ECO 1302 Lecture Notes - Lecture 4: Complementary Good, Ceteris Paribus, Marginal Utility

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chocolaterat107

30 Jan 2018

School

St. John's University

Department

ECO - ECONOMICS

Course

ECO 1302

Professor

Mark Zi Long Li

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Document Summary

Firm: an organization that transforms resources (inputs) into products (outputs). Forms are the primary producing units in a market economy. Entrepreneur: a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. Households: the consuming units in an economy. The input/factor market in which households supply work for wages to firms that demand labor. Capital market: the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand finds to buy capital goods. Input and output markets are connected through the behavior of both firms and households. Firms determine the quantities and character of outputs produced and the types and quantities of inputs demanded. Households determine the types and quantities of products demanded and the quantities and types of inputs supplied.

Related Questions

1. The marginal product of labor is:

A. equal to the demand for labor.

B. the payment made to workers for their contribution to the output they produce.

C. the change in a firm's revenue as a result of hiring one more worker.

D. the additional output a firm produces as a result of hiring one more worker.

2. What does the phrase "internalizing an external cost" mean?

A. limiting the extent to which domestic firms can outsource production

B. prohibiting economic activities that create externalities

C. finding a way to address cross-border pollution

D. forcing producers to factor into their production costs the cost of the externalities created in the production of their output

3. The highest-valued alternative that must be given up to engage in an activity is the definition of

A. implicit cost

B. opportunity cost.

C. utility.

D. economic sacrifice.

4. What is market failure?

A. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.

B. It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

C. It refers to a breakdown in a market economy because of widespread corruption in government.

D. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

5. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should

A. lay off some of its workers.

B. does not change the number of workers it currently hires.

C. hire additional workers.

D. There is not enough information to answer the question.

6. When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

A. the deadweight loss effect.

B. the income effect.

C. the substitution effect.

D. the elasticity effect.

7. An externality is

A. a benefit realized by the purchaser of a good or service.

B. a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

C. a cost paid for by the producer of a good or service.

D. anything that is external or not relevant to the production of a good or service.

8. Firms pay famous individuals to endorse their products because

A. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. '

B. famous people only consume high-quality products.

C. famous people obviously know what are the best goods and services.

D. the firms are irrational and are wasting advertising expenditures.

9. If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is

A. 25 utility units.

B. 20 utility units.

C. 5 utility units.

D. unknown as more information is needed to determine the answer.

10. When there is a negative externality, the private cost of production ________ the social cost of production.

A. is less than

B. is greater than

C. eliminates

D. is equal to

pinkmink286

The primary costs of FDI to host countries are:

		Loss of sovereignty and patriotism
		Adverse effects on competition and exports
		Capital outflow
		Loss of sovereignty, adverse effects on competition, and capital outflow

____ suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantage by specializing in the production of certain goods or services.

		The radical view
		The free market view
		Pragmatic nationalism
		Expropriation

What are the benefits of FDI to home countries?

		Repatriated earnings from profits from FDI.
		Increased exports of components and services to host countries.
		Learning via FDI from operations abroad.
		All of these answers

When one firm enters a foreign country through FDI, its rivals are likely to follow by undertaking additional FDI in a host country to:

		Create knowledge spillover
		Discover a new market for its goods
		Overcome and combat market failure through FDI
		Acquire location advantages or neutralize the first moverâs location advantages

Most countries practice:

		Pragmatic nationalism
		Free market based FDI
		Government embracing radical view
		French patriotism

FDI may be viewed as a reflection of firm motivation to extend firm-specific capabilities abroad and their responses to overcome imperfections and failures.

		True
		False

Most countries practice a totally "free market" view.

		True
		False

8. Outsourcing is the process of turning over an organizational activity to an outside supplier, located in a foreign country, which will perform it on behalf of the local firm.

		True
		False

Financial, physical, and technological resources and capabilities are all tangible assets.

		True
		False

A firm's resources and capabilities are tangible assets a firm uses to choose and implement its strategies.

		True
		False

An example of low power distance would be when subordinates address their bosses on a first-name basis.

		True
		False

Benchmarking is an assessment as to whether a firm has resources and capabilities to perform a particular activity in a manner superior to competitors.

		True
		False

A country with low-masculinity has a more subtle differentiation between the gender roles.

		True
		False

Setting up subsidiaries abroad so the work can be performed in-house but in the foreign location is also called captive sourcing.

		True
		False

Managers in low uncertainty avoidance countries rely more on experience and training than managers in high uncertainty avoidance countries who rely more on rules.

		True
		False

Informal institutions include laws, regulations, and rules.

		True
		False

The United States is often classified as a collective society.

		True
		False

A pure market economy characterized by the "invisible hand" of market forces is noted by

		John Stuart Mill
		Adam Smith
		Aristotle
		Amatya Zen

Culture is defined in the text as:

		The communication between members of similar location.
		The collective programming of the mind, which distinguishes the members of one group or category of people from another.
		The main component of formal institutions.
		The attitudes and behaviors characteristic of a particular social group or organization.

When an expat employee returns to her or his current employer but the employer does not provide attractive opportunities, she/he often may be hired by a competitor firm. Why?

		Competitor firms are also interested in globalizing their business.
		Former expats bring instant expertise and experience.
		Competing firms will pay a higher premium for expertise.
		All of these answers

The government taking a "hands-off approach" is known as:

		Laissez faire
		Command economy
		Mixed economy
		Liberal approach

Expatriate managers make ideal candidates for top management positions.

		True
		False

____ are defined as rights associated with the ownership of intellectual property.

		Patents
		Copyrights
		Trademarks
		Intellectual property rights

In a collective society:

		Family units are highly valued.
		Being an entrepreneur is a popular mindset
		Being different than your neighbor is important.
		Outsiders are easily trusted.

Which of the following definitions best defines an expatriate manager?

		A manager who works outside his or her native country
		A manager of great expertise
		An ex-manager rehired for advisory purposes
		None of these answers

1. The Houston Chronicle reported that in Houston, the average price of new homes has decreased, while at the same time, the number of new homes sold has increased. This situation could be explained by which one of the following: (draw curves before answering)

An Increase in demand
An Increase in supply
A Decrease in demand
A Decrease in supply

2. In another market, the average price of new homes fell, while at the same time, the number of new homes sold decreased. The situation would best be explained by (Draw the curves before answering)

An Increase in Demand
An Increase in Supply
A Decrease in demand
A Decrease in supply

3. A consumer is said to have achieved maximum total utility when:

Purchases of Good A give the same satisfaction as purchases of Good B.
Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B.
The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B.
The total utility derived from Good A is the same as the marginal utility derived from Good B.

4. You are given the following information about a firm's present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should:

5. A firm achieves the least cost in production by substituting factors until

their factor prices are equal
their marginal products are equal to the factor prices
their marginal products are each equal to zero
the ratios of their marginal product equal the ratio of their prices
none of the above

6.The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything--more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

correct if he is assuming a rightward-shifting PPF.
incorrect if he is assuming a rightward-shifting PPF.
correct if he is assuming a PPF that does not change.
none of the above

7. Assume your swimsuit business is at its maximum profit position, and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________.

increase, increase
decrease, decrease
increase, decrease
decrease, increase

8. Firms that shuts-down in the short-run still must pay:

Marginal cost
Variable cost
Fixed cost
Total cost

9. The term externalities refer to:

Black-market economic activity.
The impact on markets of imported goods.
The costs and benefits of a market activity borne by a third party.
The inequitable distribution of income.

10. If full external costs are not internalized, firms will tend to allocate more of society's scarce resources to produce than is societally warranted, and if full external benefits are not internalized, firms will allocate less of society's resources to produce than is societally justified. True/False.

11. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy, he became careless. His attitude is: "I'm insured. What do I care if this place burns down; I'll just collect the money". Joe's attitude is an example of ______________.

12. Megatrust Bank had historically scrutinized loans very carefully and extended them, only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of _______________.

13. In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will

Reduce the size of its plant to lower fixed costs.
Raise the price of its product.
Shut down.
Continue to operate as long as it covers its variable cost.

14. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today's distribution would be

More bowed and to the left of the 1960's curve.
More bowed and to the right of the 1960's curve.
Less bowed and to the left of the 1960' curve.
Less bowed and to the right of the 1960's curve.

15. Which of the following statements is true?

As output increases, the average fixed cost becomes smaller and smaller.
Average fixed cost does not change as output increases.
The marginal cost curve intersects the average fixed cost curve at its minimum point.
When marginal cost is greater than average fixed cost, average fixed cost increases.

16. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its

Average costs are at a minimum
Marginal revenue and marginal cost are the same.
Marginal revenue is less than marginal cost.
Marginal revenue is zero.

17. If the demand for a good increase, when the price of other good increases, these goods are

Capital goods
Substitute goods
Complementary goods
Luxury goods

18. Which of the following pairs of products are complementary goods?

mobile phones and laptops
pens and pencils
sugar and artificial sweeteners
radios and television
toothbrushes and toothpaste

19. The amount of a good that is given up to produce another good is:

Scarcity
Specialization
Opportunity cost
Trade
Efficiency

20. The most important characteristic of the equilibrium price is that it:

Guarantees that producers earn a profit.
Increases the quantity demanded.
Clears the market.
Decreases the quantity supplied.

21. Rank the following market structures based on the number of participating firms: From the fewest number of firms to the most number of firms:

Oligopoly
Perfect Competition
Monopoly
Monopolistic Competition

22. If firms in a monopolistically competitive market are earning economic profits which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

an increase in demand
a decrease in demand
a downward shift in their marginal cost curve
an upward shift in their marginal cost curve

23. If labor in Mexico is less productive than labor in the United States in all areas of production,

neither nation can benefit from trade
Mexico can benefit from trade but the United States cannot
Mexico will not have a comparative advantage in any good
both nations can benefit from trade

24. Which of the following statements is false?

The typical monopolistically competitive firm could reduce its average total cost if it produced more output.
Monopolistically competitive firms advertise to increase the elasticity of the demand curve they face.
Expensive advertising might help consumers if it is a signal that the product is good.
Brand names acquired at great cost might help consumers by assuring quality.

25. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigs in surrounding states. Which of the following principles does this best illustrate:

people respond to incentives
rational people think at the margin
a trademark can make everyone better off
markets are usually a good way to organize economic activity

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ECO 1302 Lecture Notes - Lecture 4: Complementary Good, Ceteris Paribus, Marginal Utility

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