Econ Test

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-25/20 = -1.25

A monopoly is a market structure that is characterized by?

A single seller of a good or service that does not have a close substitute

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

An increase, positive

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

An inferior good

Laws aimed at promoting competition among firms are known as?

Antitrust Laws

Natural monopoly happens when the?

Average total cost curve is decreasing

The only legal restriction concerning price discrimination is that firms cannot use it to?

Drive rivals out of business

In which of the following situations can a firm be considered a monopoly?

When a firm can ignore the actions of all other firms

The principle of voluntary exchange state that if two people voluntarily agree to a transaction they are both

Better off after the transaction occurs

If the cross-price elasticity of demand between two products is -3.0, then the two products are

Complements

Price discrimination is the practice of?

Dividing consumers into two or more groups and charging different prices to each group.

The sum of consumer surplus and producer surplus is equivalent to

Economic surplus

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

Elastic

If the supply of Good B is perfectly elastic and price falls the quantity supplied will

Fall to zero

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

Greater

When you compute a price elasticity of demand the answer is always

Greater

The monopolist charges a price that is __________ the perfectly competitive industry.

Higher than

What is a merger between firms in the same industry called?

Horizontal merger

A perfectly inelastic supply curve

Indicates the quantity supplied does not respond to a change in price

At current prices of a highly addictive drug the demand for the drug is highly price

Inelastic

If the price elasticity of demand is 0.33 then demand is __________ over that price range.

Inelastic

The monopolist produces an output that is __________ the perfectly competitive industry would produce.

Less than

Rent controls

Make tenants less mobile

__________ is the additional cost to the firm of producing one more unit of a good or service.

Marginal cost

A monopolist will maximize profit at the level of output where?

Marginal cost equals marginal revenue

In which of the following market structures is the firm's demand curve the same as the market demand for the product?

Monopoly

Which of the following is an effect of a monopoly?

Monopoly causes a reduction in consumer surplus

If an effective minimum wage is imposed, then

More workers will be unable to find jobs

Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of?

Price floor

Prolonged shortages arise if

Prices are not allowed to rise to equilibrium

The difference between the lowest price a firm would have been willing to accept and the price it actually receives is known as

Producer surplus

A numerical limit on the quantity of a good that can be imported is a?

Quota

Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.

Rationing, highest

The cost of saving jobs through trade barriers like tariffs and quotas is

Relatively high

Prolonged agricultural surpluses can arise if governments?

Set the price above equilibrium

If prices rise the quantity supplied will be greater

The longer the time that elapses

The maximum amount that a consumer is willing to pay for a good or service is known as

Willingness to pay

What is the cross-price elasticity of demand for two goods that are unrelated?

Zero

In the long run, the monopolist can earn?

Zero or positive economic profit

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8.0

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

Black markets may arise if?

Price ceilings exist

A patent gives its holder the exclusive right to a product for a period of __________ from the date the patent is filed with the government

20 years

Which of the following is most likely to increase market power?

Horizontal mergers

Which of the following statements regarding natural monopoly is true?

Natural monopoly is most likely to occur in markets where fixed costs are large relative to variable costs.

When you compute a price elasticity of demand the answer is always

Negative

Economists avoid confusion over units in the computation of elasticity by using

Percentage changes

The price elasticity of supply always has a?

Positive value

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of?

Price ceiling

Price controls that put a price ceiling on goods and services create __________.

Shortages

Price controls that put a price floor on goods and services create __________.

Surpluses

A tax imposed by a government on imported products is called a?

Tariff

The actual division of the tax burden between buyers and sellers is known as

Tax incidence

Which of the following laws outlawed monopolization?

The Sherman Act

What is the definition of market power?

The ability of a firm to charge a price greater than marginal cost

Which of the following rights is given to the holder of a patent?

The exclusive right to a new product

Which of the following statements about a shortage is correct?

There is no shortage of most scarce goods

Because the monopolist faces a downward sloping demand curve?

There will be deadweight loss

The sugar quota in the United States creates winners and losers. The winners are __________ and the losers are __________.

U.S. sugar producers, U.S. sugar consumers

Governments deal with natural monopolies by?

Using regulation to protect consumers

A __________ is a negotiated agreement between two countries that limits the quantity of a specific product that may be imported into a country.

Voluntary export restraint