Economic Final Exam (Ch7-Ch14)

d. reputation

A landscaper who gets most of her customers because she is widely known to do great work is relying on ______. a. warranties b. standardization c. screening d. reputation

a. Average cost will be lower after the sixth application.

A pest-control service charges its clients $250 per application but changes the rate to $200 after five applications and $150 after ten applications. Which of the following correctly describes the average cost of the service? a. Average cost will be lower after the sixth application. b. Average cost does not change until the tenth application. c. Average cost does not change based on number of applications. d. Average cost will be higher after the sixth application.

a. stop purchasing

A rational consumer will ______ a good when other goods yield greater satisfaction for the amount spent. a. stop purchasing b. gain interest in c. continue buying d. buy more of

c. diminishing marginal utility

According to the law of ______, as a person uses more and more units of a good to satisfy a given want, the intensity of the want and the utility derived from further satisfying that want decrease. a. consumer choice b. consumer equilibrium c. diminishing marginal utility d. total utility

c. allowing one worker to run the cash register while the other bakes

Adding a second employee to small bakery would most likely improve marginal product by ______. a. making it possible to use a larger oven b. putting peer pressure on both people to work harder c. allowing one worker to run the cash register while the other bakes d. spreading fixed costs over a larger number of workers

D. fixed

Alonso is a lawyer who works by himself out of an office on Main Street. Recently, his mother became ill, and he had to close his practice for two months while he took care of her. Even though his business had no output during those months, Alonso still had ______ costs. a. labor b. marginal c. variable d. fixed

b. positive externalities

Benefits spill over to outside parties with ______. a. positive internalities b. positive externalities c. negative externalities d. negative internalities

b. club good

Betsy teaches an online education course that requires a subscription for access. Betsy's course best represents a ______. a. private good b. club good c. common good d. public good

negative externalities

Cars exhibit ______ in their consumption, specifically pollution, congestion, and accidents. negative externalities non-rivalry positive externalities non-excludability

both a and c

Coffee is ______. excludable non-excludable rival non-rival both a and c both b and d

c. Ray's Lubricants produces little pollution and sells another company its permit to produce a certain amount of additional pollution.

Which of the following examples represents the transferrable pollution rights approach? a. Gordon's Fertilizer receives a government payment for each purchase of an environmentally friendly nitrate it adds to its products. b. Layla's Engines has to pay a tax when it purchases a polluting chemical used in its manufacturing process. c. Ray's Lubricants produces little pollution and sells another company its permit to produce a certain amount of additional pollution. d. Marti's Charcoal is required to purchase a mandated filter to reduce its harmful smoke emissions.

b. When a farm raises its produce price slightly above market price, buyers go to other suppliers

Which of the following examples shows a perfectly competitive market? a. When a manufacturer raises its product price above market price, sales remain the same. b. When a farm raises its produce price slightly above market price, buyers go to other suppliers. c. When a retailer raises its merchandise price above market price, other retailers follow suit. d. When a legal firm raises its fees above market price, its clientele is reduced by 10 percent.

a. the endowment effect

Which of the following explains why consumers value their personal property more than other people's property? a. the endowment effect b. compartmentalizing c. anchoring d. fairness

a. MR = MC

Which of the following formulas represents the profit maximizing level of output? a. MR = MC b. MR = ATC c. MR > MC d. MR > ATC

d. $140 = $7 × 20 bushels

Which of the following formulas shows a calculation of total revenue? a. $200 = ($20 × 10 bushels) ÷ 10 b. $120 = $80 + $40 c. $100 = $500 ÷ 5 bushels d. $140 = $7 × 20 bushels

A tax A subsidy A price floor A price ceiling

Which of the following government policies could push a market exhibiting negative externalities closer to the socially optimal quantity of transactions? Choose all that apply. A tax A subsidy A price floor A price ceiling

d. anchoring

Which of the following is a type of framing bias? a. the gambler's fallacy b. compartmentalizing c. the endowment effect d. anchoring

a. Marginal revenue is equal to average revenue and constant at all outputs.

Which of the following is an accurate statement about a perfectly competitive market? a. Marginal revenue is equal to average revenue and constant at all outputs. b. Marginal revenue is equal to total revenue but varies at different outputs. c. Marginal revenue is equal to average revenue but varies at different outputs. d. Marginal revenue is equal to total revenue and constant at all outputs.

c. Consumers try to maximize their utility in spite of their budget constraints.

Which of the following is an assumption of the traditional economic model? a. Consumers lack clear preferences for some goods over other goods. b. Consumers rarely act with self-control or clear decision-making. c. Consumers try to maximize their utility in spite of their budget constraints. d. Consumers are slow to respond to changes in price or income.

a. Even though Rose, Inc. sells 1,000 more units, the price stays the same.

Which of the following is an example of a perfectly competitive market? a. Even though Rose, Inc. sells 1,000 more units, the price stays the same. b. When Carnation, Inc. sells 500 units, the price rises from $5 to $7 per unit. c. As Daisy, Inc. sells 700 units, the price gradually lowers from $8 to $5 per unit. d. While Lilac, Inc. sells 1,200 units, the price rises from $4 to $8 per unit and then lowers to $6 per unit.

c. Thanks to its size, the chain was able to purchase larger amounts of produce from wholesalers at a lower per-unit price.

Which of the following is an example of economies of scale at work in a growing supermarket chain? a. Each new store brought with it new utility and maintenance costs. b. As the chain grew, it became more difficult for senior management to keep track of what was happening at its many locations. c. Thanks to its size, the chain was able to purchase larger amounts of produce from wholesalers at a lower per-unit price. d. As the chain bought up local, independent grocers, it was careful not to alienate their existing customers.

d. consumer equilibrium

Which of the following is synonymous with maximum consumer satisfaction? a. the endowment effect b. bounded rationality c. diminishing marginal utility d. consumer equilibrium

d. staying open

Which of the following is the best option for a firm that can cover variable costs, but not most fixed costs in the short run? a. shutting down b. expanding c. exiting d. staying open

c. law of diminishing marginal utility

Which of the following principles explains why consumers eventually stop buying additional units of an item? a. law of total utility b. substitution effect c. law of diminishing marginal utility d. income effect

b. Sandra is a busy mom, so she chooses a cell phone provider based on the recommendation of a friend.

Which of the following situations provides evidence for Herbert Simon's theory of bounded rationality? a. Terrence has never bought a car before, so he does extensive research online and ranks his options on a spreadsheet. b. Sandra is a busy mom, so she chooses a cell phone provider based on the recommendation of a friend. c. Kara hates to buy generic cosmetic brands even though she cannot afford luxury brands on her salary. d. Baz is paranoid about running out of money, so he always eats fast-food because it is the cheapest.

a. It will shut down.

Which of the following will happen to a firm when P × q is less than VC? a. It will shut down. b. It will exit. c. It will make a profit. d. It will take a loss but stay open

d. Consumer satisfaction is relative to the individual, and no two individuals are alike.

Why do economists believe it is impossible to make interpersonal utility comparisons? a. It would be foolish to think that all consumers are driven by the desire for satisfaction. b. Consumers are usually dishonest about how much utility they derive from a good. c. It is impossible to quantitatively measure consumer satisfaction. d. Consumer satisfaction is relative to the individual, and no two individuals are alike.

a. It takes more time to alter some inputs than others.

Why is it important to distinguish between the short run and the long run when making production decisions? a. It takes more time to alter some inputs than others. b. Short-run solutions tend to have more implicit costs. c. Accountants track short-run but not long-run costs. d. Long-run decisions cannot be changed once approved.

c. profits

Economists assume the goal of every firm is to maximize ______. a. costs b. quality c. profits d. incentives

c. negative externality

Economists would say that a person who chooses not to become vaccinated against a contagious disease creates a ______. a. free ride b. positive externality c. negative externality d. moral hazard

b. takers

Firms that have no control over prices are called price ______. a. passive b. takers c. inactive d. users

d. substitution

If a consumer switches to another similar good when the price of the preferred good increases, this is known as the ______ effect. a. marginal utility b. income c. total utility d. substitution

c. shift to the left

If firms had to pay for the externalities they cause, the supply curve would ______. a. become inverted b. remain unaffected c. shift to the left d. shift to the right

c. Consumers will derive less utility per dollar from purchasing a new hybrid vehicle than they did last year.

If the price of hybrid vehicles increases this year over last year, which of the following is most likely to happen? a. Consumers will buy fewer electric or gas-powered vehicles than they did last year. b. Consumers will buy more hybrid vehicles than they did last year. c. Consumers will derive less utility per dollar from purchasing a new hybrid vehicle than they did last year. d. Consumers will derive greater utility from the hybrid vehicles they purchased last year.

c. overproduce

If there is no intervention in the market, what will polluters usually do? a. reach optimal production b. underproduce c. overproduce d. cease production altogether

b. marginal utility

In a state of consumer equilibrium, each good provides the consumer with the same level of ______ per dollar spent. a. income b. marginal utility c. choice d. total utility

b. a period over which all production inputs are variable

In terms of production, what do economists mean by the long run? a. manufacturing projections for the following fiscal year b. a period over which all production inputs are variable c. the time it takes staff to reach peak productivity d. the length of time it takes to hire and train staff

b. low

In the Coase theorem, externalities can be internalized if transaction costs are ______. a. flexible b. low c. zero d. high

a. clearly defined

In the Coase theorem, property rights are ______. a. clearly defined b. undefined c. abstractly defined d. incorrectly defined

a. A manufacturer exposes two million people to a strong carcinogen.

In which of the following scenarios would transaction costs likely be highest? a. A manufacturer exposes two million people to a strong carcinogen. b. Kat has a disagreement with her neighbor about littering. c. Kristoff downloads a song from an online service. d. A major school system orders 250 busses from a local manufacturer.

c. diminishing marginal product

Maryam owns a successful plant nursery. Over the years she has expanded her greenhouses several times. The first three expansions were all highly productive. The fourth and fifth expansions have also contributed to her business, but they have not been as productive as the prior expansions because Maryam had to build in areas that receive less sunshine. Maryam's experience is an example of ______. a. constant returns to scale b. the impact of total variable costs c. diminishing marginal product d. the impact of implicit costs

free riding

Molly listens to National Public Radio on her drive to work every morning, but she has never donated money during any of NPR's fundraising drives. NPR is struggling to get enough funding from its listeners. This is an example of: exclusion free riding a negative externality rivalry

a. Put up a locked gate and rent keys to paying hikers.

Mr. Lin owns a huge forest with enough miles of hiking trails to accommodate an almost limitless number of hikers. How can he make this forest a club good? a. Put up a locked gate and rent keys to paying hikers. b. Plant a wider variety of tree species in his forest. c. Destroy all of the hiking trails except for one small path. d. Remove the fence that surrounds much of his property.

both b and d

National public radio is ____. excludable non-excludable rival non-rival both a and c both b and d

d. It explains why consumers often miscalculate the utility of a decision due to their failure to think about their future self.

Why is the fact that consumers often lack self-control relevant to behavioral economists? a. It explains why consumers often buy into the fallacy that past outcomes will affect future events. b. It explains why consumers often imagine that money has more or less value depending on where it came from. c. It explains why consumers often give more weight to the opinions of people they know than to the opinions of experts. d. It explains why consumers often miscalculate the utility of a decision due to their failure to think about their future self.

a. online services

You can find the history of a used car before you buy it by using ______. a. online services b. the Tragedy of the Commons c. durable good warranties d. the Federal Trade Commission

d. technology spillover

When a discovery by Firm A leads to an advancement by Firm B, it is called a ______. a. free rider problem b. negative externality c. patent protection d. technology spillover

b. variable cost

When a firm's total output is zero, its ______ is also zero. a. fixed cost b. variable cost c. total cost curve d. long-run cost

d. there may be no reasonable solution

When a pollution control solution cannot be reached privately, ______. a. the perceived market failure does not really exist b. it will be efficiently resolved by the government c. one party is being dishonest with the other d. there may be no reasonable solution

c. decreases average total cost

When marginal cost of another unit of output is less than the current value of average total cost, producing another unit of output a. has no effect on average total cost b. increases average total cost c. decreases average total cost d. increases average fixed cost

a. switch products

When marginal utility drops too low, consumers are likely to ______. a. switch products b. increase consumption c. reach equilibrium d. earn less

c. lemon problem

When potential buyers offer a low price for something because they are unsure of its quality, it is called the ______. a. adverse selection b. moral hazard c. lemon problem d. common tragedy

c. marginal cost is falling

When the marginal product of labor is rising, ______. a. average fixed costs are rising b. hourly output is falling c. marginal cost is falling d. average total cost is rising

d. equal to or below it

Where does a firm's long-run average total cost curve lie in relation to its short-run average total cost curve? a. equal to or above it b. below it by a fixed amount c. above it by a fixed amount d. equal to or below it

c. regulation

Which approach is being used if the government requires furnace manufacturers to include components that make furnaces burn cleaner? a. taxation b. signaling c. regulation d. subsidization

b. Mr. Ryan reseals his patio annually because of acid rain corrosion.

Which consequence of State Steel's manufacturing plant pollution is pecuniary? a. Ms. Ramirez often cannot see the stars because of the exhaust plume from the plant .b. Mr. Ryan reseals his patio annually because of acid rain corrosion. c. Mrs. Reed often feels congested when the wind blows in her direction from the plant. d. Mr. Reno's nearby cypress trees do not look as full or green as they should.

b. MC > AVC

Which equation shows the relationship of MC to AVC when AVC is rising? a. ΔMC/ΔVC b. MC > AVC c. MC < AVC d. ΔVC/Δq

c. a large farm

Which item is most likely to be excludable? a. national defense b. mosquito control c. a large farm d. the sunset

D. Horizontal

Which of the following accurately describe the seller's demand curve in a perfectly competitive market? a. downward slant b. upward slant c. vertical d. horizontal

c. Rational consumers seek to maximize their satisfaction for a given amount spent.

Which of the following assumptions is essential to the concept of diminishing marginal utility? a. Marginal utility can increase only if total utility and income hold steady. b. Consumers seek to avoid equilibrium because it benefits sellers but not consumers. c. Rational consumers seek to maximize their satisfaction for a given amount spent. d. Total utility decreases at the same rate as marginal utility

a. costs that do not vary with the level of output

Which of the following best defines fixed costs? a. costs that do not vary with the level of output b. costs related to the best alternative not pursued c. costs that have been incurred and cannot be recovered d. costs counted toward economic profits not accounting profits

d. require an outlay of money; do not require a monetary outlay

Which of the following best describes the difference between the explicit costs and implicit costs of production? Explicit costs ______, whereas implicit costs ______. a. are short-term expenses; are long-term expenses b. can be measured; cannot be measured c. relate to outputs; relate to inputs d. require an outlay of money; do not require a monetary outlay

a. fairness

Which of the following concepts does the ultimatum game best illustrate? a. fairness b. compartmentalizing c. the endowment effect d. anchoring

b. inefficient information dissemination

Which of the following conditions in a large firm would likely lead to diseconomies of scale? a. sophisticated equipment and technology b. inefficient information dissemination c. bulk purchase discounts d. targeted responsibility and specialization

b. It rises as output expands.

Which of the following correctly describes the LRATC curve when diseconomies of scale are present? a. It creates a U-shape. b. It rises as output expands. c. It falls as output expands. d. It shows a return to scale.

b. It is U-shaped.

Which of the following correctly describes the shape of a typical average total cost curve? a. It goes down as output goes up. b. It is U-shaped. c. It is horizontal. d. It declines but never reaches zero.

a. ($6 - $3) × 50 = 150

Which of the following equations would be used to calculate total economic profit? a. ($6 - $3) × 50 = 150 b. ($6 - $3) ÷ 50 = .06 c. ($6 + $3) × 50 = 450 d. ($6 + $3) ÷ 50 = .18

d. Cinch, Inc. enters the market with a minimum of cost and hassle

Which of the following examples most likely shows a firm entering a perfectly competitive market? a. Meridian, Inc. has to borrow considerable cash to be able to enter the market.b. Growth, Inc. has to fill out numerous legal forms to enter the market. c. Runyan, Inc. realizes they had to hire many skilled workers before entering the market. d. Cinch, Inc. enters the market with a minimum of cost and hassle

d. compartmentalizing

Dee's hardware store offers an in-store promotion in which the first 50 customers receive a free $10 gift card when they enter the store. Which of the following explains why some of the customers who receive a gift card will buy products they wouldn't normally buy? a. fairness b. the endowment effect c. anchoring d. compartmentalizing

c. total receipts per day and daily averages

Dolores is an accountant for a restaurant chain. Tracking ______ is therefore an important part of her job. a. trends in consumer dining habits b. nutritional information for menu items c. total receipts per day and daily averages d. the general manager's social media posts

a. She will buy the Kokomo Arnold record.

Duska collects pre-World War II blues records. She limits her total spending on records to $50 a week. The marginal utility she receives from a Bessie Smith record is 50 utils, whereas the marginal utility she receives from a Kokomo Arnold record is 40 utils. This week she sees a Bessie Smith record listed on eBay for $35 and a Kokomo Arnold record for $22. What action is she most likely to take? a. She will buy the Kokomo Arnold record. b. She won't buy either record. c. She will buy the Bessie Smith record. d. She will buy both records.

a. the greatest in the early stages

Gains in the attempt to eliminate pollution would probably be ______. a. the greatest in the early stages b. ineffective regardless of the level of effort c. steady as the effort continues d. increasingly effective as more money is spent

d. by exiting

How can a firm avoid fixed costs in the long run? a. by expanding b. by incorporating c. by shutting down d. by exiting

b. input costs that require a monetary payment

How do economists define explicit costs? a. costs that cannot be traced directly to a product b. input costs that require a monetary payment c. incurred costs that cannot be recovered d. costs that do not require a monetary payment

a. Consumers buy more at a lower price because they receive more marginal utility per dollar.

How does the law of diminishing marginal utility explain the law of demand? a. Consumers buy more at a lower price because they receive more marginal utility per dollar. b. Consumers buy less at a higher price because they receive more marginal utility per dollar. c. Consumers buy less as the total utility they receive increases. d. Consumers buy more as the marginal utility they receive diminishes.

b. 100

Laila is a multi-instrumentalist who plays both guitar and drums. Although she enjoys both, she enjoys playing guitar more than playing drums. Playing guitar generates for her 300 utils of satisfaction. Which of the following is a plausible estimate of the number of utils of satisfaction she derives from playing drums? a. 0 b. 100 c. 500 d. 300

a. decreases

Marginal utility ______ as consumption increases. a. decreases b. holds steady c. briefly decreases before increasing d. increases

d. the income effect

Paz loves to knit hats out of a special type of glow-in-the-dark yarn. Last week she noticed that the price of the yarn she uses had increased by $1.50 a skein. As a result, this week she bought only three skeins of yarn instead of her usual five. This is an example of ______. a. consumer equilibrium b. diminishing marginal utility c. the substitution effect d. the income effect

overprovide; a tax on junk food

People consume junk food because they like the taste of it, but junk food also makes people unhealthy. This eventually places a large strain on the US healthcare system, which is a negative externality of junk food consumption. The free market will ______ junk food. The government can potentially correct this market failure by imposing a _____. overprovide; a subsidy on junk food underprovide; a subsidy on junk food overprovide; a tax on junk food underprovide; a tax on junk food provide the socially optimal amount of; no need for government intervention

d. He will slightly increase the amount of eggs he eats relative to the amount of cereal he eats.

Samir derives 10 utils from eating eggs and 5 utils from eating cereal for breakfast. As a result, he begins to eat eggs in the morning twice as often as he eats cereal, changing the marginal utility he derives from eggs to 7 utils and from cereal to 6 utils. According to the principle of consumer equilibrium, what action is he most likely to take next week? a. He will stop eating cereal and eat only eggs in the morning. b. He will continue to eat eggs twice as often as he eats cereal. c. He will slightly decrease the amount of eggs he eats relative to the amount of cereal he eats. d. He will slightly increase the amount of eggs he eats relative to the amount of cereal he eats.

c. rival status and excludability

Something is characterized as a public good based on ______. a. total cost and portability b. how beneficial its ownership is c. rival status and excludability d. who purchases it

d. rivalrous consumption

Something that can be used by only one consumer has ______. a. moral hazard b. adverse selection c. nonrivalrous consumption d. rivalrous consumption

c. marginal product

The change in total product that results from a one-unit change in input is that unit's ______. a. quantity of labor b. accounting profit c. marginal product d. production function

b. the gambler's fallacy

The false belief that past outcomes affect future events is also known as ______. a. the endowment effect b. the gambler's fallacy c. framing d. anchoring

behavioral economics

The field of economics that considers the possibility that economic agents do NOT always behave rationally, that is, equate marginal benefit to marginal cost, is called choice economics behavioral economics irrational economics marginal analysis

b. a subsidy

The government could internalize a positive externality of consumption by providing ______. a. a technology spillover b. a subsidy c. a moral hazard d. an adverse selection

b. 400

The pear market has 2,000 identical firms, and the quantity supplied is 800,000 bushels of pears. Considering this, how many bushels of pears are supplied by one firm? a. 200 b. 400 c. 300 d. 500

c. AVC

The short-run supply curve is the portion of the MC curve above the minimum of the ______ curve. a. LRS b. ATC c. AVC d. MR

Since the noise pollution cost to residents is greater than the benefit to the gun range owner of staying open, the residents should file a lawsuit and get the gun range shut down, assuming that the legal fees are low enough.

The town of Andover has an outdoor gun range. The noise pollution from the range is a negative externality on the local residents. If the benefits to the gun range of staying open are $1,000,000, while the cost per resident of the noise pollution is $5,000, and there are 1,000 residents, what does the Coase theorem say about the situation? Since the noise pollution cost to residents is greater than the benefit to the gun range owner of staying open, the residents should file a lawsuit and get the gun range shut down, assuming that the legal fees are low enough. Since the benefit to the gun range owner of staying open is greater than the noise pollution costs to residents, the gun range owner should pay each resident $5,000 to compensate for the noise pollution. Then the gun range can remain open and everyone is better off.

d. asymmetric information

The underlying issue in the lemon problem is ______. a. pollution control b. moral hazard c. corrective taxation d. asymmetric information

c. total cost is unusually high

These past three months, Delroy's Body Shop is busier than it has ever been before. Delroy has had to bring on extra mechanics to keep up with demand. When he compares his results for the quarter with those for more typical quarters, Delroy is not surprised to see that average ______. a. fixed cost is rising b. variable cost is unchanged c. total cost is unusually high d. marginal cost is falling

b. transaction cost

Tilford wants to buy a used car. He spends three hour haggling with the salesperson. This haggling time is part of Tilford's ______. a. moral hazard b. transaction cost c. warranty d. signaling

c. divide fixed cost by output

To calculate a firm's average fixed cost, ______. a. subtract fixed cost from total cost b. multiply average cost by output c. divide fixed cost by output d. divide marginal cost by output

d. The participants can receive $200 but will lose it all unless they roll the correct number.

To demonstrate the power of framing, behavioral psychologists design an experiment in which participants receive a sum of money and must wager it all on the roll of a single six-sided die. The participants are offered two choices: The first option is that they can receive $100 and have the chance to double their money if they choose the correct number. Which of the following would be most useful to the researchers to offer as the second option? a. The participants can receive $10 and have the chance to double their money if they choose the correct number. b. The participants can receive $100 but will lose it all unless they roll the correct number. c. The participants can receive $200 and have the chance to double their money if they choose the correct number. d. The participants can receive $200 but will lose it all unless they roll the correct number.

d. do not require a monetary payment

Unlike explicit costs, implicit costs ______. a. impact long-run average total costs b. vary depending on production output c. are tracked by a firm's accountants d. do not require a monetary payment

False

Vaccines exhibit positive externalities and therefore tend to be overprovided by the market. True False

b. variable

Wages, raw materials, transportation, and electricity are considered to be ______ costs. a. fixed b. variable c. constant d. frozen

c. signal

Warranties are a ______. a. subsidy b. regulation c. signal d. tax

c. All are per-unit measures of cost.

What do average fixed costs, average variable costs, and average total costs have in common? a. All rise with an increase in output. b. All rise when marginal cost increases. c. All are per-unit measures of cost. d. All are plotted as a U-shaped curve.

a. determine the profit maximizing output level; determine the total revenue; determine the total cost

What is the correct sequence for the three-step method? a. determine the profit maximizing output level; determine the total revenue; determine the total cost b. determine the total cost; determine the total revenue; determine the profit maximizing output level c. determine the total revenue; determine the profit maximizing output level; determine the total cost d. determine the profit maximizing output level; determine the total cost; determine the total revenue