Microeconomics Review Unit Exam 3 Soremi
If a monopolist increases output from 14 to 15 by lowering its price from $32 to $31, marginal revenue is: $1 $17 $448 $465
$17
If a monopolist increases sales from 10 to 11 by lowering its price from $40 to $38, its marginal revenue is: $2 $18 $400 $418
$18
For $30 a month mary is allowed 600 minutes of free calls but pays 25 cents for anything above 600 minutes. Mary has used 600 minutes. What is her marginal cost per minute of making additional calls? 25 cents 10 cents 0 cents 5 cents
25 cents
What is 25 percent of 200? 8 25 50 100
50
A cartel is: legal in the United States as long as collusion is explicit A group of firms that collude to maximize group profits. found in monopolistically competitive industries a group of fringe firms
A group of firms that collude to maximize group profits.
If a natural monopoly faces a relatively inelastic consumer demand over the range of the production, it will have an incentive to: charge a low price charge a high price sell more advertise more
Charge a high price
Suppose the minimum possible price of constructing homes is $50 per square foot. As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will: exit the industry, and the price will fall below $40 in the long run exit the industry, and the price will rise above $40 in the long run exit the industry, and the price will remain at $40 in the long run. enter the industry as the price rises above $40 in the long run.
Exit the industry, and the price will rise above $40 in the long run.
In a perfectly competitive constant-cost industry: factor prices do not change as industry output increases factor prices rise as industry output increases factor prices fall as industry output increases there is no way to predict what will happen to factor prices as industry output increases
Factor prices do not change as industry output increases.
A perfectly competitive market is a market in which economic forces are controlled by government policy makers. True False
False
Economic models take into account the effect of trade on the distribution of income. True False
False
Implicit collusion occurs when oligopolistic firms negotiate a common price. True False
False
The distinction between capitalism and socialism is less relevant in the real world today than it was 30 years ago. True False
False
Price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded (% change in price / Demand) True False
False (Demand / % change in price)
Most likely, the elasticity of demand for transportation is greater than the elasticity of demand for cars. True False
False (They are the same demand)
One advantage of the Herfindahl index over the concentration ratio is that it: tells about only the top 50 firms in the industry gives extra weight to firms that are especially large. is easier to calculate takes into account only the leading firms in an industry
Gives extra weight to firms that are especially large
eBay.com is a vast auction site that is similar to a competitive market in some ways but differs from it in others. Which of the following describes how eBay resembles a competitive market? It is easy to enter and easy to leave eBay. Sellers sometimes do not describe the products accurately on ebay there is a great variety of different products sold on ebay on ebay the large sellers dominate the market
It is easy to enter and easy to leave eBay.
What does NAFTA stand for? North African Fair Trade Association North Atlantic Favored Trade Association North Atlantic Flat Tax Association North American Free Trade Agreement
North American Free Trade Agreement
The demand for a good is inelastic. Which of the following would be the most likely explanation for this? The good is narrowly defined (more options) The good is broadly defined (less options) The good costs a large portion of one's total income The time interval considered is long
The good is broadly defined (less options)
Domestic producers prefer quota to tariffs because quotas raise the price of imports and tariffs do not True False
True
If average fixed cost is $2 and average variable cost is $3, total cost is $5. True False
True
If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses. True False
True
If total cost is equal to total revenue, then the profit is equal to $0 True False
True
In perfect competition, price is equal to marginal revenue. True False
True
The International Organization whose primary functions is to promote free and fair trade between countries worldwide is the: WTO IMF NAFTA EU
WTO
Which of the following is an example of the law of one price in action? prices are just one of the many factors that firms use when deciding where to locate production if one country has a comparative advantage in producing a particular good, another country must have a comparative advantage in producing another good Wages in India are lower than wages in the United States, so firms move their call centers to india. This tends to raise wages in india and depress wages in the United States Because most industries in the U.S are dominated by one or two firms, the dominant firm sets the price and the others follow
Wages in India are lower than wages in the United States, so firms move their call centers to india. This tends to raise wages in india and depress wages in the United States
A market structure in which one firm makes up the entire market is: a monopoly perfect competition an oligopoly monopolistic competition
a monopoly.
The statement "government should provide affordable health care coverage for every member of society" is: a statement everyone agrees with a statement everyone disagrees with a positive statement a normative statement
a normative statement
If elasticity of demand is less than 1 a rise in price decreases total revenue a decline in price increases total revenue a decline in price will not change total revenue a rise in price increases total revenue
a rise in price increases total revenue
Which of the following is NOT a comparative advantage of the U.S? Wealth from past production The fact that the English is the international language of business a substantial policy to limit immigration extensive natural resources
a substantial policy to limit immigration
In the NAICS classification system, the broadest classification would be: a two digit industry a three digit industry a four digit industry a five digit industry
a two digit industry
A group of countries that allows free trade among its members and puts up common barriers against all other countries goods is called: a tariff free zone a most favored nation agreement an autarky a free trade association
an autarky
in a perfectly competitive long-run constant-cost industry, an increase in market demand causes: an increase in quantity, a decrease in price, and no change an increase in price, quantity, and profit in the long run an increase in quantity, no change in price, and no change in profit in the long run. a decrease in price, a decrease in quantity, and a decrease in profit in the long run
an increase in quantity, no change in price, and no change in profit in the long run.
Which of the following would not shift either the supply or the demand curve in the market for housing? an increase in the number of people retiring an increase in the cost of home insurance an increase in real estate prices a possibility of higher construction costs
an increase in real estate prices
Several firms are operating in a market where they take the other firms' response to their actions into account. This market is: a competitive market an oligolopolistic market. a monopolistically competitive market a monopoly
an oligopolistic market
A market has the following characteristics: There is strategic pricing, output is somewhat restricted, there is interdependent decision making, and some long-run economic profits are possible. This market is: a monopoly an oligopoly monopolistically competitive perfectly competitive
an oligopoly.
Under monopolistic competition, a long-run equilibrium exists when price equals: marginal cost average total cost minimum average total cost marginal revenue
average total cost
If a country takes advantage of the comparative advantage of some resources over others, then its production possibility curve is likely to be: flat straight bowed outward bowed inward
bowed outward
how do economists explain the value firms and consumers play on brand names? brand names show that firms can manipulate consumers brand names are a way firms can provide information about quality to consumers brand names are a way of turning private goods into public good, increasing their value to both seller and buyer brand names are an example of adverse selection by which producers advertise options to consumer
brand names are a way firms can provide information about quality to consumers
Which of the following most likely correctly orders goods from most to least demand elastic? cars, motor transportation, transportation transportation, bicycles, non motor transportation brand name advil, pain relieving medicine, aspirin pain relieving medicine, brand name advil, aspirin
cars, motor transportation, transportation (specific to non specific)
If an industry has a Hefindahl Index of 3,000, the contestable market model probably would predict that the industry would be more likely to have a: monopolistic price competitive price competitive price if there are no barriers to entry. monopolistic price if there are no barriers to entry
competitive price if there are no barriers to entry.
Short run decisions are: constrained because all inputs are variable constrained because all inputs are fixed constrained because some inputs are fixed and other are variable unconstrained
constrained because some inputs are fixed and other are variable
A company such as Microsoft or Pepsi Co. is a legal hassle to organize, difficult to monitor, and possibly could double tax income. It is an example of a: consumer sole proprietorship partnership corporation
corporation
Which of the following statements is correct? stockholders are legally liable for all the debt of a corporation a corporation is a business that is legally owned by its employees corporations are legal entities that, in law, are treated as persons most large companies and many small companies in the U.S are not corporations
corporations are legal entities that, in law, are treated as persons
an example of a negative externality is the: decrease in your real income that results when photographic equipment you purchase increases in price because of increased demand by others for these items cost you bear when your neighbor has a noisy party and does not compensate you for your discomfort benefit you receive without paying when your neighbor installs a smoke detector decrease in income when to farmers that result from a drought
cost you bear when your neighbor has a noisy party and does not compensate you for your discomfort (externalities are indirect to a person outside of the purchase)
The Foreign Exchange Market is the market in which foreigners buy U.S real estate foreign stocks and bonds are bought and sold ideas from different countries are exchanged currencies of different countries are bought and sold
currencies of different countries are bought and sold
If a perfectly competitive market and firm has an increase in demand it will: lower the price it charges earn negative economic profit in the short run earn positive economic profit in the short run earn positive economic profit in the long run
earn positive economic profit in the short run
The price at which a monopolistically competitive firm sells its product: exceeds the marginal cost of production produces economic profits in both the long run and the short run equals the marginal cost of production marginal cost to society of increasing output is greater than the marginal benefit
exceeds the marginal cost of production
Although many legal music download sited started up, because of the technology, only a few have survived. It is likely that online music firms: experience economies of scale have normal short run cost curves oligopolistic monopolistic
experience economies of scale.
Most laypeople: fear that the U.S is losing its comparative advantage in all goods do not see the effect of trade on the distribution on income recognize both the costs of international trade in lost jobs and the benefits in terms of lower prices recognize that if china has a comparative advantage in one good, the U.S has a comparative advantage in another good.
fear that the U.S is losing its comparative advantage in all goods
Socialism in theory is an economic system in which government sees to it that people work for the common good until they could be relied upon to do that on their own the invisible hand insures that individual decisions are made for the common good government owns the means of production, but individual self interest determined how production is organized individuals are able to act in the best interest of everyone without direction from government or the invisible hand
government sees to it that people work for the common good until they could be relied upon to do that on their own
A production table can be used to determine a firms profits a firms costs how much output is produced from a given quantity of inputs how much of a product will be demanded by consumers
how much output is produced from a given quantity of inputs
If cheating can be identified easily and firms play the same game against one another repeatedly: implicit collusion is more likely to occur. cheating is more likely to occur firms have a stronger incentive to cheat than they would if cheating could not be identified firms have the same incentive to cheat
implicit collusion is more likely to occur
which of the following best defines rational behavior? analyzing total gains from a decision improving net gain by pursuing decisions as long as the marginal benefits exceed the marginal costs seeking to gain by choosing to undertake actions as long as the marginal costs exceed the associated marginal benefits seeking to maximize total gain regardless of cost
improving net gain by pursuing decisions as long as the marginal benefits exceed the marginal costs
Which two sources of revenue comprise most of federal government revenue? corporate income taxes and social security taxes and contributions corporate income taxes and excise taxes individual income tax and corporate income taxes individual income tax and social security taxes and contributions
individual income tax and social security taxes and contributions
The Apple iPod is an example of American comparative advantage in: innovation mass production hand production consumerism
innovation
government failure is likely to occur for all of the following reasons EXCEPT: special interest groups might lobby governments to the detriment of the public good individuals have better information about a situation that affects them than does government intervention in markets is always simpler than it initially seems the bureaucratic nature of government intervention does not allow fine tuning
intervention in markets is always simpler than it initially seems
Predatory pricing: will always work if markets are contestable. is never successful because it produces losses in the short run. is always successful because it produces profits in the long run. is likely to be successful only if firms cannot enter an industry easily
is always successful because it produces profits in the long run.
Capitalism is based on private property and the market does not have a rationing system gives private property rights to government relies on market forces to establish initial property righs
is based on private property and the market
Average fixed cost: is constant and doesn't vary with output increases as output increases decreases as output increases equals total cost divided by output
is constant and doesn't vary with output
Honey and Jam are substitute products. If Honey price increases, the demand for: honey will increase honey will decrease, causing its price to fall jam will increase, causing jam price to increase as well jam will decrease. causing jam price to fall
jam will increase, causing jam price to increase as well
In general, the greater the elasticity, the: smaller responsiveness of price to changes in quantity smaller responsiveness of quantity to changes in price larger responsiveness of price to changes in quantity larger the responsiveness of quantity to changes in price
larger the responsiveness of quantity to changes in price ( Elastic = more response to price) ( Inelastic = less response to price)
A movie theater is a price discriminating monopolist and charges higher ticket price for late evening showings. From this we know that: late evening moviegoers have perfectly inelastic demand schedules late evening moviegoers have less elastic demands than daytime or early evening moviegoers late evening moviegoers have more elastic demands than daytime or early evening moviegoers daytime and early evening moviegoers have perfectly elastic demands
late evening moviegoers have less elastic demands than daytime or early evening moviegoers
A monopolistically competitive industry has: a few firms producing identical products many firms producing differentiated products. many firms producing identical products a few firms producing differentiated products
many firms producing differentiated products.
Assume that the home construction industry is perfectly competitive and is in long-run competitive equilibrium. It follows that: marginal cost equals long run average total cost there will be incentive for new firms to enter the industry marginal cost exceeds long run average total cost firms in the industry enjoy economic profits
marginal cost equals long-run average total cost.
In the cartel model of oligopoly, the firms would decide how much to produce where: marginal cost equals price marginal cost equals marginal revenue. marginal cost equals average total cost the kink in the demand curve is
marginal cost equals marginal revenue
To maximize profits, a perfectly competitive firm should produce until: price is greater than average total cost marginal cost is equal to price average total cost is minimized per unit profits are maximized
marginal cost is equal to price
Under normal monopoly, price exceeds marginal cost, which implies that the: total cost to society of producing output is less than the total benefit total benefit to society of producing output is less than the cost marginal cost to society of increasing output is lower than the marginal benefit of increasing output marginal cost to society of increasing output is greater than the marginal benefit
marginal cost to society of increasing output is lower than the marginal benefit of increasing output
the optimal quantity of pollution control occurs at the point where the: level of pollution is reduced to zero marginal social benefit is at its maximum marginal social cost equals the marginal social benefit of pollution total benefit equals the total cost of pollution
marginal social cost equals the marginal social benefit of pollution (MB = MC)
which statement best summarizes the invisible hand theorem? Government policies direct people's selfish desires cultural norms direct peoples selfish desires markets direct peoples selfish desires social, political, and economic forces act against peoples selfish desires to promote the common good
markets direct peoples selfish desires
regulatory trade restrictions: are always justified are never justified may be justified depending on the nature of the restriction are irrelevant since they are seldom used
may be justified depending on the nature of the restriction
corporate advertising may reinforce consumer sovereignty may undermine consumer sovereignty cannot affect consumer sovereignty makes consumer sovereignty meaningless
may undermine consumer sovereignty
A upholstered furniture industry that holds 15% of the shipment accounted for by the 4 largest companies: oligopolistic a pure monopoly perfectly competitive monopolistically competitive
monopolistically competitive
An industry that has many sellers offering slightly differentiated products is called a: perfectly competitive monopolistically competitive oligopolistic monopolistic
monopolistically competitive.
The loss of jobs due to international trade is often: more visible than the decline in consumer prices due to international trade less visible than the decline in prices due to international trade greater than the benefit of trade in the form of decline in prices. spread across all sectors while decline in prices is concentrated in one sector
more visible than the decline in consumer prices due to international trade
"Government should not us price controls" is an example of: positive economics normative economics the art of economics marshallian economics
normative economics (Opinion)
Strategic decision making is most important in: oligopolistic markets. competitive markets monopolistically competitive markets monopolistic markets
oligopolistic markets.
A market structure in which there are few interdependent firms is called: oligopoly. monopolistic competition monopoly perfect competition
oligopoly
When your wage rises, the: opportunity cost of an hour of work decreases opportunity cost of an hour of leisure stays the same cost of working increases opportunity cost of an hour of leisure increases
opportunity cost of an hour of leisure increases
Cross price elasticity of demand defined as the: percentage change in quantity demanded divided by percentage change in the price of the same good percentage change in demand divided by percentage change in the price of another good change in price of another good divided by the change in quantity demanded percentage change in the price of another good divided by the percentage change in quantity demanded
percentage change in demand divided by percentage change in the price of another good
The concentration ratio is defined as the: percentage of industry output produced by a specific firm. squared value of the market shares of all the firms in an industry squared value of market shares of the four largest firms in the industry percentage of total industry output produced by the top firms.
percentage of total industry output produced by the top firms.
illegal drugs are available at a price many times higher than if they were legal. The high price of illegal drugs is an example of: the market affecting political forces political forces affecting the market the failure of the market the failure of political forces
political forces affecting the market
Applying the concept of opportunity cost to the pollution of a lake, an economist probably would conclude that: all pollution in the lake should be eliminated regardless of cost no pollution in the lake should be eliminated regardless of cost pollution should be eliminated as long as the benefit from a cleanup exceeds the opportunity cost pollution should be eliminated as long as the benefit from a cleanup exceeds the cost of the resources required for the cleanup
pollution should be eliminated as long as the benefit from a cleanup exceeds the opportunity cost
In a perfectly competitive market: price does more of the adjusting in the long run and quantity does more of the adjusting in the short run price does more of the adjusting in the short run and quantity does more of the adjusting in the long run only price adjusts in both the short run and the long run only quantity adjusts in both the short run and the long run
price does more of the adjusting in the short run and quantity does more of the adjusting in the long run.
Suppose a perfectly firm can increase its profits by increasing its output. Then it must be true that the firm's: marginal revenue is less than its marginal cost price exceeds its marginal revenue price exceeds its marginal cost marginal cost exceeds its marginal revenue
price exceeds its marginal cost.
If the primary purpose of a tariff is to eliminate foreign competition completely, it will be expected to: eliminate the amount of revenue depending on the magnitude of the tariff imposed raise a relatively large amount of tax revenue raise an amount of revenue equal to the amount of the tariff multiplied by the volume of exports raise a relatively small amount of tax revenue
raise a relatively large amount of tax revenue
It is illegal to buy or sell organs. Despite this there is an illegal market. Assuming the legal and social disapproval does not influence buyers but discourages sellers from offering organs, the disapproval will: raise price and raise quantity raise price but lower quantity lower price but raise quantity lower price and lower quantity
raise price but lower quantity
A voluntary restraint agreement: is prohibited under the GATT treaty and has become less common recently does not, unlike a quota, affect the quantity of imports does not, unlike a tariff, affect the imports raises the price of imports in the same way as a quota
raises the price of imports in the same way as a quota
Most economists support free trade in part because trade restrictions: provide no revenue for the government result in larger trade deficits for the nation imposing them increase international competition reduce international competition
reduce international competition
The central goal of the General Agreement on Tariffs and Trade (GATT) was to: promote free trade associations and custom unions ensure balance of trade between countries reduce trade barriers promote international security
reduce trade barriers
Each firm in perfect competition: sets quantity based on market price follows the pricing decisions of other firms follows the output of other firms follows the reactions of competitors
sets quantity based on market price.
In the short run: all inputs are variable all inputs are fixed some inputs are fixed all costs are variable
some inputs are fixed
According to the kinked demand curve theory of sticky prices, in an oligopolistic market: a price increase by one firm will be followed by other firms a price decrease by one firm will be followed by other firms the kinked demand curve is inelastic in the upper portion and elastic in the lower portion of the curve the kinked demand curve is elastic in the upper portion and inelastic in the lower portion of the curve
the kinked demand curve is elastic in the upper portion and inelastic in the lower portion of the curve
an efficient policy to reduce pollution would reduce pollution to the point where: the marginal costs of reducing pollution equal the marginal benefits of reducing pollution it is eliminated the marginal costs of reducing pollution are greater than the marginal benefits of reducing pollution the marginal costs of reducing pollution are less than the marginal benefits of reducing pollution
the marginal costs of reducing pollution equal the marginal benefits of reducing pollution
If a positive externality is associated with the purchase of smoke detectors: the marginal social benefit of smoke detectors exceeds their price the marginal social benefit of smoke detectors is zero the marginal social benefit of smoke detectors equal their price more than the efficient quantity of smoke detectors will be sold
the marginal social benefit of smoke detectors exceeds their price
Which of the following is not held constant as you move along the demand curve? the price of that good the price of other goods the incomes of consumers the preferences of consumers for the good
the price of that good
When the exchange rate value of the dollar rises, and other things stay the same, what happens to relative wages between the U.S and other countries? they rise they fall they dont change its impossible to say
they rise
The North American Industry Classification System categorizes firms by: type of economic activity, and group firms with like production processes. market share and group firms with the market power profits since profits tend to be higher in more concentrated industries market structure ranking them from perfectly competitive to monopoly
type of economic activity, and group firms with like production processes.
The law of supply states that, other things equal, as the price of a good goes: up, the quantity supplied goes up up, the supply goes down down, the quantity supplied goes up down, the supply goes down
up, the quantity supplied goes up
You are offered $7 an hour to work, you choose not to work. You are then offered $10 an hour to work, you accept the position. Your behavior can best be explained by the fact that your supply labor curve is: no shape vertical downward sloping upward sloping
upward sloping
Economic reasoning would never help you decide whom to marry what kind of work to do whether to read this book what is morally right and wrong
what is morally right and wrong
