cumulative homework & exam practice questions for micro final (Crowley) (updated)

two goods that are used together are called

complements

an externality is internalized when

decision makers must pay for the externality created by their participation in the market

an expectation of a lower price in the future will

decrease current demand

producer surplus

difference between the price that the seller receives and the price at which the seller is willing to sell the good or service

consumer surplus

difference between the willingness to pay for a good or service and the price that is paid to get it

rival good

good that cannot be enjoyed by more than one person at a time

when a negative externality exists,

government can restore the social optimum by discouraging economic activity that harms third aprties

barriers to entry

restrict the entry of new firms into the market

Marginal revenue is the change in total

revenue when the firm produces additional units.

perfect price discrimination

occurs when a firm sells the same good or service at a unique price to every customer

dumping

occurs when a foreign supplier sells a good below the price it charges in its home country

The opportunity cost of going to school rather than working is the cost of

potential wages

tarrif

tax on imports

incidence refers to....

the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on

implicit costs are

the opportunity cost of the means of production

whenever an allocation of resources maximizes total surplus, ____________________________________________

the result is said to be efficient.

trade surplus

when exports exceeds imports, indicating a positive trade balance

comparative advantage

where an individual, business, or country can produce at a lower opportunity cost than a competitor can

According to economists, one reason few professional athletes have PhD's is that the

opportunity cost of going to graduate school is too high

Suppose that when the price of cereal rises 10 percent, the quantity demanded of cereal falls by 5 percent. Based on this information, what is the approximate price elasticity of demand for cereal?

-0.5

what are the challenges of providing non excludable goods?

-economists use cost benefit analysis to determine whether the benefits of providing a particular good outweigh the costs, but benefits can be hard to determine. -under a system of common property, the incentive structure encourages neglect and overuse

positive externalities examples

-flu shots prevent the spread of disease -education creates a more productive workforce and enables citizens to make more informed decisions for the betterment of society -restore historic buildings enable people to enjoy beautiful architectural design

how does international trade help the economy?

-gains from trade occur when a nation specializes in production and exchanges its output with a trading partner -each nation must produce goods for which it is a low-opportunity-cost producer and then trade them for goods for which it is a high-opportunity-cost producer -trade benefits nations' economies through economies of scale and increased international competition

when is a market efficient?

-markets maximize consumer and producer surplus -provide goods and services to buyers who value them most -reward sellers who can produce goods and services at the lowest cost -resulting in markets creating the largest amount of total surplus possible

price discrimination

-occurs when firms can identify different groups of customers with varying price elastics of demand and can prevent resale among their customers. -a firm must have some market power before it can charge more than one price

negative externality examples

-oil refining creates air pollution -traffic congestion causes all motorists to spend more time on the road waiting -airports create noise pollution

Economies of scale is an example of

a natural barrier

If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?

$40,000

public good charactersitics

1. it is nonexludable and nonrival in consumption 2. public goods give rise to the free rider problem and result in the underproduction of the good in the market

2. The costs of a market activity paid for by an individual NOT engaged in the market activity are ________ costs. A) external B) social C) free-rider D) common

A. external

4. Which of the following conditions is a requirement for price discrimination? A) There is no reselling allowed in the market. B) People have homogenous preferences. C) There is only one firm in the market. D) There are multiple firms in the market.

A. there is no reselling allowed in the market

1. Consumer surplus is defined as the A) total revenue earned from producing and selling some good. B) difference between the willingness to pay for a good and the price paid to get it. C) quantity of units that consumers want to buy at the market price. D) difference between the willingness to pay for a good and the willingness to sell it.

B. difference between the willingness to pay for a good and the price paid to get it

11. A major reason why public goods are NOT supplied by the market is the A) fact that no firm would be able to earn a profit by producing them. B) free-rider problem. C) existence of negative externalities. D) fact that public goods are rival.

B. free-rider problem

19. The argument that calls for the trade protection of only newly developing industries is known as the ________ argument. A) autarky B) infant industry C) learning by doing D) predatory dumping

B. infant industry

14. All else held constant, an increase in the price of a good would necessarily A) decrease producer surplus. B) increase consumer surplus. C) increase social welfare. D) decrease consumer surplus.

D. decrease consumer surplus

6. After a tax is imposed, the price paid by consumers ________ and the price received by producers ________. A) decreases , decreases B) decreases, increases C) is unaffected, is unaffected D) increases, decreases

D. increases, decreases

3. Which of the following characteristics best defines a public good? A) nonrival and excludable B) rival and excludable C) rival and nonexcludable D) nonrival and nonexcludable

D. non-rival and non-excludable

15. If a firm is unable to distinguish which of its buyers has inelastic demand and which has a relatively elastic demand, then the firm will be unable to price discriminate because it will A) not know how much of the product to offer for sale. B) not know which price to charge which customer. C) be unable to predict how much of its sales will be retained as profit. D) not know how many of its customers will buy the product when it is offered for sale.

D. not know which price to charge which customer

18. Taxes will almost always cause consumer prices to increase. How much they increase depends on A) who pays the tax out of pocket. B) who is legally obligated to pay the tax. C) how often the government collects the tax. D) the elasticities of supply and demand.

D. the elasticities of supply and demand

13. Jack's roommate is studying to be a drummer in a rock band. She practices in Jack's apartment every evening for three hours and the noise makes it difficult for Jack to concentrate. This is an example of A) a positive externality. B) the tragedy of the commons. C) an internal cost. D) the third-party problem.

D. the third-party problem

Suppose the market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire?

In the short run, firms will incur economic losses, but in the long run, firms will leave the market, bringing economic profits back up to zero.

After Sushmita lost her job, she found that she was going to the movies less often. How would she describe this to an economist?

Movies are a normal good and, as my income decreased, my demand curve shifted to the left.

Under perfect competition what would happen to a firm that sets its price slightly above market price?

The firm would lose all of its customers.

5. A firm that is able to differentiate between each of its customers by selling the same good at a unique price to each customer is practicing ________ discrimination. A) exclusive price B) perfect price C) inelastic demand D) reservation price

b. perfect price

if a new French fry-cutting machine works twice as fast as the old machine, McDonald's would

be willing to produce and sell more French fries at every price

When trade is voluntary, who benefits?

both the buyer and the seller

deadweight loss can be lessened....

by taxing goods or services that have inelastic demand or supply

incidence is determined by....

by the balance between the elasticity of supply and the elasticity of demand

16. A tariff A) is a strict enforcement of health laws. B) subsidizes the production of goods leaving the country. C) is a tax on imports. D) is a voluntary agreement between two countries to limit exports.

c. a tax on imports

The important act of holding all other variables constant while examining a particular variable is known as

ceteris paribus

According to economic thinking, the presence of scarcity requires

choices

decision makers engage in marginal thinking by

comparing the benefit of one additional unit with its cost to produce

what does the price elasticity of demand measure?

consumers' sensitivity to price changes

deadweight loss

decrease in economic activity caused by market distortions

A firm's accounting profit is always greater than its economic profit because

economic profit considers implicit costs, which accounting profit does not.

private goods

ensures that owners have an incentive to maintain, protect, and conserve their property and also to trade it with others

externalities

exists when an internal cost or benefit diverges from a social cost or benefit

third parties can

experience negative or positive externalities from market from market activity

when a positive externality exists,

government can restore the social optimum by encouraging economic activity that benefits third parties

The typical result of monopoly is ________ prices and ________ output than we find in a competitive market.

higher; lower

Coase theorem

if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct any externalities that exist

on which of the following concepts do economists focus their study when explaining how humans behave?

incentives

When marginal revenue is greater than marginal cost, the firm should

increase the level of output

Oil is a main component in the manufacture of plastic bags. If the price of oil were to increase, the price of plastics bags would ________ and the quantity would ________.

increase; decrease

microeconomics is the study of

individual decision-making units

The area inside (within) the production possibilities frontier (PPF) contains ________ points.

inefficient

At a price of $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is

inelastic

Salima is a devoted Coca-Cola consumer, whereas Antonia can drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be relatively more ________, while Antonia's demand will be relatively more ________.

inelastic; elastic

a positive statement

is a claim that can be tested

Each firm in a perfectly competitive industry

is a price taker

two government-created barriers to entry are

licensing and paten system/copyright law

A person has a comparative advantage in the production of a good when she or he can produce the product at a(n) ________ opportunity cost compared to another person.

lower

The term ________ means "additional."

marginal

When the average total cost curve is at its minimum, we know that the

marginal cost curve intersects the average total cost curve.

When a firm hires another employee and, as a result, total output increases, this change in total output is also known as

marginal product

trade deficit

occurs when imports exceed exports, indicating a negative trade balance

excludable good

occurs when it is possible to prevent consumers who have not paid for it from having access to it

proponents of trade restrictions...

often cite the need to protect defense-related industries and fledging firms and to fend off dumping. -but protectionist policies can also serve as political favors to special interest groups.

In the short run, under what conditions should the firm shut down?

price less than average variable cost

cost-benefit analysis

process that economists use to determine whether the benefits of providing a public good outweigh the costs.

quota

quantity is a quantity restriction on imports

price discrimination is profitable for the firm,

reduces deadweight loss, and leads to a higher output level

equity

refers to the fairness of the distribution of the benefits within the society

public goods give.....

rise to market failure

total surplus (social welfare)

sum of consumer and producer surplus that exists in a market

social costs

sum of the internal costs and external costs of a market

When a hurricane rips through Florida, the price of oranges rises because the

supply curve shifts to the left.

deadweight loss occurs because....

taxes increase the purchase price, which causes consumers to buy less and producers to supply less.

excise taxes

taxes levied on a particular service or good

According to the law of demand, all other things being equal,

the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

social costs

the sum of a activity's internal costs and external costs

when the price falls, what happens?

there is an increase in the quantity demanded

how is price discrimination practiced?

under price discrimination, some consumers pay a higher price and others receive a discount.

externalities are a type of market failure,....

which occurs when there is an inefficient allocation of resources in a market

which of the following is a normative statement?

winters in Arkansas are too cold.