Econ 202
Which of the following is not a characteristic of monopolistic competition?
Firms are price takers.
How are the fundamental economic questions answered in a market economy?
Households and firms interact in markets to decide the answers to these questions.
Refer to Table 14-3. What is the Nash equilibrium in this game?
In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Ecuador produces a high output and earns a profit of $22 million.
Kenneth Chay and Michael Greenstone examined the impact of reductions in air pollution since the passage of the Clean Air Act of 1970. Which of the following statements summarizes their findings?
In the two years following passage of the Act, fewer infants died than would have died if the Act had not been passed.
Which of the following is not an advantage of risk pooling?
Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.
Excess capacity is a characteristic of monopolistically competitive firms. What does excess capacity mean?
It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves.
One segment of the circular flow diagram in the figure shows the flow of wages and salaries from market K to economic agents M. What is market K and who are economic agents M?
K = factor markets; M = households
If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?
MU/P has decreased and Callum should buy less of this good.
A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
Nash equilibrium.
Refer to Table 9-3. Select the statement that accurately interprets the data in the table.
Neither Bryce nor Tina has an absolute advantage in making soap.
Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of CDs and DVDs for Marge?
No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.
During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?
Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent.
Refer to Table 14-6. What price will Under Cover charge and what profit does Under Cover expect to make?
Price = $15,000; expected profit = $10 million
Refer to Figure 15-2. To maximize profit, the firm will produce at output level
Q 2.
Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and price?
Q = 4; P = $17
What is the market equilibrium output level?
Q1
the efficient output is
Q2
The efficient output level is
Qn
An increase in the price of substitutes in production would be represented by a movement from
S2 to S1
Refer to Table 9-1. Select the statement that accurately interprets the data in the table.
Sandy has a comparative advantage in dog grooming.
Which of the following statements is true?
Sheer chance often plays a significant role in the success or failure of a business.
The formula for total fixed cost is
TFC = TC - TVC.
If the two countries have the same amount of resources and the same technological knowledge, which country has an absolute advantage in the production of milk?
Tahiti
Beginning in 1965, the head of the Antitrust Division of the U.S. Department of Justice began to change antitrust policy. How did antitrust policy change?
The Division began to systematically consider the economic consequences of proposed mergers.
Refer to Table 14-7. Which of the following statements is true?
The dominant strategy for both firms is to offer same-day delivery.
How does the owner of a corporation relate to the business?
The owners of the business have a separate legal distinction from the business.
Anyone can purchase sulfur dioxide emission allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever." Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999
The price rises.
The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3, what changes in the market would result in an economically efficient output?
The price would increase, the quantity demanded would decrease, and the quantity supplied would increase.
Which of the following statements is correct?
The publisher's analysis is correct only if the demand is perfectly inelastic.
Which of the following statements about price elasticity of demand is false?
The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope
According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?
There are few close substitutes for toothpaste.
Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?
There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.
Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week, the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
There is a decrease in the supply of pool maintenance services.
Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?
What to produce?
A movement from ________ is the result of negative technological change in plastic production
Z to Y
Holding everything else constant, an increase in the price of MP3 players will result in
a decrease in the quantity of MP3 players demanded.
The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in
a decrease in the quantity of macaroni and cheese demanded.
An increase in the price of off-road vehicles will result in
a larger quantity of off-road vehicles supplied.
All of the following would be considered explicit costs of operating a business except
a normal rate of return for investors.
Refer to Figure 2-4. Consider the following events: a.an increase in the unemployment rate b.general technological advancement c.a decrease in consumer wealth Which of the events listed above could cause a movement from X to V?
a only
Which of the events listed above could cause a movement from V to W?
a only
Which of the following items is likely to have the highest income elasticity of demand?
a vacation home in the Swiss Alps
An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
a voluntary export restraint.
A perfectly competitive firm earns a profit when price is
above minimum average total cost.
Assume that potatoes are an inferior good. Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes to decrease?
an increase in consumer income
The substitution effect of a decrease in the price of movie tickets results in
an increase in the quantity of movie tickets demanded.
Which of the following is not a barrier to entry?
an inelastic demand curve
A member of a corporate board of directors who is also a manager of the business is known as
an inside director.
Eliminating a tariff on running shoes would ________ businesses that sell running shoes and ________ consumers who purchase them.
benefit; benefit
Economists agree that a monopolistically competitive market structure
benefits consumers because firms produce products that appeal to a wide range of consumer tastes.
Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctors' offices account for ________ of health care costs in the United States.
between 1 and 4 percent
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
both the equilibrium price and quantity of MP3 players will increase.
The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) each sell an identical washer-dryer pair. The owner of each store considered offering the washer-dryer pair for $700, but decided on a price of $500. If this is a Nash equilibrium we can conclude that
charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store.
As word processing on personal computers expanded, sales of typewriters began to disappear. Which of Porter's competitive forces does this event demonstrate?
competition from substitute goods or services
A consequence of the quota that has been imposed on the importation of sugar into the United States is
competition in the U.S. sugar market is reduced.
For products like virtual reality headsets, ________ products such as games produced for use with the headsets have shown to be needed for the headsets to compete with ________ products like game consoles.
complementary; substitute
Cost-plus pricing typically does not result in profit-maximization. As a result, economists have two views of cost-plus pricing. One of these views is
cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine.
For a firm that can effectively price discriminate, who will be charged a lower price?
customers who have an elastic demand for the product
When top managers of all four major airlines publicly stated that they intended to undertake only modest increases in capacity by buying additional planes or flying additional routes, the Department of Justice
decided there was not enough evidence to charge the airlines with collusion.
The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to
decrease by 12 percent
If Uber is required to start paying the value-added tax (VAT) in Great Britain, this will have the potential to raise the equilibrium price in this market and, therefore, decrease efficiency. This would have a tendency to
decrease consumer surplus and increase deadweight loss.
Making "how much" decisions involves
determining the additional benefits and the additional costs of that activity.
Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoes. Nike is attempting to
differentiate Air Jordan basketball shoes from other types of basketball shoes.
Dividing the dividend payment by the stock's closing market price determines the
dividend yield.
Marginal cost is calculated for a particular increase in output by
dividing the change in total cost by the change in output.
Most employees ________ pay taxes on the value of health insurance provided by employers, and most people ________ get a tax break when buying individual health insurance policies.
do not; do not
A market comprised of only two firms is called a
duopoly
Consumers who will pay high prices to be among the first to own certain new products are called
early adopters.
As a business type, corporations ________ in the United States.
earn the majority of revenues
Economic costs of production differ from accounting costs in that
economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then
economic efficiency is achieved.
Economic efficiency requires that a natural monopoly's price be
equal to marginal cost where it intersects the demand curve.
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time
Marginal utility is the
extra satisfaction received from consuming one more unit of a product.
a patent
gives a firm the exclusive right to a new product for 20 years from the date the patent application is filed with the government.
Overuse of a common resource may be avoided by all of the following methods except
government taking over ownership of all private common resources.
Patents, tariffs, and quotas are all examples of
government-imposed barriers.
A monopolist's profit-maximizing price and output correspond to the point on a graph
greater than the price that would prevail if the industry was perfectly competitive.
A profit-maximizing monopoly's price is
greater than the price that would prevail if the industry was perfectly competitive.
Over the past 165 years in the United States, life expectancy
has more than doubled.
Adverse selection occurs in the market for used cars because used car buyers
have less information than used car sellers.
A positive externality causes
he marginal social benefit to exceed the marginal private cost at the market equilibrium.
A contract under which a buyer agrees to make payments in exchange for the provider agreeing to pay some or all of the buyer's medical bills is referred to as
health insurance.
Oligopolies are difficult to analyze because
how firms respond to a price change by a rival is uncertain.
The Coase theorem states that
if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.
Refer to the Article Summary. By marketing to recreational marijuana users, Joel Schneider is trying to set his business apart from competing hotels and lodging establishments. All else equal, if his concept remains successful, in the long run we would expect Schneider to experience
increased competition and lower economic profits.
All of the following are characteristics of game theory except
independence among players.
Bill owns "Bill's Home of Blues" a store that specializes in selling CDs and DVDs of blues musicians of the 1960s and 1970s. Bill took out a loan from his bank to pay for his store and its initial inventory. Bill pays the bank $900 per week for his loan. The $900 bank payment
is a fixed cost.
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied
Economic surplus
is equal to the sum of consumer surplus and producer surplus.
If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe
is equal to the sum of the marginal utilities of all units consumed.
Total utility
is equal to the sum of the marginal utilities of all units consumed.
Collusion
is more difficult when there are many firms producing differentiated products in an industry.
If a dollar a year from now will likely have less purchasing power because of inflation, then a dollar today ________ a dollar a year from now.
is more valuable than
A movement from Y to Z
is the result of advancements in plastic production technology.
The marginal revenue curve for a perfectly competitive firm
is the same as its demand curve.
"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement
is true only if there are no positive or negative externalities in the market.
If society decides it wants more of one good and all resources are fully utilized, then
it has to give up some of another good and incur some opportunity costs.
If a soda tax is implemented and demand for soda is price elastic, the decline in equilibrium quantity would be ________ and the increase in equilibrium price would be ________ than if demand were inelastic.
larger, smaller
If diminishing marginal returns have already set in for Golden Lark Woodworks, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of the 7th carpenter is
less than 8 chairs.
In the United States, consumers usually pay ________ than the true cost of medical treatment because of ________.
less; third-party payers
All of the following are part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (ACA) except
limits on the size of deductibles and on waiting periods before coverage takes effect have been eliminated.
An external cost is created when you
litter on the side of the road.
Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit/loss per unit?
loss of $7 per unit
Which of the following is not a characteristic of an oligopoly?
low barriers to entry
In the short run, if the marginal product is at its maximum, then the
marginal cost is at its minimum.
Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is
maximized.
Producing a differentiated product occurs in which of the following industries?
monopolistic competition and oligopoly
Producing a homogeneous product occurs in which of the following industries?
oligopoly and perfect competition
The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of
oligopoly.
If you expect the economy is going to experience a boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is
one that sells a luxury good
In economics, the term "free rider" refers to
one who waits for others to produce a good and then enjoys its benefits without paying for it.
When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the
output effect.
For many years the Aluminum Company of America (Alcoa) controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum. What type of entry barrier was responsible for Alcoa's position in the aluminum industry?
ownership of a key input
Assume that the graphs in this figure represent the demand and supply curves for used clothing, an inferior good. Which panel describes what happens in this market as a result of a decrease in income?
panel C
Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise?
panel b
Dividends are
payments by a corporation to its shareholders.
For which of the following firms is patent protection of vital importance?
pharmaceutical firms
Marginal utility can be
positive, negative, or zero.
A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is
price leadership.
Which of the following displays rivalry and excludability in consumption?
private goods
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
produce a combination of goods that lies outside its own production possibilities frontier.
Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are
productively efficient.
Which of the following displays these two characteristics: nonrivalry and excludability?
quasi-public goods
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
relatively elastic
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
relatively elastic.
If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller's product is
relatively inelastic.
According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention.
ronald coase
A ________ curve shows the marginal cost of producing one more unit of a good or service.
supply
Point B is
technically efficient
If a nation changes its laws to more actively enforce intellectual property rights, all of the following will most likely take place except
the black market for intellectual property will become more prosperous in that country.
Marginal revenue is
the change in total revenue divided by the change in the quantity of output.
What does D 2 represent?
the demand curve reflecting marginal social benefits
The marginal benefit of reducing pollution curve is the same curve as
the demand for pollution reduction curve.
A firm's net worth is calculated as
the difference between a firm's assets and liabilities.
Suppose the current market equilibrium output of Q 1 is not the economically efficient output because of an externality. The economically efficient output is Q 2. In that case, the diagram shows
the effect of a negative externality in the production of a good.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of
the endowment effect.
A minimum wage law dictates
the lowest wage that firms may pay for labor.
Consumers are willing to purchase a product up to the point where
the marginal benefit of consuming a product is equal to its price.
Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because
the marginal private cost of harvesting the fish is lower than the marginal social cost.
Refer to Figure 11-2. The average product of labor declines after L 2 because
the marginal product of labor is below the average product of labor.
The supply curve of a public good shows
the marginal social cost of producing each unit of the good.
Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because
the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.
What does S 1 represent?
the market supply curve that reflects private cost
The production function shows
the maximum output that can be produced from a set of inputs.
Sole proprietorships are ________ type of business.
the most common
if the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then
the price elasticity of demand for teapots is greater than 1 in absolute value.
In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
the price of the product and hold everything else constant.
Economic efficiency in a free market occurs when
the sum of consumer surplus and producer surplus is maximized.
If in the market for peaches the supply curve has shifted to the left
the supply of peaches has decreased.
What is the endowment effect?
the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it
Haiti was once a heavily forested country. Today, 80 percent of Haiti's public forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has led to devastating floods when it rains heavily. This is an example of
the tragedy of the commons.
What is the incremental benefit of increasing the quantity of pollution reduction from Q B to Q E units?
the value of the area Q B BFQ E
Regarding the Patient Protection and Affordable Care Act (ACA),
there is still considerable debate among economists and policymakers with respect to amending or repealing the ACA.
Consumers have to make tradeoffs in deciding what to consume because
they are limited by a budget constraint.
Because consumers who have insurance provided by their employers usually only pay a deductible for a visit to the doctor's office,
they demand a larger quantity of health care services than they would if they paid a price that better represented the true cost of providing the service.
What is the incentive for a firm to join a cartel?
to be able to earn larger profits than if it was not part of the cartel
Health insurance companies impose deductibles on policies and co-payments on claims
to reduce moral hazard problems.
The word "util" has been used by economists in the past as an objective measure of utility. Today economists believe that
utility cannot be measured objectively.
A firm that successfully differentiates its product or lowers its average cost of production creates
value for its customers.
Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.
vertical; downward sloping
We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms. The reason for this is
we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic.
What is the value of the deadweight loss at the equilibrium price of $15?
$0
The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is
$20
The market equilibrium price is
$20
What is the opportunity cost of one pound of meat?
1 1/3 pounds of vegetables
Refer to Figure 9-1. Suppose the government allows imports of leather footwear into the United States. What will be the domestic quantity supplied?
10 units
"An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 was written by
Adam Smith
The prisoner's dilemma illustrates
Both firms will select a low price.
Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?
Concentration ratios assign weights to only the four largest firms in an industry.
How are most fundamental economic decisions now determined in China?
Individuals, firms, and the government interact in a market to make these economic decisions.
Juicy Couture has been successful in selling women's clothing using an unusual strategy. According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002.
It enables Juicy to price its products at a premium and differentiate them from lower-priced products.
After Suzie, owner of Suzie's Sweet Shop, hires her 8th worker the average product of labor declines. Which of the following statements must be true?
The marginal product of the 8th worker is less than the average product of labor before the 8th worker was hired.
f you burn your trash in the backyard in spite of regulations against it, then you are
avoiding the private costs associated with disposing your trash some other way and creating a social cost.
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?
at least $125,000
A situation in which a country does not trade with other countries is called
autarky
The vertical difference between curves F and G measures
average fixed costs.
If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100, what is the coupon rate?
2%
Refer to Figure 15-6. The monopolist's total revenue is
$1,488.
Arnold's marginal benefit from consuming the third burrito is
$1.50
Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for apartments. What is the value of the deadweight loss after the imposition of the price floor?
$100,000
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to practice perfect price discrimination. What is the total revenue collected by the firm?
$13,440
Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of extra hours the store is open as shown in the table above. He would have to hire a worker for those extra hours at a wage rate of $18 per hour.
$18
For each unit sold, the price sellers receive after the tax (net of tax) is
$20
What is Lydia's marginal benefit if she decides to stay open for an extra two hours instead of one hour?
$25
With insurance and a third-party payer system, what price do consumers pay for medical services?
$25
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is the marginal cost of moving up from the 1-color application to the 3-color application?
$40
If consumers paid the full price of medical services, the price they would pay is
$40
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 in expenses on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs for the first year?
$41,500
What is Santiago's marginal benefit if he decides to stay open for an extra two hours instead of one hour?
$50
Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for apartments. What is the value of consumer surplus after the imposition of the price floor?
$50,000
Suppose your expenses for this term are as follows: tuition: $28,000, room and board: $9,000, books and other educational supplies: $2,500. Further, during the term, you can only work part-time and earn $16,000 instead of your full-time salary of $42,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?
$56,500
Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?
$68
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
$700
If you own a $1,000 face value bond with one year remaining to maturity and a 3 percent coupon rate and new bonds are paying 14 percent, what is the most you can get for your old bond today?
$903.51
Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?
(P 2 - P 0 ) per unit of output
Based on the data in the table and using the midpoint formula, between a price of $9.99 and $14.99, the price elasticity of demand for books is
-1.35
Table 2-11 shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. What is Scotland's opportunity cost of producing one guitar?
.25 motorcycles
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
.5
If the market price is $1.00, what is the consumer surplus on the third burrito?
.50$
If the market price is $3.00, what is the maximum number of burritos that Arnold will buy?
0
If the economy is currently producing at point E, what is the gain in production if the economy moves to point D?
13 thousand hammers
Pierre can produce either a combination of 20 bow ties and 30 neckties or a combination of 35 bow ties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity cost of producing an additional 15 neckties?
15 bow ties
If a corporate bond with a face value of $2,000 pays yearly coupon payments of $50, what is the coupon rate?
2.5%
What is Horace's opportunity cost of grooming a dog?
2/3 of a bathed cat
hat is the opportunity cost of one pound of vegetables?
3/4 pound of meat
Refer to Figure 9-3. If there was no quota, how many pounds of peanuts would be imported?
30 million
The efficient equilibrium quantity of gasoline is ________ million gallons per month
32
Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs. The bakery earns $800,000 in revenues and has $2 million in net worth. Based on this information, what is the accounting profit for Donnie's Donuts?
350,000
Refer to Table 11-2. What is the marginal product of the 4th worker?
50 bushels
Suppose Vidalia is currently producing 60 dozen orchids per period. How many roses is it also producing, assuming that resources are fully utilized?
50 dozen roses
What is the optimal quantity of street lights to install?
6
If the economy is currently producing at point A, what is the opportunity cost of moving to point B?
6 thousand hammers
Refer to Table 10-2. What is Keira's marginal utility per dollar spent on the third cup of soup?
6 utils
Economists working for Uber, along with economists from the University of Oxford and the University of Chicago, estimated the consumer surplus attributed to Uber. For the entire United States, these economists estimated that the total consumer surplus from Uber in 2015 was
6.76 billion
With insurance and a third-party payer system, the equilibrium quantity of medical services is
700
Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be
80 units of utility.
Which of the following economists did not help to develop game theory analysis?
Adam Smith
How do a sole proprietorship and a corporation differ?
All of these are differences between the two types of businesses.
Refer to Table 14-4. If Alpha assumes that Beta would offer a student discount, what should it do?
Alpha should also offer a student discount.
In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions?
Amazon took these actions to compete more effectively with existing online booksellers.
If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
Average cost will fall.
Refer to Table 14-8. If the firms act out of individual self-interest, which prices will they select?
Both firms will select a low price.
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?
Both offer DSL Internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
A decrease in the price of a complementary good would be represented by a movement from
D1 to D2
A decrease in taste or preference would be represented by a movement from
D2 to D1
If the product represented is an inferior good, an increase in income would be represented by a movement from
D2 to D1
The size of marginal external benefits can be determined by
D2-D1 at each output level
If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?
Demand decreases and becomes more elastic.
Refer to Table 9-6. Which country has a comparative advantage in producing clocks?
Denmark
Which of the following statements regarding concentration ratios is most accurate?
Despite their shortcomings, concentration ratios can provide a general idea of the extent of competition in an industry.
What is the difference between "diminishing marginal returns" and "diseconomies of scale"?
Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.
What is the deadweight loss resulting from producing at the market equilibrium?
E + C
Refer to Figure 11-5. Identify the curves in the diagram.
E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.
Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?
Explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law.
Which of the following is a part of the "employer mandate" provision of the Patient Protection and Affordable Care Act (ACA)?
Firms with 50 or more full-time employees must offer health insurance or pay a fee up to $3,390 to the federal government for every employee who receives a tax credit from the federal government for obtaining health insurance through a health insurance marketplace.
The figure above shows the supply and demand curves for two markets: the market for an original Picasso painting and the market for designer jeans. Which graph most likely represents which market?
Graph B represents the market for an original Picasso painting and Graph A represents the market for designer jeans.
Refer to the Article Summary. The standards used by the Department of Justice and the FTC to evaluate a potential merger such as the one between T-Mobile and Sprint are based on market concentration as determined by the
Herfindahl-Hirschman Index.
For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?
It evaluates the costs and benefits of producing the good.
Which of the following statements best describes the economic short run?
It is a period during which at least one of the firm's inputs is fixed.
What is moral hazard?
It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?
MU/P has increased and Ewan should buy more of this good.
According to a New York Times article, shoppers from New York City have played a game of "retail arbitrage" by shopping at malls in Northern New Jersey, a state where there is no tax on clothing and shoes. Even after accounting for transactions costs, shoppers could still save money on their clothing and footwear purchases. Source: Ken Belson and Nate Schweber, "Sales Tax Cut in City May Dim Allure of Stores Across Hudson," New York Times, January 18, 2007. Is the term "arbitrage" correctly used here?
No, "arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here.
Clarissa Kessler operates a store that sells toys. Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost. Is this evidence of illegal price discrimination on the part of the discount store chain?
No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase toys at a lower wholesale price than Clarissa.
Is a monopolistically competitive firm productively efficient?
No, because it does not produce at minimum average total cost.
Refer to Figure 14-4. In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?
Odeon's competitors are also interested in bundling Rainbow Writer's software.
Letters are used to represent the terms used to answer this question: price ( P), quantity of output ( Q), total cost ( TC) and average total cost ( ATC). Which of the following equations is equal to a firm's average profit?
P - ATC
Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Q a units, what is the price charged?
P2
A perfectly elastic demand curve is shown in
Panel B
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet's Coffee.
Peet's Coffee, coffee, hot beverages
Vaccinating people against a communicable disease such as influenza not only reduces the chances that the person vaccinated will catch the disease but also reduces the probability that an epidemic of the disease will occur. Which of the following statements is true?
Reducing the chances that the person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit.
Suppose you pre-ordered a non-refundable movie ticket to Avengers: Infinity War. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?
Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision.
In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
The demand curve shifts to the right.
Suppose the market is initially in equilibrium at price P 1 and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?
The consumer will bear a smaller share of the tax burden if the demand curve is D1.
Due to wildfires in Northern California, agricultural experts predict a 30 percent decline in this year's grape harvest. What happens in the California wine market as a result of this announcement?
The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
How does the decreasing use of traditional cameras affect the market for traditional camera film?
The demand curve for traditional camera film shifts to the left.
Refer to Figure 13-14. Which of the following statements describes the firm depicted in the diagram?
The firm is in long-run equilibrium and is breaking even.
A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost. What should this firm do to increase its profit or reduce its losses?
The firm should lower its price.
How does the construction of a market demand curve for a private good differ from that for a public good?
The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
For years, economists believed that market structure explained the ability of some firms to earn economic profits. For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers. Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?
The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.
Which of the following statements is true?
The more narrowly we define a market, the more elastic the demand for a product will be.
What do Spotify and Apple have in common?
The profitability of each firm depends on its interactions with other firms.
In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States?
The supply curve shifted to the left.
Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?
The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry.
he figure above represents the market for canvas tote bags. Assume that the market price is $35. Which of the following statements is true?
There is a surplus that will cause the price to decrease; quantity demanded will then increase and quantity supplied will decrease until the price equals $25.
Global warming refers to the effect of global pollutants such as carbon dioxide on climates on the earth. Climate-induced changes in temperatures affect, among other things, agriculture. Which of the following is a reason why policymakers are still debating if this problem should be addressed and how it should be addressed?
There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn determines the benefits from reduction, and what methods to use which in turn determines the cost of reduction.
Refer to Table 10-4. For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility ( MU) and marginal utility per dollar ( MU/ P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Which of the following statements is false?
We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility.
Economists Kenneth Chay and Michael Greenstone found that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths. Although this and other studies provide compelling evidence of the link between pollution and infant health, it is not clear that reductions from the much lower levels of ambient pollution today would have the same effect. Which of the following reasons could explain this?
When levels of pollution are high, the marginal benefit of reducing pollution also is high. It follows therefore that the benefit of reducing air pollution in 1970 would be much higher than the benefit from a proportional reduction in air pollution today when the level of pollution is much lower.
suppose the emissions reduction target is currently established at 8 million tons. Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?
Yes, because the marginal benefit exceeds the marginal cost at 8 million tons.
Political candidates often hold fundraisers by charging "per plate" for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Does this transaction benefit both parties?
Yes, it was a voluntary exchange that benefited both parties
Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?
Yes, the firms can implicitly collude and agree to charge a higher price.
Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of
a Coasian solution to an externality situation.
Consider the following statements: a. Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area. b. Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards. c. Citrus growers produce more oranges when the selling price of oranges falls. Which of the above statements demonstrates that economic agents respond to incentives?
a and b only
Corporate governance involves the way in which
a corporation is structured.
An increase in the price of pineapples will result in
a larger quantity of pineapples supplied.
In a free market such as that depicted above, a surplus is eliminated by
a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
If the current market price is $10, the market will achieve equilibrium through
a price increase, increasing the quantity supplied and decreasing the quantity demanded.
"Free riding" is a characteristic of which type of good?
a public good
A key difficulty facing insurance companies is that people know more about their health than do insurance companies. What is this phenomenon called?
asymmetric information
Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?
access to the commons can be restricted through community norms and laws
A firm's net income is also its
accounting profit.
The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is
asymmetric information.
The law of diminishing marginal returns
applies only in the short run
If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because
buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.
Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy. The Costco membership fee
buys the consumer the right to make future purchases at Costco.
Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is
inelastic.
Between 1981 and 2015, the overall mortality rate in the United States
decreased by more than 25 percent.
Average fixed costs of production
fall as long as output is increased.
Productive efficiency is achieved when
firms produce goods and services at the lowest cost.
The paradox of American farming is
food has become cheaper and more abundant as the number of farms has decreased.
Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as
free riding
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory.
Every firm that has the ability to affect the price of the good or service it sells will
have a marginal revenue curve that lies below its demand curve.
The endowment effect suggests that that people
have a strong attachment to their property, regardless of whether they paid to acquire it.
All centrally planned economies
have been political dictatorships
The aging of the U.S. population has tended to ________ spending on health care, and the development of new drugs and medical equipment has tended to ________ spending on health care.
increase; increase
David Card and Alan Krueger conducted a study of fast-food restaurants in New Jersey and Pennsylvania. The study found that
increases in the minimum wage had a very small impact on employment.
Which of the following is not part of an oligopolist's business strategy?
independently setting a product's price without consideration of its rivals' pricing policies
If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a new store, this is an example of
indirect finance.
Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?
instituting a system of tradable emission allowances
Refer to Figure 11-1. The average product of the 4th worker
is 17
All of the following contributed to the downfall of the Soviet Union in 1991 except
lack of a strong dictator who could coordinate economic activities.
In monopolistic competition there is/are
many sellers who each face a downward-sloping demand curve.
The figure above represents the market for pecans. Assume that this is a competitive market. If 8,000 pounds of pecans are sold,
marginal benefit is equal to marginal cost.
the larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand.
An avocado orchard employs five full-time workers. Currently, the average product of labor is 120 pounds of avocados per day. The orchard hires a 6th full-time worker and his marginal product is 150 pounds of avocados. The average product of the six workers will now be
more than 120 pounds.
When a negative externality exists, the private market produces
more than the economically efficient output level.
Assume that in response to changing consumer demands, Tesla cuts back on the production of Powerwall batteries and increases its production of automobile batteries. This strategy is best represented by the
movement from H to J in Graph B
Book publishers often use a cost-plus pricing strategy. One reason for this is
much of the cost of publishing textbooks is difficult to assign to any particular book.
Pollution is an example of a
negative externality
Refer to Figure 13-8. Based on the diagram, one can conclude that
new firms will enter the market.
One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that
new producers cannot match the economies of scale of existing auto makers.
Refer to Figure 14-5. Does it make sense for Netflix to lower its price in order to deter Spotify's entry into the streaming video market?
no, because Netflix will make a higher profit by keeping its subscription price unchanged, whether Spotify enters the market or not
An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a
noncooperative equilibrium.
Before digital photography, most film processing companies had a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed. The companies did this knowing that most customers did not ask for refunds. This was an example of consumers
not taking nonmonetary opportunity costs into account.
In a modern mixed economy, who decides what goods and services will be produced?
producers, consumers, and government
If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a
public good
Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
rationally
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
In economics, choices must be made because we live in a world of
scarcity
All of the following are examples of oligopolistic markets except
seafood restaurant chains.
Households
sell resources in the factor market.
The key characteristics of a monopolistically competitive market structure include
sellers selling similar but differentiated products.
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games.
Stan owns a software design business. He does not have time to expand his office space or redesign the layout of his office. He can increase the amount of work he does by working more hours, asking his current employees to work more hours, or hiring more employees. The relationship between Stan's inputs and the maximum output his firm can produce is called his
short-run production function
If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe
should buy more apples and fewer oranges.
In the United States, health care spending on people over age 65 is ________ on people aged 18 to 24.
six times greater than
All of the following are part of the "state health insurance marketplaces" provision of the Patient Protection and Affordable Care Act (ACA) except
small businesses with fewer than 50 employees are exempt from being required to participate in the program.
Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because
some of its customers have switched to purchasing the products of new entrants in the market.
A trademark grants a firm legal protection against other firms using the name of its product. When a firm has been granted a trademark, it
still faces the possibility that the name will become widely used and no longer associated with a specific company.
In Porter's Five Competitive Forces model, "competition from substitute goods or services" refers to
substitute products that come from outside the industry.
If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are
substitutes
Refer to Figure 15-2. If the firm's average total cost curve is ATC 3, the firm will
suffer a loss.
Classifying a good as excludable means
that anyone who does not pay for the good cannot consume it.
The law of diminishing marginal returns states
that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.
An example of a supplier that used its bargaining power to charge high prices to its customers is
the Technicolor Company, the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s.
Most doctors and hospitals operate as private businesses in all of the following countries except
the United Kingdom.
Refer to Figure 16-6. If Sensei acts as a single-price monopolist and charges the profit-maximizing price, what is the consumer surplus received by his customers?
the area A + B
Refer to Figure 15-11. Following the entry of Verizon, the subscription price falls from P M to P C. What is the increase in consumer surplus as a result of this change?
the area B + C + D
In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was
the area of pasture was nonexcludable and the consumption of the grass was rival.
The most important determinant of the price elasticity of demand for a good is
the availability of substitutes for the good.
The figure above represents the market for pecans. Assume that this is a competitive market. If 4,000 pounds of pecans are sold,
the deadweight loss is equal to $12,000.
Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that
the demand for tarot card readers has increased.
Which of the following is not one of the five competitive forces?
the firm's ability to differentiate its product
A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until
the firm's demand curve is tangent to its average total cost curve.
A price-discriminating firm charges the highest price to
the group with the least elastic demand.
A monopolistically competitive firm chooses
the price of the product it sells but market forces determine the quantity it will be able to sell.
The current market equilibrium output is partly the result of overfishing. In that case, what does S 2 represent?
the social marginal cost of harvesting salmon
A demand curve shows
the willingness of consumers to buy a product at different prices.
Collusion occurs when
there is an agreement among firms to charge the same price or otherwise not to compete.
A free market fails when
there is an external effect in either production, consumption, or both.
The ABC Company manufactures routers that are used to provide high-speed Internet service. ABC sells an average of 1,000 routers each month, but to exhaust economies of scale in its industry ABC would have to sell 3,000 routers each month. Therefore,
to reach minimum efficient scale ABC would have to sell at least 3,000 routers each month.
Private solutions to the problem of externalities are most likely when
transactions costs are low and the number of bargaining parties is small.
According to the law of one price, identical products should sell for the same price everywhere if
transactions costs are zero.
Economists assume that rational people do all of the following except
undertake activities that benefit others and hurt themselves.
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is
unit elastic
Using the total revenue test to verify the price elasticity between points a and b on the demand curve, demand is
unit- elastic
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued
Society faces a trade-off in all of the following situations except
when some previously unemployed workers find jobs.
A decrease in the equilibrium price for a product will result
when there is an increase in supply and a decrease in demand for the product.
The division of labor and specialization explain
why the marginal product of labor rises as a firm hires its first units of labor.
Consider a downward-sloping demand curve. When the price of an inferior good decreases, the income and substitution effects
work in opposite directions and quantity demanded increases.
