Economics Supply Concepts Quiz
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Questions and Answers

What does an increase in the price of a product generally lead to according to the law of supply?

  • It shifts the supply curve leftward.
  • It causes a movement down along the supply curve.
  • The supply decreases.
  • The quantity supplied by firms increases. (correct)

Which event is likely to decrease the supply of laptop computers?

  • The number of laptop manufacturers increases.
  • Public demand for laptops decreases.
  • Technological advancements in laptop production.
  • The price of memory chips used in laptop computers rises. (correct)

What causes businesses to pay higher prices for labor?

  • The marginal cost of worker time increases as more hours of labour are supplied. (correct)
  • Sunk costs decrease as wage rates increase.
  • Workers have no opportunity costs.
  • The total cost of worker time decreases as more hours of labour are supplied.

What impact would a decrease in the number of pizza producers have on pizza supply?

<p>Decrease supply of pizza. (C)</p> Signup and view all the answers

What characterizes the marginal benefit in a demand decision?

<p>The marginal benefit is the satisfaction you get. (D)</p> Signup and view all the answers

Which scenario would likely cause an increase in the supply of economics textbooks?

<p>An increase in the number of publishers of economics textbooks. (D)</p> Signup and view all the answers

What is the marginal opportunity cost of Joanna working at Club Karl?

<p>$15 an hour. (A)</p> Signup and view all the answers

If Amber decides to bake more muffins and fewer cookies, what happens to her marginal cost for cookies?

<p>The marginal cost of baking cookies increases. (C)</p> Signup and view all the answers

If there is a rise in the price of an input, what effect does it generally have on supply?

<p>A decrease in supply or a shift to the left. (A)</p> Signup and view all the answers

What is true regarding the marginal cost of your time?

<p>You give up the most valuable time last. (C)</p> Signup and view all the answers

How does a decrease in the price of mozzarella cheese affect the supply curve for pizza?

<p>It increases supply of pizza. (C)</p> Signup and view all the answers

What defines a market in economic terms?

<p>All of the above. (D)</p> Signup and view all the answers

Which of the following represents a sunk cost in the scenario of moving unexpectedly?

<p>The cost of the carpeting. (B)</p> Signup and view all the answers

Which of the following would be considered a sunk cost when selling a used car?

<p>The original purchase price of the car. (D)</p> Signup and view all the answers

For markets to function effectively, which condition must be met?

<p>All parties must clearly know property rights. (A)</p> Signup and view all the answers

What is likely to happen to the marginal cost of labor as a business hires more employees?

<p>Marginal cost increases as more hours are allotted. (A)</p> Signup and view all the answers

What portion of economic profits is affected by the interest you pay to the bank when borrowing money to start a business?

<p>Subtracted from profits to determine economic profits (B)</p> Signup and view all the answers

What are the expected winnings from a raffle ticket with a 1-in-100 chance of winning $2,000?

<p>$200 (A)</p> Signup and view all the answers

Given Nada's revenue of $95,000 and business expenses of $15,000, what are her economic profits?

<p>$50,000 (D)</p> Signup and view all the answers

Which formula best defines accounting profits?

<p>Revenues − Obvious Costs (C)</p> Signup and view all the answers

If a business has explicit costs of $300 and sells output for $450, which statement is true regarding its economic and accounting profits?

<p>Economic profits are $150 (A)</p> Signup and view all the answers

What do normal profits represent in relation to implicit costs?

<p>Sum of normal profits (A)</p> Signup and view all the answers

If accounting profits are $90,000 and economic profits are $50,000, what are the hidden opportunity costs?

<p>$40,000 (D)</p> Signup and view all the answers

What occurs when economic profits are positive in an industry?

<p>Businesses expand, pushing quantities up and prices down (C)</p> Signup and view all the answers

What is the primary function of anti-trust laws in the context of market competition?

<p>Maintain and encourage competition in the market. (D)</p> Signup and view all the answers

Which option best describes a cartel?

<p>A group of firms cooperating to maximize profits. (A)</p> Signup and view all the answers

What does the public-interest view of government regulation suggest about the purpose of regulations?

<p>Regulations are designed to benefit the public while also considering industry needs. (A)</p> Signup and view all the answers

How do trade-offs address market failure?

<p>By evaluating the government outcome versus the market failure outcome. (A)</p> Signup and view all the answers

According to the capture view of regulation, what is a likely outcome of government regulation?

<p>Regulations often reflect the self-interests of the industries they regulate. (C)</p> Signup and view all the answers

What does evidence regarding the success of government regulation suggest about regulated natural monopolies?

<p>They often achieve higher rates of return than the average in the economy. (A)</p> Signup and view all the answers

Which statement accurately describes the consequences of collusion among businesses?

<p>It creates an environment where prices are fixed and supplies may be restricted. (A)</p> Signup and view all the answers

What is a possible result of price-fixing agreements in a market?

<p>Price-fixing may drive agreements underground. (C)</p> Signup and view all the answers

What are the economic profits or losses for a business earning revenues of $80,000 with total costs of $35,000 and normal profits of $50,000?

<p>$−5,000 (A)</p> Signup and view all the answers

What does the term short−run market equilibrium refer to?

<p>Quantity demanded equals quantity supplied, but economic losses or profits can lead to changes in supply. (A)</p> Signup and view all the answers

When should a business owner consider entering an industry?

<p>Economic profits are positive. (A)</p> Signup and view all the answers

In perfect competition, businesses are characterized as what?

<p>Businesses are price takers. (D)</p> Signup and view all the answers

Which market structure is characterized by maximum pricing power?

<p>Monopoly (B)</p> Signup and view all the answers

In a monopoly, how can a seller influence the price?

<p>A seller can influence the market price. (D)</p> Signup and view all the answers

Which of the following is one of the characteristics of market structure?

<p>Availability of substitutes. (B)</p> Signup and view all the answers

In the market structure of perfect competition, what is the relationship between market power and the elasticity of demand?

<p>Market power is low and the elasticity of demand is high. (D)</p> Signup and view all the answers

What is the correct definition of wealth in economic terms?

<p>Wealth is what you own, represented as a flow. (D)</p> Signup and view all the answers

When should a business consider hiring additional workers?

<p>When marginal revenue product exceeds wage rate. (C)</p> Signup and view all the answers

Which statement correctly outlines the rule for maximizing profits?

<p>Continue hiring as long as marginal revenue product exceeds the input price. (A)</p> Signup and view all the answers

How are input prices determined for resources like land or superstar talent?

<p>Output prices dictate the determination of input prices. (A)</p> Signup and view all the answers

What factor most significantly influences the market-clearing price for rare labor inputs?

<p>The marginal opportunity cost of the laborer's time. (A)</p> Signup and view all the answers

Why can economic rents persist in certain markets?

<p>Barriers prevent new competitors from entering the market. (A)</p> Signup and view all the answers

What contributes to the high earnings of superstars in the market?

<p>Market demand exceeds supply for their talents. (C)</p> Signup and view all the answers

How can poverty levels be effectively reduced?

<p>Through education and training initiatives. (C)</p> Signup and view all the answers

Flashcards

Marginal Cost of Labour

The additional cost of employing one more unit of labor.

Opportunity Cost

The value of the next best alternative forgone when making a choice.

Marginal Benefit (Demand)

The additional satisfaction gained from consuming one more unit of a good or service.

Marginal Cost (Supply)

The extra cost of producing one more unit of a good or service.

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Sunk Cost

A cost that has already been incurred and cannot be recovered.

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Marginal Opportunity Cost

The cost of giving up the next best alternative when making a decision.

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Time Value Decision

Considering the value of time when making choices.

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Sunk Cost Example (Decision)

An expense already paid is not relevant in a rational choice for the future.

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Marginal opportunity cost of a tablet

The amount of cards that must be given up to produce one more tablet.

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Price per tablet needed for 10 tablets

$3, if a card sells for $1.

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Law of supply - price rise effect

Increased price leads to a larger quantity supplied.

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Decrease in laptop supply cause

Rising price of components (e.g., memory chips) or machinery costs.

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Pizza supply decrease causes

Fewer producers or increased input costs (like mozzarella).

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Economics textbook supply increase cause

More publishers for textbooks.

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Supply curve shift - input price change

A rise in input prices shifts the supply curve to the left.

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Market definition

An interaction between buyers and sellers resulting in an exchange, with clearly defined property rights.

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Economic Profit

Revenue minus all opportunity costs, including implicit and explicit costs.

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Accounting Profit

Revenue minus explicit costs.

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Normal Profit

The minimum profit necessary to keep resources in their current use.

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Expected Winnings

The average payoff of a gamble; calculated by multiplying each possible outcome by its probability and summing the results.

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Implicit Costs

The opportunity costs of using resources that a firm already owns. Examples include forgone wages of the owner or forgone rent on a building owned by the business.

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Explicit Costs

Visible, direct costs of production.

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Zero Economic Profit

A situation where a business's revenue equals the sum of all of its opportunity costs. A firm earns zero economic profit when the firms's accounting profit equals normal profit.

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Economic Profit/Loss

The difference between total revenue and total cost, including both explicit (obvious) and implicit (opportunity) costs.

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Short-Run Market Equilibrium

A market where quantity demanded equals quantity supplied, and economic losses or profits can occur, leading to changes in supply in the future.

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Perfect Competition

A market structure characterized by many sellers, no barriers to entry, and identical products. Sellers are price takers.

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Elasticity of Demand

A measure of how responsive the quantity demanded of a good or service is to changes in its price.

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Monopoly

A market structure with only one seller, high barriers to entry, and no close substitutes.

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Market Power

The ability of a firm to influence the market price of its product.

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Price Taker

A seller in a highly competitive market who must accept the prevailing market price; they cannot influence it.

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Competition Tribunal

A quasi-judicial body responsible for hearing criminal charges related to competition laws.

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Anti-combine Laws

Laws designed to prevent businesses from colluding to harm competition, such as price-fixing.

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Abusing a Dominant Market Position

A civil offense under anti-combine laws, where a company with a large market share acts unfairly to competitors or consumers.

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Cartel

A group of firms that secretly collude to fix prices, restrict output, and gain monopoly profits.

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Trade-offs in Market Failure

When the market doesn't work well, government intervention involves weighing the costs and benefits of regulation.

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Public-Interest View of Regulation

The idea that government regulation should aim to benefit the public, even if it sometimes restricts businesses.

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Capture View of Regulation

The idea that businesses can influence regulation to benefit themselves, even if it harms the public.

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Evidence on Regulation Success

Whether government regulation is effective is debated. Some evidence supports public-interest, while other evidence shows businesses can influence regulation.

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Wealth vs. Income

Wealth is what you own (a stock), while income is payments received (a flow).

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Hiring Rule: When to Hire?

A business should hire additional workers as long as the marginal revenue product (MRP) is greater than the wage rate.

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Profit Maximization Rule

Businesses maximize profits by hiring additional inputs until the marginal revenue product (MRP) equals the input's price.

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Input & Output Prices

For rare inputs like land or superstar talent, input prices are often determined by output prices.

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Market-Clearing Price for Rare Labor

The market-clearing price for rare labor depends on the price of the output produced, reflecting the labor's marginal productivity.

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Economic Rents Persistence

Economic rents can persist because new competitors cannot easily enter the market.

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Superstars' High-Priced Contracts

Superstars earn high-priced contracts because their rare skills create high demand, leading to economic rents.

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Poverty Reduction Strategies

Poverty can be reduced through education and training, which increase human capital and earn higher wages.

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Study Notes

Introduction to Microeconomics (York University) - ECON Final Exam Review

  • This document is a review for a final exam in introductory microeconomics at York University.
  • No personal information aside from the course name and university is included.
  • The document has several multiple choice and short answer questions relevant to the course.

Businesses and Worker Compensation

  • Businesses must pay higher prices to obtain more labor due to the increasing marginal cost of worker time.
  • Workers have opportunity costs.
  • Total cost of worker time increases as more hours of labor are supplied.
  • Sunk costs increase as wages increase.

Smart Supply Choices vs Smart Demand Choices

  • Sunk costs are not always greater than marginal costs in demand decisions.
  • Marginal benefit is the satisfaction derived.
  • Marginal cost is the opportunity cost of time.
  • Marginal cost increases with greater production.

Marginal Opportunity Cost

  • Marginal opportunity cost measures the loss of potential output when moving from one production option to another.

Sunk Costs

  • Influence decisions previously made.
  • are not part of marginal costs.
  • are not part of opportunity costs.
  • Examples of sunk costs are included in the document.

Market-Clearing Price

  • Equalizes quantity demanded and supplied.
    • Represents a balance between consumer demand and producer supply for a given commodity.

Efficient Market Outcome

  • Marginal benefit equals marginal cost (MB = MC).
  • Consumers buy products and services when the marginal benefit is greater than the price.
  • Total surplus is the lowest when the allocation of resources is efficient.

Laptop Computers, Prices, and Supply

  • A rise in the price of memory chips used in laptop computers reduces the supply of laptop computers.

Pizza, Prices, and Supply

  • A decrease in the number of pizza producers or an increase in mozzarella cheese prices causes a decrease in the supply of pizza.

Economics Textbooks, Prices, and Supply

  • An increase in the number of publishers of economics textbooks increases supply.

Law of Supply and Price Changes

  • As the price of a product rises, the quantity supplied of that product increases.

Price and Quantity Supplied

  • Equilibrium price reflects market forces, and changes in either supply or demand lead to changes in the equilibrium price.

Marginal Cost, Benefit and Equilibrium

  • The process to identify marginal cost and benefits, and the conditions for market equilibrium.
  • Total surplus is maximized when marginal cost and benefit are equal.

Demand, Elasticity, and Price

  • Factors that cause an increase in quantity demanded include a fall in the price in a complimentary product, a rise in consumer income, and a drop in the price of a substitute product.

Consumer and Producer Surplus

  • Producer surplus occurs in the market when producers receive more revenue from the sale of goods and services than their cost of production.

Economic Models and Decisions

  • A good economic model leaves out unnecessary information, is testable, assumes other things remain constant
  • Decisions involve considering relevant variables, avoiding biases, and seeking accurate data to inform choices.

Comparative Advantage & Opportunity Cost

  • Understanding how specialization and opportunity costs affect production efficiency and trade.

Economical Concepts

  • Determining the differences in concepts between explicit, opportunity, and total costs
  • Distinguishing between explicit and implicit costs

Property Rights and Market Outcome

  • Property rights are enforced by governments in a market. This is important since they assure that incentives will be present for people to make productive choices.
  • Individuals and businesses devote more resources to producing if prices rise, because of the higher opportunity costs.

Price Ceilings and Market Equilibrium

  • Price ceilings set below equilibrium levels result in shortages.
  • Price floors set above equilibrium levels result in surpluses.

Labor Markets and Wage Rates

  • Minimum wage laws can negatively affect employment levels in industries not regulated by these wages.

Economic Efficiency and Economic Equity

  • Relationship between economic efficiency and equitable distribution of resources.

Microeconomic Issues

  • The various economic concepts discussed in the chapters on consumer, producer, and market behavior.

Externalities and Public Goods

  • Externalities and public goods, and methods to correct them.

Market Equilibrium

  • Market conditions that result in equilibrium situations.

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Econ Final Exam Review PDF

Description

Test your knowledge on key concepts related to the law of supply in economics. This quiz covers price changes, labor costs, supply changes, and the impact of market conditions on supply. Each question challenges your understanding of how economic principles apply in real-world scenarios.

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