ECON Unit 3

¡Supera tus tareas y exámenes ahora con Quizwiz!

Other things remaining the same, which of the following is likely to cause a decrease in both the wage rate and the number of workers hired in a glass factory?

The introduction of labor-saving technology in the factory

loss aversion

The strong tendency to regard losses as considerably more important than gains of comparable magnitude—and, with this, a tendency to take steps (including risky steps) to avoid possible loss.

Firms use information on labor's marginal revenue product to determine

how many workers to hire at each wage rate

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that

in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns

The rules of accounting generally require that ________ costs be used for purposes of keeping a company's financial records and for paying taxes. These costs are sometimes called ________ costs

explicit; accounting

To maintain a monopoly, a firm must have

an insurmountable barrier to entry.

The public choice model

applies economic analysis to government decision making.

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is

asymmetric information

In the long run, the entry of new firms in an industry

benefits consumers by forcing prices down to the level of average cost

Economic costs of production differ from accounting costs in that

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not

A ________ is an extensive -form representation of a game

game tree

If a firm shuts down in the short run,

its loss equals its fixed cost

If at​ equilibrium, the marginal cost faced by a firm is​ $3 and the market wage rate is​ $6, the marginal product of the last unit of labor hired by the firm must​ be:

2 units

How are implicit costs different from explicit​ costs?

An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost

Why are decision trees useful to managers who plan business strategies?

Decision trees provide a systematic way of thinking through the implications of a strategy.

Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market?

Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences

economy of scale

Long run average costs fall as output (q) increases

Sarah is a high school graduate and James is a college graduate. Which of the following statements is true?

James is likely to have more human capital than Sara

The difference between the salaries paid to movie stars and to actors who play supporting roles is much greater today than it was in the 1930s and 1940s. What factor explains this increase in relative salaries over time?

Technological advances in the entertainment industry increase the revenue that successful movies can earn. This has increased the movie studios' willingness to pay high salaries to movie stars

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?

a decrease in the price in cattle

The wage rate is the opportunity cost of

leisure

The substitution effect of a wage increase is observed when

leisure's higher opportunity cost causes workers to take less leisure and work more

if a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the

marginal revenue of the sixth performance is $38,000

hidden action -->

moral hazard

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

nash equilibrium

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

new firms are attracted to the industry

If a typical firm in a perfectly competitive industry is earning profits, then

new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group

When there few close substitutes available for a good, demand tends to be

relatively inelastic

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

sequential games

A player has a dominant strategy when:

she has only one best response to every possible strategy of the other player.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

should shut down

Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should

offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon

One reason why adverse selection problems arise in health insurance markets is that

sick people are more likely to want health insurance than healthy people

A warranty is an example of ________

signaling

Which of the following is a market-based solution to the problem of adverse selection?

signaling

You decide to carry a letter of recommendation from your college professor while going for your first interview. This is an example of ________

signaling

Which of the following is an example of pursuing a goal which is in a​ person's long-term​ interest?

succeeding in school

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

sunk costs

Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are

the differentiation of its products and the production of products at a lower average cost than competing firms

Which of the following factors will not cause the labor demand curve to shift? the wage rate changes in technology increases in human capital a change in the price of the product produced with labor

the wage rate

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money Refer to the scenario above. This is an example of a(n) ________

ultimatum game

(T/F) When marginal cost equals average total cost, average total cost is at its highest value

false

(T/F) If marginal cost is above the average variable cost, then average variable cost is decreasing.

false

Profit =

TR - TC or (P - ATC) x Q

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost

Which of the following would cause an increase in the equilibrium wage?

The demand for labor increases faster than the supply of labor

How will an increase in labor productivity affect equilibrium in the labor market?

The demand for labor will increase and the equilibrium wage and quantity of labor will increase

Which of the following will happen if a firm in a duopoly with homogeneous products increases its price above its marginal cost once a Nash equilibrium is reached?

The firm will lose all its customers to its rival

What is the difference between the marginal product of labor and the marginal revenue product of labor for a firm in a perfectly competitive​ market?

The marginal revenue product of labor is equal to the marginal product of labor multiplied by the product price

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

The prisoner's dilemma does not apply to most business situations that are repeated over and over.

Signaling takes place in markets with ________

asymmetric information

Adverse selection occurs in the market for used cars because used car buyers

have less information than used car sellers.

Diet Coke ________ considered a product in a monopoly market, because ________

is not; it has many substitutes

When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

moral hazard

a best response is ______

one player's optimal action choice taking the other player's action as given

The highest-valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

A game is called a simultaneous move game if ________

players choose their actions at the same time

Firms often refer to the process of lowering average fixed cost as "______________________."

spreading the overhead

A ________ is a complete plan describing how a player will act

strategy

In the long run, a perfectly competitive market will

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

Economically rational means that consumers and firms

take actions that are appropriate to reach goals given available information

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

the principle-agent problem

An individual's labor supply curve shows

the relationship between wages and the quantity of labor that she is willing to supply.

A payoff matrix shows ________.

the return from each action that players can take in a game

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

$15

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

$25

If at​ equilibrium, the marginal cost faced by a firm is​ $6 and the marginal product of the last unit of labor hired by the firm is 2​ units, the market wage rate must​ be:

$3

If the value of marginal product of a worker is​ $40 and the marginal product of the worker is 8​ units, the market price of the good he produces​ is:

$5

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is

$700

If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?

$80

Asymmetric Information

(between buyers and sellers) . hidden actions . hidden characteristics

Backwards Bending Labor Supply Curve

- the higher wages lead to less labor supply (increase in wages can equal more leisure hours)

What causes changes in labor supply?

1. Changes in population 2. Changes in alternatives

How can monopolies form?

1. Government action blocks - patents and copyrights - public franchise 2. Control of a key resource 3. Network externalities : value of a product increases the more people use it 4. Natural Monopoly - economies of scale - one firm can supply more cheaply than multiple firms

why does labor demand change?

1. Human capital 2. Changes in technology - labor-saving tech (reduce the demand for labor) - labor-complimentary technology (increases the demand for labor) 3. Changes in the price of the output good 4. Changes in the number of firms

Micheal Porter's Five Forces

1. competition for existing firms 2. threat from potential entrance 3. competition from substitutes 4. bargaining power of buyers 5. bargaining power of suppliers

oligopoly competition

1. few firms 2. some barriers to entry 3. identical or diff. products

perfect competition

1. many buyers and sellers, all small 2. identical products 3. no barriers to entry

monopolistic competition

1. many firms 2. low barriers to entry 3. differentiated products ex: restaurants

monopoly

1. one seller 2. one unique product with no close substitutes 3. barriers to entry

Behavioral economics (rules)

1. people try to choose the best feasible option, but sometimes fail 2. people care (in part) about reference points 3. people have self control problems 4. limiting peoples choices could make them better off, but in practice, the reward is mixed

a game has...

1. players 2. strategies 3. payoffs

price increase

1. sells fewer units 2. more revenue per unit

Which of the following is an example of adverse selection?

A customer buying a defective appliance from a used goods market

Which one of the following about a monopoly is false?

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly

Which of the following is likely to cause a decrease in the wage rate and an increase in the employment level of a country?

A right shift in the supply curve for labor, without any change in the demand curve for labor

Which of the following is true of a simultaneous move game?

All relevant benefits and costs of each action are taken into account

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions?

Amazon took these actions to compete more effectively with existing online booksellers

Why is the supply curve of labor usually upward​ sloping?

As the wage increases​, the opportunity cost of leisure increases​, causing individuals to devote more time to working

Which of the following is not true for a firm in perfect competition? Profit equals total revenue minus total cost. Marginal revenue equals the change in total revenue from selling one more unit. Price equals average revenue. Average revenue is greater than marginal revenue

Average revenue is greater than marginal revenue

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?

Because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power

In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome?

Consumers have an incentive to​ over-consume health care services because they pay prices well below the cost of providing these services.

What is the dominant strategy in the prisoner's dilemma?

Each prisoner confesses because this is the rational action to pursue

Define economic discrimination.

Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as gender

Which of the following statements is false? An implicit cost is a nonmonetary opportunity cost. An explicit cost is a cost that involves spending money. Economic costs include both accounting costs and implicit costs. Economists consider all costs to be implicit costs

Economists consider all costs to be implicit costs

Which of the following statements is true? Employers are willing to forego profits when engaging in taste-based discrimination. Employers are willing to forego profits when engaging in special interest group discrimination. Employers are willing to forego profits when engaging in cultural discrimination. Employers are willing to forego profits when engaging in statistical discrimination.

Employers are willing to forego profits when engaging in taste-based discrimination

Which of the following correctly identifies a difference between taste-based discrimination and statistical discrimination?

Employers engaging in taste-based discrimination are willing to forego profits, whereas employers engaging in statistical discrimination are trying to enhance profits

What does the phrase "internalizing an external cost" mean?

Forcing producers to factor into their production costs the cost of the externalities created in the production of their output

Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a great seat in the sun on a​ hot, humid​ day: ​"Granted, I could have moved under the overhang and enjoyed​ today's contest from a​ nice, cool, shady seat. But when you paid​ forty-five dollars for a ticket in the fourth​ row, it's tough to move back to the​ twenty-fourth [row]." ​Source: Rob​ Neyer, Feeding the Green Monster​, New​ York: iPublish.com,​ 2001, p.50. What should Rob​ do?

He should weigh the marginal cost of moving into the shade​ (a less desirable​ view) versus the marginal benefit of being under the shade

Which of the following is true of an extensive-form game?

It involves sequential decision making by the players

Which of the following statements best describes the economic short run?

It is a period during which at least one of the firm's inputs is fixed

What is the principal-agent problem?

It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.

What is moral hazard?

It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

What is adverse selection?

It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

Which of the following is true of a payoff matrix?

It takes into account all relevant costs and benefits associated with each action of the players.

Which of the following statements is​ true? A. Educational qualifications and wage rates are negatively correlated. B. Lower wages are normally offered for jobs with better amenities. C. Incentives are normally higher for desirable occupations in comparison to undesirable occupations. D. Jobs that are relatively risky pay a lower wage than other safer jobs.

Lower wages are normally offered for jobs with better amenities

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

MR > AVC

Which of the following is true of a Nash equilibrium?

No player can improve his payoff by changing his strategy once in Nash equilibrium

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes

The average price of gasoline in your neighborhood is $2.15 per gallon. Your neighbor, Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $2.06 per gallon However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to you?

No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station

The average price of gasoline in your neighborhood is​ $2.15 per gallon. Your​ neighbor, Diana tells you that you can​ "save a​ lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is​ $2.06 per gallon.​ However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to​ you?

No, if one factors in the​ non-monetary opportunity costs​ (driving time and waiting in​ line), it could prove more costly to go to the​ lower-priced gasoline station

Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand. As a result, the firm's market share is almost 100 percent. Meanwhile, other firms are trying to regain their market shares through research and development. Is this firm a monopolist?

No, there is potential competition

Is the fact that one group in the population has higher earnings than other groups evidence of economic​ discrimination?

No. Differences in earnings between groups could be due to worker productivity. No. Differences in earnings between groups could be due to worker preferences

If wages​ increase, will a worker supply more​ labor?

Only if the effect of the opportunity cost of leisure increasing is larger than that of the increase in purchasing power

Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is

P x MP > W

Which of the following is not a result of government price controls? Some people win and some people lose. Price controls decrease economic efficiency. Price controls benefit poor consumers but harm producers and wealthy consumers. A deadweight loss will occur

Price controls benefit poor consumers but harm producers and wealthy consumers

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Restaurants do not sell identical products

Suppose you pre-ordered a non-refundable movie ticket to X-Men: Apocalypse. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not.

Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?

Technological advances such as cable television has increased the demand for sports entertainment

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same

A student​ argues, ​"The prisoner's dilemma game is unrealistic. Each​ player's strategy is based on the assumption that the other player​ won't cooperate. But if each player assumes that the other player will​ cooperate, then the​ 'dilemma' disappears." Is this argument correct or​ incorrect?

The argument is incorrect. The best strategy for each player is to not cooperate no matter what the other player does

Which of the following correctly identifies the difference between the demand for labor and the demand for final goods?

The demand for labor is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for labor

In what sense do employers who discriminate pay an economic​ penalty?

The employers face higher​ costs, lower profit and eventual elimination from the market.

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and the equilibrium quantity of labor rise

Which of the following is likely to lead to a left shift in the supply curve for labor to a firm?

The establishment of a new firm nearby that offers higher wages

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation

Other things remaining the same, which of the following is likely to happen if there is a decrease in the price of flour products?

There will be a decrease in both the wage rate and the employment levels in the flour industry

Ceteris paribus​, which of the following is likely to happen if an industry introduces​ labor-saving technology in​ production?

There will be a decrease in both the wage rate and the employment levels in the industry

Other things remaining the same, which of the following is likely to happen if all homemakers in an economy start working as paid labor?

There will be a fall in the wage rate in the country and an increase in the employment level

The typical labor supply curve is upward sloping but it is possible for the curve to be backward bending — negatively sloped — at very high wage levels. Which of the following would cause a backward-bending supply curve?

This would occur when the income effect from an increase in the wage becomes larger than the substitution effect

If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then

To maximize profit the firm should increase output

Total Profit =

Total Revenue - Total Cost

Average total cost is equal to

Total cost divided by the quantity of output produced

The total value to society of having garbage removed is greater than the value of baseball games. Why, then, are baseball players paid more than garbage collectors?

Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors

Which of the following is an example of a long-run adjustment? Walmart builds another Supercenter. A soybean farmer turns on the irrigation system after a month long dry spell. Ford Motor Company lays off 2,000 assembly line workers. Your university offers Saturday morning classes next fall

Walmart builds another Supercenter

Let MRP equal the marginal revenue product of labor and W equal the wage rate. When should a firm hire more workers to increase​ profit?

When MRP ​> W

Women typically earn less than men, even in the same occupation. Which of the following is an explanation for this discrepancy?

Women have, on average, less workforce experience than men of the same age

Which of the following is a likely reason for wage inequality between men and women?

Women tend to spend more time out of the labor force as compared to men

Is there a connection between how people are paid and what they contribute to​ people's well​ being?

Yes, because if the output of a market improves well​ being, then all else​ equal, more people will demand the​ product, the labor used to produce it will​ increase, and the wage rate will rise

Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness?

You will trust the mechanic and he will cooperate

If the painting firms in a city sign a contract outlining a pricing plan, they are involved in

collusion

Which of the factors listed below does not cause the demand curve for labor to​ shift? A. a change in technology B. a change in the price of the product C. a change in human capital D. a change in the wage

a change in the wage

Larry and Mike are equally skilled construction workers employed by the Brown and Root Company. Larry's job is riskier because he typically works on a scaffold 1,000 feet above ground. Larry's higher wage rate is the result of

a compensating differential

Which of the following is the best example of a perfectly competitive firm? the Ford Motor Company a corn farmer in Illinois United Parcel Service (UPS) a Taco Bell restaurant

a corn farmer in Illinois

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?

a decision tree

A price maker is

a firm that has some control over the price of the product it sells

Relative to a perfectly competitive market, a monopoly results in

a gain in producer surplus less than the loss in consumer surplus

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

A firm can use anchoring to influence consumer choices so as to increase sales by marking

a high "regular price" on a product, which makes the discounted "sale price"appear to be a bargain

Consider a used car market in which half the cars are good and half are bad (lemons). If buyers are rational, the prices being offered for used cars will result in

a larger proportion of lemons being sold and consequently, producer surplus is increased.

behavioral economics

a relatively new field of economics that uses variations of traditional assumptions about rationality and optimization to explain behavior, often drawing from insights in psychology

Nash Equilibrium

a set of strategies in which no player ha an incentive to change

A dominant strategy is

a strategy that is the best for a firm no matter what strategies other firms use

Which of the following would be categorized as an opportunity cost? a. not being able to spend your $10,000 savings if you sink the money in your business b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business

a. only

market power

ability to set P > MC

Marginal cost is the

additional cost of producing an additional unit of output

An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above?

adverse selection

An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above?

adverse selection

Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly lemons at this price. What is the term used to describe this situation?

adverse selection

Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Which of the following problems is likely to arise in the market for used cell phones in Barylia?

adverse selection

________ occurs when one agent in a transaction knows about a hidden characteristic of a good

adverse selection

hidden characteristics -->

adverse selection

signaling

an action taken by an informed party to reveal private information to an uninformed party - costly actions undertaken to indicate private information to others

An increase in the demand for orthodontic services leads to

an increase in the demand for orthodontists

An increase in a perfectly competitive firm's demand for labor could be caused by

an increase in the market demand for the firm's product.

Which of the following is likely to lead to a left shift in the demand curve for labor in the petroleum extraction​ industry? A. An increase in the price of petroleum B. An increase in the price of cars C. An increase in the wage rate D. A decrease in the wage rate

an increase in the price of cars

If the demand for labor is unchanged, an increase in the supply of labor will lead to

an increase in the quantity of labor demanded and a decrease in the equilibrium wage

A decrease in the wage rate causes

an increase in the quantity of labor demanded.

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money Refer to the scenario above. A player should use ________ to play this game

backward induction

Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction Refer to the scenario above. You should use ________ to arrive at a decision

backward induction

The first mover in an extensive-form game should use ________ to win the game

backward induction

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?

because Microsoft could potentially lose sales if it sets prices indiscriminately

Which of the following statements about rent seeking is false?

because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

Which branch of economics considers that economic agents do not always act rationally?

behavioral economics

Company A and Company B are considering whether to spend a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does​ not, Company​ A's annual sales will increase by​ $5 million while Company​ B's sales will remain unchanged. If Company B chooses to advertise while Company A does​ not, Company​ B's annual sales will increase by​ $5 million while Company A will not experience any change in its sales. If both companies decide to​ advertise, their sales will increase by​ $2 million each and if neither spends on​ advertisement, their sales will remain unchanged. Refer to the scenario above. If the cost of advertising is​ negligible, what will be the outcome of this​ game?

both companies will advertise

What happens as a firm increases the number of workers that it​ hires?

both the marginal product of labor and the marginal revenue product of labor decrease

P = ATC

break even zero economic profits shut down point

In a market with asymmetric information, ________.

buyers and sellers have different information about the good being traded

Adverse selection arises in the health insurance market because ________

buyers have private information

In the market for health​ insurance, asymmetric information problems arise because

buyers of health insurance policies always know more about the state of their health than do the insurance companies

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. How can you convince your manager that you are worth more money than you are currently being paid?

by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop

The substitution effect of a wage increase

causes a worker to supply a larger quantity of​ labor, and the income effect causes a worker to supply a smaller quantity of labor.

In an oligopoly, firms can increase their market power by

colluding to set prices

The economic penalty is not enough to eliminate discrimination because of the presence of all of the following except​ customer discrimination. worker discrimination. negative feedback loops. compensating differentials

compensating differentials

As word processing on personal computers expanded, sales of typewriters began to disappear. Which competitive force does this event demonstrate?

competition from substitute goods or services

fixed costs remain ______ as output increases

constant

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus

Which of the following is most likely to a variable cost for a business​ firm? A. property taxes B. cost of shipping products C. interest on​ long-term outstanding bonds D. rent on the office building

cost of shipping products

Sunk costs are

costs that have already been paid and cannot be recaptured in any significant way

Customer discrimination occurs when

customers refuse to buy products produced by a racially diverse workforce.

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?

decision nodes

the demand for labor is a _________ demand

derived

compensating wage differentials

differences in wages that offset differences in working conditions

In order to be useful as a signal in a market with information asymmetry, the signal must be ________

difficult to obtain

taste-based discrimination

discrimination that arises due to people's prejudices against a group of people

For a perfectly competitive firm, which of the following is not true at profit maximization?

each buyer and seller is too small relative to others to independently affect the market price

A Nash equilibrium occurs if ________

each player chooses strategies that are mutual best responses

A Nash equilibrium is reached when

each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group

In a simultaneous move game, ________

each player has to make his choice without knowing his rival's choice

If two duopolists can collude successfully, then both will

earn greater profits than if they did not collude

Any cost that remains unchanged as output changes represents a​ firm's

fixed cost

P < ATC

economic losses business will shut down

P > ATC

economic profit stay in business in the short run

economic profits lead to firm _______

entry

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price

If fixed costs do not change, then marginal cost

equals the change in variable cost divided by the change in output.

economic losses lead to firm _______

exit

(T/F) All else equal, as the price of a product falls, the quantity supplied increases

false

(T/F) Due to adverse selection, very few lemons will be sold in the market for used cars

false

(T/F) Economic costs include implicit costs but not explicit costs

false

(T/F) If price is equal to average variable cost, then a perfectly competitive firm breaks even.

false

(T/F) If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage

false

(T/F) Technological advancements that increase labor's productivity shift the labor supply curve to the right.

false

(T/F) The incidence of a tax depends on whether the government collects the tax from buyers or sellers

false

(T/F) The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services

false

The perfectly competitive market structure benefits consumers because

firms are forced by competitive pressure to be as efficient as possible.

In long-run perfectly competitive equilibrium, which of the following is false?

firms earn an economic profit

Most economists believe that a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Which of the following factors is not another factor that explains part of this gap? geographic location differences in education differing preferences for jobs differences in experience

geographic location

productive efficiency

goods and services are produced at the lowest possible cost

A patent or copyright is a barrier to entry based on

government action to protect a producer.

A profit-maximizing monopoly's price is

greater than the price that would prevail if the industry was perfectly competitive

A profit maximizing monopoly's price is

greater than the price that would prevail if the industry was perfectly competitive.

Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Based on the given information, we can conclude that the market for used cell phones in Barylia:

has asymmetric information

Compensating differentials are associated most closely with which of the following?

hazardous jobs

In an extensive-form game, payoff to a player is usually higher if ________

he is the first mover

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund Refer to the scenario above. If Joseph prefers money to fairness, _______

he will always accept any offer made to him

_____ discourage low-risk individuals from seeking health insurance

high premiums

when switching costs are _______, suppliers have more bargaining power

higher

Compensating differentials are

higher wages that compensate workers for unpleasant aspects of a job

The combined effect (both income and substitution) of a wage increase is that

if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending

As the income of an individual​ increases, he can afford more leisure. This refers to the​ ________ of a wage increase.

income effect

Which of the following is a source of market failure?

incomplete property rights or inability to enforce property rights

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

increase its output

As output __________, average fixed cost becomes smaller and smaller

increases

Which of the following helps in reducing the problem of adverse selection in health insurance markets?

insurance mandates

Which of the following is most likely to be a fixed cost for a​ farmer? A.cost of seeds B.cost of fertilizer C.wages paid to farm workers D.insurance premiums on property

insurance premiums on property

A public franchise

is a government designation that a private firm is the only legal producer of a good or service

The demand for labor is described as a derived demand because

it is derived from the demand for products that use labor in the production process

The long run refers to a time period

long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant

The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is the value of the:

marginal product of the worker should be equal to or greater than the wage rate

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?

marginal revenue is less than price

A firm's demand for labor curve is also called its

marginal revenue product of labor curve.

The marginal cost curve intersects the average variable cost curve and the average total cost curve at their ____________ points

minimum

Joseph starts driving with much less care after buying car insurance. His behavior is an example of ________.

moral hazard

Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________

moral hazard

State provision of free healthcare may encourage individuals to engage in unhealthy behavior, such as excessive smoking or consumption of alcohol. This is an example of ________.

moral hazard

A Nash equilibrium occurs when ________

none of the players can increase their payoffs by choosing a different strategy

implicit costs

nonmonetary opportunity costs

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

nothing at all; the firm shuts down

The basic idea behind moral hazard is that ________

people tend to take more risks if they do not have to bear the costs of their behavior

in perfect competition, production takes place until

price equals marginal cost

allocative efficiency

production represents consumer preferences

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

productive efficiency

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?

public goods

Sequential games are used to analyze

situations in which one firm acts and other firms respond.

Employers engaging in ________ try to enhance their profits

statistical discrimination

When expectations cause people to discriminate against a certain group, it is referred to as:

statistical discrimination

Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as:

taste based discrimination

An employer discriminating against Asian workers is an example​ of:

taste-based discrimination

The processes a firm uses to turn inputs into outputs of goods and services is called

technology

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

the ability to produce the product at a lower cost

The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and

the additional revenue received from selling the output produced as a result of hiring an additional worker

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint

marginal product of labor

the change in output from hiring one additional unit of labor - how much does each additional worker produce?

Which of the following is likely to be used as a signal in the job market? The degree obtained by the applicant An announcement of vacancy The job description The letter of appointment

the degree obtained by the applicant

The term "derived demand" refers to

the demand for a factor of production that is derived from the demand for the good the factor produces.

As the wage​ increases,

the demand for labor curve does not​ shift, but the quantity demanded of labor decreases.

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that

the demand for tarot card readers has increased

What is likely to happen in a used-car market if the buyers feel that the best they can do is to buy a lemon?

the entire market shuts down

A firm's primary interest when it hires an additional worker is

the extra revenue the firm realizes from hiring that worker

What is always true at the quantity where a firm's average total cost equals average revenue?

the firm breaks even

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

the firm will not sell any output

The condition to decide on the optimal amount of leisure is​ that:

the marginal benefit of leisure should be equal to the wage rate

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is

the marginal revenue product of baseball players is greater than the marginal revenue product of college professors

In perfect competition,

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

The demand curve for a monopoly's product is

the market demand for the product

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

the moral hazard problem

Implicit costs can be defined as

the non-monetary opportunity cost of using the firm's own resources

The labor supply for an industry would decrease if the government welcomes foreign workers into the country. the percentage of the population from age 16 to 65 decreases. a greater percentage of women want to work outside the home. the wage rate falls.

the percentage of the population from age 16 to 65 decreases.

Mr. Smith put his laptop up for sale. He is aware of the fact that the laptop malfunctions frequently. However, none of the potential customers who came to buy the laptop were able to discover the problem and one of them actually bought it at a remunerative price. This occurred due to _______

the presence of asymmetric information

law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

human capital

the stock of skills that each person has that helps determine their productivity (knowledge, skills, education, etc)

What is behavioral economics?

the study of situations in which people act in ways that are not economically rational

If Molly Bee increases her work hours when her wage increases, then

the substitution effect of the wage increase outweighs the income effect.

Economic efficiency in a free market occurs when

the sum of consumer surplus and producer surplus is maximized.

If in the market for peaches the supply curve has shifted to the left

the supply of peaches has decreased

The opportunity cost of leisure is

the wage rate

A monopoly is characterized by all of the following except entry barriers are high. there are only a few sellers, each selling a unique product. there are no close substitutes to the firm's product. the firm has market power

there are only a few sellers, each selling a unique product.

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

threatening to raise prices

(T/F) A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem

true

(T/F) Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction

true

(T/F) An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

true

(T/F) An increase in the price of grape juice causes an increase in the marginal revenue product of labor used to produce grape juice

true

(T/F) An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied

true

(T/F) For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small

true

(T/F) Higher wages that compensate workers for unpleasant aspects of a job are called compensating differentials

true

(T/F) If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost

true

(T/F) Increases in population shift the market supply curve for labor to the right

true

(T/F) One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

true

(T/F) The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers

true

Scenario: Robert and Alice are participating in a reality show on television. Robert is offered an amount of $500 and told that he can keep the money provided he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money Refer to the scenario above. This is an example of a(n) ________

ultimatum game

Game theory is applicable to oligopoly behavior because oligopolists

use strategic behavior

statistical discrimination

using information about group averages to make conclusions about individuals

in the long run, all of the firms costs are ________ costs

variable

Any cost that changes as output changes represents a​ firm's

variable cost

Because warranties are potentially ________, low-quality goods are ________ to have warranties.

very expensive; less likely

In the case of​ leisure, the substitution effect implies​ that:

when the price of leisure​ increases, people will work more

The prisoner's dilemma illustrates

why firms will not cooperate if they behave strategically

A monopoly is the only seller of a product

without a close substitute


Conjuntos de estudio relacionados

Overview of The Scrum Development Process

View Set

Knewton Alta Lesson 5 Assignment

View Set

software engineering chapter 3 Agile software development

View Set

Public Health Pest Control Unit 4. Test Your Knowledge

View Set

A&P IL2 Structure & Function of Cerebellum

View Set