EC201 Exam 3 Practice Problems

The poverty line is:

an income level determined by the government, below which a family is defined to be in poverty

A characteristic of monopolistic competition that is not present in any other market structure is that there

are many sellers and each produces its own version of the product

Which of the following statements is true regarding views of what is "fair"?

everyone tends to agree that things should be fair, and everyone tends to agree on what is fair

Carlos owns one of the 30 lawn mowing businesses in his city. What will happen to his business if there are new entrants into his city's lawn mowing market?

the demand for Carlo's services will fall

Samuel's company is in the following situation (insert pic): what is the average cost at Samuel's company?

$14.37

Human capital is:

Accumulated knowledge and skills that make a worker more productive

Which of the following statements is true regarding discrimination in labor markets?

Discrimination accounts for only part of the differences in wages across groups of workers (wage difference is caused by multiple reasons, including discrimination, productivity, human captial, demand of product, etc.)

When the average across all sellers in a market is zero economic profit, the profit level of each seller

May vary some across the sellers, with some earning profits and other experience losses

Kaila wants her employer to pay her 20% more for making night deliveries in a high-crime neighborhood than the day delivery people receive. Most of the delivery people are willing to make night deliveries in the neighborhood for only a 10% differential. Kaila is seeking:

More than a compensating differential because she has greater concerns than most workers (Note: that the compensating wage differential in this case will be 10% of the normal wage)

Table: Average Income and Distribution of Income Data provides recent data from the World Bank on average income and the distribution of income in four countries. Based on the data in the table, those in the top quintile have the highest average income in which country? (Insert pic)

Sri Lanka?

Why can a company with monopsony power in its labor market succeed in paying low wages?

Workers don't have other employment options.

a coordination game exists when

all players have a common interest in coordinating their choices

In the long run, a company's ability to maintain profits depends on:

barriers to entry

When a product is characterized by network effects, then the product ____ when more customers use the product

becomes more valuable to each customer

Free entry into a market tends to cause _____ to disappear.

desirable opportunities

Which of the following is NOT true about imperfect competition?

greater product differentiation decreases market power (Note that imperfect competition for buyers is similar to that for sellers, and its means buyers have more bargaining power and can offer lower price)

Social safety nets, social insurance programs, and progressive tax systems are all types of income ____ programs that have the impact of moving income distribution ____ equality.

redistribution; closer to

In a monopoly, there is one ____; in a monopsony, there is one ____.

seller; buyer (important to notice the difference between the two terms)

Social insurance programs do NOT:

use a means test to qualify people for benefits

In which of the following situations would Maria's Doughnut Shop have the LEAST market power?

within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries (more competitors = less market power)

Junko earns a yearly salary of $130,000 in her job and $1,000 per year in interest on her savings. After she quits her job to start a company, she uses all her savings to purchase manufacturing equipment for her company. Given the above information and the data summarizing her first year in business in the table, how much accounting profit or loss does Junko earn? (insert pic)

$150,000

Use the table, with data from Vlad and Assad, to answer the question (insert pic): Use the check mark method to determine which cell has a Nash equilibrium. When there is a Nash equilibrium, Vlad earns profits of ____ , and Assad earns profits of ____.

$2,000; $2,000 (solve by finding best response, and then getting nash equilibrium)

use the table, with data for Bella and Martin, to answer the question (insert pic): If Bella and Martin successfully cooperate, then Bella's profit ____, and Martin's profit will be ____.

$5,000; $5,000 (Without cooperation, Bishan always earns more profit by setting the price to $40, and Amara by setting the price to $35, which ends up the profit to be 4000, 3500) (With cooperation, they can set the price to $55 and $50, which ends up with a higher profit (5000, 5000)

Which of the following is NOT among the main factors affecting wages?

a. discrimination b. regulation and institutional factors c. labor demand d. complements ****

Which of the following conditions is present for all sellers in a perfectly competitive market?

all sellers are selling identical products

When a seller has a high level of market power, the seller

can raise its price without losing many customers

Based on the Rational Rule for Sellers, how does a manger set price and quantity? If the company has no market power, the marginal cost ____ price. If the company has market power, the marginal cost is ____ than price.

equals; less

When an individual's best choice may depend on what other people choose and other people's best choices may depend on what the individual chooses, then ____ is the science that is useful to help the decision makers analyze their options

game theory

(Figure: Output Level) according to the rational rule, what output and price should the firm in the following example choose?

quantity = 4 ; price = $7.00 (first choose the quantity by looking at marginal revenue = marginal cost; then find the price on the firm demand curve)

Unions try to ____ union members by ____.

raise wages of; shifting the labor supply curve to the left (unions increase the wage for its members, but also shift labor supply to the left and decreases the quantity of labor supply)