micro final version 1

If the price the U.S. Post Office charges to deliver Express Mail rises, the demand facing FedEx will rise because its respective services are _____ goods. A. substitute B. complementary C. inferior D. luxury E. network

A

A subscription to an online movie streaming service is an example of a club good because A. it is rival in consumption and excludable. B. it is nonrival in consumption and excludable. C. it is rival in consumption and nonexcludable. D. it is nonrival in consumption and nonexcludable.

B

Over time, interconnection in network industries creates a ___ environment that leads firms to ___ A. less competitive; lower costs. B. less competitive; raise prices. C. more competitive; lower costs. D. more competitive; raise prices.

C

Which is an example of capital in the production process of an amusement park? A. The electricity used at the park. B. The mechanics who maintain the equipment. C. The roller-coaster. D. The ticket-taker.

C

A firm seeking to maximize profits will increase the amount of output it produces when marginal revenue is greater than marginal cost. A. This is true for perfectly competitive firms only. B. This is true for monopolistic firms only. C. This is true for perfectly competitive and monopolistic firms, but not for oligopolies. D. This is true for all firms regardless of market structure. E. None of the above.

D

Consider the market for wool sweaters. Which of the following will cause lower prices and a greater quantity of wool sweaters exchanged? A. Consumers expect the weather to be colder than normal during the next several weeks. B. Producers of cotton sweatshirts reduce the prices of their products. C. A disease significantly reduces the sheep population (wool comes from sheep). D. Apparel manufacturers develop a more efficient way of processing wool fabrics. E. None of the above.

D

If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely _____ goods. A. inferior B. luxury C. substitute D. complementary

D

A decrease in price will cause an increase in demand. This is the law of demand.

False

Suppose the price of raw materials and other inputs used to produce computers increases. We should expect that the equilibrium market price of computers will increase and the quantity of computers sold will decrease.

True

The demand for paperback books is decreasing. A possible cause is that more consumers are preferring digital over paperback books.

True

The social cost curve lies above the private supply curve for the producer in cases of negative externalities.

True

Universities are engaging in price discrimination when they charge different levels of tuition to in-state and out-state students.

True

Spraying for mosquito control in a local community is an example of a public good because it is nonrival and exhibits nonexcludability.

True

Suppose medical studies reveal that long distance running reduces the chance of having a heart attack. We can expect that the equilibrium price of running shoes would increase and the equilibrium quantity of running shoes sold would increase.

True

The free rider problem typically results in a production of output that is less than the social optimal quantity.

True

The speed by which a network good can enter into a virtuous or vicious cycle is generally faster than that of a non-network good.

True

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in the price, the steeper is the demand curve.

False

Firms in an industry characterized by oligopoly usually don't have to consider the reactions of competitors when they formulate pricing, product and other strategies.

False

The primary difference between perfect competition and monopolistic competition is that entry and exit is difficult in the case of monopolistic competition.

False

Consider the market for breakfast cereal. Which of the following will cause higher prices and a lower quantity of breakfast cereal exchanged? A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc.) increase. B. There is an increase in the number of firms selling breakfast cereal. C. A medical report shows the added health benefits of eating breakfast every morning. D. A medical report raises concerns about the health risks of consuming processed cereal products. E. None of the above.

A

Consider the market for wool sweaters. Which of the following will cause higher prices and a higher quantity of wool sweaters exchanged? A. Consumers expect the weather to be colder than normal during the next several weeks. B. Producers of cotton sweatshirts reduce the prices of their products. C. A disease significantly reduces the sheep population (wool comes from sheep). D. Apparel manufacturers develop a more efficient way of processing wool fabrics. E. None of the above.

A

In which situation can a Prisoner's Dilemma outcome most likely be avoided? A. if the game is repeated over and over under the same conditions. B. if the players involved choose not to cooperate with one another. C. if each player plays its best-response strategy. D. if the game is only played once with no opportunity for retaliation.

A

Opportunity costs exist because A. using resources for one activity means that their use elsewhere must be given up. B. sellers are unwilling to give up their product without a price. C. there are opportunities to find ways to reduce costs. D. buyers always have an opportunity to go to another seller. E. money is an ineffective medium of exchange.

A

Other things being equal, a price-discriminating firm will charge less to the customers who A. are the most elastic in their demand for a product. B. have the least elastic demand for its product. C. have the lowest incomes. D. are the most rational in making their decisions.

A

The notion that individuals and firms are compelled to retaliate or punish others for engaging in noncooperative actions, but leaving the door open for future reconciliation, is BEST referred to as what kind of strategy? A. Tit-for-tat B. Grim C. Trembling hand D. Irrational

A

Unlike positive externalities from physical (non-network) goods, network externalities affect A. existing and potential users. B. only potential users. C. only existing users. D. existing firms.

A

Consider the market for breakfast cereal. Which of the following will cause lower prices and a greater quantity of breakfast cereal exchanged? A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc.) increase. B. There is an increase in the number of firms selling breakfast cereal. C. A medical report shows the added health benefits of eating breakfast every morning. D. A medical report raises concerns about the health risks of consuming processed cereal products. E. None of the above.

B

Consider the market for new cars. Which of the following will cause higher prices and a greater quantity of new cars exchanged? A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance. B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections. C. There is a significant increase in the perceived quality of used cars by potential car buyers. D. New technology improves the production efficiency of automobile manufacturers. E. None of the above.

B

Customers of monopolistically competitive firms will pay more for products than they would if the same products are sold in a perfectly competitive market structure. The higher price A. represents the wastefulness of this market structure. B. represents the value that consumers place on product differentiation and innovation. C. is the outcome of when firms face perfectly elastic demand. D. represents the cost burden from significant barriers to entry.

B

The live band that plays nearby makes it difficult for patrons of a restaurant to hold a conversation. This is an example of A. a positive externality. B. a negative externality. C. the Coase theorem. D. a network good.

B

When a country is operating at its full potential output, it is producing at a point A. above and to the right of the production possibility frontier. B. on the production possibility frontier. C. below and to the left of the production possibility frontier. D. There is not enough information to answer this question.

B

When markets are efficient A. the sum of consumer and producer surplus is minimized. B. the sum of consumer and producer surplus is maximized. C. consumer surplus is maximized, but producer surplus is minimized. D. consumer surplus is minimized, but producer surplus is maximized.

B

A network good is one where the A. cost to the user rises if there is a large number of other users of the good. B. benefit to the user falls if there is a large number of other users of the good. C. cost to the user falls if there is a large number of other users of the good. D. benefit to the user rises if there is a small number of other users of the good.

C

At an all-you-can eat buffet, a person will stop eating when A. total utility increases at a diminishing rate. B. marginal utility increases at a diminishing rate. C. marginal utility is equal to zero. D. total utility is equal to zero.

C

Fishing in a community lake is an example of using a common property resource because A. it is rival in consumption and excludable. B. it is nonrival in consumption and excludable. C. it is rival in consumption and nonexcludable. D. it is nonrival in consumption and nonexcludable.

C

It has been suggested that a way to save endangered species is to give hunting rights to people who live in the vicinity of that species. The idea behind this suggestion is that A. human rights are different from animal rights. B. market solutions are morally superior to government solutions. C. by giving people rights to profit from the animals, they have an incentive to ensure their survival. D. the animals will be killed anyway, so the social benefit is extracted from them before they become extinct.

C

The income distribution in the United States is generally _____ equally distributed than in European countries and is _ _____ _equally distributed than in many South American countries. A. more; more B. more; less C. less; more D. less; less

C

The reason a monopoly imposes a deadweight loss on society is that A. there is a gain in profitability to firms that would have been in the industry had there been no monopoly. B. the government is concerned about the negative impact of a monopoly on consumers. C. consumers are denied output for which they are willing to pay more than the cost of producing it. D. antitrust litigation is a large expense for government budgets to finance.

C

The reason economists often consider monopoly socially undesirable is because the monopolist A. always earns excessive profits. B. can charge any price he wants. C. produces less than the socially efficient amount. D. can always treat its customers with complete indifference.

C

The reason monopolistic competitive firms have difficulty maintaining a profit in the long run is that A. buyers refuse to pay higher prices over time. B. costs tend to increase as production rises. C. ease of entry into the market encourages new firms to enter and force down the price. D. income taxes paid by the firms rise as their profits rise.

C

Which of the markets is the best example of monopolistic competition? A. The market for sugar snap peas B. The diamond market C. The fast food industry D. Your town's utilities distributor(s) of electricity and water

C

Consider the market for new cars. Which of the following will cause lower prices and a greater quantity of new cars exchanged? A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance. B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections. C. There is a significant increase in the perceived quality of used cars by potential car buyers. D. New technology improves the production efficiency of automobile manufacturers. E. None of the above.

D

Suppose the government sets the price for water and the market for water is always experiencing shortages. One can infer that A. the government has established a price floor for water. B. the government is trying to protect the incomes of water suppliers. C. the quantity of water supplied exceeds the quantity of water demanded. D. the government has established a price ceiling for water.

D

The Coase theorem claims that in the case of tobacco A. if victims are given the right to be free of a smoke-filled environment, then tobacco manufacturers will sell tobacco through underground markets. B. efficiency will occur only if smokers are given the right to smoke wherever they wish. C. efficiency will occur only if victims are given the right to be free of a smoke-filled environment. D. it does not matter who is given the property rights to the air, as long as the parties involved are allowed to bargain.

D

The socially optimal level of a product that produces pollution A. is the minimum of the average cost curve. B. includes only the private costs of the production of the product; pollution is dealt with separately. C. is the level at which there is elimination of all pollution. D. incorporates both the private and the social costs of production.

D

Which of these is an example of consumers creating a negative externality? A. Air traffic from a nearby airport reduces property values. B. A fast-food restaurant fails to provide medical benefits to employees. C. A tanker ship leaks oil into a harbor. D. Litter is found in an area around a fast-food restaurant. E. None of the above.

D

A positive externality is a benefit that accrues to participants within the market.

False

A Nash equilibrium assumes that each player chooses his or her best strategy.

True

A country's comparative advantage is determined by an assessment of its opportunity costs.

True

A decrease in consumer income will increase the demand for products and services that are income inferior.

True

A dominant strategy is an action that is the same best response regardless of what another player's actions are.

True

A firm should (at least in the short run) continue production if variable costs are less than revenues.

True

According to the Coase theorem, if transactions costs are negligible, the outcome is efficient, regardless of the distribution of property rights.

True

An event that will cause an increase in the supply of yogurt is an increase in the number of sellers in the yogurt market.

True

An important lesson from the prisoner's dilemma game is that the interests of individuals will not always align with the collective interests of people.

True

An increase in price will cause an increase in quantity supplied. This is the law of supply.

True

Because of scarcity people face tradeoffs in nearly every choice they make.

True

Charging different groups of people different prices (such as children's prices and seniors' prices versus regular or adult prices) is an example of third-degree price discrimination.

True

Customers who purchase a network good after it matures are called casual users.

True

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friend. However, this is still considered a market failure because the number of people who obtain flu shots is less than the socially optimal quantity.

True

If price exceeds marginal cost at a competitive firm's current level of output, then the firm can increase profit if it increases its output.

True

If the government sets a price ceiling below the equilibrium market price, then we can expect that there will be shortages of the good (i.e., quantity demanded will exceed quantity supplied).

True

In the long run, a typical firm in a monopolistically competitive industry will likely earn little to no economic profit.

True

Public goods are characterized by the inability to exclude non-payers and the fact that consumption of the good does not preclude others from consuming it.

True