplus) will fall

-tax revenue will be generated that may be used to fund public goods

-a deadweight loss will result

all of the above are correct

Consider a perfectly competitive market described by the per-period supply function P = 34 + 0.2Q and per-period demand function P = 160 - 0.6Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $6 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:

$900 in tax revenues will be generated each period

An elasticity is:

i. a measure of the sensitivity of a variable to a change in another variable

ii. invariant to the units in which variables are measured

iii. equal to the ratio of the percentage change in the affected variable to the percentage change in the affecting variable

iv. equal to the ratio of the percentage change in the affecting variable to the percentage change in the affected variable

i, ii, and iii

The price elasticity of demand is defined as the:

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

The price elasticity of demand is often favored over the slope of the demand curve for evaluating the affects of price changes. This is because:

i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ

ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured

iii. the slope of the demand curve can only be used if the demand curve is linear

i and ii

If the price elasticity of demand for a good at the current price is ED = -0.25, then a 10 percent decrease in price will result in a:

2.5 percent increase in quantity demanded

Suppose an individual's demand for a good is described by the demand function P = 120 - 2Q. Using the mid-point formula, the price elasticity of demand within the range of prices between $20 and $30 is:

0.26

Consider the market for a normal good. If the market price falls from $50 to $40 and as a result the per-period quantity demanded increases from 60 to 70 units, then it may be concluded that over this price range:

i. demand has increased

ii. demand is unit elastic

iii. demand is inelastic

iv. demand is elastic

iii

If the demand for a good is elastic with respect to its price, then a:

i. change in price will cause revenues (or consumer expenditures) to change in the same direction

ii. change in price will cause revenues (or consumer expenditures) to change in the opposite direction

iii. percentage change in price will result in a smaller percentage change in quantity demanded

iv. percentage change in price will result in a greater percentage change in quantity demanded

ii and iv

Suppose the market demand for a good is described by the demand function P = 100 - 2Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

TR = 100Q - 2Q2

Which of the following is not a characteristic of a good whose demand is elastic at the current market price?

the price elasticity is less than one

An individual's total expenditures on a good are equal to the quantity purchased multiplied by the per-unit price. If an individual's demand function for a good is given by the linear equation Q = 160 - 2P, then as price increases from zero to the choke price his/her total expenditures on the good:

increase initially and then decrease

A local theme park has estimated that in order to increase revenues generated from ticket sales it must reduce ticket prices. It follows that the theme park has estimated the demand for visits to the park to be:

elastic

Suppose that at the current prices the price elasticity of demand is 2.42, 0.67, 1.96, and 0.32 for products A, B, C, and D respectively. A one percent decrease in price will decrease total revenue (TR) in which of the following:

B and D

In 2014 the U.S. Department of Energy reported that it estimated that the average household would spend about $750 less on gasoline in 2015 compared to 2014 as a result of the decline in the price of crude oil. Given this information, it may be concluded that for the average household:

i. demand is price inelastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)

ii. demand is price elastic within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)

iii. if expenditures on gasoline decrease, then seller revenues from gasoline sales to the household will also decrease

i and iii

Which of the following generalizations is not correct?

the price elasticity of demand is greater for necessities than it is for luxuries

The more narrowly a product is defined (for example, a specific brand of gasoline versus gasoline in general):

the larger the number of substitutes that exist and the larger the price elasticity of demand

Suppose that a 4 percent decrease in the price of good X causes a 10 percent decrease in the quantity demanded of good Y. The cross-price elasticity of demand is therefore:

positive and the goods are substitutes

If purchases of a good (i.e., the number of units purchased) increase as a result of an increase in household income, then:

the good is normal and the income elasticity of demand is positive

The income elasticity of demand for food (e.g., measured by daily calories consumed) can reasonably be expected to be:

smaller than the income elasticity of demand for foreign vacation travel

Just as consumer sensitivity to changes in price and in the determinants of demand (DOD) may be measured through demand elasticities, producer sensitivity to changes in price and in the determinants of supply (DOS) may be measured through supply elasticities. The price elasticity of supply measures how:

responsive the quantity supplied of a good is to changes in its price

The primary determinant of the price elasticity of supply is the:

amount of time a producer has to adjust inputs in response to a change in the market price

The supply of housing within a local housing market (e.g., Orange county) takes a considerable amount of time to increase as a result of an increase in the demand for housing. Defining the short-run as a period of time less than six months and the long-run as a period of time greater than six months, it follows that:

the short-run supply curve for housing is less elastic than the long-run supply curve for housing

In microeconomics the term 'utility' references the:

i. relative scarcity of a good or service

ii. usefulness of a good or service

iii. satisfaction derived from consumption of a good or service

iv. slope of a consumer's demand curve for a good or service

iii

From a utility function (e.g., U = 2X + 3Y or U = X0.5Y0.5), which of the following may be determined?

i. the utility derived from all bundles of goods and services

ii. the bundle of goods and services that maximizes utility

iii. the bundles of goods and services that yield the same level of utility

i and iii

Sandy likes smoothies. If she consumes 1 smoothie, she obtains 7 units of utility, if she consumes 2 smoothies she obtains 16 units of utility, and if she consumes 3 smoothies she obtains 28 units of utility. It follows that:

total utility is increasing at an increasing rate and marginal utility is increasing

Marginal utility refers to the:

change in total utility from consuming each additional unit of a good

The law of diminishing marginal utility (LODMU) states that:

as more and more of a good is consumed, beyond a point marginal utility will decrease

Suppose an individual's preferences are described by the utility function U = X0.5Y0.5 and consider the following three bundles, where the first number references the quantity of good X and the second number references the quantity of good Y: Bundle A (6,2); Bundle B (4,4); Bundle C (3,5). The bundles ranked from most-preferred to least-preferred are:

Bundle B, Bundle C, Bundle A

Suppose that total utility increases as consumption of a good increases. It follows that the marginal utility from each successive unit of the good consumed:

is positive, but it may be either increasing or decreasing

An indifference curve involving two goods identifies the:

bundles of the two goods that yield the same level of utility

Suppose a consumer's utility function is U = X0.5Y0.5. It follows that the indifference function associated with the bundle X = 8 and Y = 2 or (8, 2) is:

y = 16/X

Consider an individual whose utility function is U = X0.5Y0.5. If she consumes 2 units of X and 6 units of Y, then some level of utility will be experienced. If the individual instead consumes 3 units of X, how much of good Y must she consume in order to attain the level of utility associated with 2 units of X and 6 units of Y?

Y = 4

If an indifference curve relating X and Y is upward sloping, then it may be concluded that:

i. both X and Y are goods

ii. both X and Y are bads

iii. X is a good and Y is a bad or X is a bad and Y is a good

iii

In moving upward or downward along a consumer's budget constraint:

the prices of the goods and income are constant

Any bundle of goods located outside (versus inside) of a consumer's budget constraint:

i. is unobtainable, given the consumer's income

ii. implies the consumer is not spending all of her income on goods and services

iii. will yield less utility than any bundle located on the budget constraint

iv. will yield less utility than any bundle located outside of the budget constraint

i

Suppose a consumer has an income of $15 that is spent on two goods: X and Y. The price of good X is $1.00 and the price of good Y is $3.00. Which of the following combinations (or bundles) of X and Y lie on the individual's budget constraint?

6x and 3y

Suppose an individual exhausts his income on goods X and Y. If his income is $100, the price of good X is PX = $4, and the price of good Y is PY = $2, then the algebraic expression for his budget constraint is:

Y = 50 - 2X

Suppose a quantity discount applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 30 units of the good for $6 each and all additional units (i.e., the 31st, 32nd, etc.) can be purchased for $3 each. If the consumer has an income of $300, what is the maximum number of units of the good that can be purchased?

70 units

Consider a consumer that exhausts her income by purchasing units of various goods and services at the market prices. If the consumer is a utility maximizer, then income will be allocated such that:

marginal utility per dollar (i.e., marginal utility divided by price) is equal over the goods and services purchased

If a consumer were to purchase units of goods X and Y such that MUY/PY < MUX/PX , then total utility could be increased by purchasing:

more of X and less of Y

Suppose an individual is purchasing the utility maximizing quantities of goods X and Y. If the price of X is $2 and the price of Y is $4:

the marginal utility of Y is twice that of X

Consider a consumer who maximizes utility subject to a budget constraint. If her income decreases, then:

the budget constraint will shift inward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will decrease

A consumer's demand curve for a good may be derived from the consumer choice model. To do so:

the price of the good is varied, holding the prices of other goods and income constant, in order to identify the utility maximizing quantity of the good purchased

In economics, the difference between the short run and the long run is that:

in the short run at least one input is fixed whereas in the long run no inputs are fixed

The law of diminishing marginal product (or returns) states that:

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate

Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 5 units of output will be produced; if it employs 2 units of labor, then 12 units of output will be produced; and if it employs 3 units of labor, then 20 units of output will be produced. It follows that:

total output is increasing at an increasing rate and the marginal product of labor is increasing

Suppose a small farm uses machinery and laborers to grow and harvest fruits or vegetables. Which of the following best describes one of its fixed costs?

insurance or loan payments on machinery

If a firms management permits its laborers to shirk and its laborers choose to do so, then:

i. the level of output produced per period will be less than the level of output if laborers do not shirk

ii. more time will be required to produce a given level of output than if laborers do not shirk

iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected

i, ii, and iii

Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?

i. if MPL is greater than APL, then APL will be increasing

ii. if MPL is less than APL, then APL will be decreasing

iii. if APL is greater than MPL, then MPL will be increasing

iv. if APL is less than MPL, then MPL will be decreasing

i and ii

The marginal product of labor is:

the change in total output attributed to employing an additional worker

If a technological improvement occurs in a production process, then:

A). a given amount of inputs will yield more output

B). the total product curve (or short run production function) will rotate upward

C). total variable cost and average variable cost will be reduced at all positive levels of output

D). a given amount of output may be produced with fewer inputs

all of the above

A fixed cost is:

any cost which does not change when the firm changes the amount of output it produces

A firms marginal cost of production is the:

i. change in total variable cost that results from producing each additional unit of output

ii. change in total cost that results from producing each additional unit of output

iii. change in total fixed cost that results from producing each additional unit of output

iv. change in average variable cost that results from producing each additional unit of output

v. change in average total cost that results from producing each additional unit of output

vi. change in average fixed cost that results from producing each additional unit of output

i and ii

If a firms total fixed costs increase, then:

average fixed costs and average total costs will rise

Consider a short run production process in which MPL increases initially as more and more labor is employed and then decreases beyond a point as the gains from specialization are exhausted. It follows that:

TVC will increase initially at a decreasing rate and beyond a point it will increase at an increasing rate

The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?

total variable cost, total cost, average variable cost, average total cost, and marginal cost

Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms short run production function is:

Q = 4L0.5

Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:

TC = 800 + Q2/4

Which of the following is not a characteristic of a perfectly competitive market?

the ability of an individual firm to affect the market price