econ 121 test 4 questions
Alfred is looking for a job and he receives an offer from two firms. Firm A offers a pay of $20,000 per year, and Firm B offers a pay of $16,000 per year $4,000 per year. $20,000 per year. $16,000 per year. $36,000 per year.
$20,000 per year. The opportunity cost of a resource is the amount that the resource could earn in its best alternative use. See 11-4: Opportunity Cost and Economic RentOpportunity Cost and Economic Rent
Alfred is looking for a job and he receives an offer from two firms. Firm A offers a pay of $20,000 per year, and Firm B offers a pay of $16,000 per year. Economic Rent? $10,000. $16,000. $26,000. $4,000.
$4,000. Incorrect. Economic rent is the portion of a resource's total earnings above its opportunity cost. See 11-4: Opportunity Cost and Economic RentOpportunity Cost and Economic Rent
The figure below shows the marginal benefit, the marginal private cost, and the marginal social cost curves of a firm. The socially optimal level of output and price combination is: 4 units of output and a price of $6.1 per unit. 4 units of output and a price of $5.3 per unit. 8 units of output and a price of $6.1 per unit. 8 units of output and a price of $5.3 per unit.
4 units of output and a price of $6.1 per unit.
_____ can affect a resource's marginal revenue product A change in the supply of the final product A change in the demand for the final product A change in the revenue earned by a firm A change in the technology used in production
A change in the technology used in production A change in technology can affect a resource's marginal product
The following table shows the hours per week supplied to a particular market by three individuals at various wage rates. Calculate the total hours per week (QT) supplied to the market. 15 20 0 0 16 25 0 0 17 35 10 0 18 45 25 10 19 42 25 10 19 42 40 30 20 38 37 45 Why does the quantity supplied tend to increase with the hourly wage? Which individuals, if any, have backward-bending supply curves in the wage range shown? Does the market supply curve bend backward in the wage range shown in the table?
Because more people are willing to work at a higher pay rate. It starts to bend backwards at Q1 after wage 18 no it is positive sloping
The _____ exempted labor unions from antitrust laws. Clayton Act of 1914 National Industrial Recovery Act of 1933 American Federation of Labor Congress of Industrial Organizations
Clayton Act of 1914
The _____ serves as a national organization of unions in mass production industries in the U.S. American Federation of Labor Congress of Industrial Organizations Bureau of Industry and Security Government Accountability Office
Congress of Industrial Organizations
_____ is an example of an exhaustible resource. Skilled labor Crude oil Solar power Education
Crude oil
Which of the following is true of economic rent and opportunity cost in a resource market? In a resource market where all earnings are economic rent, the supply curve is downward sloping. In a resource market where earnings include both economic rent and opportunity cost, the supply curve is parallel to the vertical axis. In a resource market where all earnings are economic rent, the supply curve is parallel to the horizontal axis. In a resource market where all earnings are opportunity cost, the supply curve is parallel to the horizontal axis.
In a resource market where all earnings are opportunity cost, the supply curve is parallel to the horizontal axis.
Which of the following is true of leisure? It is subject to the law of diminishing marginal utility. It is subject to the law of variable proportions. It is subject to the law of definite proportions. It is subject to the law of increasing marginal utility
It is subject to the law of diminishing marginal utility.
Which of the following is true of leisure? It is subject to the law of increasing marginal utility. It is subject to the law of diminishing marginal utility. It is subject to the law of definite proportions. It is subject to the law of variable proportions.
It is subject to the law of diminishing marginal utility.
From an economic standpoint, which of the following is true of the Clean Air Act of 1970? It recognized the atmosphere as an economic resource with alternative uses and gave Americans the right to breathe air of a certain quality. It recognized the atmosphere as an economic resource with very limited uses. It failed to recognize the atmosphere as an economic resource that, like other resources, has alternative uses. It formally recognized the unlimited right of U.S. firms to freely pollute the air.
It recognized the atmosphere as an economic resource with alternative uses and gave Americans the right to breathe air of a certain quality.
Which of the following is an example of special-interest legislation? Legislation for a justice system Legislation for tort reforms Legislation for national defense Legislation for farm subsidies
Legislation for farm subsidies
Which of the following is an example of populist legislation? Legislation for a floor price on milk Legislation for tort reforms Legislation for agricultural subsidies Legislation for the restoration of a historic theatre
Legislation for tort reforms
Which of the following is an example of populist legislation? Legislation for tort reforms Legislation for the restoration of a historic theatre Legislation for a floor price on milk Legislation for agricultural subsidies
Legislation for tort reforms
Which of the following is true of ownership in a government bureau? Ownership in the bureau can be surrendered but not transfered. Ownership in the bureau cannot be surrendered even if the taxpayer dies. Ownership in the bureau maximizes political support for elected officials. Ownership in the bureau is easily transferable.
Ownership in the bureau can be surrendered but not transfered.
_____ refers to the dominant firm's attempt to drive rivals out of business by temporarily setting price below cost or reducing price only in certain markets. Per se pricing Predatory pricing Herfindahl pricing Marginal cost pricing
Predatory pricing
The following image shows a market. Which of the following happens due to a price floor of $3 in the market? The cost to consumer-taxpayers increases by $300. The cost to consumer-taxpayers increases by $600. The cost to consumer-taxpayers decreases by $600. The cost to consumer-taxpayers decreases by $300.
The cost to consumer-taxpayers increases by $300.
A merger of firms in different and unrelated industries is called: a horizontal merger. a conglomerate merger. a vertical merger. a hostile takeover.
a conglomerate merger Incorrect. The merger of firms in different and unrelated industries is called a conglomerate merger. See 15-4: Antitrust Law and EnforcementAntitrust Law and Enforcement
A negative externality generated by a firm that uses a variable technology can be most efficiently reduced by: altering the production process followed by the firm. levying a tax on the polluting firm. reducing the quantity of output produced by the firm. stopping the production of a product that causes externality.
altering the production process followed by the firm.
A factory worker working night shifts in a factory gets paid more than a factory worker working day shifts. Such differences in resource prices: _____. arise due to differences in worker productivities arise due to differences in years of experience are temporary in nature are permanent in nature
are permanent in nature Most people must be paid more for jobs that are dirty, dangerous, dull, exhausting, illegal, low status, have no future, have no benefits, or involve inconvenient hours than for jobs that are clean, safe, interesting, energizing, legal, high status, have bright prospects, have good benefits, and involve convenient hours. Such differences in resource prices are permanent in nature.
According to the economic theory of labor markets, new lawyers are eager to fill clerkships for judges, even at a miniscule wage, because: the total utility derived from nonmarket work and leisure is lower than that derived from clerkships. the income effect is equal to the substitution effect for higher-paying jobs. clerkships enhance future earnings possibilities. the income effect is smaller than the substitution effect for higher-paying jobs.
clerkships enhance future earnings possibilities.
An inflexible approach that requires a polluter to adopt particular technologies to reduce emissions by specific amounts is known as a(n): command-and-control environmental regulation. ecosystems regulation. voluntary environmental agreement. economic efficiency approach.
command-and-control environmental regulation.
A(n) _____is a group whose members have a particular skill or do a specific job, such as carpenters. public sector union industrial union craft union consumer cooperative
craft union
For a firm with market power, the marginal revenue product curve slopes downward because of: diminishing marginal utility. increasing marginal returns. diminishing marginal returns. increasing marginal utility.
diminishing marginal returns
In the 1960s, conglomerate mergers accounted for about four-fifths of all mergers. Such mergers enable firms to: expand their output to the socially desirable level. enjoy the benefits of economies of scope. create a monopoly in the market for a particular product. specialize in the production of a particular good.
enjoy the benefits of economies of scope.
Almost 70 percent of U.S. garbage: is recycled. is sent on barges to other countries. is dumped in water. goes to landfills.
goes to landfills.
An underground economy grows more when: government regulations increase. government spending increases. government regulations decrease. government corruption decreases.
government regulations increase.
Unions have grown more reluctant to strike because of the: higher wages and lower unemployment rates in recent decades. decrease in the supply of labor in the nonunion sector in recent decades. increased willingness of employers to hire strikebreakers in recent decades. increased share of employment in the industrial sector compared to the service sector.
increased willingness of employers to hire strikebreakers in recent decades.
A group of workers who join together to improve their terms of employment is called a(n): labor union. corporate team. economic group. worker's cooperative.
labor union.
For a perfectly competitive firm, marginal revenue product is equal to: the product price multiplied by total output. marginal product multiplied by the product price. the difference between marginal revenue and marginal cost. the change in total product arising from a unit change in resource usage.
marginal product multiplied by the product price.
The Sherman Antitrust Act of 1890 prohibits: monopolistic competition. perfect competition. monopolization. oligopoly.
monopolization.
Economic regulation is in the public interest because it: favors monopolies. promotes social welfare. increases the market power of firms. favors organized producers and mergers.
promotes social welfare
The approach by which a labor union tries to negotiate an industry-wide wage for different classes of labor is called: the arbitration approach. the industrial approach. collective bargaining. mediation.
the industrial approach.
The market supply curve for a resource is: parallel to the vertical axis. the same as the average cost curve for that resource. downward sloping. the summation of all the individual supply curves for that resource.
the summation of all the individual supply curves for that resource.
The questions of what type of public goods to produce and how much to produce are resolved: in product markets. only by central planners. in resource markets. through public choices.
through public choices.
A graphic design firm currently produces 10 brochures in an hour and earns $100 per brochure. There are many software programs that will help the firm increase its productivity. To maximize profit, the firm should purchase a software program that will help it produce: 20 brochures in an hour and costs $2,100. 20 brochures in an hour and costs $500. 15 brochures in an hour and costs $1,000. 12 brochures in an hour and costs $800.
20 brochures in an hour and costs $500 . Correct. A firm hires an input as long as the additional revenue from using the input exceeds the additional cost. In this case, the firm's profit will increase by $500 if it purchases a software program that helps it make 20 brochures in an hour and costs $500. See 11-2: Demand and Supply of ResourcesDemand and Supply of resources
Which of the following offers the best example of a positive externality? A person going to a store and paying $0.75 for a candy bar that he can eat. A coastal dairy farmer's undeveloped land offering an unimpeded view of the ocean for a nearby neighborhood A pulp mill emitting chlorine pollution into the water, harming members of society. A welding shop making a lot of noise, which reduces the property values of nearby homes.
A coastal dairy farmer's undeveloped land offering an unimpeded view of the ocean for a nearby neighborhood
Which of the following can be categorized as derived demand? A decline in the demand for labor because of outrageous demands by trade unions An increase in the demand for woolens in winter A decline in the demand for building products following a drop in housing demand An increase in the demand for gasoline following a fall in the price of petroleum products
A decline in the demand for building products following a drop in housing demand
In which of the following jobs will the supply of labor be low? A job that has a comparatively low wage but offers a great learning experience A job that provides workers with enough free time for their hobbies A job with a relatively good work environment A job that is challenging and has rigid work schedules
A job that is challenging and has rigid work schedules
Which of the following is true of a renewable resource? A renewable resource is also known as an open-access resource. A renewable resource always regenerates itself faster than it is consumed. A renewable regenerates itself if used in a sustainable manner. A resource that is fixed in supply is known as a renewable resource.
A renewable regenerates itself if used in a sustainable manner.
Which of the following is a major source of union power? Arbitration Collective bargaining A strike Mediation
A strike
_____ will earn a comparatively high wage rate. A trained chef A high school dropout A cab driver An individual with a high school diploma
A trained chef
The following image shows a market. If there is no government intervention in the market, the consumer surplus is represented by the area equal to _____. B + C + D A+ B + E B + E + D A + B + C
A+ B + E
_____ seeks to control the price, output, the entry of new firms, and the quality of services in industries in which monopoly appears inevitable. Economic regulation Average cost pricing strategy Cross subsidization strategy Social regulation
Economic regulation Correct. Economic regulation aims to control the price, output, the entry of new firms, and the quality of services in industries in which monopoly appears inevitable. See 15-2: Regulating a Natural MonopolyRegulating a Natural Monopoly
Which of the following is true of economic regulation? Economic regulation refers to government measures designed to improve health and safety, such as control over unsafe working conditions and dangerous products. Economic regulation discourages attempts to monopolize, or centralize markets in which competition is desired. Economic regulation aims to control the price, output, the entry of new firms, and the quality of service in industries where monopoly appears inevitable. Economic regulation refers to the centralization of competitive markets.
Economic regulation aims to control the price, output, the entry of new firms, and the quality of service in industries where monopoly appears inevitable.
Which of the following is true of economic regulation? Economic regulation refers to the centralization of competitive markets. Economic regulation refers to government measures designed to improve health and safety, such as control over unsafe working conditions and dangerous products. Economic regulation aims to control the price, output, the entry of new firms, and the quality of service in industries where monopoly appears inevitable. Economic regulation discourages attempts to monopolize, or centralize markets in which competition is desired.
Economic regulation aims to control the price, output, the entry of new firms, and the quality of service in industries where monopoly appears inevitable.
Which of the following statements defines economic rent? Economic rent is the portion of a resource's total earnings above its marginal cost. Economic rent is the portion of a resource's total earnings below its opportunity cost. Economic rent is the portion of a resource's total earnings above its opportunity cost. Economic rent is the portion of a resource's total earnings below its marginal cost.
Economic rent is the portion of a resource's total earnings above its opportunity cost.
Which of the following statements defines economic rent? Economic rent is the portion of a resource's total earnings above its opportunity cost. Economic rent is the portion of a resource's total earnings below its opportunity cost. Economic rent is the portion of a resource's total earnings below its marginal cost. Economic rent is the portion of a resource's total earnings above its marginal cost.
Economic rent is the portion of a resource's total earnings above its opportunity cost.
Which of the following statements defines economic rent? Economic rent is the portion of a resource's total earnings below its marginal cost. Economic rent is the portion of a resource's total earnings above its marginal cost. Economic rent is the portion of a resource's total earnings below its opportunity cost. Economic rent is the portion of a resource's total earnings above its opportunity cost.
Economic rent is the portion of a resource's total earnings above its opportunity cost.
46_____ is an attempt to ensure that more union labor is hired than producers would prefer. For example, a musician's union may require more musicians be employed in a Broadway musical than is required. Filibustering A lockout Binding arbitration Featherbedding
Featherbedding
Which of the following is an example of traditional public-goods legislation? Federal budget allocation for the construction of a statue in Alabama Federal budget allocation for payment of subsidies to wheat producers Federal budget allocation for labor union issues Federal budget allocation for cancer research
Federal budget allocation for cancer research
Which of the following is true of economic rent and opportunity cost in a resource market? In a resource market where all earnings are economic rent, the supply curve is downward sloping. In a resource market where all earnings are opportunity cost, the supply curve is parallel to the horizontal axis. In a resource market where all earnings are economic rent, the supply curve is parallel to the horizontal axis. In a resource market where earnings include both economic rent and opportunity cost, the supply curve is parallel to the vertical axis.
In a resource market where earnings include both economic rent and opportunity cost, the supply curve is parallel to the vertical axis. he supply curve is perfectly elastic in a resource market where all earnings are opportunity cost.
Give reasons why unionization rates have declined in recent decades.
Inclusive, or industrial, unions attempt to establish a wage floor that exceeds the competitive, or market-clearing, wage. A union wage above the market-clearing level creates an excess quantity of labor supplied, so the union must somehow ration the limited jobs among its members. Exclusive, or craft, unions try to raise union wages by restricting the supply of labor. Another way to raise union wages is to increase the demand for union labor. Union membership as a percentage of the labor force has been falling for half a century. Reasons for the decline include right-to-work laws, growing global competition, a shift in employment from goods to services, a greater willingness to hire replacements for striking workers, a greater willingness of union members and others to work during strikes, and less political support for the labor movement
Which of the following statements defines the marginal resource cost of production? Marginal resource cost is the change in total cost when an additional unit of output is produced, other things constant. Marginal resource cost is the change in total fixed cost when an additional unit of resource is fired, other things constant. Marginal resource cost is the change in total cost when an additional unit of a resource is hired, other things constant. Marginal resource cost is the change in total cost when an additional unit of output is demanded, other things constant.
Marginal resource cost is the change in total cost when an additional unit of a resource is hired, other things constant.
What are the three economic uses of time? Nonmarket work, voluntary service, and leisure Acquiring skills, voluntary service, and social service Social work, nonmarket work, and leisure Market work, nonmarket work, and leisure
Market work, nonmarket work, and leisure
Which of the following is an example of tax evasion? Bertram deciding to claim his business travel expenses from his company to reduce his taxable income. Barry making charitable donations that are eligible for tax deductions. Martha not reporting the additional income she earns from waiting tables at a restaurant to reduce her taxable income. Mindy buying municipal bonds as they yield returns free of federal income taxes.
Martha not reporting the additional income she earns from waiting tables at a restaurant to reduce her taxable income.
Which of the following is consistent with the ideas underlying the rule of reason legal doctrine that was established by the U.S. Supreme Court in the case of U.S. Steel in 1920? Every contract that restricts trade is illegal. Mere size is not an antitrust offense because some firms may acquire a large size and monopoly position by being particularly efficient at delivering high-quality products at low prices. The actions of monopoly market structures are legal even if monopolies manage to earn unreasonable profits. In addition to a monopoly market structure, the crime of monopolization requires evidence of foreign government involvement.
Mere size is not an antitrust offense because some firms may acquire a large size and monopoly position by being particularly efficient at delivering high-quality products at low prices.
Which of the following is an example of a good that is nonrival and nonexclusive in consumption? Haircuts Television signals National defense Pizza
National defense
Explain why the quantity of labor supplied increases with the wage, other things constant.
People allocate their time to maximize utility. There are three uses of time: market work, nonmarket work, and leisure. A person attempts to maximize utility by allocating time so that the expected marginal utility of the last unit of time spent in each activity is identical. The higher the wage, other things constant, the more goods and services can be purchased with that wage, so a higher wage encourages people to substitute market work for other uses of their time. But a higher wage also increases income, increasing the demand for all normal goods, including leisure. The net effect of a higher wage on the quantity of labor supplied depends on both the substitution effect and the income effect.
Which of the following happens when resources are freely mobile and when the nonmonetary benefits of supplying resources to alternative uses are identical? The demand for resources that can be put to different uses decreases. The prices of resources that can be put to different uses increase. Resources adjust across uses until they earn significantly more in one particular use. Resources adjust across uses until they earn the same in different uses.
Resources adjust across uses until they earn the same in different uses. Correct. As long as the nonmonetary aspects of supplying resources to alternative uses are identical and as long as resources are freely mobile, resources adjust across uses until they earn the same in different uses.
Which of the following is not an example of economic regulation? Requiring a minimum amount of goods to be produced in a given year Preventing a firm from setting up business in a town Restricting the use of hazardous materials without proper protection Maintaining a minimum price for a good
Restricting the use of hazardous materials without proper protection
Suppose a regulatory agency overseeing a natural monopoly wants to secure a low price for consumers without subsidizing the monopoly. At the same time, the firm needs to be sustained at zero economic profit. Which of the following would allow the agency to accomplish this? Setting price equal to zero Setting price equal to marginal cost Setting price equal to average cost Setting marginal revenue equal to marginal cost and setting price based on the demand curve
Setting price equal to average cost
Suppose government regulators required a natural monopoly to charge a price equal to the marginal cost of the last unit produced. Which of the following would then be true? The natural monopoly would be allocatively efficient but would lose market shares as prices will increase. The natural monopoly would be allocatively inefficient, and consumer surplus would fall. The natural monopoly would earn zero economic profit, but the low price would sustain the firm in the long run. The natural monopoly would be allocatively efficient but would suffer economic losses.
Setting price equal to average cost
_____ generates concentrated benefits but imposes widespread costs, while _____ generates concentrated benefits for one group and imposes concentrated costs upon another group. Rationally-ignorant legislation; public-interest legislation Special-interest legislation; competing-interest legislation Public-interest legislation; special-interest legislation Special-interest legislation; median-voter legislation
Special-interest legislation; competing-interest legislation
Which of the following correctly describes marginal revenue product? The change in total cost divided by the change in total revenue The change in total revenue when an additional unit of a resource is hired The change in total cost divided by the change in output The change in total revenue divided by the change in output
The change in total revenue when an additional unit of a resource is hired Correct. Marginal revenue product is the change in total revenue when an additional unit of a resource is hired
Which of the following represents the net utility of work? The difference between the utility from additional consumption and the disutility of work The sum of an increase in income and an increase in consumption as a result of an increase in the number of hours worked The satisfaction received by an additional hour of work done The difference between the utility from additional consumption and the utility from extra income
The difference between the utility from additional consumption and the disutility of work
Which of the following represents the net utility of work? The difference between the utility from additional consumption and the utility from extra income The satisfaction received by an additional hour of work done The sum of an increase in income and an increase in consumption as a result of an increase in the number of hours worked The difference between the utility from additional consumption and the disutility of work
The difference between the utility from additional consumption and the disutility of work
Identify a method that can be used to reduce the common-pool problem. Producers can charge a low price for a good that requires the use of a common-pool resource. The government can subsidize consumers who purchase a good that requires the use of a common-pool resource. The government can subsidize producers who use a common-pool resource. The government can impose restrictions on the use of a common-pool resource.
The government can impose restrictions on the use of a common-pool resource.
Identify a method that can be used to reduce the common-pool problem. The government can subsidize consumers who purchase a good that requires the use of a common-pool resource. The government can subsidize producers who use a common-pool resource. Producers can charge a low price for a good that requires the use of a common-pool resource. The government can impose restrictions on the use of a common-pool resource.
The government can impose restrictions on the use of a common-pool resource.
Describe why some workers earn higher wages than other workers.
The intersection of labor demand and labor supply curves determines the market wage and market employment. The supply of labor depends not only on the wage, but also on other factors, including (a) other sources of income, (b) job amenities, (c) the value of job experience, and (d) worker tastes. Market wages differ because of (a) differences in training and education; (b) differences in the skill and ability of workers; (c) risk differences, both in terms of the workers' safety and the chances of getting laid off; (d) geographic differences; and (e) racial and gender discrimination.
Which of the following statements defines the marginal product of a resource? The marginal product of a resource is the product of the average products that are produced by the employment of all the units of the resource. The marginal product of a resource is the change in average product from employing one additional unit of the resource. The marginal product of a resource is the change in total product from employing one additional unit of the resource. The marginal product of a resource is the sum of the average products that are produced by the employment of all the units of the resource.
The marginal product of a resource is the change in total product from employing one additional unit of the resource
Which of the following is true of the market demand for a public good? The market demand curve for a public good is the vertical sum of individual consumer demand curves. The market demand curve for a public good is the sum of the quantities demanded by each consumer at a given income level. The market demand curve for a public good is the horizontal sum of individual consumer demand curves. The efficient quantity of a public good occurs where the market demand curve intersects the market supply curv
The market demand curve for a public good is the vertical sum of individual consumer demand curves.
Which of the following statements is true? The more elastic the supply of a resource, the higher the economic rent as a proportion of total earnings. The more the elasticity of demand of a resource, the higher the economic rent as a proportion of total earnings. The more elastic the supply of a resource, the lower the economic rent as a proportion of total earnings. The more the elasticity of demand of a resource, the lower the economic rent as a proportion of total earnings.
The more elastic the supply of a resource, the lower the economic rent as a proportion of total earnings.
Suppose government regulators required a natural monopoly to charge a price equal to the marginal cost of the last unit produced. Which of the following would then be true? The natural monopoly would be allocatively efficient but would lose market shares as prices will increase. The natural monopoly would be allocatively inefficient, and consumer surplus would fall. The natural monopoly would earn zero economic profit, but the low price would sustain the firm in the long run. The natural monopoly would be allocatively efficient but would suffer economic losses.
The natural monopoly would be allocatively efficient but would suffer economic losses.
Which of the following is true of special-interest legislation? The resources used by special-interest groups to persuade elected officials to create legislation to increase their wealth are unproductive to society because they do not increase real output and usually end up reducing it. Special-interest legislation created through rent seeking usually creates widespread benefits for the rest of the society. The resources used by special-interest groups to persuade elected officials to create legislation to increase their wealth are productive to society because they increase real output. Special-interest legislation confers concentrated benefits on one group by imposing concentrated costs on another group.
The resources used by special-interest groups to persuade elected officials to create legislation to increase their wealth are unproductive to society because they do not increase real output and usually end up reducing it.
Which of the following is true of bureaus? They control the money supply in an economy. They are highly sensitive to consumer feedback. They implement the laws created by government. They create laws to govern the functioning of an economy.
They implement the laws created by government.
Which of the following transactions is most likely considered part of an informal economy? Jonathan converting all his gold possessions into cash Tracy accepting only cash payments for the salon services she offers so that she can understate her income Tom holding a garage sale to dispose his old toys and to buy new toys with the money collected from the sale Cathy offering to mow lawn for her neighbor who helped her clean her swimming pool
Tracy accepting only cash payments for the salon services she offers so that she can understate her income
Summarize the objectives of labor unions and outline strategies used to achieve these objectives.
Unions can broadly be classified as either craft unions (people with a particular skill, or craft) or industrial unions (unskilled, semiskilled, and skilled workers in a particular industry). Unions and employers try to negotiate a labor contract through collective bargaining. A major source of union power has been the threat of a strike, which is an attempt to withhold labor from the firm.
Which of the following correctly is true of the special-interest theory of regulation? Large numbers of poorly organized consumers, each of whom have very little stake in the outcome of economic regulation, capture the regulatory process and force regulated monopolies to accept negative economic profits. Well-organized producer groups expect to profit from economic regulation and are able to persuade public officials to impose restrictions that existing producers find attractive, such as limiting entry of new firms or competition by existing firms. Large numbers of poorly organized military veterans, each of whom have very little stake in the outcome of economic regulation, capture the regulatory process and force consumer-products firms to convert their factories to produce military goods and services. Well-organized producer groups incur losses from economic regulation which force them to keep prices low, while consumers enjoy a larger surplus.
Well-organized producer groups expect to profit from economic regulation and are able to persuade public officials to impose restrictions that existing producers find attractive, such as limiting entry of new firms or competition by existing firms. Correct. According to the special interest view, well-organized producer groups expect to profit from economic regulation and persuade public officials to impose restrictions that existing producers find attractive, such as limiting entry into the industry or preventing competition among existing firms. See 15-3: Alternative Theories of Economic RegulationAlternative Theories of Economic Regulation
Which of the following is the most challenging regulatory dilemma facing a regulatory agency? Whether to set quantity above the socially optimal level or to set a break-even price Whether to set price at the profit-maximizing level or to set a break-even price Whether to set price equal to marginal cost or to set a minimum support price Whether to set price equal to marginal cost or to set a break-even price
Whether to set price equal to marginal cost or to set a break-even price
Which of the following is the most challenging regulatory dilemma facing a regulatory agency? Whether to set price equal to marginal cost or to set a break-even price Whether to set price at the profit-maximizing level or to set a break-even price Whether to set price equal to marginal cost or to set a minimum support price Whether to set quantity above the socially optimal level or to set a break-even price
Whether to set price equal to marginal cost or to set a break-even price Incorrect. It is socially optimal to set price equal to marginal cost, but the load of subsidy is too high for the government. However, at the break-even price, output falls short of the socially optimal level. See 15-2: Regulating a Natural MonopolyRegulating a Natural Monopoly
If a company offering financial services merges with a firm offering wireless telephone services, it will be considered a _____. conglomerate merger vertical merger product extension merger horizontal merger
conglomerate merger Correct. If a firm offering financial services merges with a firm offering wireless telephone services, it will be considered a conglomerate merger. See 15-4: Antitrust Law and EnforcementAntitrust Law and Enforcement
Restricting labor supply to increase wages is typical of: self-help groups. craft unions. industrial unions. both industrial and craft unions.
craft unions.
In the resource market, the value of any resource depends on the value of what it is used to produce. So, resource demand is said to be: derived from the supply of the product the resource produces. derived from the total cost of the product the resource produces. derived from the demand for the product that the resource is used to produce. derived from the elasticity of demand for the resource.
derived from the demand for the product that the resource is used to produce. Correct. It is the demand for the final product that determines the demand for a resource in the resource market. See 11-2: Demand and Supply of ResourcesDemand and Supply of resources
A(n) _____ offers each polluter the flexibility to reduce emissions as cost effectively as possible, given its unique cost conditions. ecosystems regulation economic efficiency approach command-and-control environmental regulation voluntary environmental agreement
economic efficiency approach
The division of earnings between opportunity cost and economic rent depends on the _____ of the resource. elasticity of demand slope of the supply curve slope of the demand curve elasticity of supply
elasticity of supply
The division of earnings between opportunity cost and economic rent depends on the _____ of the resource. slope of the demand curve slope of the supply curve elasticity of demand elasticity of supply
elasticity of supply
Suppose a union is unable to resolve issues between workers and management. This adversely affects the productivity of union workers. A fall in the marginal productivity of union workers will lead to a(n): upward movement along the supply curve of union workers. downward movement along the supply curve of union workers. increase in the demand for union workers. fall in the demand for union workers.
fall in the demand for union workers.
The marginal revenue product curve of a firm is the same as the _____. firm's marginal cost curve firm's demand curve for a particular resource firm's marginal revenue curve firm's supply curve for a particular product
firm's demand curve for a particular resource
The marginal revenue product curve of a firm is the same as the _____. firm's marginal revenue curve firm's demand curve for a particular resource firm's supply curve for a particular product firm's marginal cost curve
firm's demand curve for a particular resource Incorrect. The marginal revenue product curve of a firm can be considered to be the firm's demand curve for a particular resource. See 11-5: A Closer Look at Resource DemandA Closer Look at Resource Demand
The greater the quantity and quality of the complementary resources used in the production of output, the _____ is the marginal productivity of the resource in question and the _____ is the demand for that resource. lower; lower greater; lower greater; greater lower; greater
greater; greater Incorrect. A high demand for output can be met by increasing the quality and quantity of the complementary resources used with a particular resource
Government bureaus _____ have less incentive to eliminate waste and inefficiency. produce goods at the lowest cost per unit. earn profits that are distributed among their owners. receive a steady stream of consumer feedback.
have less incentive to eliminate waste and inefficiency.
If a firm's hiring decision has no effect on the market price of a resource, the firm faces a(n) _____ marginal resource cost curve. vertical horizontal upward sloping downward sloping
horizontal
The _____ tends to increase an individual's demand for leisure. income effect of a wage decrease law of increasing marginal utility substitution effect of a wage increase income effect of a wage increase
income effect of a wage increase
The _____ tends to increase an individual's demand for leisure. substitution effect of a wage increase income effect of a wage increase income effect of a wage decrease law of increasing marginal utility
income effect of a wage increase
The figure below shows the marginal benefit, the marginal private cost, and the marginal social cost curves of a firm. Suppose, in order to reduce externality, the government imposes a tax of $0.8 on each unit produced by the firm. A tax per unit of $0.8 will lead to a(n): increase in the price of the product and a fall in the quantity of output produced. leftward shift in the demand curve for the product. rightward shift in the demand curve for the product. fall in the price of the product and an increase in the quantity of output produced.
increase in the price of the product and a fall in the quantity of output produced.
In the presence of a positive externality, public policy aims to: decrease quantity below the private optimum. increase price below the equilibrium level. increase price beyond the equilibrium level. increase quantity beyond the private optimum.
increase quantity beyond the private optimum.
If competition is viewed as a dynamic process, then firm size should not be a primary concern and antitrust policy should not necessarily aim at _____. increasing the number of firms in an industry decreasing the market demand in an industry eliminating small firms from an industry eliminating large firms from an industry
increasing the number of firms in an industry Incorrect. Competition in a market with more than one firm has little correlation with the number of firms in the market. See 15-5: Competitive Trend in the U.S. EconomyCompetitive Trend in the U.S. Economy
One of the problems with antitrust policy is that: it can be used to convert a dispute between a firm and its supplier into a treble damage suit. it only focuses on trade practices in international markets and ignores the problems faced by domestic producers. it prevents firms from enjoying the benefits of creative destruction. it prevents firms from enjoying the benefits of economies of scope.
it can be used to convert a dispute between a firm and its supplier into a treble damage suit.
One of the problems with antitrust policy is that: it can be used to convert a dispute between a firm and its supplier into a treble damage suit. it prevents firms from enjoying the benefits of economies of scope. it only focuses on trade practices in international markets and ignores the problems faced by domestic producers. it prevents firms from enjoying the benefits of creative destruction.
it can be used to convert a dispute between a firm and its supplier into a treble damage suit.
One of the problems with antitrust policy is that: it prevents firms from enjoying the benefits of creative destruction. it can be used to convert a dispute between a firm and its supplier into a treble damage suit. it prevents firms from enjoying the benefits of economies of scope. it only focuses on trade practices in international markets and ignores the problems faced by domestic producers.
it can be used to convert a dispute between a firm and its supplier into a treble damage suit. Incorrect. Antitrust policy can be used to convert a contract dispute between a firm and its supplier into a treble damage suit. See 15-4: Antitrust Law and EnforcementAntitrust Law and Enforcement
The change in total revenue due to a one-unit change in labor usage is called the _____ of labor. average revenue product marginal revenue marginal revenue product average revenue
marginal revenue product Correct. The marginal revenue product of labor is the change in total revenue due to a one-unit change in labor usage. See 11-5: A Closer Look at Resource DemandA Closer Look at Resource Demand
A profit-maximizing firm should employ a resource up to the point where: marginal revenue is lower than marginal resource cost. marginal revenue product is maximized. marginal revenue product equals marginal resource cost. marginal revenue product is zero.
marginal revenue product equals marginal resource cost.
A profit-maximizing firm hires labor up to the point where the: marginal resource is equal to zero market supply curve of labor begins to bend backward. marginal revenue product of labor equals its marginal resource cost. marginal revenue product of labor is greater than its total cost.
marginal revenue product of labor equals its marginal resource cost.
When there are positive externalities in the consumption of a good, _____. marginal social benefit exceeds marginal private benefit the socially optimal level of output exceeds the private market equilibrium quantity public policy aims to lower the level of output below the private optimum the marginal social benefit curve lies below the private market demand curve
marginal social benefit exceeds marginal private benefit
The efficient quantity of a public good is produced when the marginal cost of producing the public good equals its marginal benefit. This occurs where the marginal cost curve intersects the _____ curve. total cost marginal revenue market demand average cost
market demand
The ability of a firm to maintain its price above the competitive level without losing all its customers to rival firms is termed _____. marginal cost pricing market power competition allocative efficiency
market power Correct. The ability of a firm to maintain its price above the competitive level without losing all its customers to rival firms is termed market power. See 15-2: Regulating a Natural MonopolyRegulating a Natural Monopoly
If elected officials are assumed to be driven by rational self-interest, they are likely to: maximize their political support. adopt a stance of rational ignorance. best serve the public interest. maximize their hours worked.
maximize their political support.
A government bureau: reports all market activity that goes unreported to evade taxes. usually has a tough time getting approvals for a proposed legislation. may be less inclined to minimize cost by reducing quality. sells many different public and private goods and services. CONTINUE
may be less inclined to minimize cost by reducing quality.
An impartial observer who helps resolve differences between union and management is known as a(n): strikebreaker. mediator. striker. arbitrator.
mediator
In a _____, the value of the Herfindahl-Hirschman Index is 10,000. duopoly oligopolistic market monopoly perfectly competitive market
monopoly
The first antitrust legislation was passed in the United States during the 1880s in response to: trusts that were formed in the textile industry. trusts that were formed in the wheat and corn industries. massive oil price shocks and the Penn-Central Railroad cartel. trusts that were formed in the sugar, tobacco, and oil industries.
monopoly
A golf course or a swimming pool in a resort that is not crowded is an example of a(n) _____. private good open-access good public good natural monopoly
natural monopoly
The _____ of a resource is the amount that the resource could earn in its best alternative use. marginal cost derived demand opportunity cost economic rent
opportunity cost
In a resource market where a horizontal supply curve determines the equilibrium wage and the demand curve determines the equilibrium quantity, the earnings of the resource include: opportunity cost only. economic rent only. neither the economic rent nor the opportunity cost of production. both economic rent and opportunity cost.
opportunity cost only.
When a resource can earn as much in its best alternative use as in its present use, then the supply curve for the resource is: parallel to the vertical axis. backward bending. upward sloping. parallel to the horizontal axis.
parallel to the horizontal axis.
The supply curve for a resource that has zero opportunity cost is: upward sloping. parallel to the horizontal axis. downward sloping. parallel to the vertical axis.
parallel to the horizontal axis. Incorrect. The supply curve is perfectly inelastic for a resource that has zero opportunity cost
Legislation that involves widespread benefits but concentrated costs is called: special-interest legislation. populist legislation. traditional public-goods legislation. competing-interest legislation.
populist legislation.
Legislation that benefits a narrow geographical interest is called _____. competing-interest legislation public-good spending pork-barrel spending populist legislation
pork-barrel spending
Economic regulation is in the public interest because it: favors monopolies. favors organized producers and mergers. increases the market power of firms. promotes social welfare.
promotes social welfare.
The following image shows a market. If the government wants to make a floor price of $3 to persist in the market, it should _____. purchase 300 units of the product at $3 per unit at each period purchase 450 units of the product at $2 per unit at each period sell 300 units of the product at $2 per unit at each period sell 450 units of the product at $3 per unit at each period
purchase 300 units of the product at $3 per unit at each period
An increase in the demand for union-made goods will lead to a(n): rightward shift of the demand curve for union workers. leftward shift of the demand curve for union workers. downward movement along the demand curve for union workers. upward movement along the demand curve for union workers.
rightward shift of the demand curve for union workers.
One of the ways government can help internalize external benefits is by: increasing the market price of a good above the equilibrium and creating a surplus. decreasing the market price of a good below the equilibrium and creating a shortage. subsidizing consumption that produces external benefits. taxing consumption that produces external benefits.
subsidizing consumption that produces external benefits.
If the government forces a monopolist to produce the level of output that is efficient, the monopolist will: earn a profit shown by the area 0FEQ2. suffer a loss shown by the area FEJG. earn a profit shown by the area FEJG. suffer a loss shown by the area 0FEQ2.
suffer a loss shown by the area FEJG. Correct. If the government forces the monopolist to produce the output level where marginal benefit equals marginal cost, the monopolist will suffer a loss shown by the area FEJG. See 15-2: Regulating a Natural MonopolyRegulating a Natural Monopoly
Suppose a labor union manages to negotiate a wage above the market-clearing level. It is likely to result in a: deficit in the labor market. surplus in the labor market. rightward shift of the labor demand curve. leftward shift of the labor demand curve.
surplus in the labor market.
Suppose a regulatory agency overseeing a natural monopoly wants to secure a low price for consumers without subsidizing the monopoly. At the same time, the firm needs to be sustained at zero economic profit. Which of the following would allow the agency to accomplish this? Setting price equal to average cost Setting price equal to marginal cost Setting marginal revenue equal to marginal cost and setting price based on the demand curve Setting price equal to zero
the area AEF, which is more than the consumer surplus in an unregulated market.
Even when the initial intent of a legislation is in the consumer interest, producers' political power and strong stake in the regulatory outcome lead them to manipulate regulating agencies. This is referred to as _____. average cost pricing the regulatory dilemma the capture of regulatory agencies predatory pricing
the capture of regulatory agencies
An open-access good is subject to: the common-pool problem because it is used conservatively. the free-rider problem because people harvest a resource as long as the marginal benefit of extracting a resource is equal to its marginal cost. the free-rider problem because property rights are assigned to the use of these goods. the common-pool problem because people harvest a resource as long as the marginal benefit of extracting a resource exceeds its marginal cost.
the common-pool problem because people harvest a resource as long as the marginal benefit of extracting a resource exceeds its marginal cost.
There has been an increase in competition in the U.S. economy during the last 50 years mainly because of: the presence of a smaller number of firms in various industries. the deregulation of industries. predatory pricing policies. vertical and horizontal mergers and hostile takeovers
the deregulation of industries.
According to the theory of time allocation, other things constant, _____. the higher the market wage, the lesser the marginal utility of leisure the supply of labor to a particular market is the horizontal sum of all the individual supply curves utility is derived from the consumption of goods and services only a decrease in wealth would prompt some people to work more, thus increasing their supply of labor
the higher the market wage, the lesser the marginal utility of leisure
As the market wage increases, _____. the income effect normally influences you to work less labor unions try to negotiate industry-wide wages for each class of labor workers tend to supply more labor, which forces the wage down the income effect normally influences you to work more
the income effect normally influences you to work less
In the case of a backward-bending labor supply curve, _____. the substitution effect of a higher wage offsets the income effect. the income effect of a wage increase is negligible at higher wage rates. the substitution effect of a higher wage equals the income effect. the income effect of a higher wage offsets the substitution effect.
the income effect of a higher wage offsets the substitution effect.
Work or market activity is subject to: the law of increasing marginal utility. decreasing returns to scale. the law of increasing marginal disutility. increasing returns to scale.
the law of increasing marginal disutility.
A firm should hire an additional worker from the resource market as long as: the marginal cost of employing an additional worker exceeds the marginal benefit to the firm. the additional revenue from employing the worker exceeds the additional cost of employing the worker. the additional revenue from employing the worker is higher than the firm's average cost of production. the marginal cost of employing an additional worker is positive
the marginal cost of employing an additional worker exceeds the marginal benefit to the firm. Incorrect. The firm should hire an additional unit of resource as long as the marginal productivity of the resource is greater than the remuneration it receives. See 11-2: Demand and Supply of ResourcesDemand and Supply of resources
Smog is: the result of converting waste products into reusable materials. a form of water pollution, and it is a result of runoffs from agricultural pesticides and fertilizer. a form of water pollution, and factories account for 40 percent of it. the most visible form of air pollution, and automobile emissions account for 40 percent of it.
the most visible form of air pollution, and automobile emissions account for 40 percent of it.
A key reason why pollution and other negative externalities arise is that: all open-access resources are exhaustible and people use these indiscriminately. people refuse to pay the market price of a good or service that generates externalities. there are no practical, enforceable property rights to open-access resources. the equilibrium price of a good whose production or consumption generates externalities cannot be determined though the market forces of demand and supply.
there are no practical, enforceable property rights to open-access resources.
The questions of what type of public goods to produce and how much to produce are resolved: through public choices. in product markets. in resource markets. only by central planners.
through public choices.
Suppose the legislature of the democratic republic of Marina proposes a 10 percent national income tax that would be used to fund universal health care, literacy, and access to the justice system for all citizens. This legislation is an example of a _____. special-interest legislation traditional public-goods legislation competing-interest legislation populist legislation
traditional public-goods legislation
The figure below shows the marginal benefit, the marginal private cost, and the marginal social cost curves of a firm. The social gain from reducing production to the socially optimal level is represented by the: quadrilateral abcd. triangle acd. distance between the points b and c. triangle abc.
triangle acd.
Resources employed to persuade government to redistribute income and wealth to special interests are: efficient as the marginal cost of producing a unit exceeds the marginal benefit to the society. productive as they are required to increase total output. inefficient because distribution of resources between alternatives does not match consumer taste. unproductive because they do nothing to increase total output and usually end up reducing it.
unproductive because they do nothing to increase total output and usually end up reducing it.
A merger in which one firm combines with another firm from which it purchases inputs or to which it sells its output is referred to as a _____. product extension merger market extension merger vertical merger horizontal merger
vertical merger
An individual who has considerable income from savings, borrowing, family support, and scholarship: will tend to gain more net utility from market work than from nonmarket work. will tend to spend more time in nonmarket activities as the opportunity cost of time spent in nonmarket activities rises. will tend to put retirement plans on hold and instead work more to rebuild their retirement nest eggs. will tend to reduce the quantity of labor supplied.
will tend to reduce the quantity of labor supplied.
