Econ Final
Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.
(i), (iii), and (iv)
determinants of wages
-compensating differentials -education and human capital (skills acquired through education and training, more education and human capital leads to higher wages) -location (people may be willing to accept lower wages to live in more desirable places, areas with high costs of living will pay higher wages as a compensating differential) -lifestyle (wage is not top priority for some individuals) -unions (union workers earn more than non-union workers)
shifters of supply
1. A change in resource price 2. A change in technology 3. Changes in nature and politics 4. Changes in taxes
There are 3 pizza places in a small town. One has 50% market share, one has 40% market share, and one has 10% market share. What is the HHI for the pizza places?
4,200
surplus
A situation in which quantity supplied is greater than quantity demanded
regressive tax
A tax for which the percentage of income paid in taxes decreases as income increases
quantity demanded vs. demand
Changes in the price of a product affect the quantity demanded per period. Changes in any other factor, such as income or preferences, affect demand.
Group Pricing
Charge a higher price to low elasticity of demand consumers
grim trigger strategy
Cooperate until opponent defect, then defect forever
socially optimal
Describes points at which social surplus is maximized, social surplus being the combined utilities of the firms and the public.
Which of the following statements is TRUE regarding economic efficiency?
Efficient outcomes rarely make everyone happy.
public goods
Goods, such as clean air and clean water, that everyone must share.
Rational Rule for Employers
Hire more workers if their marginal revenue product is greater than (or equal to) the wage
What was the primary effect of "redlining"? in the US?
It prevented African Americans from buying homes.
The marginal revenue product of labor is equal to:
MPL × P.
Why do supply curves have a positive slope?
Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity
How do people's beliefs about the distribution of wealth in the United States compare to the actual distribution of wealth in the country?
People believe the distribution of wealth is more equal than it actually is.
social insurance
Programs in which eligibility is based on prior contributions to government, usually in the form of payroll taxes.
Rational Rule for Sellers
Sell one more item if the marginal cost is less than or equal to marginal revenue
consumer surplus
The difference between the maximum amount a person is willing to pay for a good and its current market price.
Which of the following is NOT a factor that can shift supply?
The expected future price of a product. The price of a complement-in-production. The price of a substitute-in-production. Correct! The market price of a product.
Tradegy of the Commons
The idea that where there is no clear ownership of rights to a natural resource, the users of the resource are likely to overexploit it. This becomes an argument either for strong government intervention or for privatization of rights to the resource. ...
Effiency
The percentage of the input work that is converted to output work
The relationship between price expectations and demand is
The relationship between price expectations and demand is
Moral Hazard
When the act of insuring an event increases the likelihood that the event will happen
Principle-Agent Problem
When the agent (worker or manager) doesn't act in the best interest of the principle (owner).
Workers on the night shift at a factory earn more per hour than workers on the day shift, although their human capital and productivity are the same. This is an example of:
a compensating differential.
If wages fall for surgeons but not for family practice doctors, there will be _____ in the market for surgeons and _____ in the market for family practice doctors.
a decrease in quantity supplied; a rightward shift of labor supply
Quantity Quota
a limit on the amount of a good that may be imported
cap and trade
a method for managing pollution in which a limit is placed on emissions and businesses or countries can buy and sell emissions allowances
in a market graph, consumer surplus is the area
above price and below demand curve
A binding price ceiling is:
always below the equilibrium price.
Signaling
an action taken by an informed party to reveal private information to an uninformed party
postive externality
an externality that benefits people who were not involved in the original economic activity
For normal goods
an increase in consumer income will lead to a rise in their demand.
People gain consumer surplus when they purchase an item:
at a price below the value of the benefit they receive from the item.
Shortages occur when
at price below the equilibrium price
The economic burden of a tax:
burden created by the change in after tax prices faced by buyers and sellers
Large barriers to entry in the gas station business explain why the two only gas stations in a small town:
can earn an economic profit in the long run.
A price-taker is a seller that:
charges the current market price for its prod
Assume an economy moves from autarky to free international trade. For goods that are imported,
consumer surplus rises , producer surplus falls , and the economy as a whole gains .
As output increases, average fixed costs
decrease
buyers bear a smaller incidence of a tax when
demand is more elastic than supply
A tax on sellers would not cause a decrease in quantity sold if:
demand is perfectly inelastic.
HHI (Herfindahl-Hirschman Index)
determines concentration of market power
deadweight loss calculated
economic surplus at the efficient quantity - economic surplus at actual quantity
When the absolute value of a price elasticity of demand is greater than 1, then demand is considered
elastic
Types of Elasticity
elasticity of demand , income elasticity(norm or inferior), cross price elasticity(subs or comp), elasticity of supply
When there is free entry and exit in a market, in the long run, price will:
equal average cost.
barriers to entry
factors that make it difficult and costly for an organization to enter a particular task environment or industry
The profit-maximizing rule MR = MC is:
followed by all types of firms.
types of implicit cost
forgone wages forgone interest
private goods
goods that are both excludable and rival in consumption
statutory burden of a tax
government designated burden of a tax payment
income-assistance programs
government programs that provide money and in-kind assistance to poor people
When setting prices for different groups of customers, a manager should charge lower prices to groups that
have a more elastic demand.
Redistribution programs are means-tested. To qualify for such a program, a person must demonstrate that:
his or her income (or means) is below a certain specified level.
What is the difference between accounting profit and economic profit?
implicit opportunity costs
An increase in the price of capital will _____ demand for labor if capital and labor are substitutes, and it will _____ the demand for labor if the scale effect dominates.
increase; decrease
Damon's wage rises. The substitution effect would cause him to _____ his work hours, and the income effect would cause him to _____ his work hours.
increase; decrease
quantity regulations
limit the amount that a firm is allowed to produce and also lead to underproduction
economic surplus =
marginal benefit -marginal cost
A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.
marginal external
Compared to other high income countries, the U.S. has ______inequality.
more
A higher Gini coefficient means that a country has
more inequality
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:
multiply the individual supply of one of the suppliers by ten.
international trade
occurs when a firm exports goods or services to consumers in another country
marginal cost includes
only variable costs
A market with negative externalities will tend to _____ compared to a market producing the socially optimal output.
overproduce and sell at a lower price
market structures
perfect competition, monopolistic competition, oligopoly, monopoly
A prediction market involves:
polling a diverse crowd and aggregating opinions to form a forecast of an eventual outcome.
Marginal social cost equals marginal _____ cost plus marginal _____ cost.
private; external
Market power results in companies that _____ and that have _____ compared to perfect competition.
produce less; higher price
Household A earns $50,000 a year and pays $10,000 in taxes. Household B earns $200,000 a year and pays $50,000 in taxes. The tax system described here is.
progressive
price changes
quantity demanded
if an item is a neccesity rather than a luxury the demand curve will be
relatively steep
If an item is a necessity rather than a luxury, and has few substitutes, its demand curve will likely be:
relatively steep.
risk adverse
requiring compensation to bear risk
collusion
secret agreement or cooperation
Supply of Labor
shows the quantity of labor supplied and the real wage rate
When education level is used to convey information to an employer, it serves as a:
signal.
The opportunity costs of a decision may include each of the following types of costs EXCEPT
sunk costs
a tax on sellers shifts
supply curve to the left
Sellers bear a smaller incidence of a tax when:
supply is more elastic relative to demand.
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
The marginal cost of an additional worker is
the additional cost of hiring one more worker.
a subsidy for buyers shifts
the demand curve to the right
Cedar point amusement park reduces its entry fees. As a result of this price fall,
the demand will decrease. the demand will rise. the quantity demanded will be smaller. Correct! the quantity demanded will be higher.
negative externality
the harm, cost, or inconvenience suffered by a third party because of actions by others
Coase Theorem
the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
Demand for Labor
the quantities of labor employers are willing and able to hire at alternative wage rates in a given time period w=mrp
Which type of strategy for repeated games involves doing whatever the other player did the last time the game was played?
tit-for-tat
The main role of a market is to:
to allocate resources
accounting profit
total revenue - explicit costs
economic profit
total revenue minus total cost, including both explicit and implicit costs
Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water is _____, and the price elasticity of demand is perfectly _____.
vertical; perfectly elastic Correct! vertical; perfectly inelastic horizontal; perfectly elastic horizontal; perfectly inelastic
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
anti-coordination game
when your best response is to take a different (but complementary) action to the other player
A nonrival good is a good:
where one person's use of the good does not reduce another person's ability to use the same unit of the good.
income effect
the change in consumption resulting from a change in real income
Entry and Exit in the Long Run
- If existing firms earn positive economic profit: • New firms enter, SR market supply shifts right • P falls, reducing profits and slowing entry - If existing firms incur losses: • Some firms exit, SR market supply shifts left • P rises, reducing remaining firms' losses
Tariff
A tax on imported goods
unions
An association of workers, formed to bargain for better working conditions and higher wages.
A company's profit margin is calculated as:
average revenue minus average cost.
internal markets
markets within a company to buy and sell scarce resources
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
Law of Supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
Quantity Supplied vs. Supply
When the price of a good changes, and all other factors are held constant, the supply curve is held constant; we simply observe the producer moving along the fixed supply curve. If one of the external factors change, the entire supply curve shifts to the left or right
efficiency wages
above-equilibrium wages paid by firms to increase worker productivity
If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:
Correct! 0.5. 2. -0.5. -2.
Which of the following is NOT an example of the hurdle method of price discrimination?
-Offering different versions of a product that sell for different prices and are released at a later date. -Making customers put extra effort to get a lower price on a product. Correct! --Segmenting the market into identifiable groups with different prices. -Bundling goods together to get a second good at a lower price.
types of barriers to entry
1. Economies of Scale 2. Government-Created Barriers 3. Control of an Essential Resource
Shifters of Demand
1. Tastes and Preferences 2. Number of Consumers 3. Price of Related Goods 4. Income 5. Future Expectations
price ceiling
A legal maximum on the price at which a good can be sold below the equilibrium price
price floor
A legal minimum on the price at which a good can be sold above the equilibrium price
tit-for-tat strategy
A means of encouraging cooperation by at first acting cooperatively but then always responding the way your opponent did (cooperatively or competitively) on the previous trial
Taxes and Subsidies
A per unit tax is treated by firms as an additional cost of production and would therefore decrease the supply cure, or shift it leftward A per unit subsidy lowers the per unit cost of production and therefore shifts the supply curve rightward
Tariffs
A tax on imported goods
coordination game
A type of game in which a Nash equilibrium occurs when each player chooses the same strategy; neither player can do better than matching the other player's strategy
Elastic vs. Inelastic
Elastic: describes demand that is very sensitive to a change in price Inelastic: Describes demand that is not very sensitive to a change in price
game theory
Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others.
What attracts new sellers into a market?
Existing sellers in the market earning economic profits.
Price and Quantity Regulations
Price regulations sometimes put a block of the price adjustments and lead to underproduction Quantity regulations that limit the amount that a farm is permitted to produce also leads to underproduction
inferior good
a good that consumers demand less of when their incomes increase
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
moral hazard problem
a problem that arises when people don't have to bear the negative consequences of their actions
a lemon
a product with more problems or inferior quality than the average unit available
The basic logic behind the Rational Rule for Sellers is that a company owner should increase output as long as the extra output
adds more to revenue than it adds to costs.
positive analysis
analysis concerned with what is
normative analysis
analysis concerned with what ought to be-- opinion based
marginal cost =
change in TC/change in Q
variable costs
costs that vary with the quantity of output produced
Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.
included; nonfinancial
economics midpoint formula
percent change in quantity =Q2−Q1(Q2+Q1)÷2×100 percent change in price =P2−P1(P2+P1)÷2×100
A natural monopoly exists when
producing a large output has significantly lower marginal cost than producing a small output.
During the pandemic, people don't want to go out to eat as much. At the same time, costs for restaurants are rising to ensure the safety of their employees. What do you predict will happen to the equilibrium price and quantity for restaurant meals?
quantity falls, price falls price rises, the effect on quantity is uncertain You Answered ----quantity falls, price rises Correct Answer---- quantity falls, the effect on price is uncertain price falls, the effect on quantity is uncertain
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it
price discrimination
the business practice of selling the same good at different prices to different customers
The last 3 times I wore my orange socks to the basketball game, the Hokies won. I didn't wear my socks to the last game and they lost. "My socks determine whether the Hokies win." is an example of
the fallacy of composition. sample selection bias. a sunk cost. ignoring unintended consequences. Correct! confusing association (or correlation) with causation. Quiz
hurdle method of price discrimination
the practice by which a seller offers a discount to all buyers who overcome some obstacle
Adverse Selection
the problem of incomplete information - of choosing alternatives without fully knowing the details of available options
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
economic surplus
the sum of consumer surplus and producer surplus
Statistical discrimination is:
the use of observations about the average characteristics of a group to make inferences about an individual member of the group.
