Deck 4: Getting Behind the Demand and Supply Curves

Question 1

The decline in additional satisfaction received as more and more units of a commodity are consumed (the consumption of other commodities held constant)is known as the law of

A) consumer demand.
B) nature.
C) declining desire.
D) supply and demand.
E) diminishing marginal utility.

Answer 1

E

Question 2

In addition to preferences,a consumer's choice is further constrained by

A) nothing.
B) a rising marginal utility curve.
C) income and commodity prices.
D) an equilibrium market where utility is minimized.
E) the fact that the optimal market basket is rarely the equilibrium market basket.

Answer 2

C

Question 3

The law of diminishing marginal utility means that as more of a commodity is consumed,total utility will

A) rise but at a declining rate.
B) fall steadily, eventually becoming negative.
C) remain unchanged until the individual is satiated.
D) generally be less than marginal utility.
E) fall when marginal utility falls.

Answer 3

A

Question 4

The additional satisfaction received from consuming an additional unit of a commodity is called the

A) marginal product.
B) quotient of satisfaction.
C) marginal propensity to consume.
D) elasticity of demand.
E) marginal utility.

Question 5

The following questions are based on the following graph:

As consumption is increased from 1 to 3 units,marginal utility is

A) rising.
B) falling.
C) constant.
D) zero.
E) negative.

Question 6

In general,what percentage of their income do U.S.households spend on goods and services?

A) 27 percent
B) 32 percent
C) 64 percent
D) 81 percent
E) 96 percent

Question 7

The following schedule shows the utility Mr. Pomeroy derives from consumption of various amounts of food per day. Use it to answer the next question.

If the marginal utilities from consuming the first five units of a commodity are 10,16,15,12,and 9,respectively,then the total utility received from consuming 4 units is

A) 12.
B) 27.
C) 41.
D) 53.
E) 62.

Question 8

A consumer buying food and clothing is in equilibrium when the marginal

A) utilities of food and clothing equal the total utilities of food and clothing.
B) utility of the last dollar spent on food equals the marginal utility of the last dollar spent on clothing.
C) utilities of both goods are the same.
D) utilities of both goods are the greatest.
E) utility of food equals the price of food and the marginal utility of clothing equals the price of clothing.

Question 9

The following schedule shows the utility Mr. Pomeroy derives from consumption of various amounts of food per day. Use it to answer the next question.

A person who eats a first chocolate from a box of candies,and a second,then a third,and so on (and nothing else),in an afternoon experiences a

A) continuous fall in total utility.
B) continuous rise in marginal utility.
C) simultaneous rise and fall in both total and marginal utility.
D) rise in marginal utility while total utility declines.
E) rise in total utility while marginal utility rises and then falls.

Question 10

In the model of consumer behavior

A) individuals can choose whatever market basket they want.
B) individuals are capable of making consistent choices reflecting their preferences.
C) for most commodities, total utility falls steadily as more is consumed.
D) an individual's desire for a specific good in a given time period is infinite.
E) marginal utility at first decreases, then increases.

Question 11

Those who exchange their labor resources for money to buy goods and services to satisfy their wants and desires are called

A) capitalists.
B) firms.
C) corporations.
D) rentiers.
E) consumers.

Question 12

The equilibrium market basket is the one in which the

A) total utilities for each commodity consumed are equal.
B) marginal utility of the last dollar spent on all commodities purchased is the same.
C) marginal utility for each commodity is rising.
D) amount of money allocated to each commodity is proportional to the total utility received from each commodity.
E) price of each good is equal to its marginal utility.

Question 13

The following schedule shows the utility Mr. Pomeroy derives from consumption of various amounts of food per day. Use it to answer the next question.

If he consumes 2 pounds of food per day,his marginal utility is

A) 2.
B) 3.
C) 4.
D) 5.
E) 9.

Question 14

In a market economy,firms decide what and how much to produce on the basis of their

A) income, tastes, and market supplies.
B) marginal and average utilities.
C) humanitarian ideals.
D) costs and what they can charge for their products.
E) orders from a central government planning bureau.

Question 15

Utility is a measure of

A) output.
B) usefulness.
C) satisfaction.
D) indifference.
E) demand.

Question 16

The law of diminishing marginal utility implies that

A) as people consume more and more goods, their happiness diminishes.
B) a person's satisfaction declines as more and more of a particular good is consumed.
C) a person's satisfaction rises indefinitely as additional units of a commodity are consumed.
D) increases in a person's satisfaction eventually decline as more and more units of a commodity are consumed.
E) as a person's income rises, consumption of all commodities falls.

Question 17

The following questions are based on the following graph:

As consumption is increased from 5 to 7 units,marginal utility is

A) rising.
B) falling.
C) constant.
D) zero.
E) negative.

Question 18

Approximately what percentage of their income do U.S.households save?

A) 4 percent
B) 10 percent
C) 15 percent
D) 20 percent
E) 32 percent

Question 19

In a market economy,consumer purchases depend on their

A) costs and what they can charge.
B) production decisions.
C) income, tastes, and market prices.
D) expenses, supply, and levels of activity.
E) past outlook and state of technology.

Question 20

Approximately what percentage of their income do U.S.households spend on taxes?

A) 8 percent
B) 11 percent
C) 23 percent
D) 32 percent
E) 46 percent

Question 21

This diagram shows hypothetical demand curves for individuals A and B.

The differences in their slopes suggest that consumer A and consumer B

A) have very different income levels.
B) have different tastes.
C) are not subject to the law of diminishing marginal utility.
D) are charged different prices for the same commodity.
E) are offered different amounts to purchase.

Question 22

Short-run costs that do not change as output increases or decreases are ________ costs.

A) explicit
B) fixed
C) empirical
D) marginal
E) primary

Question 23

Opportunity cost is

A) the variable cost a firm incurs by increasing output 1 unit.
B) the value of the best alternative use of a firm's resources.
C) the output opportunities a firm gains when average fixed costs decline.
D) another name for explicit costs.
E) the difference between fixed cost and variable cost.

Question 24

The distinction between the short run and the long run is

A) strictly a calendar matter; the long run is over 10 years.
B) dependent solely on the time period necessary to vary all relevant inputs.
C) that, in the short run, neither inputs nor outputs can be changed.
D) that the law of diminishing marginal returns is operational in the long run but not in the short run.
E) operationally meaningless since firms continually plan for the future.

Question 25

The next question is based on the typical teenager's lunch preferences as depicted in the table.

If burgers cost $1.75,fries cost $0.75,and shakes cost $1,a utility-maximizing teenager with $6 to spend on lunch will buy

A) 0 burgers, 0 fries, and 6 shakes.
B) 0 burgers, 4 fries, and 3 shakes.
C) 1 burger, 3 fries, and 2 shakes.
D) 2 burgers, 2 fries, and 1 shake.
E) 3 burgers, 1 fries, and 0 shakes.

Question 26

Another name for opportunity cost is ________ cost.

A) out-of-the pocket
B) irrelevant
C) manageable
D) alternative
E) historical

Question 27

Which best expresses the relationship between the market and individual demand curves?

A) The market demand curve is an average of all individual demand curves.
B) The market demand curve is constructed by multiplying the price times the quantity demanded by each consumer and summing the results.
C) The market demand curve is found by adding the quantities demanded by each consumer at each possible price.
D) The market demand curve sums the prices each individual is willing to pay for a given quantity.
E) Individual demand curves can be found by dividing the market demand by the number of buyers.

Question 28

Short-run costs that increase and decrease as an output increases or decreases are called ________ costs.

A) variable
B) secondary
C) derived
D) partial
E) potential

Question 29

A consumer is in equilibrium when

A) total utility can be increased only by reallocating his or her money income.
B) the marginal utility for each commodity consumed is equal.
C) all of his or her income has been spent on goods and services.
D) any other allocation of his or her income among the commodities consumed leads only to a reduction in total utility.
E) the total utility received from all commodities is the same.

Question 30

Costs of owner-supplied resources are ________ costs.

A) fixed
B) related
C) functional
D) optimal
E) implicit

Question 31

To an individual firm,its costs represent

A) gross income to the firm resulting from its ownership of the means of production.
B) profits that accrue to those internally supplied inputs.
C) the payments to owners of resources needed to bid these resources from alternative uses.
D) the value of the assets used in the production process.
E) the monetary sum of the variety of alternatives open to its resources.

Question 32

The following questions are based on the following information. Five adolescents are willing to buy the latest iPhone game at these prices:

If the price of the game is $1.99,the quantity demanded will be

A) one.
B) two.
C) three.
D) four.
E) five.

Question 33

If the marginal utility of food divided by the price of food exceeds the marginal utility of clothing divided by the price of clothing

A) the price of food is too high and less food should be purchased.
B) the total utility received from food exceeds the total utility received from clothing.
C) more should be spent on food and less on clothing.
D) more clothing should be purchased to raise the marginal utility of the last dollar spent.
E) the price of clothing must exceed the price of food.

Question 34

The following questions are based on the following information. Five adolescents are willing to buy the latest iPhone game at these prices:

A $1 price increase would reduce the quantity demanded in this market by

A) zero.
B) one.
C) two.
D) three.
E) four.

Question 35

An equilibrium market basket is one that

A) gives the consumer the greatest amount of utility from a given income.
B) does not change even if consumer income changes.
C) does not change even if prices of the commodities purchased change.
D) ensures the consumer a level of satisfaction equal to all other possible consumption alternatives.
E) equalizes the marginal and total utilities for each commodity.

Question 36

Tonight,after grading this economics exam,your instructor plans to spend $6 at a local pub.From the information in the table,how many dollars will your instructor spend on beer and how many on chips?

A) $1 on beer, $5 on chips
B) $2 on beer, $4 on chips
C) $3 on beer, $3 on chips
D) $4 on beer, $2 on chips
E) $5 on beer, $1 on chips

Question 37

A payment for resources purchased by a firm from outside suppliers is a(n)

A) fixed cost.
B) explicit cost.
C) joint cost.
D) derivative cost.
E) isocost.

Question 38

A consumer's demand curve slopes downward because as the

A) price of a commodity rises, the marginal utility per dollar falls relative to other goods so that less will be purchased to restore equilibrium.
B) average utility of the commodity rises, the price falls; this increases the individual's consumption.
C) price of a product rises, its total utility rises, so the consumer will buy less.
D) consumer buys more, total utility falls, so he or she is not willing to pay as much for the units.
E) price of a commodity falls, demand decreases.

Question 39

Cost functions show

A) that one of the functions of production is to incur costs.
B) the relationship between various costs of production and output.
C) the amount of output per unit of input.
D) the demand for factors of production.
E) how production costs are derived from input-output price ratios.

Question 40

The basic difference between explicit and implicit costs is that

A) explicit costs are measurable; implicit costs are not.
B) implicit costs are measurable; explicit costs are not.
C) explicit costs are private costs; implicit costs are social costs.
D) explicit costs are fixed costs; implicit costs are variable costs.
E) explicit costs reflect externally supplied resources; implicit costs reflect owner-supplied resources.

Question 41

The Glow-in-the-Dark Lamp Company produces 3.2 million light bulbs per year at a per unit cost of $0.50.If its total variable cost is $1.2 million,its

A) marginal cost is $0.375.
B) total fixed cost is $400,000.
C) average variable cost is $0.50.
D) total cost is $6.4 million.
E) average fixed cost is $0.40.

Question 42

In the short run,the greater the level of output,the

A) greater the average fixed cost.
B) lower the total fixed cost.
C) greater the total fixed cost.
D) lower the total variable cost.
E) greater the total variable cost.

Question 43

The addition to total cost resulting from the addition of the last unit of output is the ________ cost.

A) total variable
B) average variable
C) fixed
D) implicit
E) marginal

Question 44

The Easy Rider Surfboard Company produces 11,000 surfboards annually at a total cost of $484,000.Its total fixed costs are $198,000.The average variable cost of a surfboard must be

A) $18.
B) $26.
C) $44.
D) $62.
E) $70.

Question 45

The following questions are based on the following graph:

At 70 units of output per day,total variable cost is

A) $1,000.
B) $1,500.
C) $2,500.
D) $3,500.
E) $4,500.

Question 46

In the previous question,if marginal cost for the 101st unit is $0.70,average variable cost must be

A) rising.
B) falling.
C) remaining the same.
D) equal to average total cost.
E) undeterminable from the information given.

Question 47

Which of the following short-run cost curves generally declines,then rises as output is increased?

A) average fixed cost and average variable cost
B) average variable cost and average total cost
C) average total cost and average fixed cost
D) average fixed cost only
E) average variable cost only

Question 48

If average total cost is $0.75 when output is 100 units and total fixed cost is $10,average variable cost is

A) $0.65.
B) $9.25.
C) $10.75.
D) $65.
E) $75.

Question 49

Cost divided by output is ________ cost.

A) marginal
B) average
C) total
D) deflated
E) sunk

Question 50

In the short run,a firm's total costs are the sum of ________ costs and ________ costs.

A) average; marginal
B) input; output
C) fixed; average
D) marginal; variable
E) variable; fixed

Question 51

The following questions are based on the following graph:

At 50 units of output per day,total fixed cost is

A) $1,000.
B) $1,500.
C) $2,500.
D) $3,500.
E) $4,500.

Question 52

As output increases,average total cost eventually rises because

A) average fixed cost increases at a faster rate than average variable cost.
B) average variable cost will eventually increase at a faster rate than that at which average fixed cost declines.
C) marginal cost is offset by fixed cost.
D) of a declining rate of increase in total cost.
E) increases in average total cost offset increases in average variable cost.

Question 53

A rising marginal cost curve below the average variable cost curve means

A) average variable costs are falling.
B) average fixed costs are rising.
C) average total costs are rising.
D) total variable cost is falling.
E) total fixed cost is rising.

Question 54

If the total cost of 100 units is $560 and the marginal cost of the 101st unit is $6

A) total cost will fall.
B) total fixed cost will rise.
C) total variable cost will fall.
D) average total cost will rise.
E) average variable cost will fall.

Question 55

As output increases,average variable cost first declines but eventually rises because

A) average variable cost is derived by dividing a constant, the total variable cost, by the output rate.
B) of the effect of the law of diminishing returns.
C) it represents the addition to total cost resulting from the last unit of output.
D) at higher output rates, fixed costs per unit are relatively large.
E) if output is increased, total variable costs decline, then rise.

Question 56

In the short run,when output is zero,________ costs are zero.

A) total variable
B) total fixed
C) total
D) opportunity
E) market entry

Question 57

After some point,each additional unit of output requires more units of a variable input than the previous unit,causing

A) marginal cost to rise.
B) fixed cost to rise.
C) total cost to rise at a decreasing rate.
D) total variable cost to rise at a decreasing rate.
E) output to rise at an increasing rate.

Question 58

The next question is based on the following schedule:

From the schedule,it is possible to calculate

A) marginal cost.
B) average variable cost.
C) average fixed cost.
D) total variable cost.
E) profit.

Question 59

A rising marginal cost curve reflects a falling ________ curve.

A) total product
B) marginal product
C) average fixed cost
D) total cost
E) long-run average cost

Question 60

Average fixed cost equals

A) total cost divided by output.
B) total cost minus total variable cost.
C) average total cost plus average variable cost.
D) total fixed cost minus total variable cost.
E) total fixed cost divided by output.

Question 61

Difficulties in coordinating and transmitting information in a large firm can lead to

A) increasing returns to scale.
B) falling long-run marginal cost curves.
C) L-shaped long-run average total cost curves.
D) decreasing returns to scale.
E) linear total cost functions.

Question 62

A rising marginal cost curve intersects the

A) average fixed cost curve at its minimum point.
B) total cost curve at its minimum point.
C) production function at its maximum point.
D) average variable and average total cost curves at their minimum points.
E) explicit and implicit cost curves at their maximum points.

Question 63

The following questions are based on the following table:

The average variable cost of producing 2 units is

A) $13.
B) $23.
C) $26.
D) $33.
E) $66.

Question 64

The experience of 1971 price ceilings on oil taught us that a price ceiling curbs technological research and development in an activity where

A) foreign competition is great.
B) supply exceeds demand.
C) employment is rising.
D) the risk is great.
E) equilibrium prices are falling.

Question 65

The change in total variable cost for producing an extra unit is the same as the change in ________ cost.

A) total fixed
B) total
C) average fixed
D) average total
E) average variable

Question 66

When a firm increases all its inputs by 20 percent and its output rises by 15 percent,it is said to be experiencing ________ returns to scale.

A) average
B) explicit
C) increasing
D) constant
E) decreasing

Question 67

The fact that a single large factory may be more efficient than several smaller factories of the same total capacity is a reflection of

A) increasing returns to scale.
B) the law of diminishing marginal returns.
C) comparative advantage.
D) the crowding-out effect.
E) reproduction cost of assets.

Question 68

The following questions are based on the following diagram of the average cost curves for three different-sized plants:

If the firm is still in the planning stages of plant construction,it should choose the

A) small plant if it expects an output rate below 3,000 units per day.
B) large plant regardless of output because it has the lowest per unit costs.
C) medium-sized plant because it would give the firm the most flexibility, allowing it to produce any output between 0 and 3,000.
D) small plant if it expects an output rate below 1,000 per day.
E) medium-sized plant because it has the advantage of increasing economies of scale.

Question 69

According to economist Richard Gill in the video presentation,the experience of Marin County residents during the drought of the 1970s shows that

A) scarcity is not as much of a factor in determining price as economists once thought.
B) people tend to be very careful in their use of scarce resources.
C) price has more impact on total utility than on marginal utility.
D) when there is no substitute for a resource its demand is high.
E) the total utility of water rises as it becomes less available.

Question 70

Which of the following factors was probably most significant in putting an end to the designer jeans fad?

A) Prices got so high that people stopped buying designer jeans.
B) Producers failed to advertise enough to promote this new product effectively.
C) So many consumers bought designer jeans that they lost their uniqueness.
D) The quality of the product declined as more firms entered the market.
E) Supply decreased because of the energy crisis.

Question 71

A possible reason for the existence of increasing returns to scale is

A) the inability of a firm to increase all inputs proportionately.
B) the problems of coordination and control.
C) higher input prices.
D) larger fixed costs with a larger plant size.
E) greater specialization.

Question 72

The following questions are based on the following table:

The total cost of producing three units is

A) $20.
B) $22.
C) $26.
D) $66.
E) $92.

Question 73

The following questions are based on the following table:

The marginal cost of producing the first unit is

A) $5.
B) $10.
C) $16.
D) $20.
E) $30.

Question 74

The following questions are based on the following diagram of the average cost curves for three different-sized plants:

If the long-run average cost curve were shown,it would indicate

A) diminishing returns.
B) decreasing returns to scale.
C) constant returns to scale.
D) increasing returns to scale.
E) constant marginal cost.

Question 75

The following questions are based on the following table:

The total fixed cost is

A) $4.
B) $5.
C) $20.
D) $26.
E) $126.