ECON STUDY GUIDE
A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the
supply curve for paper would shift to the left
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left)
Approximately what percentage of the world's economies experience scarcity?
100%
The government's benefit from a tax can be measured by
tax revenue
Welfare economics is the study of how
the allocation of resources affects economic well-being
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
In economics, the cost of something is
what you give up to get it
In a market, the marginal buyer is the buyer
who would be the first to leave the market if the price were any higher
The maximum price that a buyer will pay for a good is called
willingness to pay
If the firm doubles its output from 3 to 6 units, total revenue will
increase by exactly $15
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls
The firm will earn zero economic profit if the market price is
$6
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases
If the market price is $10, what is the firm's total revenue?
$50
If the market price is $6, what is the firm's shorten economic profit?
$0
This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are
$1.60 and 42 unites, respectively
This graph represents the tobacco industry. The socially optimal price and quantity are
$1.80 and 35 units, respectively
If the market price is $10, what is the firm's shorten economic profit?
$15
If the market price is $10, what is the firm's total cost?
$35
The firm's shorten supply curve is its marginal cost curve above
$4.50
In Figure 3-4, the equilibrium price is
$5
If the price of the product is $130, then who would be wiling to purchase the product?
Calvin and Sam
If the price of the product is $110, then who would be willing to purchase the product?
Calvin, Sam, and Andrew
If the firm is currently producing 14 units, what would you advise the owners?
MC = MR
Over what race of output is marginal revenue declining?
Marginal revenue is constant over the entire range of output
Which quantity represents the social optimum for this market?
Q3
A market structure with barriers to entry is
a monopoly
An increase in the population will lead to
a rightward shift in the market demand curve
The firm will earn positive profit if the market price is
above $6
The firm will earn a positive economic profit in the short run if the market price is
above $6.30
A society allocates its scarce resources to various jobs. These scarce resources include:
all of the above (land, people, machines)
Which of the following products would be considered scarce?
all of the above are correct (bread, baseballs autographed by Babe Ruth, motorcycles)
The impact of one person's actions on the well-being of a bystander is called
an externality
All of the following, except one, would increase the demand for a particular model of a Ford automobile. Assume that this model is a normal good. Which is the exception?
an increase in buyer's incomes
Which of the following could cause the market demand curve for hot dogs to shift to the left?
an increase in the price of mustard
Which of the following could explain a movement from point F to point G in Figure 2-3? Assume that the good represented is an inferior good.
an increase in the price of the good
Over which range of output is average revenue equal to price?
average revenue is equal to price over the entire range of output
Which of the following is a characteristic of a monopoly?
barriers to entry
On a graph, consumer surplus is represented by the area
below the demand curve and above price
A monopolistically competitive market has characteristics that are similar to
both a monopoly and a competitive firm
Which of the following statements is correct?
buyers always want to pay less and sellers always want to be paid more
A tax affects
buyers, sellers, and the government
A monopoly can earn positive profits because it
can maintain a price such that total revenues will exceed total costs
The price and quantity relationship in the table is most likely a demand curve faced by a firm in a
competitive market
Which of the following tools help us evaluate how taxes affect economic well-being?
consumer surplus, producer surplus, tax revenue, and deadweight loss
The fully understand how taxes affect economic well-being, we must compare the
decrease in total surplus to the increase in revenue raised by the government
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left)
Which of the following is not a characteristic of a competitive market?
entry is limited
A monopolist's average revenue is always
equal to the price of its product
The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases
Each firm in a monopolistically competitive market
faces a downward-sloping demand curve
Which of the following is NOT a characteristic of a monopoly?
free entry and exit
When goods do not have a price, which of the following primarily ensures that the good is produced?
government
What you give up to obtain an item is called your
opportunity cost
A restaurant that has market power can
influence the market price for the meals it sells
A competitive firm
is a price taker, whereas a monopolist is a price maker
Consumer surplus
is measured using the demand curve for a product
Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly
is often not in the best interest of society
The firm should shut down if the market price is
less than $4.50 (the AVC)
The firm will earn a negative economic profit but remain in business in the short run if the market price is
less than $6.30 but more than $4.50
A monopolistically competitive industry is characterized by
many firms selling products that are similar but NOT identical
Which of the following statements about markets is false?
markets are used to allocated resources in market systems
Willingness to pay
measures the value that a buyer places on a good
The two types of imperfectly competitive markets are
monopolistic competition and oligopoly
The market for novels is
monopolistically competitive
If the market price is $5.00, the firm will earn
negative economic profit in the short run but remain in business
If the market price falls below $4.50, the firm will earn
negative economic profits in the short run and shut down
A cost imposed on someone who is neither the consumer nor the producer is called a
negative externality
This graph represents the tobacco industry. The industry creates
negative externality
Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
people face tradeoffs
The phrase "no such thing as a free lunch" means
people must face tradeoffs
If the market price rises above $6.30, the firm will earn
positive economic profits in the short run
A key characteristic of a competitive market is that
producers sell nearly identical products
In a market system, prices are determined by
production costs
To internalize the externality in this market, the government should
provide a subsidy for this product
The amount of good or service that buyers would be willing and able to purchase at a specific price is known as
quantity supplied
Efficiency
refers to how much a society can produce with its resources. equality refers to how evenly the benefits from using resources are distributed among members of society
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied
The phenomenon of scarcity stems from the fact that
resources are limited
Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then
the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked
The law of demand states that the quantity demanded of a good and
the price of a substitute are positively related
Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where
the value of electricity to consumers equals the private cost of producing electricity
Suppose that initially the market for DVDs is at point A on demand curve D2 in Figure 3-3. If the price of cassette tapes decreases
there will be no change from point A