Microeconomics 101 Part II Quiz

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In this case, since the cross elasticity of demand for coconut milk and fruit punch is positive and equal to 1.0, it indicates that these two goods are substitutes. This means that when the price of coconut milk increases, consumers will likely switch to buying more fruit punch instead, as they are considered interchangeable to some extent.

This scenario describes a movement along the supply curve. When the price of hamburger decreases, producers respond by reducing the supply of hamburger. This is because they are willing to supply less at a lower price. A movement along the supply curve occurs when there is a change in quantity supplied due to a change in price, while all other factors remain constant.

This answer is correct because it demonstrates the concept of elasticity of supply. When the price of a product rises by 5 percent and the quantity supplied rises by 7 percent, it indicates that the supply of the product is responsive to changes in price. This responsiveness is characteristic of an elastic supply, where a small change in price leads to a relatively larger change in quantity supplied.

The farmer should use more fertilizer and less labor because the marginal product of fertilizer (8) is lower than the marginal product of labor (11). This means that the farmer is getting more output per unit of labor compared to fertilizer. By using more fertilizer and less labor, the farmer can increase their output while minimizing costs, as the price of labor ($4.50) is higher than the price of fertilizer ($3.00).

The Gini ratio is a numerical measure of the extent of income inequality in a nation. It compares the income of persons, households, or households at the 90th percentile of the income distribution to the income at the 10th percentile. This ratio provides a standardized way to quantify income inequality, with higher values indicating greater inequality. It is widely used by economists and policymakers to assess the distribution of income within a country and to inform policies aimed at reducing inequality.

In a monopolistic competition, firms have some degree of market power and can differentiate their products. This allows them to charge higher prices compared to purely competitive firms. However, due to competition from other firms, they have to lower their output in order to maintain market share. Therefore, the monopolistic competitor will have a higher price and lower output compared to a purely competitive firm in long-run equilibrium.

The crowding model of discrimination suggests that women and selected minorities are systematically excluded from high-paying occupations and crowded into low-paying occupations. This leads to a decrease in their wages and a reduction in domestic output. This explanation aligns with the concept of occupational segregation and the negative impact it has on certain groups in terms of employment opportunities and economic outcomes.

An elimination of tariffs on imported cell phones is most likely to cause an increase in the supply curve for cell phones. Tariffs are taxes imposed on imported goods, which increase the cost of importing and therefore decrease the supply of imported goods. By eliminating tariffs on imported cell phones, the cost of importing them would decrease, leading to an increase in the supply of cell phones available in the market. This would cause a shift in the supply curve to the right, indicating an increase in the quantity supplied at each price level.

The elasticity of supply refers to the responsiveness of the quantity supplied to a change in price. The amount of time the producer has to adjust inputs in response to a change in product price is the main determinant of elasticity of supply. When producers have more time to adjust their production processes and allocate resources, they are more likely to be able to increase or decrease the quantity supplied in response to price changes. Therefore, the elasticity of supply is higher when producers have more time to adjust inputs.

In order for a rational consumer to be in equilibrium, the marginal utility per dollar last spent must be the same for all products consumed. This means that the consumer is allocating their budget in such a way that the additional satisfaction or utility gained from the last dollar spent on each product is equal. This ensures that the consumer is maximizing their overall utility and is not overspending on any particular product.

Monopolistic competition resembles pure competition because both market structures have weak or nonexistent barriers to entry. In both cases, new firms can easily enter the market without facing significant obstacles. This leads to a large number of firms operating in the market, promoting competition and preventing any single firm from having significant market power. As a result, both monopolistic competition and pure competition are characterized by a relatively level playing field and the potential for new firms to enter and compete in the market.

In an increasing-cost industry, the cost of production increases as the industry expands. This is typically due to limited resources or increasing input prices. As a result, firms in this industry will require higher prices to cover their increasing costs and make a profit. This leads to an upsloping long-run supply curve, as the quantity supplied by firms increases as prices rise.

This action would definitely be in violation of anti-trust laws because it involves collusion and price-fixing among competitors. By agreeing to take turns as the low bidder, the firms are effectively eliminating competition and manipulating the bidding process, which goes against the principles of fair competition and anti-trust regulations.

Demand price elasticity measures the responsiveness of quantity demanded to a change in price. In the given demand schedule, the quantity demanded decreases from 600 to 500 as the price increases from $1 to $3, indicating an elastic response. However, the quantity demanded remains constant at 500 as the price increases from $3 to $5, suggesting an inelastic response. Finally, the quantity demanded decreases from 500 to 400 as the price increases from $5 to $7, indicating an elastic response. Therefore, the range of the demand schedule where demand price is elastic is between $5 and $7.

In pure competition, a profit-maximizing firm will equate the marginal revenue product of labor with the marginal resource cost of labor. This means that the firm will hire additional workers as long as the marginal revenue product of labor is greater than or equal to the marginal resource cost of labor. This ensures that the firm is maximizing its profits by efficiently allocating its resources. The other options, such as profits produced by the employment of an extra worker, cost of producing one extra unit of output, and price received from selling one extra unit of output, are not directly related to the decision-making process of a profit-maximizing firm in pure competition.

Based on the information given, we can conclude that the marginal revenue product (MRP) of the last worker hired is higher than the marginal resource cost (MRC) of that worker. This indicates that the additional revenue generated by hiring the last worker is greater than the cost of hiring that worker. Therefore, hiring more workers will increase profits for the restaurant.

In a monopsonistic labor market, there is only one buyer of labor, giving the buyer market power to set the wage rate. The buyer will hire less labor than in a perfectly competitive market, resulting in a lower level of employment. Therefore, the correct answer is A and F, which indicates a lower wage rate (A) and a lower level of employment (F) in a monopsonistic labor market.

In oligopoly, prices are likely to be more rigid because there are only a few firms in the market, and they have significant control over the pricing decisions. Due to the limited competition, these firms tend to engage in price fixing or collusion to maintain stable prices and avoid price wars. This lack of price flexibility is beneficial for the firms as it helps them maintain their market share and profitability.

The idea in economics that "there is no free lunch" means that there are always opportunity costs when scarce resources are used to prepare lunches. This implies that even if a business offers free lunches, they would still have to incur costs such as ingredients, labor, and overhead expenses. Therefore, businesses would lose money if they offered free lunches.

A natural monopoly occurs when long-run average total costs decline continuously through the full range of market demand. This means that as the firm produces more and more output, their average costs decrease. This is typically due to economies of scale, where the firm can take advantage of lower costs per unit as they increase their production. As a result, this firm can produce at a lower cost compared to any potential competitors, making it more efficient and dominant in the market.

The demand-enhancement union model is most associated with lobbying for increases in public expenditures on the product it is producing. This model focuses on increasing the demand for the product through various means, such as government spending. By advocating for higher public expenditures on the product, the union aims to create more demand, which can lead to increased production and employment opportunities for its members. This strategy is based on the belief that increased government spending will stimulate the economy and benefit both the union and its workers.

Under the kinked demand curve model of oligopoly, firms are not in violation of the Sherman Antitrust Act because this model does not involve collusion or anti-competitive behavior. Instead, it suggests that firms in an oligopoly market face a demand curve with a kink at the current price level, indicating that rival firms are likely to match price decreases but not price increases. Therefore, if the marginal cost of one firm rises sufficiently, it may choose to raise its price without fear of losing market share to competitors.

In a monopsonistic labor market, there is only one employer who has the power to set wages. Due to this market power, the monopsonistic employer can pay a lower wage rate compared to a purely competitive employer. Additionally, the monopsonistic employer will also hire fewer workers because they have the ability to control the labor market and can choose to hire only a limited number of workers at the lower wage rate.

If the two firms engage in collusion, the most likely outcome of the game is cell D. In this cell, Ajax chooses a small budget for advertising while Acme chooses a large budget. This results in Ajax earning $600 in profits and Acme earning $1200 in profits. This outcome is the most likely because it provides the highest combined profits for both firms compared to the other cells.