Econ 3 hw

The goal of a successful price discrimination strategy is to set the price you charge each _____ as close as possible to their _____

CUSTOMER; RESERVATION PRICE

The evidence suggests that for most people, the individual supply curve is _____

NEARLY VERTICAL

All these are examples of entry deterrence strategies EXCEPT

building excess capacity. patents and copyrights. brand proliferation. having large financial resources.

U.S. patent laws establish property rights for inventors of new products for _____ years

20

Jerome's current job pays $20,000/yr and provides $1,000 in benefits like insurance. He can start a business using the $50,000 he has in the bank earning 1.4% interest. The start-up would have $60,000 in revenue and cost $10,000/yr for rent, payroll, and materials. What would Jerome's economic profit be if he started this business?

28,300

Jerome's current job pays $X/yr and provides $Y in benefits like insurance. He can start a business using the $Z he has in the bank earning 1.4% interest. The start-up would have $A in revenue and cost $B/yr for rent, payroll, and materials. What would Jerome's economic profit be if he started this business?

A - B - [(X+Y)+(ZX1.4%)

An externality is

A BENEFIT OR COST EXPERIENCED BY SOMEONE WHO IS NOT A PRODUCER OR CONSUMER OF A GOOD OR SERVICE

How does a cap-and-trade system act like a corrective tax?

A CAP-AND-TRADE SYSTEM RAISES THE OPPORTUNITY COST OF POLLUTING THE AIR

How can successful product differentiation give you more market power?

BY MAKING IT LESS LIKELY THAT THERE IS A USEFUL SUBSTITUTE TO YOUR GOOD

What are the long-run effects of an increase in the minimum wage on labor demand?

Businesses adopt labor-saving technology and management practices in the long run as a result of an increase in minimum wage.

The government could prevent a natural monopoly from exploiting its market power by setting the price _____ the marginal cost

EQUAL

Various government support programs aimed at helping people without a job have an unintended side effect because these programs

INCREASE THE OPP COST OF WORKING

When the United States exports personal computers worldwide, the net effect of allowing exports causes total economic surplus to _____. This happens because sellers amplify their gains by selling more personal computers at the higher price, while buyers _____

INCREASE; MINIMIZE THEIR LOSSES BY PURCHASING A SMALLER QUANTITY

Activist groups launched a successful campaign to end the patent protection for AIDS drugs. As a result, many competitors were able to supply these drugs. This situation affected the market price for AIDS drugs by _____ competition, lowering the drug price to the _____

INCREASING; MARGINAL COST

The demand curve faced by a perfectly competitive firm _____

IS FLAT

The five arguments for limiting international trade that are the discussed in the chapter all argue whether or not international trade

IS GOOD FOR THE UNITED STATES

Domestic buyers earn consumer surplus when they get to buy a shirt at a price that

IS LOWER THAN THEIR MARGINAL BENEFIT

Your _____ is the time you spend working in the market

LABOR SUPPLY

The initial AIDS drug market is a real example of how businesses with _____ market power can _____ market forces

LARGE; DISTORT

Every hour that you spend working is one hour less you have available for other things besides paid work. Economists call this time

LEISURE

The less price sensitive a group is, the _____ their demand. Thus, you'll want to charge them a _____ price

LESS ELASTIC; HIGHER

Larry's Lube has just announced plans to add two more locations for its quick oil-change garages. This convinces Olive, owner of Olive's Oil Change, not to enter the market in that town because Larry's increased capacity means he can charge _____ than Olive and shows a _____

LESS; COMMITMENT TO THE MARKET

The hassle of clipping coupons or applying for rebates is

A HURDLE TO GETTING LOWER PRICES

What condition is NOT required to be satisfied for practicing price discrimination?

A PERFECTLY ELASTIC DEMAND CURVE

Princella's current job pays $X/yr and provides $Y in benefits like insurance. She can start a business using the $Z she has in the bank earning 1.4% interest. The start-up would have $A in revenue and cost $B/yr for rent, payroll, and materials. What would her accounting profit be if she started this business?

A-B

An airline company charges a high price for the flight from Toronto to Vancouver that leaves on a Wednesday and returns that Friday, and it charges a low price for the flight from Toronto to Vancouver that leaves on a Friday and returns on Sunday. What strategy is the airline company using?

ALTERNATIVE VERSIONS

_____ is important because it leads to market failure, producing _____

AN EXTERNALITY; INEFFICIENT OUTCOMES

An example of a public good would be

AN INTERSTATE HIGHWAY

The _____ is equal to total revenue divided by quantity sold

AVERAGE REVENUE

When buyers can negotiate with sellers in order to get a better deal, buyers are said to have

BARGAINING POWER

When there are factors making it difficult for a business to enter a market, the market is said to have _____

BARRIERS TO ENTRY

Why is it important to link your group discounts to verifiable characteristics, such as your customer's age, student status, or address?

BECAUSE BUYERS WILL TRY TO AVOID PAYING THE HIGH PRICE

Perfect price discrimination results in

CHARGING EACH CUSTOMER THEIR RESERVATION PRICE

Economists don't agree with the statement "Trade is a competition, and every time China wins, America loses," and they will try to explain it differently. Which does NOT describe economists' view on this trade issue?

CHINA COMPETES WITH THE US BY OFFERING A BETTER DEAL THROUGH IMPORTS

The _____ is the area below the demand curve, but above the price

CONSUMER SURPLUS

Sellers can set their price by looking at the _____ curve

DEMAND

When buyers have a degree of bargaining power, they can

DEMAND A LOWER PRICE FROM SELLERS

McDonald's has installed self-service ordering kiosks, how does that affect McDonald's demand for workers and why?

DEMAND FOR WORKERS WILL FALL, KIOSK AND THEM ARE SUBS

Businesses are on the _____ side, looking to hire the best workers they can find at the _____ price possible

DEMAND; LOWEST

The government should limit international trade. If we prevent unsafe or unethical practices at home, we should also hold firms to the same standards abroad. This argument is about

ENFORCING MINMUM STANDARDS

Profit-maximizing sellers should take every opportunity to sell their goods when they will boost their profits and keep selling until the marginal revenue _____ the marginal cost

EQUALS

The opportunity cost of working is

EVERYTHING YOU DO WHEN YOU ARE NOT WORKING

Due to the substitution effect, higher wages provide a _____ incentive to work. Higher wages lead workers to _____ the demand for leisure due to the income effect

GREATER; INCREASE

Sellers haggle because

HAGGLING CAN BE A VERY POWERFUL FORM OF PRICE DISCRIMINATION

An airline company wants to charge _____ prices to business travelers who typically have high reservation prices, and to charge _____ prices to more price-sensitive leisure travelers

HIGH; LOW

Regarding the substitution effect, a _____ wage increases the returns to working relative to leisure, leading you to _____

HIGHER ; WORK MORE

Congress passes an immigration bill restricting the number of foreigners with computer science degrees who can move to the United States. Determine how wages and number of jobs will change in the new equilibrium in the labor market for computer programmers?

HIGHER WAGES; AND FEWER JOBS WILL BE AVAILABLE

Fair trade would yield better working conditions and better income for foreign workers, which would lead to _____ prices and _____ in the United States

HIGHER; LOWER QUANTITY DEMANDED

The United States has relatively abundant capital. What abundant inputs drive its comparative advantage?

HIGHLY SKILLED WORKERS

With regard to labor supply, the substitution effect describes

HOW PEOPLE RESPOND TO A CHANGE IN RELATIVE PRICES

Bundling creates a(n) _____ to(for) getting the second good at a _____

HURDLE; LOWER PRICE

The closure of an auto plant is not just about lost jobs; it can also mean the death of a city, the end of a particular way of life, and the loss of local traditions. This scenario explains the blind spot of trade that trade

IS NOT JUST ABOUT ECONOMICS

The World Trade Organization (WTO) provides a way for all its member nations to

JOINTLY AGREE TO REDUCE OR ELIMINATE TRADE BARRIERS

The practical challenge in implementing a successful price discrimination strategy is sorting out which customers need a _____ price to be induced to buy your product, and which customers have high marginal benefits so they will _____ higher prices

LOW; STILL PAY

Just as labor demand is all about your marginal revenue product, your labor supply is all about the

MARGINAL BENEFIT OF LEISURE

When new rivals enter your industry, how does it affect the market share and market power of existing sellers?

MARKET SHARE AND POWER FALL

When economists think about trade, they apply the cost-benefit principle. Economists also focus too much on the bottom line that trade expands the pie. However, this misses the equally important fact that trade also

MAY REDISTRIBUTE PART OF YOUR SLICE OF THE PIE TO A FOREIGN WORKER

The firm demand curve of a company with higher market power is _____ than the firm demand curve of a company with lower market power

MORE INELASTIC

Martha currently runs a barbeque restaurant that is earning negative economic profits; however, the other barbeque restaurant across town just shut down. Should Martha shut down?

NO, BUT MARTHA SHOULD MAKE SHORT-RUN ADJUSMENTS

When the owner of a sushi restaurant hires a second cook, customers increase their orders from 70 to 110 orders per week. He pays each cook $500 per week and charges $15 per order. If he adds one more cook, he might get 30 extra orders per week. Should he hire a third cook? Why?

NO, HE SHOULD HIRE ONLY TWO COOKS TO GET THE MAXIMUM PROFIT OF $650

When the owner of a sushi restaurant hires a second cook, customers increase their orders from 50 to 100 orders per week. He pays each cook $400 per week and charges $18 per order. If he adds one more cook, he might get 20 extra orders per week. Should he hire a third cook? Why?

NO, HE SHOULD ONLY HIRE TWO COOKS TO GET MAX PROFIT OF 1K

While international trade doesn't affect the average wage earned by workers very much, it does_____, even within the United States

RAISES SOME WAGES WHILE LOWERING OTHERS

Speed limits are laws designed to _____, or to _____

REDUCE NEGATIVE EXTERNALITIES ; LOWER THE DANGER TOWARD OTHER MOTORISTS

Rules and regulations are often blunt instruments because they

REDUCE THE FORCES OF COMPETITION

When sellers offer selective discounts to buyers based on their marginal benefit, it decreases the market inefficiency by

REDUCING THE PROBLEM OF UNDERPRODUCTION

Businesses can boost their profits by charging each customer a price that's as close as possible to _____

RESERVATION PRICE

Companies charge higher prices in the United States than they do overseas because the higher disposable income of American consumers tends to both boost their _____ and diminish their _____

RESERVATION PRICES; PRICE SENSITIVITY

Perfect competition is rare because

SELLERS RARELY SELL PRODUCTS THAT ARE IDENTICAL TO THEIR COMPETITORS

To alleviate the problems associated with the tragedy of the commons, the government can

SET A QUOTA, APPLY A TAX, ASSIGN PROPERTY RIGHTS

To limit negative externalities, the government can eliminate the overproduction by using the quantity regulation of _____ to the socially optimal quantity

SETTING A QUOTA

Adjusting the price is an example of a _____ decision, and building a new factory is an example of a _____ decision

SHORT-RUN; LONG-RUN

Having employees work overtime is an example of a _____ decision, and opening a store in a new city is a _____ decision

SHORT-RUN; LONG-RUN

Modifying production levels is an example of a _____ decision, and responding to new competitors entering a market is a _____ decision

SHORT-RUN; LONG-RUN

The government imposes taxes equal to the damage (e.g., pollution) that electric companies do while producing electricity. What is the role of taxes in this example?

TAXES HELP FIRMS INTERNALIZE THE EXTERNALITIES

The losers when the United States institutes trade restrictions to protect an industry include

U.S. CONSUMERS OF IMPORTED GOODS, AND, IF OTHER COUNTRIES RETALIATE, U.S. EXPORTERS

Common resources differ from public goods in that

UNLIKE PUBLIC GOODS, COMMON RESOURCES ARE RIVALROUS IN CONSUMPTION

The quantity of labor supplied is fairly _____ to changes in wages when supply is _____

UNRESPONSIVE; INELASTIC

If the substitution effect dominates, the individual supply curve is _____

UPWARD-SLOPING

Which is NOT one of the sources of comparative advantage?

WORLD PRICE

Abuela's current job pays $A/yr and provides $B in benefits like insurance. She can start a business using the $C she has in the bank earning 1.2% interest. The start-up would have $X in revenue and cost $Y/yr for rent, payroll, and materials. What would her economic profit be if she started this business?

X − Y − (A + B) + (C × 1.2%)

A salon's owner used to have one hair stylist and she hired one more. The customers increased from 40 to 60 customers per week. She is paying each stylist $250 per week and charges $25 per haircut. If she adds one more hair stylist, she might get 15 extra customers per week. Should she hire a third hair stylist? Why?

YES, THE MR PRODUCT OF AN EXTRA WORKER EXCEEDS THE WAGE

You should segment your market based on characteristics that are not only verifiable but also difficult to change, to avoid the possibility that

YOUR CUSTOMERS WILL SWITCH INTO DIFFERENT GROUPS

One of the first factors that you'll think about when choosing an occupation is _____

YOUR LIKELY INCOME

A business wanting to use entry deterrence barriers against new rivals entering its market might _____ or _____

expand production or sales capacity; cultivate a reputation as a fierce competitor

Tesla wanted to sell its car at a high price to those customers with a high reservation price and at a lower price to those with a lower reservation price. Therefore, it created two versions of the same car, one that sold for $74,500 and another that sold for $68,000 and had poorer fuel economy. What is the hurdle that buyers had to leap over to get this lower price?

AN IMPERFECT GOOD

Sellers often offer discounts on their products to

ATTRACT CUSTOMERS WHOSE MARGINAL BENEFIT IS LOW

Opening up to international trade has a temporary effect on unemployment but may become permanent for some people because

IT'S HARD FOR WORKERS TO RETAIN AND FIND NEW JOBS

In a particular suburban area, suppose customers have a lot of choices in internet providers. They can choose a variety of products from small local providers, regional providers, or national providers. What is the market structure for the internet services in this suburban area?

MONOPOLISTIC COMPETITION

When people fail to factor in _____ externalities, they are less likely to engage in activities that are beneficial to _____

POSITIVE ; SOCIETY

A study that examined eight dog and human medications found that the price was typically around twice as high at the human pharmacy than at the veterinary pharmacy. It's a simple case of _____, charging different species _____ for the exact same drug

PRICE DISCRIMINATION; DIFFERENT PRICES

Which market is NOT a natural monopoly?

THE INTERNET

The maximum price you can charge is all about

WHAT YOUR CUSTOMERS ARE WILLING TO PAY

Goods that are rival and also nonexcludable create a _____ externality because _____

NEGATIVE ; YOUR PRIVATE BENEFITS CREATE EXTERNAL COSTS TO OTHERS

Goods that are _____ and _____ are known as common resources

NONEXCLUDABLE ; RIVAL

If men on average are willing to pay $20 to see a movie, and women on average are willing to pay $20 dollars to see a movie, movie theaters will

NOT USE GROUP PRICING BECAUSE OF SIMILAR DEMAND

The idea behind group pricing is to use _____, like being a student, that are related to each customer's _____

OBSERVABLE PROXIES; RESERVATION PRICE

Long-run profitability of a company does NOT depend on

OPERATING IN A COMPETITIVE MARKET

Sierra's Sub Shop learns that a rival, Hasana's Hoagies, is thinking of opening a restaurant across town. Sierra had been considering opening a second shop near the site where Hasana might build her restaurant. Sierra _____ build the second shop because it would show commitment to the market and _____ Hasana from entering the market

SHOULD; DETER

If your firm has a lot of market power, a price hike will lead you to lose very few customers. This means your firm's demand curve is relatively _____ and it is relatively _____

STEEP; INELASTIC

Market failures arise because

THE INTEREST OF BYSTANDERS ARE IGNORED OR UNDERWEIGHTED

Group pricing can be an effective price discrimination strategy when _____ and hard-to-change factors like a customer's home address do a good job in sorting out which buyers have high _____

VERIFIABLE; RESERVATION PRICES

Which does NOT explain how technological changes would benefit the future of work?

WORKERS AND MACHINES ARE SUBSTITUTES

Foreign governments can manipulate their exchange rate to be artificially low. As a result, U.S.

EXPORTING FIRMS AND IMPORT-COMPETING FIRMS BOTH LOSE BUSINESS

Globalization is transforming the available opportunities and extending them across national borders. Which of these has NOT contributed to this phenomenon?

OPPORTUNITY COSTS HAVE RISEN

_____ are a symbol that represents a uniform price that applies to everyone.

PRICE TAGS

People argued that we should build cars in Detroit and stop growing them in Iowa. They were arguing for

PROTECTING JOBS FOR WORKERS IN THE UNITED STATES

The argument about _____ has a broader interpretation that suggests that we also need to protect domestic sources of food, so that we can eat if today's trading partners become tomorrow's enemies

PROTECTING NATIONAL SECURITY

Airlines charge thousands of dollars more for a business-class seat, which is only a little more comfortable, and it often seems they're trying to make economy class more miserable. This is an example of the hurdle of

SLIGHTLY WORSE SERVICE

Governments can increase the consumption of a product that creates positive externalities by

SUBSIDIZING THE PRODUCTION OF THE PRODUCT SO THAT THE SUPPLY IS INCREASED AND MARKET PRICE IS REDUCED

As a worker, you are on the _____ side, looking to sell your labor for the _____ you can get

SUPPLY; HIGHEST WAGE

Creating barriers such as having to repurchase smartphone apps when changing to another brand is a strategy known as _____

SWITCHING COSTS

Which of these is NOT one of the three key ideas helping you shape your segmentation strategy? Segment your market into groups whose demand curves differ. Target your group discounts based on verifiable characteristics. Base group discounts on difficult-to-change characteristics. Segment your market into groups whose demand is similar

Segment your market into groups whose demand is similar

If a natural monopoly operates at a loss, as may happen after a price ceiling is imposed, it may exit the industry. What does the government do to prevent the exit of natural monopolies that provide an essential service like water or electricity?

THE GOVERNMENT PROVIDES SERVICES DIRECTLY

When a firm sets a higher price when its product is new and then gradually lowers the price over time, it is practicing

THE HURDLE METHOD

It's rare to see discounts based on your income because

THE INFORMATION IS NOT EASILY VERIFIABLE

Government policies that specify _____ are likely to give an incentive to businesses to solve externality problems

THE INTENDED OBJECTIVES

The price of a haircut is determined by

THE INTERSECTION OF THE SUPPLY AND DEMAND CURVES

Laws, rules, and regulations can be used to remove the externalities in all the following situations, EXCEPT

THE KYOTO PROTOCOL TO LIMIT GREENHOUSE EMISSIONS

In a perfectly competitive labor market

THE MARKET FORCES DETERMINE THE WAGE

The labor market is driven by

THE PEOPLE'S DEMAND FOR THE GOODS AND SERVICES THAT WORKERS PROVIDE

The world price for watermelons is $3 each. In the United States, the price for watermelons is $6 each. What will happen to the U.S. market for watermelons when imports are allowed?

THE PRICE OF WATERMELONS IN THE US WILL FALL TO $3

The price elasticity of the supply of labor measures how

THE QUANTITY OF LABOR SUPPLIED RESPONDS TO WAGE CHANGE

How does a fall in the price of machinery affect the demand for low-skilled workers and does the substitution effect or the scale effect dominate in this scenario?

THE SUBSTITUTION EFFECT DOMINATES AND LEADS TO A DECREASE IN THE DEMAND FOR LOW-SKILLED WORKERS

What determines your customers' reservation price?

THEIR MARGINAL BENEFIT

Economists may need to pay more attention to the short-run disruption from international trade because

THESE TEMPORARY EFFECTS CAN LAST LONG ENOUGH TO BE NEARLY PERMANENT FOR THE PEOPLE INVOLVED

Tesla wanted to sell an electric car at a high price to those customers with a high reservation price and at a lower price to those with a lower reservation price. Therefore, it created two versions of a car, one that sold for $74,500 and another that sold for $68,000 and had a shorter charge range. Why are some customers willing to pay more for the car?

THEY ARENT WILLING TO OVERCOME THE HURDLE

Which statement is NOT true about oligopolistic businesses?

THEY HAVE MARKET POWER VERY SIMILAR TO A MONOPOLIST'S

Which of these is NOT a goal for the World Trade Organization?

TO INCREASE MINIMUM WAGE

The characteristics that are verifiable vary a bit, depending on your industry. A movie theater can verify whether a customer is a student by asking _____, but an online retailer can't do this

TO SEE THERE STUDENT ID

Economists explain that trade is about reallocating tasks so that they're done more efficiently. This explanation supports economists' view on trade that

TRADE IS ABOUT COOPERATION, NOT COMPETITION