1. Improvements in technology for producing all goods must result in
(A) an inward shift in the production possibilities curve
(B) an outward shift in the production possibilities curve
(C) a flatter production possibilities curve
(D) a steeper production possibilities curve
(E) greater unemployment of labor
2. The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
(C) unit elastic
(D) perfectly elastic
(E) perfectly inelastic
3. Which of the following best describes the law of demand?
(A) The price of a good increases when the demand for the good increases.
(B) The price of a good decreases when the supply of the good decreases.
(C) When the price of a good increases, its demand decreases.
(D) When the price of a good decreases, its quantity demanded increases.
(E) Demand creates its own supply.
4. Assume that ice cream is a normal good. If the price of ice cream decreases, the substitution effect and the income effect will lead to which of the following changes in ice cream consumption? Substitution Effect Income Effect
(A) Increase Decrease
(B) Increase Increase
(C) Increase No change
(D) Decrease Increase
(E) Decrease No change
5. Short-run marginal costs eventually increase because of the effects of
(A) increasing marginal product
(B) diminishing marginal product
(C) diseconomies of scale
(D) economies of scale
(E) increasing fixed costs
6. If a government eliminated an effective price floor in a market, all of the following would occur EXCEPT:
(A) The surplus would be eliminated.
(B) The price would decrease.
(C) The quantity supplied would decrease.
(D) The quantity demanded would increase.
(E) The supply of the good would increase.
7. Which of the following must be true if a firm is experiencing economies of scale?
(A) All costs are explicit.
(B) Long-run average total cost decreases as the firm’s output increases.
(C) Economic profits decrease as the firm’s output increases.
(D) Long-run average total cost remains constant as the firm’s output decreases.
(E) Proportionate increases in inputs result in less-than-proportionate increases in output.
1. Assume soybeans are produced by a perfectly competitive, constant-cost industry. Fresh Farm is a typical firm producing soybeans and is currently operating with an economic loss.
(a) Using a correctly labeled graph for Fresh Farm, show each of the following in the short run.
(i) The marginal cost curve and average total cost, labeled MC and ATC, respectively
(ii) Fresh Farm’s price and loss-minimizing quantity, labeled PF and QF, respectively
(iii) The average variable cost curve, labeled AVC
(b) Suppose that newspapers have recently reported that excessive soybean consumption can cause health problems. As a result, will the new loss-minimizing quantity for Fresh Farm be greater than, less than, or equal to QF in the short run? Explain.
(c) Is the long-run market supply for soybeans perfectly inelastic, relatively inelastic, unit elastic, relatively elastic, or perfectly elastic?
(d) Assume now that the soybean market is in a long-run equilibrium and that fertilizers used in soybean production cause water pollution. Using a correctly labeled graph for the soybean market, show each of the following.
(i) Market equilibrium quantity and price, labeled QM and PM
(ii) Marginal social cost curve, labeled MSC
(iii) Socially optimal quantity, labeled QS
(iv) The area representing deadweight loss, shaded completely