ECO 550 quiz 2 answer
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This 6 page Study Guide was uploaded by an elite notetaker on Wednesday November 11, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 181 views.
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Date Created: 11/11/15
1) A perfectly elastic demand curve will: Answer be a vertical straight line. be a downward sloping straight line. be a horizontal straight line. be an upward sloping straight line. 2) An increase in the price of sodium carbonate, a chemical compound used in detergents, will: Answer increase the quantity of detergents demanded. decrease the quantity of detergents demanded. decrease the demand for detergents. increase the demand for detergents. 3) The market-clearing price is: Answer the price at which the market is in equilibrium. the price at which mutually beneficial trade take place. the price at which sellers earn the maximum profit. the price at which consumer surplus is zero. 4) Starting from a pure exchange equilibrium, an increase in the demand for a commodity will result in: Answer a fall in the market price. a rise in the market price. a rise in the equilibrium output. a fall in the equilibrium output. 5) For an inferior good: Answer the income elasticity is positive. the income elasticity if negative. the income elasticity is zero. the income elasticity is unity. 6) The supply curve of a producer, whose costs vary continuously with output will be: Answer a straight line vertical to the output axis. a straight line horizontal to the output axis. the positively sloped portion of the marginal cost curve. the negatively sloped portion of the marginal cost curve. 7) A demand curve is said to be inelastic if: Answer ED = 1 ED = 0 ED > 1 ED < 1 8) A Commodity X will be considered as a normal good if: Answer the quantity of the good consumed decreases with an increase in income. the quantity of the good consumed increases with an increase in income. the quantity of the good consumed increases in the same proportion as the increase in income. the quantity of the good consumed reflects no change with a change in income. 9) Bankers supported the Federal Reserve Board’s Regulation Q because: Answer it allowed them to charge lower interest rates on loans. it protected them from money market volatilities. it increased the demand for loanable funds in the market. it allowed them to borrow at a low rate of interest and lend out at a high rate of interest. 10) Which of the following is a property of a forward contract? Answer In a forward contract cash is traded for immediate delivery. The buyer of a forward contract is “short” while the seller of the contract is “long”. In a forward contract, the seller must own the commodity which is being traded. The value of future delivery depends on the market price of the commodity. 11) Which of the following markets is continuously in operation and not set in a single venue or restricted to certain dates or times? Answer The U.S natural gas industry The San Francisco Wholesale Produce Market The U.S. real estate market An art exhibition 12) As observed in China’s steel appliance market, the rise in the price of refrigerators resulted: Answer solely from an increase in the demand for refrigerators. from an increase in the demand for steel from all appliance industries. from a shortage of steel in the world markets. from an increase in the price of steel that was the result of increased demand for refrigerators. 13) The area above the supply curve and below the market price represents: Answer the consumer surplus the producer surplus. the deadweight loss of the producer. the deadweight loss of the consumer. 14) In a “pure exchange” market: Answer resources are owned only by the government. resources are owned by few people. people trade money for goods that are produced in the domestic economy. there is no production and people trade money for goods that already exist. 15) Which of the following commodities can be considered as an inferior good? Answer Dwelling in a small apartment located in a suburb Washing clothes in a washer at home Eating out at an upscale restaurant Spending vacations at exotic locations 16) The production function shows: Answer the total cost incurred to produce a certain level of output. the changes in cost incurred as output level varies. the relationship between inputs used and output produced. the impact of a change in production on the firm’s revenues. 17) A manufacturer of towels finds that his returns to scale are constant. Which of the following conclusions can be drawn? Answer The long-run total cost curve is horizontal. The long-run average cost curve is horizontal. The long-run total cost curve is downward sloping. The long-run average cost curve is downward sloping. 18) A firm uses two inputs, labor (L) and capital (K) in the production of umbrellas. It can invest $50,000 in the purchase of the two inputs annually. The firm hires 5 units of capital at $1,000 per unit. If the going annual wage rate is $4,500, calculate the number of workers employed by the firm. (Assume that the firm spends the entire budget on K and L.) Answer 10 5 15 9 19) You decide that it is time to buy a big family car. The opportunity cost you consider is: Answer the cost of the car. the increase in comfort for your family while traveling. the return this money would have earned if it was invested otherwise. the inconvenience you and your family are bearing on account of your old car. 20) If the slope of the rays from the origin to the total variable cost curve declines along the curve, it implies: Answer the average variable cost is falling. the marginal cost is falling. the average variable cost is rising. the marginal cost is rising. 21) Refer to Figure 4-3. An increase in the slope of an isocost implies: Figure 4-3 The following figure shows two isocost lines ( and ) and two isoquants for the production of 200 and 350 tons of corn. The axes show the quantities of the two types of fertilizers used in corn production. Answer the firm is using more of the input measured on the X-axis. the total cost incurred by the firm has declined. the input measured on the X-axis has become costlier. the price of both inputs has declined. 22) _____ is the locus of the minimum points of various short-run average cost curves depicting different plant sizes. Answer Long-run marginal cost Expansion path Long-run average cost Isocost 23) _____ gives the slope of an isocost line where labor (L) and capital (K) are the two inputs measured on the X and Y axes respectively. Answer The ratio of the marginal product of capital to the marginal product of labor, with a negative sign, The ratio of price of labor to the price of capital, with a negative sign, The ratio of the price of capital to the price of labor The ratio of the marginal product of labor to the marginal product of capital 24) Jeff owns a garage and has 3 mechanics to help him. With the tools used being fixed in the short run, his production function is given by 5 + 2L = Y , where L is the number of mechanics and Y is the number of cars they can fix. If Jeff hires a fourth mechanic, what will be the marginal product of the new mechanic hired? Answer 11 13 2 7 25) Refer to Figure 4-2. What does the area ABCD signify? Figure 4-2 The following figure shows the cost curves of a firm producing good X. Answer The total revenue earned when the market price is $8 per unit of X. The total profit earned when the market price is $8 per unit of X. The total revenue earned when the market price is $5 per unit of X. The total profit earned when the market price is $5 per unit of X. 26) The greater the curvature of the isoquant: Answer the greater the degree of substitutability between the inputs. the lower the possibility of substitution between inputs. the higher the impact of a change in relative prices of inputs. the lower the prices of inputs. 27) In an industry characterized by a natural monopoly, which of the following characteristics will be observed? Answer The long-run average cost curve will be upward sloping. The market price of the product will be very low. Competition is both impossible and inefficient. Number of producers operating in this market will be low. 28) Refer to Figure 4- If the firm produces 2,000 dolls per month when the market price is $4: Figure 4-1 The following figure shows the marginal cost curve (MC) for a firm producing fancy dolls for children. The market price for a doll is $4 per unit. Answer it will incur a loss. it will earn maximum profit. it will minimize cost on inputs. it will earn the highest revenue. 29) Which of the following cases exhibit increasing returns to scale? Answer Output increases by 5 percent when inputs are increased by 6 percent. Output increases by 6 percent when inputs are increased by 5 percent. Output increases by 7 percent when inputs are increased by 7 percent. Output declines by 2 percent when inputs are increased by 1 percent. 30) Refer to Figure 4-2. The area EFGH is: Figure 4-2 The following figure shows the cost curves of a firm producing good X. Answer the loss incurred by the firm when market price is $3.5. the profit earned by the firm when the market price is $3.5. the loss incurred by the firm when the market price is $5. the revenue earned by the firm when the market price is $5.
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