ECon Final

For years, Amazon.com, an Internet bookseller, had no profits and was incurring annual losses. Still, the stock market valued the company very highly. One reason for this was that investors believed that: A. Amazon.com was in a winner-take-all market. B. Amazon.com faced fierce foreign competition. C. the Internet was a perfectly competitive market. D. on the Internet brand recognition is unimportant.

A. Amazon.com was in a winner-take-all market.

In a market there are many firms selling differentiated products. This market is: A. a competitive market. B. a monopolistically competitive market. C. an oligopolistic market. D. a monopoly.

A. a competitive market.

A market structure in which one firm makes up the entire market is: A. a monopoly B. perfect competition. C. an oligopoly D. monopolistic competition

A. a monopoly

Federal tax and expenditure programs: A. are somewhat effective means of redistributing income in the U.S. B. are not effective means of redistributing income in the U.S. C. have worsened the inequality of income in the U.S. D. have dramatically equalized income in the U.S.

A. are somewhat effective means of redistributing income in the U.S. C. have worsened the inequality of income in the U.S.

If a positive externality is to be taken full advantage of the: A. consumer of the good should receive a subsidy equal to the marginal external benefit resulting from production (or consumption) of the good. B. producers' marginal costs should be increased by an amount equal to the marginal external benefit resulting from production of the good. C. consumer of the good should pay a tax equal to the marginal external benefit resulting from production (or consumption) of the good. D. producers' marginal costs should be decreased by an amount equal to the marginal external cost resulting from production of the good.

A. consumer of the good should receive a subsidy equal to the marginal external benefit resulting from production (or consumption) of the good.

The prisoner's dilemma is a well-known game in which: A. cooperation is always the best independent action. B. noncooperation is not the best joint action but is the best independent action. C. players always cheat. D. players never cheat.

A. cooperation is always the best independent action.

If the supply curve is perfectly inelastic the burden of a tax on suppliers is borne: A. entirely by the suppliers. B. entirely by the consumers. C. mostly by the suppliers, and partly by the consumers, if the demand curve is inelastic. D. partly by the suppliers, and mostly by the consumers, if the demand curve is elastic.

A. entirely by the suppliers.

The unwillingness of individuals to share in the cost of a public good is called the: A. free rider problem. B. social conscience problem. C. volunteer problem. D. public choice problem.

A. free rider problem.

Perfectly competitive firms: A. have no incentive to develop new technologies. B. are constantly trying to develop new technologies. C. result in large dead-weight losses. D. lead to greater product variety.

A. have no incentive to develop new technologies.

The labor supply curve is generally considered to be upward sloping because the opportunity cost of leisure: A. increases as wages get higher. B. decreases as wages get higher. C. remains unchanged as wages get higher. D. has nothing to do with wages.

A. increases as wages get higher.

An import quota: A. increases both domestic production and domestic prices. B. increases domestic production and reduces domestic prices. C. reduces domestic production and increases domestic prices. D. reduces both domestic production and domestic prices.

A. increases both domestic production and domestic prices.

Monopolistic competition is similar to perfect competition in that: A. long-run profits tend to zero in both. B. output is at minimum average total cost in both. C. both entail the production of differentiated products. D. firms advertise in both cases.

A. long-run profits tend to zero in both.

As network externalities broaden the use of a product the: A. need for a single standard becomes more important and eventually one standard wins out. B. need for a single standard becomes less important, so many different standards are likely to coexist. C. benefits of that product to everyone are diminished D. incentive to replace that product with something new grows stronger.

A. need for a single standard becomes more important and eventually one standard wins out.

Concluding that a company is in violation of antitrust laws because it controls over 90 percent of the market is an application of judgment by: A. performance. B. structure. C. design. D. comparative advantage.

A. performance.

A program that maintains prices at a level higher than the long-run trend of prices is called a: A. price support program. B. price stabilization program. C. negative trend program. D. standard price program.

A. price support program.

If markets are perfectly competitive and production of a good results in water pollution, the imposition of a tax on the good will: A. reduce the number of firms producing that good in the long run. B. increase the number of firms producing that good in the long run. C. reduce the number of firms producing that good in the short run. D. increase the number of firms producing that good in the short run.

A. reduce the number of firms producing that good in the long run.

The general rule of political economy in a democracy states: A. small groups that are significantly affected by a government policy will lobby more effectively than will large groups who are equally affected by that policy. B. large groups that are significantly affected by a government policy will lobby more effectively than will small groups who are equally affected by that policy. C. large groups will always win in majority rule situations. D. Congress will always be inefficient.

A. small groups that are significantly affected by a government policy will lobby more effectively than will large groups who are equally affected by that policy.

In the early 2000s the U.S. government imposed import duties on Chinese frozen and canned shrimp. These duties are an example of: A. tariffs. B. quotas. C. voluntary restrictions. D. regulatory trade restrictions.

A. tariffs.

When negative externalities are present, market failure often occurs because: A. the marginal external cost resulting from the activity is not reflected in the market price. B. the marginal external cost resulting from the activity is reflected in the market price. C. the existence of imports from foreign countries takes jobs (and income) away from U.S. citizens. D. consumers will consume the good at a level where their individual marginal benefits exceed the marginal costs borne by the firm producing the good.

A. the marginal external cost resulting from the activity is not reflected in the market price.

The U.S. official poverty threshold is: A. three times the U.S. Department of Agriculture's minimum food budget. B. three times the U.S. Department of Housing's minimum housing allowance. C. the level of income earned by a person receiving minimum wage. D. the level of welfare benefits received by an eligible family.

A. three times the U.S. Department of Agriculture's minimum food budget.

Which of the following games has a first-mover advantage? A. tic-tac-toe B. prisoner's dilemma C. rock, paper, scissors D. Vickrey auction

A. tic-tac-toe

The resolution of the AT&T antitrust case of the 1980s was: A. AT&T agreed to split up into three operating divisions. B. AT&T agreed to split up and allow the Baby Bells to be independent. C. AT&T was combined with MCI and Sprint. D. MCI and Sprint were broken off from AT&T and developed as competitors to AT&T.

B. AT&T agreed to split up and allow the Baby Bells to be independent.

Which of the following statements is true? A. Income distribution became less equal from 1929 to 1970. B. Income distribution became less equal from 1970 to 2001. C. The income of the bottom fifth of families rose 10 percent from 1970 to 2001. D. The income of the bottom fifth of families fell 10 percent from 1929 to 2001.

B. Income distribution became less equal from 1970 to 2001.

Why are patents important to those who hold them? A. Without patents, there will no longer be economies of scale in production. B. Patents act as a barrier to entry, allowing monopoly profits. C. Without patents, there would be considerably more price discrimination in the market. D. Patents actually do not matter because they do not guarantee that a firm will make a profit.

B. Patents act as a barrier to entry, allowing monopoly profits.

Which of the following factors would most likely explain why a U.S. company would choose to operate in the U.S. despite much lower wages in Mexico? A. The low cost of transportation between the two countries. B. The lower productivity of Mexican workers. C. The absence of significant trade barriers. D. The presence of many Japanese companies in Mexico.

B. The lower productivity of Mexican workers.

A public good is A. any good traded in markets. B. a good that is nonexclusive and nonrival. C. a good provided only to those who pay for it. D. rarely provided by government.

B. a good that is nonexclusive and nonrival.

In November 2004, the Environment Ministry in Japan proposed a new carbon tax in order to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. Carbon dioxide emissions are thought to contribute to global warming and there is concern that changes in climate will be costly. Emitting carbon dioxide is an example of: A. a public good. B. a negative externality. C. an adverse selection problem. D. an effluent fee.

B. a negative externality.

An increase in the marginal income tax rate is likely to: A. increase the quantity of labor supplied. B. decrease the quantity of labor supplied. C. decrease the quantity of labor demanded. D. increase the quantity of labor demanded.

B. decrease the quantity of labor supplied.

Price supports are a form of price: A. floor, and may result in shortages and lower prices to consumers. B. floor, and may result in surpluses and higher prices to consumers. C. ceiling, and may result in surpluses and lower prices to consumers. D. ceiling, and may result in shortages and higher prices to consumers.

B. floor, and may result in surpluses and higher prices to consumers.

A person who decides to work less when his wage increases: A. is irrational. B. has an income effect that dominates the substitution effect. C. is responding entirely to the substitution effect. D. has a substitution effect that dominates the income effect.

B. has an income effect that dominates the substitution effect.

In 1996, Archer Daniels Midland Company was found guilty of fixing the price of lysine. This is an example of: A. judgment by performance. B. judgment by structure. C. judgment by design. D. Such a judgment is not part of U.S. antitrust policy.

B. judgment by structure.

Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut. In this case, the firm perceives its demand curve to be: A. kinked, being steeper above the going price than below. B. kinked, being steeper below the going price than above. C. linear, being less elastic at lower prices. D. linear, being more elastic at higher prices.

B. kinked, being steeper below the going price than above.

A monopolistically competitive industry has: A. a few firms producing identical products. B. many firms producing differentiated products. C. many firms producing identical products. D. a few firms producing differentiated products.

B. many firms producing differentiated products.

Monopolies: A. earn the profits needed for research and development and have the strongest incentive to innovate. B. may earn the profits needed for research and development, but they seldom have the incentive to innovate. C. seldom earn the profits needed for research and development, but they have the strongest incentive to innovate. D. seldom earn the profits needed for research and development and they have no incentive to innovate.

B. may earn the profits needed for research and development, but they seldom have the incentive to innovate.

Most technological advance takes place in: A. the public sector. B. oligopolistic industries. C. monopolistic industries. D. competitive industries.

B. oligopolistic industries.

Natural monopoly exists when: A. one firm can supply the entire quantity demanded at higher cost than two or more firms. B. one firm can supply the entire quantity demanded at lower cost than two or more firms. C. one firm can supply the entire quantity demanded at the same cost as two or more firms. D. the long-run average cost curve exhibits constant returns to scale.

B. one firm can supply the entire quantity demanded at lower cost than two or more firms.

When most people talk about believing in equality of income, they mean they believe in equality of: A. effort for comparably endowed individuals. B. opportunity for comparably endowed individuals. C. after-tax income for comparably endowed individuals. D. before-tax income for comparably endowed individuals.

B. opportunity for comparably endowed individuals.

Government is lobbied to institute price controls because: A. they tend to increase total producer and consumer surplus. B. people care more about their own surplus than they do about total surplus. C. people care more about total surplus than they do about their own surplus. D. they reduce producer surplus, but they raise consumer surplus more than enough to compensate.

B. people care more about their own surplus than they do about total surplus.

The concentration ratio is defined as the: A. percentage of industry output produced by a specific firm. B. percentage of total industry output produced by the top firms. C. squared value of the market shares of all the firms in an industry. D. squared value of the market shares of the largest four firms in the industry.

B. percentage of total industry output produced by the top firms.

A program that eliminates short-run price fluctuations but allows prices to follow their long-run trend is called a: A. price support program. B. price stabilization program. C. negative trend program. D. standard price program.

B. price stabilization program.

An example of a market incentive plan is: A. a tax on any activity that causes pollution. B. requiring construction firms to subsidize individuals to reduce existing water usage by a specific amount before building new houses that would increase water usage. C. a limit on the number of new houses built. D. a restriction on the amount of water a household can use.

B. requiring construction firms to subsidize individuals to reduce existing water usage by a specific amount before building new houses that would increase water usage.

A Lorenz curve is a geometric representation of the: A. level of income earned by a given family in a given country at a given time. B. size distribution of income among families in a given country at a given time. C. behavior of income over time. D. behavior of income across countries.

B. size distribution of income among families in a given country at a given time.

In a standard highest sealed-bid auction, a bidder's best strategy: A. is to bid what he or she would be willing to pay. B. to bid slightly more than what he or she expects the second highest bidder to bid. C. always ensures that the person who wants it the most will get the bid. D. requires the bidder to understand game theory to bid properly.

B. to bid slightly more than what he or she expects the second highest bidder to bid.

One reason trade restrictions exist is that: A. workers can be easily shifted from one industry to another. B. workers cannot be easily shifted from one industry to another. C. the long-run gains from free trade are small relative to the short-run costs. D. the short-run gains from free trade are small relative to the long-run costs.

B. workers cannot be easily shifted from one industry to another.

Which of the following is not an example of an externality? A. Carbon dioxide from energy generation that adds to the worldwide, long-term greenhouse effect. B. Heat from a factory that makes the neighboring tomato patches more productive. C. A defective part that causes an automobile to break down three months after purchase. D. Acidic smoke that produces acid rain.

C. A defective part that causes an automobile to break down three months after purchase.

Cigarette taxes cause dead-weight loss because? A. Because they are regressive. B. Because they are progressive. C. Because they change people's behavior. D. Because they yield no revenue.

C. Because they change people's behavior.

Labor demand is less elastic when: Incorrect Response A. there are many substitutes for labor in the production process. B. the inputs that could be substituted for labor are relatively inexpensive. C. a large amount of labor is essential to the production process. D. the demand for output is more elastic.

C. a large amount of labor is essential to the production process.

The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for: A. a competitive firm lies above its marginal revenue curve. B. a competitive firm is inelastic. C. a monopolist is the market demand curve. D. a monopolist lies below its marginal revenue curve.

C. a monopolist is the market demand curve.

The primary cause(s) of the economic problems faced by farmers is: A. a relatively elastic demand for farm products combined with significant increases in agricultural productivity. B. a decline in the productivity of farm laborers due to increased competition for laborers as a result of the growth of the industrial sector of the economy. C. a relatively inelastic demand for farm products combined with significant increases in agricultural productivity. D. the continuous decline in the demand for agricultural products as a result of low-cost foreign competition.

C. a relatively inelastic demand for farm products combined with significant increases in agricultural productivity.

One way in which firms protect their monopoly is: A. raising prices. B. producing items that can be easily copied. C. advertising. D. taking advantage of short-run profits.

C. advertising.

Since Fidel Castro assumed power in Cuba, the U.S. has not allowed U.S. citizens to trade with Cuba. This is an example of: A. a quota. B. a tariff. C. an embargo. D. a regulatory trade restriction.

C. an embargo.

The government's antitrust suit against Microsoft charged Microsoft with: A. using price discrimination to earn higher profits. B. being a monopoly, although there was no evidence of unfair business practices. C. being a monopoly and using that monopoly power in a predatory way. D. bribing government officials to drop the antitrust lawsuit.

C. being a monopoly and using that monopoly power in a predatory way.

Total consumer surplus is measured as the area: A. between the demand curve and the supply curve. B. above the demand curve. C. between the vertical axis, the demand curve and a horizontal line through the market price. D. between the demand curve and the horizontal axis.

C. between the vertical axis, the demand curve and a horizontal line through the market price.

Cartels are organizations that: A. keep markets contestable. B. encourage price wars. C. coordinate the output and pricing decisions of a group of firms. D. use predatory pricing to monopolize industries.

C. coordinate the output and pricing decisions of a group of firms.

Taxes: A. cause market shortages. B. cause the equilibrium quantity to increase. C. create a wedge between the price consumers pay and the price suppliers receive. D. cause the price consumers pay to equal the price suppliers receive.

C. create a wedge between the price consumers pay and the price suppliers receive.

Lazy monopolists are characterized by the tendency to: A. maximize profits at the cost of losing market share. B. pay too much to protect their monopoly positions. C. earn enough profits to keep their shareholders happy without unduly trying to hold costs down. D. minimize losses.

C. earn enough profits to keep their shareholders happy without unduly trying to hold costs down.

Specialization according to comparative advantage means that a country is producing the goods: A. that it wants to consume. B. for which it has a relatively high opportunity cost. C. for which it has a relatively low opportunity cost. D. that it can produce at zero cost.

C. for which it has a relatively low opportunity cost.

Since the short-run demand for corn is very price inelastic: A. good harvests do not significantly change the price of corn. B. good harvests cause the price of corn to rise significantly. C. good harvests cause the price of corn to fall significantly. D. bad harvests cause the price of corn to fall significantly.

C. good harvests cause the price of corn to fall significantly.

Government failure occurs when: A. government fails to implement policy designed to correct a market failure. B. government intervention in the market to improve a market failure succeeds. C. government intervention in the market to correct a market failure actually makes things worse. D. there is no need for government intervention into the market because there is no market failure.

C. government intervention in the market to correct a market failure actually makes things worse.

Other things equal, an increase in the number of single-parent families would be expected to: A. increase income inequality, causing the Lorenz curve to shift toward the diagonal line. B. decrease income inequality, causing the Lorenz curve to shift toward the diagonal line. C. increase income inequality, causing the Lorenz curve to shift away from the diagonal line. D. decrease income inequality, causing the Lorenz curve to shift away from the diagonal line.

C. increase income inequality, causing the Lorenz curve to shift away from the diagonal line.

Other things equal, tax cuts favoring the rich and reductions in funding for government programs favoring the poor would be expected to: A. increase income inequality, causing the Lorenz curve to shift toward the diagonal line. B. decrease income inequality, causing the Lorenz curve to shift toward the diagonal line. C. increase income inequality, causing the Lorenz curve to shift away from the diagonal line. D. decrease income inequality, causing the Lorenz curve to shift away from the diagonal line.

C. increase income inequality, causing the Lorenz curve to shift away from the diagonal line.

Loss aversion in behavioral economics refers to how people are averse to: A. losses in a game of chance such as poker. B. stock market losses. C. losing something a person already has. D.the loss of something of high value.

C. losing something a person already has.

The technological lock-in argument suggests that: A. it is inefficient to try and adapt to new technology. B. more efficient technologies always replace less efficient technologies immediately. C. many of our institutions and technologies may be inefficient. D. existing institutions and technologies are always the most efficient.

C. many of our institutions and technologies may be inefficient.

iTunes charges British customers 20 percent more than customers in France and Germany. Apple defended the price differential, saying that the "underlying economic model in each country has an impact on how we price our track downloads." An economist would say that Apple is engaged in: A. collusion. B. monopolistic competition. C. price discrimination. D. reverse engineering.

C. price discrimination.

Taking explicit account of a rival's expected response to a decision you are making is called: A. economic decision making. B. monopolistic decision making. C. strategic decision making. D. competitive decision making.

C. strategic decision making.

The effect that explains why workers tend to supply more hours when wages increase is called the: A. income effect. B. social effect. C. substitution effect. D. work effect.

C. substitution effect.

Assume that in Canada the opportunity cost of producing 1 television set is 2 bushels of wheat. Assume that in the U.S. the opportunity cost of producing 1 bushel of wheat is 2 television sets. If these two countries specialize according to comparative advantage and then trade with one another, then: A. Canada will import both televisions and wheat. B. Canada will import wheat and export televisions. C. the U.S. will import wheat and export televisions. D. the U.S. will import both televisions and wheat.

C. the U.S. will import wheat and export televisions.

The values in a payoff matrix show: A. the gains and losses of decisions for each player regardless of the decisions of other players. B. the best possible outcomes of various players in a game. C. the gains and losses of decisions for each player given the decisions of other players. D. the worst possible outcomes of various players in a game.

C. the gains and losses of decisions for each player given the decisions of other players.

Which of the following is not a reason for the subsidies being provided to U.S. farmers? A. the desire to maintain a stable supply of food in the event of a drought. B. an effective farm lobby. C. the large share of total U.S. employment accounted for by the agricultural sector. D. concern for the well-being of farmers.

C. the large share of total U.S. employment accounted for by the agricultural sector.

Under monopolistic competition, a firm's ability to influence the price of the product it sells arises because: A. sellers in the market have large market shares. B. sellers in the market have small market shares. C. the product of each seller is differentiated from that of others. D. each seller sells a standardized product.

C. the product of each seller is differentiated from that of others.

Institutional discrimination exists when: A. discrimination is based on individual characteristics related to job performance. B. discrimination is based on individual characteristics not related to job performance. C. the structure of a job makes it difficult for certain groups of individuals to succeed. D. discrimination is based on correctly perceived statistical characteristics of a group.

C. the structure of a job makes it difficult for certain groups of individuals to succeed.

According to economic theory, which of the following types of discrimination is the easiest to eliminate? A. Discrimination based on individual characteristics that affect job performance. B. Discrimination based on correctly perceived statistical characteristics of a group. C. Discrimination that saves the firm money. D. Discrimination based on individual characteristics that do not affect job performance.

D. Discrimination based on individual characteristics that do not affect job performance.

The text mentions ten sources of U.S. comparative advantage. Which of the following is NOT one of them? A. Wealth from past production B. English is the international language of business C. U. S. natural resources D. Weak environmental protection laws

D. Weak environmental protection laws

A group of countries that allows free trade among its members and puts up common barriers against all other countries' goods is called: A. a tariff-free zone. B. a Most Favored Nation Agreement. C. an autarky. D. a free trade association.

D. a free trade association.

The voluntary export restraints on autos by Japan in the early 1980s were A. prohibited under the GATT treaty. B. unlike a quota and do not affect the price of cars imported . C. unlike a tariff, and do not affect the price of imports. D. approved by the U.S. car companies since it allows them to increase their profits .

D. approved by the U.S. car companies since it allows them to increase their profits .

Informal game theory: A. relies on deductive logic. B. shows how the Nash equilibrium is reached. C. assumes people calculate their optimal strategy. D. considers how people actually think and behave.

D. considers how people actually think and behave.

When government imposes a per unit tax on a product, the net price producers actually receive for the product typically: A. increases by the amount of the per unit tax. B. increases by less than the amount of the per unit tax. C. decreases by the amount of the per unit tax. D. decreases by less than the amount of the per unit tax.

D. decreases by less than the amount of the per unit tax.

The formal game theory model assumes that: A. markets are contestable when no barriers to entry exist. B. the dominant firm in the industry will set product price and other firms will follow. C. each player tries to anticipate the reaction of his or her rivals when making a decision. D. each player ignores the possible reaction of his or her rivals when making a decision.

D. each player ignores the possible reaction of his or her rivals when making a decision.

Those with more inelastic demands will bear a larger burden of a tax because they: A. have more buying power. B. have more income. C. will switch to other products with a tax. D. have fewer substitutes for that good.

D. have fewer substitutes for that good.

EBay.com dominates the on-line auction business because sellers want to go where the buyers are and buyers want to go where the sellers are. Bigger is thus better. Hence, eBay.com illustrates the concept of: A. public goods. B. non-rival goods. C. economies of scope. D. network externality.

D. network externality.

When the FTC investigated whether firms conspired to fix prices of computer memory called dynamic random access memory (DRAM) chips, Samsung, Micron Technology, Hynix Semiconductor, and Infineon controlled more than 75 percent of the market for DRAM chips. The market for these chips is most likely: A. monopolistic. B. perfectly competitive. C. monopolistically competitive. D. oligopolistic.

D. oligopolistic.

The profit-maximization assumption of economic theory does not fit reality because: A. all real firms want to maximize long-term profits rather than short-run profits. B. all real firms want to maximize their share of the market. C. real-world firms have a single goal, but this goal has nothing to do with profits. D. real-world firms have many goals which depend upon the incentive structure embodied in the firm's organization.

D. real-world firms have many goals which depend upon the incentive structure embodied in the firm's organization.

A Nash equilibrium assumes that a player follows his or her best strategy: A. given that the other players follow a random strategy. B. given that the other players follow their worst strategy. C. given that the other players follow their best strategy. D. regardless of what other players do.

D. regardless of what other players do.

An excise tax is imposed on CDs. If the elasticity of demand is 2 and the elasticity of supply is 1, then we can predict that: A. consumers will bear the full tax burden. B. sellers will bear the full tax burden. C. consumers will bear 2/3 of the tax burden. D. sellers will bear 2/3 of the tax burden.

D. sellers will bear 2/3 of the tax burden.

The demand for labor is a derived demand because: A. many workers are self-employed. B. the income workers earn adds to the demand for output. C. the demand for output comes from the demand for labor. D. the demand for labor comes from the demand for output.

D. the demand for labor comes from the demand for output.

Marginal revenue is not equal to price for a monopolist because: A. the monopolist's demand curve is below its marginal revenue curve. B. total revenue increases as output increases. C. the monopolist sets price equal to marginal cost. D. the monopolist must lower the price of all units in order to sell more.

D. the monopolist must lower the price of all units in order to sell more.

The program that redistributes the most money is: A. Aid to Families with Dependent Children. B. the Department of Housing and Urban Development housing programs. C. Supplemental Security Income. D. the social security system.

D. the social security system.

Whenever the invisible hand pushes agricultural prices down: A. consumer demand increases enough to push prices back up. B. market supply decreases enough to push prices back up. C. they remain down, causing an increase in consumer surplus. D. various coalitions of political forces generally work to push prices back up.

D. various coalitions of political forces generally work to push prices back up.