If movie theaters experience an increase in costs (say, because the wages of staff increase), then which of the following will occur in the market for movies:
The demand curve will shift to the right
The demand curve will shift to the left
The supply curve will shift upward (i.e. to the left)
The supply curve will shift downward (i.e. to the right)
ANSWER: _______
When a good is taxed, the burden of the tax falls mainly on consumers if:
The tax is levied on consumers
The tax is levied on producers
Supply is relatively inelastic, and demand is relatively elastic
Supply is relatively elastic, and demand is relatively inelastic
ANSWER:Supply is relatively elastic, and demand is relatively inelastic
For normal goods, when consumer incomes decrease, which of the following occurs:
The demand curve shifts to the right
The demand curve shifts to the left
The supply curve shifts to the right
A movement downward (i.e. to the right) along a single demand curve
ANSWER: _______
If the demand for a good decreases, and (simultaneously) the supply of the good also decreases (and neither are perfectly elastic or perfectly inelastic) :
Equilibrium price must decrease, but the effect on equilibrium quantity is uncertain
There must be an increase in both equilibrium price and equilibrium quantity
Equilibrium quantity must decrease, but the effect on equilibrium price is uncertain
Equilibrium quantity must increase, but the effect on equilibrium price is uncertain
ANSWER: Equilibrium quantity must decrease, but the effect on equilibrium price is uncertain
When markets are perfectly competitive:
Individual firms are price-takers
Individual firms are price setters
The firm's demand curve is always perfectly elastic
Both b and c
Both a and c
ANSWER: _______
Which of the following is true?
When marginal cost (MC) is increasing, average variable cost (AVC) must also be increasing
When AVC is increasing, MC must be below AVC
When AVC is increasing, MC must be above AVC
There is no relationship between AVC and MC
Both a and b
Both a and c
ANSWER: _______
Suppose a team raises ticket prices from $60 to $63 and attendance falls from 50,000 to 45,000. This tells us that:
demand is inelastic
demand is elastic
from a revenue perspective, the price increase was a correct decision
both a and c
both b and c
ANSWER: _______
If two goods are substitutes, then they must have a:
cross-price elasticity of supply that is greater than 0
cross-price elasticity of demand that is greater than 1
cross-price elasticity of supply that is greater than 1
cross-price elasticity of demand that is greater than 0
cross-price elasticity of demand that is less than 0
cross-price elasticity of demand that is less than 1
ANSWER: _______
For a supply curve that is neither perfectly elastic nor perfectly inelastic, the price elasticity of supply:
is constant throughout the entire curve
is higher (in absolute value) at higher prices, and lower at lower prices
is higher (in absolute value ) at lower prices, and lower at higher prices
is always equal to 1 throughout the entire curve
both a and d
ANSWER: _______
If a demand curve is perfectly inelastic, it has:
a price elasticity of demand that is 0
a price elasticity of demand that is 1
a price elasticity of demand that is infinite
a zero slope (i.e. it is horizontal)
an infinite slope (i.e. it is vertical)
both c and d
both a and e
ANSWER: _______
Excess supply occurs when:
the current price is less than the equilibrium price
the current price is equal to the equilibrium price
the current price is greater than the equilibrium price
both a and c
ANSWER: _______
If the supply of a good increases, and the demand stays constant (and neither are perfectly elastic or perfectly inelastic):
There is an increase in both equilibrium price and equilibrium quantity
Equilibrium price decreases, and equilibrium quantity increases
Equilibrium price increases, and equilibrium quantity decreases
There is a decrease in both equilibrium price and equilibrium quantity
ANSWER: _______
If a monopoly firm is currently pricing in the elastic portion of its demand curve, then:
if it raises prices, total revenues will decrease
if it raises prices, total revenues will increase
if it lowers prices, total revenues will decrease
if it lowers prices, total revenues will remain constant
both b and c
ANSWER: _______
If a pro basketball team and a college basketball team are both based in the same city and compete for the same entertainment dollar of fans (i.e. they are substitutes), then if the college team decreases its ticket prices, the effect (all else equal) on the pro team will be to:
shift its supply curve to the right
shift its demand curve to the right
shift its supply curve to the left
shift its demand curve to the left
both c and d
ANSWER: _______
A shortage occurs when:
the current price is greater than the equilibrium price
the current price is equal to the equilibrium price
the current price is less than the equilibrium price
both a and c
ANSWER: _______
Longer Question #1
Suppose that business travelers and vacationers have the following demand for airline tickets from Boston to Frankfurt.
|
Price
($)
|
Quantity Demanded:
Business Travelers
(tickets)
|
Quantity Demanded: Vacationers
(tickets)
|
|
900
|
5,100 (tickets)
|
3,150 (tickets)
|
|
1100
|
4,900
|
2,450
|
|
1300
|
4,700
|
1,750
|
As the price of airline tickets rises from $900 to $1100, what is the price elasticity of demand (using the midpoint method) for:
Business travelers
Vacationers
(For your answers, please round to two decimal places - Example: 2.13)
Longer Question # 2
Suppose the price elasticity of demand for wheat is 1.80 in the long-run, and 0.40 in the short-run.
If the price of wheat rises from $5.85 per bushel to $6.15 per bushel, what is the percentage change (using the midpoint method) in quantity-demanded in the:
long-run
short-run
Explain why the change in quantity-demanded would be greater in the long-run than in the short-run.
Longer Question # 3
Acme, Inc. is a specialty coffee restaurant. The following table shows the relationship between the number of workers and Acme's output in any given day. You also know that Acme has total fixed costs of $120 per day, and each worker costs $ 80 per day.
Fill in the blanks for each of the columns (MP, TC, ATC, MC)
What is the relationship between MP and MC? Why?
|
Workers
|
Output
|
Marginal Product
|
Total Cost
|
Average Total Cost
|
Marginal Cost
|
|
0
|
0
|
---
|
|
---
|
---
|
|
1
|
50
|
|
|
|
|
|
2
|
110
|
|
|
|
|
|
3
|
160
|
|
|
|
|
|
4
|
200
|
|
|
|
|
|
5
|
230
|
|
|
|
|
|
6
|
250
|
|
|
|
|
|
7
|
260
|
|
|
|
|
Longer Question # 4
Assume the price elasticity of demand for cigarettes is 0.80. If a pack of cigarettes currently costs $6.00, and the government wants to reduce smoking by 40%, how much of a price increase would be needed (as usual, use the midpoint method)
Longer Question # 5
A profit-maximizing firm in a competitive market currently produces 2,000 units of output. It has average revenue of $50, average total cost of $38, and fixed costs of $10,000.
What are total profits?
What is marginal cost?
What is average variable cost?
Longer Question # 6
A company is considering building a short bridge across a river. The bridge would cost $16 million to build, and nothing to maintain. There would be no other reasonable ways to cross the river, so the company would have a monopoly. The table below shows the company's anticipated demand over the lifetime of the bridge.
If the company (as a monopolist) were to build the bridge
What would be its profit maximizing price?
At that price, how many crossings would occur?
What would be the monopolist's total profit or loss?
If the government were to build the bridge, and assuming its goal is to maximize economic efficiency (i.e. societal welfare), what price should it charge?
|
Price per Crossing($)
|
Number of Crossings (in million)
|
|
6
|
0
|
|
5
|
2
|
|
4
|
4
|
|
3
|
6
|
|
2
|
8
|
|
1
|
10
|
|
0
|
12
|
Longer Question # 7
In Unit 2, we examined some of the basics of the economics of organizations. In this regard:
Discuss what is meant by the "agency problem".
Identify and briefly discuss three ways that organizations can attempt to reduce the problem.