Econ SurveyMr. Rubin de CelisChapter 5 exam - Supply

1. The key factor that determines whether the supply of a good will be elastic or inelastic is

a. time. b. consumption. c. price. d. output level.

2. Marginal cost isa. total revenue minus total cost. b. total revenue plus total cost. c. the cost of producing one more unit of a good. d. the difference between fixed and variable costs.

3. If the substitution effect is stronger than the income effect, how will Jake's consumption of chips and candy be affected when the price of candy rises, if both are normal goods?

a. He eats more chips and less candy b. He eats less chips and less candy c He eats less chips and more candy d. He eats more chips and more candy

4. The change in output from adding one more worker is calleda. the marginal product of labor. b. increasing marginal returns. c. diminishing marginal returns. d. negative marginal returns.

5. Which of the following products is likely to have a built-in excise tax?a. shoes b. apples c. clothing d. high-pollutant gasoline

6. According to the law of supply,a. the lower the price, the greater the quantity consumed. b. the higher the price, the greater the quantity produced. c. if the price of a good rises, some firms will produce less. d. if the price of a good falls, new firms may enter the market.

8. Advances in technology usuallya. lower costs and increase supply at all price levels. b. increase cost and increase supply at lower price levels. c. lower costs and increase supply at higher price levels. d. increase cost and decrease supply at all price levels.

9. A subsidy isa. a tax on the production or sale of a good. b. a government payment to support a business or market. c. a form of government regulation. d. illustrated by the market supply curve.

10. Which of the following is an example of a variable cost?a. rent b. machinery repair c. equipment d. raw materials

11. Which of the following leads to an increase in supply?a. an increase in the cost of raw materials b. a decrease in the cost of raw materials c. diminishing marginal returns d. a change in the law of supply

12. If sellers expect the price of a good to rise in the future, they are likely toa. put more goods on the market immediately. b. raise their prices now. c. store goods now and sell more in the future. d. set prices according to the law of demand.

13. Which of the following is a fixed cost for a store?a. short term workersb. timec. advertisingd. inventory

14. The supply curvea. always rises from left to right. b. is always a horizontal line. c. always rises from right to left. d. is always a vertical line.

15. When a business is calculating its operating costs, it must includea. total costs. b. fixed costs. c. variable costs. d. the rent for the building.

16. Which of the following is an example of lower production costs brought about by the use of technology?

a. the delivery costs of gasoline to the consumer by diesel trucksb. the use of e-mail to replace slower surface mailc. the making of breads and pastries in local shops rather than large bakeriesd. the importing of fresh vegetables from South America rather than using canned

vegetables

17. Which of the following is the best example of the law of supply?a. A sandwich shop increases the number of sandwiches they supply every day when the price is increasedb. A food producer increases the number of acres of wheat he grows to supply a milling company.c. A catering company buys a new dishwasher to make their work easier.d. A milling company builds a new factory to process flour to export.

18. When the selling price of a good goes up, what is the relationship to the quantity supplied?

a. the cost of production goes downb. the profit made on each item goes downc. It becomes practical to produce more goods.d. there is no relationship between the two.

19 What is Ben's monthly profit if he has to pay $1000 rent, $250 utilities, and $850 wages, and he sells 3 $1000 computers and 2 $3000 computers?

a. $6900 b. $1750 c. $9000 d $4000

20. If the government raises taxes on liquor stores for the alcohol they sell, what will be the most likely result?

a.. Demand will exceed supply b. Supply will exceed demand c. Supply will shift inwards d. Demand will shift outwards

21. If the quantity demanded of desks increases 12%, because the price of desks falls by 17% , the price elasticity of demand for desks is

a. inelastic b. elasticc. normal d. utility maximizing

22. Diminishing marginal utility means that as more of a good is purchaseda. no additional satisfaction will be received by the purchaserb. the total satisfaction from all units purchased is decreasingc. the satisfaction from each additional unit purchased decreasesd. marginal utility is less than product price

23. If nine of a firm’s workers can produce 8,600 units of output and ten workers can produce 9,700 units, the marginal product of the tenth worker is

Labor (number of workers)

Output

Marginal product of labor

a. 18,300 units c. 9,700 unitsb. 1,100 unitsd. impossible to determine with the information given

24. With regard to producing goods and services, marginal cost can best be defined as the

Beanbags produced

Fixed Cost Variable Cost

Total Cost Marginal Cost

0 36 0 36 ----------

1 36 8

a. amount which producing one more unit of output adds to total costb. difference between fixed and variable costs at any level of outputc. change in fixed cost resulting from producing one more unit of outputd. difference between the product's selling price and the total cost of production

25. At any level of output, a firm's total cost of production is the sum ofa. total fixed cost and total variable cost b. average fixed cost and average variable costc. total fixed cost and marginal cost d. all of the above

26. Due to the occurrence of diminishing returns, as a firm increases output in the short run

a. marginal cost will eventually riseb. marginal cost will eventually fallc. average fixed cost will falld. production will no longer be profitable once diminishing returns begin to occur

27. To an economist, if a firm's Marginal Revenue equals its Marginal Costsa. the firm is earning normal profit b. the firm is maximizing profits c. the firm is earning a lossd. none of the above

28. Variable costs of production area. include property taxesb. include raw materialc. include rentd. include salaries of a security guard

29. Total revenue for a purely competitive firm isa. calculated by multiplying its product’s selling price by the number of units soldb. equal to the selling price of its productc. total profit minus marginal costd. always the same amount of money as its total profit in the short run

30. If a firm wants to maximize profit, which of the following statements should it follow?

a. produce the quantity for which total cost is lowestb. produce the quantity at which total revenue equals total costc. produce the quantity at which marginal revenue is equal to marginal costd. produce the quantity at which the total revenue exceeds the total cost by the greatest amount

31. Vertigo Corporation was previously willing to sell 1800 “Vertiginous” vegetable mashers at $24 per unit. It is now willing to sell 3000 units at a price of $48 per unit. The price elasticity of supply for Vertiginous mashers is:

a. 1.25. b. 1.0. c. 0.8. d. 0.75.

Problem solving

34. A firm has total fixed production costs of $ 100. Its total cost of producing one unit of output is $ 200, its total cost of producing two units of output is $ 310, and its total cost of producing three units of output is $ 390.

Calculate: Complete the table below to answer questions 35 and 36. 3 points

Number of units

Fixed costs Variable costs

Total cost Marginal cost

1 100

2

3

35 The firm's total variable cost (TVC) of producing 2 units isa. $ 108.33 b. $ 210 c. $ 290 d. $ 390

36.. The firm's marginal cost (MC) of producing the 3rd unit isa. $ 80 b. $ 110 c. $ 200 d. $ 310

37. New techniques in the production of LCD screens make it possible to produce them at lower marginal cost. In the market for televisions using LCD screens, we would expect to see:

a. supply decrease b. quantity supplied decreasec. supply increaseb. quantity supplied increase.c. no change

38. What reason would you use to support your answer in problem 37?a. Change in the cost of productionb. Change in technology c. Natural disaster/other event that causes decrease in production.d. Government Policy

39. The supply curve of a commodity has shifted to the right. Which of the following developments is most likely to have caused the shift

a. a decline in consumer income b. a decline in the price of an ingredient of the commodity c. a decline in the price of the commodity itself d. an increase in the price of the commodity

Problem solving Elasticity E = ∆Q ∆P

midpointelasticity =

(Q2 - Q1)

(Q2 + Q1)/2÷

(P2 - P1)

(P2 + P1)/2

How will elasticity of the supply affect the producer’s decisions in each of the following situations.

40. If the quantity supplied changes from 5 to 10 units as the price changes from $14 to $20, the elasticity of supply is ____________ .

41. If the elasticity of supply is 2, a 10 % change in price will cause a ____________ % change in the quantity supplied in the same direction.

42. If the elasticity of supply is .4, a 6 % change in the quantity supplied will be caused by a ____________ % change in price in the same direction.

For each of the following problems, state which curve would shift: the supply curve or the demand curve. Then, state the determinant and whether the curve would shift to the right, to the left, or not at all.

43. U. S. auto workers union, agree to wage and benefit cuts. What affect would this have on the US auto industry?

44. Pseudomonas outbreak is found at a popular deli in Skokie, Illinois. What “loxs.” Patrons turning to tofu. What affect would this have on the market for Tofu?

45. Whistle blower writes a scathing editorial in the New York Times denouncing the

unethical practices by Goldman Sacks. The average gain/loss on investments dropped 20% in trading. How will this news affect the market for the 2012 Mercedes “S” class sedans?

46. “Dumping!” New auto import quotas will reduce the flow of foreign cars. What affect would this have on the domestic auto industry?

47. News of an earthquake in Japan “rocks” foreign car parts industry in US and Canada. What affect will this have on the foreign parts industry?

48. The price of milk goes down. What affect would this have on the milk? What affect would this have on Soy milk?

49 Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information, calculate the value of the price elasticity of supply of jean-jackets.

50 Using the Elasticity formula, calculate the price elasticity of portable air conditioners if an increase in price from $300 to $360 leads to an increase in the quantity supplied from 10,000 to 14,000.

51. The price elasticity of supply of hot-dog buns is estimated to be 1.5. Other things equal, this means that a 10 percent decrease in the price of hot-dog buns will cause the quantity of hot-dog buns supplied to decrease by

a. approximately 15 percent. b. approximately 1.5 percent. c. approximately 25 percent d. approximately 5 percent.

Figure 5.1

Price Quantity Demanded Quantity Supplied$7 200 50$8 180 90$9 150 150$10 110 210$11 60 250

52. Given the following data in figure 5.1. Calculate the price elasticity using the midpoint formula, of supply when the price changes from $7.00 to $9.00. Explain your results-

53. Next find the Price elasticity of demand using the midpoint formula.. Explain your results.

54 Below is a typical supply-and-demand diagram. When demand is D1, at equilibrium, Figure 5.2

a) price is p1 and quantity demanded is Q0. p0 S1 b) price is p0 and quantity demanded is Q1. c) price is p1 and quantity demanded is Q1. p1d) price is p1 and quantity demanded is Q2. D1 D2e) price is p0 and quantity demanded is Q0.

Q1 Q2

55 When the demand curve shifts outwards, what is the effect on equilibrium price and quantity?

a) price increases, quantity decreases b) price decreases, quantity increases c) price increases, quantity increases d) Price decreases, quantity decreases

56. The removal in 1966 of the requirement that Catholics eat fish on Fridays was folowed by a 12.5 percent fall in prices of fresh fish. From this it can be deduced that the a. demand curve for fish shifted to the left.b. demand curve shifted to the right.c. supply curve shifted to the left.d. supply curve shifted to the right.

57. Along a supply curve, a. supply changes as price changes.b.

quantity supplied changes as price changes.

c. supply changes as technology changes.d.

quantity supplied changes as technology changes.

58. The supply curve shows a. the same basic information as the demand curve.b. who will have an opportunity to produce or purchase an item.c. the quantity produced as a function of the price.d. plots of what quantities have been sold over the past few weeks or months.

59 An upward-sloping supply curve shows that a. buyers are willing to pay more for a scarce product.b.

suppliers are willing to increase production of their goods if they can receive higher prices for them.

c. buyers are unaffected by sellers' costs of production.d.

the price of a product is not influenced by the price buyers are willing to pay.

e. at higher prices, an envy effect begins to affect the demand curve.

60. The law of increasing relative costs, depicted by the concavity of the production opportunities frontier, is most closely related to the a. downward slope of the demand curve.b. upward slope of the demand curve.

c. downward slope of the supply curve.d. upward slope of the supply curve.

61. Economists emphasize the importance of ____ in analyzing supply. a. quantityb. market potentialc. wants and needsd. pricee. sales opportunities

62. If price rises, what happens to supply for a product? a. It increases.b.

It decreases.

c. It does not change.d.

Uncertain-economic theory has no answer to this question.

63. . If price rises, what happens to quantity supplied for a product? a. It increases.b. It decreases.c. It does not change.d. Quantity supplied is constant, but supply increases.

64. . A supply curve can be thought of as a. a graphical display of "market potential."b.

a graphical representation of the information in a supply schedule.

c. showing the maximum quantities that firms are able to produce.d.

a forecasting tool.

e. All of the above are correct.

65. An important assumption that is made when constructing a supply schedule is a. only price and quantity matter in determining supply.b.

firms always want to sell a certain amount of a product.

c. supply is too important to be left to the marketplace.d.

all other determinants of supply are held constant.

e. demand has a positive slope.

66 Assuming that resources are specialized, the opportunity cost of an item increases as production of it rises. Therefore, we expect that firms will produce more if a. the price increases.b. the price decreases.c. the opportunity cost is greater than the price.d. government asks firms to produce more.e. the income of buyers increases.

67. Firms often seek to borrow money to expand their capital stock, and the price they pay for the money is the interest rate. What happens to the quantity of money supplied if the interest rate increases? a. It increases.b.

It decreases.

c. It does not change.d.

It depends entirely on the interest rate.

68. The price for labor is the wage rate. What happens to the supply of labor if wages increase? a. It increases.b.

It decreases.

c. It does not change.d.

Uncertain-economic theory has no answer to this question.

69. Suppose the numbers in parentheses represent two points on a line: (59 billion quarts; $4) and (78 billion quarts; $6). The line is likely a a. production possibilities frontier for milk.b.

supply curve for milk.

c. demand curve for milk.d.

ray through the origin.

e. time series line.

70. Assume a new technology further reduces the cost of producing calculators. Also assume that consumers have cut back on their scheduled purchases in anticipation of even more cost-saving developments. As a result, we can expect a. a decrease in price but no predictable change in output.b. a decrease in output but no predictable change in price.c. an increase in output but no predictable change in price.d. a predictable decrease in both output and price.

Figure 4-6

71. Grapes can be used for wine or for raisins. Which graph in Figure 4-6 best depicts the effects on the U.S. raisin market of an increase in imports of foreign wines? a. 1b. 2c. 3d. 4

Figure 4-8

72.. Women today are having more babies than women did fifteen years ago. The result is that mothers today have trouble finding baby-sitters and are shocked at what they must pay for child care. Which graph in Figure 4-8 best illustrates how the situation has changed? a. 1b. 2c. 3d. 4

Figure 4-11

73. The Russian government has restricted sugar availability to reduce the supply of illegal liquor (sugar is used to increase alcohol content). Russians also like to sweeten their tea with jam, another sugar product. Which graph in Figure 4-11 depicts the impact of sugar rationing on the Russian tea market? a. 1b. 2c. 3d. 4

Figure 4-12

74. The silverware industry has been in serious decline since the 1980s. Family dining habits are less formal so people purchase less silverware. Also, in 1979-1980, the price of silver increased from $5 to $21 per ounce. Which graph in Figure 4-12 best illustrates these developments? a. 1b. 2c. 3d. 4

Figure 4-15

75. Recycling of newspapers has been undermined by its success. The supply of old papers, gathered diligently by those concerned with the environment, has increased dramatically, as has the number of firms that convert the material into recycled newsprint. Demand has remained stable despite falling prices because newspapers consider recycled newsprint an inferior substitute for regular newsprint. Consequently, the price of recycled newsprint has fallen below the cost of production; recycling firms are going out of business; mountains of old newspapers are left behind. Which graph in Figure 4-15 best illustrates this situation? a. 1b. 2

c. 3d. 4

76. How will a decrease in price tend to affect supply? a. Supply will increase.b.

Supply will decrease.

c. Supply will not change.d.

Uncertain.

77. The number of home computers has risen dramatically in the past twenty-five years. One of the major factors behind this is the fact that the a. supply of computers has decreased dramatically.b.

supply of computers has increased dramatically.

c. demand for computers has decreased dramatically.d.

demand for computers has increased dramatically.

Figure 4-16

78. Assume that Figure 4-16 shows the supply of orange juice. A decrease in the wage rate paid to workers in the orange juice industry will shift supply from

a. S1 to S2.

b. S2 to S1.

c. S3 to S2.

d. S3 to S1 .

79. Assume that Figure 4-16 shows the supply of steak. An increase in the price of pork will change the supply from a. S1 to

S2.b. S2 to

S1.c. S2 to

S3.d. S1 to S3

.

80. An increase in supply will have what effect on equilibrium price and quantity? a. Price will increase; quantity will decrease.b. Price will decrease; quantity will increase.c. Both price and quantity will increase.d. Both price and quantity will decrease.

81. Which of the following is the correct way to describe equilibrium in a market? a. At equilibrium, demand equals supply.b.

At equilibrium, quantity demanded equals quantity supplied.

c. At equilibrium, market forces are no longer at work.d.

Equilibrium is a tendency, a state of perpetual motion.

e. Equilibrium is the best combination of price and quantity.

3. When the government taxes suppliers for the goods they sell, what effect does it have on the market?

(A) The supply curve shifts outwards

(B) The demand curve shifts outwards

(C) The demand curve slopes upwards

(D) The supply curve shifts inwards

4. If good A and good B are perfect complements, which combination is the most preferable?

(A) 1 A, 1 B

(B) 1 A, 10 B

(C) 2 A, 4 B

(D) 3 A, 3 B

6. If the substitution effect is stronger than the income effect, ham is a normal good, and Spam is an inferior good, what happens to consumption of ham and Spam when the price of ham increases?

(A) Less ham, less Spam

(B) More ham, more Spam

(C) More ham, less Spam

(D) Less ham, more Spam

7. Which of the following refers to the tendency to buy more of a good when its price falls in relationship to other goods?

(A) Income effect

(B) Substitution effect

(C) Outward shift of the demand curve

(D) Outward shift of the budget constraint

8. Tim's budget constraint for boxers and pants shifts inwards. What is one possible explanation?

(A) Increase in the price of pants

(B) Decrease in the price of boxers

(C) Decrease in Tim's income

(D) Change in Tim's indifference curves

9. Which of the following would be most likely to cause an inward shift of the demand curve for ski equipment?

(A) The advent of summer

(B) The advent of winter

(C) An increase in the price of ski equipment

(D) An outward shift of the supply curve

10. With simultaneous shifts in supply and demand curves, which of the following is NOT a possible equilibrium outcome?

(A) Price increases, quantity stays the same

(B) Price increases, quantity decreases

(C) Price stays the same, quantity increases

(D) Price and quantity stay the same

11. Which of the following would NOT be an example of government intervention in the economy?

(A) Tobacco tax

(B) Price floor on wheat

(C) Monopoly in computer software

(D) Price ceiling on long distance rates

12. If Steve tends to buy T-shirts and shorts together, what would you call T-shirts and shorts?

(A) Substitute goods

(B) Normal goods

(C) Giffen goods

(D) Complementary goods

13. What is the correct formula for calculating profit?

(A) Total Cost - Total Revenue

(B) Total Revenue - Total Cost

(C) Average Revenue - Average Cost

(D) Total Revenue - Total Fixed Costs

14. Which of the following is an example of a fixed cost?

(A) Installation of overhead lighting

(B) Materials to make products

(C) Packaging materials for products

(D) Wages for time spent making products

15. Horizontal addition can be used to find which of the following?

(A) Aggregate Supply

(B) Average Cost

(C) Marginal Utility

(D) Shift in Demand

16. If Sophia gets a raise and buys less of good X, then we know that good X:

(A) Is a Giffen good

(B) Is a normal good

(C) Is an inferior good

(D) Is a substitute good with good Y

17. Which of the following will most likely cause a shift in the demand curve for ice cream?

(A) The advent of summer

(B) An increase in price

(C) A decrease in price

(D) An outward shift of the supply curve

18. Which of the following are possible examples of substitute goods?

(A) Right and left shoes

(B) Hot dogs and rolls

(C) Shampoo and conditioner

(D) Ice cream and sorbet

20. Which of the following actions could cause a higher market price and lower quantity consumer at equilibrium?

(A) An outward shift of the demand curve and an inward shift of the supply curve

(B) An outward shift of the demand curve

(C) An outward shift of the supply curve

(D) An inward shift of the demand curve and an outward shift of the supply curve

21. If good A and good B are both normal goods, and a decrease in the price of A increases consumption of both goods, what is one possible explanation?

(A) Good A is a Giffen good

(B) The income effect is stronger than the substitution effect

(C) The substitution effect is stronger than the income effect

(D) Good A and good B are substitute goods

22. Procter & Gamble Co. is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap inward. Which is the exceptions?(A) An increase in the price of bar soap

(B) an increase in the price of a key ingredient of liquid soap

(C) environmental regulations force Procter & Gamble to use a more costly technology to produce liquid soap.

(D) a decrease in the price of liquid soap

(E) An increase in the wage rate for factory workers who produce liquid soap

23. If both demand and supply curves for computers shift to the right, the price of computers may rise, fall, or remain unchanged.

(A) True

(B) False