AREC 202 FINAL ACTUAL Questions
and CORRECT Answers
When does demand for a normal good increase? - CORRECT ANSWER✔✔- When income
increases
When does demand for an inferior good increase? - CORRECT ANSWER✔✔- When
income decreases
If two goods are complements and the price of one good decreases, what happens to the
demand, price, and quantity of the other good? - CORRECT ANSWER✔✔- It increases
What affects the supply of a product? - CORRECT ANSWER✔✔- Cost of production
Practice: Assume that a high price induces more producers to get into the milk market (long
run decision). If everything else (including demand) does not change, what will happen to the
price in this market? - CORRECT ANSWER✔✔- Supply goes up, so the price will probably
go down
What does an increase in demand cause? - CORRECT ANSWER✔✔- A shortage to occur at
the original price, which leads to increases in equilibrium price and quantity
In the case of either a positive or negative externality, a good's price will: - CORRECT
ANSWER✔✔- Not fully reflect a good's social marginal cost or social marginal benefit
What is true if the marginal cost of reducing pollution is positive? - CORRECT
ANSWER✔✔- The optimal amount of pollution is greater than zero (too expensive)
What is the essential cause of the tragedy of the commons? - CORRECT ANSWER✔✔- One
person's use of a commonly held resource imposes an external cost on others
What is a price setter? - CORRECT ANSWER✔✔- A firm that has some degree of control
over its price
, What must an imperfectly competitive firm do if it wants to sell another unit of output? -
CORRECT ANSWER✔✔- Lower its price
Practice: You can grow corns or soy beans on your land. In addition, suppose an increase in
the demand for corn causes the price of corn to increase. In the long run, what is likely to
happen to the price of soy beans as a result of increased demand for corn? - CORRECT
ANSWER✔✔- It will lead to an increase in the price of soy beans
When will a firm shut down in the short run? - CORRECT ANSWER✔✔- If it cannot cover
its Average Variable Costs (AVC)
What differentiates imperfectly competitive firms from perfectly competitive firms? -
CORRECT ANSWER✔✔- An imperfectly competitive term faces a downward-sloping
demand curve
What does it mean if a firm faces a downward-sloping demand curve? - CORRECT
ANSWER✔✔- The firm's marginal revenue from selling an individual unit of output is less
than price
What would be most vulnerable to the tragedy of the commons? - CORRECT ANSWER✔✔-
Timber on public land
Since the cost of using more of any resource is _______, viewing any resource's positive as
zero leads to ____. - CORRECT ANSWER✔✔- Positive; overutilization
What can be concluded if consumers respond to a 10% price reduction by buying 5% more of
a particular good? - CORRECT ANSWER✔✔- That the price elasticity of demand at the
original price was less than one
What is the elasticity of demand in the short run compared to the long run? - CORRECT
ANSWER✔✔- Less elastic
and CORRECT Answers
When does demand for a normal good increase? - CORRECT ANSWER✔✔- When income
increases
When does demand for an inferior good increase? - CORRECT ANSWER✔✔- When
income decreases
If two goods are complements and the price of one good decreases, what happens to the
demand, price, and quantity of the other good? - CORRECT ANSWER✔✔- It increases
What affects the supply of a product? - CORRECT ANSWER✔✔- Cost of production
Practice: Assume that a high price induces more producers to get into the milk market (long
run decision). If everything else (including demand) does not change, what will happen to the
price in this market? - CORRECT ANSWER✔✔- Supply goes up, so the price will probably
go down
What does an increase in demand cause? - CORRECT ANSWER✔✔- A shortage to occur at
the original price, which leads to increases in equilibrium price and quantity
In the case of either a positive or negative externality, a good's price will: - CORRECT
ANSWER✔✔- Not fully reflect a good's social marginal cost or social marginal benefit
What is true if the marginal cost of reducing pollution is positive? - CORRECT
ANSWER✔✔- The optimal amount of pollution is greater than zero (too expensive)
What is the essential cause of the tragedy of the commons? - CORRECT ANSWER✔✔- One
person's use of a commonly held resource imposes an external cost on others
What is a price setter? - CORRECT ANSWER✔✔- A firm that has some degree of control
over its price
, What must an imperfectly competitive firm do if it wants to sell another unit of output? -
CORRECT ANSWER✔✔- Lower its price
Practice: You can grow corns or soy beans on your land. In addition, suppose an increase in
the demand for corn causes the price of corn to increase. In the long run, what is likely to
happen to the price of soy beans as a result of increased demand for corn? - CORRECT
ANSWER✔✔- It will lead to an increase in the price of soy beans
When will a firm shut down in the short run? - CORRECT ANSWER✔✔- If it cannot cover
its Average Variable Costs (AVC)
What differentiates imperfectly competitive firms from perfectly competitive firms? -
CORRECT ANSWER✔✔- An imperfectly competitive term faces a downward-sloping
demand curve
What does it mean if a firm faces a downward-sloping demand curve? - CORRECT
ANSWER✔✔- The firm's marginal revenue from selling an individual unit of output is less
than price
What would be most vulnerable to the tragedy of the commons? - CORRECT ANSWER✔✔-
Timber on public land
Since the cost of using more of any resource is _______, viewing any resource's positive as
zero leads to ____. - CORRECT ANSWER✔✔- Positive; overutilization
What can be concluded if consumers respond to a 10% price reduction by buying 5% more of
a particular good? - CORRECT ANSWER✔✔- That the price elasticity of demand at the
original price was less than one
What is the elasticity of demand in the short run compared to the long run? - CORRECT
ANSWER✔✔- Less elastic
