ECON 231 Final Exam Review

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The most obvious benefit of specialization and trade is that they allow us to

consumer more goods than we otherwise would be able to consume

The invisible hand of the market works to promote general well-being in the economy primarily through

prices and peoples pursuit of self interest

A key characteristic of a competitive market is that

producers sell nearly identical products

Which of the following is an example of a normative-as opposed to a positive-statement?

the government should increase the tax on gasoline

The study of how allocation of resources affect economic well-being is called

welfare econmics

Which of the following statements is correct

A completive firm is price taker, whereas monopolist is a price maker

Which of the following is not an example of the principle that can make everyone better off A. Americans buy tube socks from chine B. A homeowner hires the kid next door to mow the lawn C. Residents of Maine Drink orange juice from flordia D. All of the above are examples of the principles that trade can make everyone better off

All of the above are examples of principle of trade that can make everyone better off

Moral Hazard Occurs when

An employee lacks an incentive to promote the best interest of the employer, and the employer cannot observe the actions of the employee

Suppose the US and Mexico both produce semiconductors and auto parts and the us has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts. IS the US exports semiconductors to Mexico and imports auto parts from mexico

Both countries, as a whole will be better off

Which of the following areas of study describes microeconomics as opposed to macroeconmics? A. A comparison of alternative tax policies and their respective impacts on the rate of the nations economic growth B> the impactt of faster money growth on the rate of inflations C. the impact of minimum wage laws on employment in the fast food indutry D. The effect of changes in household saving rates on the growth of national income

C. the impact of miniumum wage laws on employment in the fast food industry

For a firm in a perfectly competitive market the price of good is always

Equal to marginal revenue

Which of the following can lead to market failure? A. Externalities and market power B. Externalities but not market power C. Market power but not externalities D. neither externalities nor market power

Externalities and market power

Which of the following is an example of a barrier to entry? i) A key resource is owned by a single firm ii) The costs of production make a single producer more efficient than a large number of producers iii) the government has given the existing monopolist the exclusive right to produce the good

I,II,III

What must be given up to obtain an item is called

Opprotunity cost

Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

Pens will rise

Competitive firms that earn loss in the short run should

Shut down if P<AVC

Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin is determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle of econmics

Trade can make everyone better off

Which of the following examples illustrates an oligopoly market

a city with two firms who are licensed to sell school uniforms for the local school

Which of the following is not an example of a principal-agent relationship

a man and his neighbor

The term market failure refers to

a market that fails to allocate resources efficiently

An example of a private good would be

a pair of pants

Because elephants roam freely in many countries in Africa, each individual African elephant poacher has

a strong incentive to kill as many elephants as he can find

Good that are rival in consumption include both

common resources and private goods

Rational people make decisions at the margin by

comparing marginal costs and marginal benefits

Total surplus with a tax is equal to

consumer surplus plus producer surplus plus tax revenue

"Signaling" refers to actions by an informed party for the sole purpose of

credibly revealing private information

The social cost of a monopoly is equal to its

dead weight loss

Deadweight loss is the

decline in total surplus that results from a tax

Taxes create deadweight losses because they

distort incentives

Competitive Markets are characterized by

free entry and exit by firms

When goods do not have a price, which of the following primarily ensures that the good is produced?

government

Demand is inelastic if the price elasticity of demand is

less than 1

in general, game theory is the study of

how people behave in strategic situations

Economics is the study of

how society manages it scarce resources

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

implicit costs

Goods produced abroad and sold domestically are called

imports

The marginal product of any input is the

increase in total output from one additional unit of that input

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Consumer surplus

measures the benefit buyers receive from participating in a market

The efficient scale of the firm is the quantity of output that

minimizes average total cost

Each of the following would be considered a common resource except

national defense

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price

If the demand for good falls when income falls, then the good is called a

normal good

When asymmetric information affects a relationship between two parties, it is always the case that

one party is better informed than the other party

When a good is rival in consumption,

one person's use of the good diminishes another person's ability to use it

When a good is excludable

people can be prevented from using the good

When a monopolist is able to sell its product at different prices, it is engaging in

price distribution

The price elasticity of demand measures how much

quantity demanded responds to a change in price

A free rider is a person who

receives the benefit of a good but avoids paying for it

A life insurance company requires new applicants to have medical exam prior to writing the insurance policy. This requirement is an example of

screening

A seller in a competitive market can

sell all he wants at the going price, so he has little reason to charge less

If a tax is imposed on a market with inelastic supply and demand then,

sellers will bear most of the burden of the tax

When fixed costs are ignored because they are irrelevant to a business productions decision they are called

sunk costs

In a market economy,

supply and demand determines prices and prices, in turn, allocate the economy scarce resources

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers

Elascity is

the measures of how much buyers and sellers respond to change in market conditions

Which of the following is not a determinant of the price elescity of demand for a good?

the steepness or flatness of the supply curve for the good

Adverse selection is

the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party

Producers surplus directly measures

the well being of sellers

In the absence of market failures, the Invisable hand leads a market to maximize

total benefit to society from the market

Averaget total costs is equal to

total cost/output

An overcrowded beach is an example of

tragedy of commons


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