principles of microeconomics final exam- horton
economic philosophy of John Maynard Keynes
"in the long-run we are all dead"
Say's law
"supply creates its own demand"
which of the following competitive situations is best modeled as a Prisoners' Dilemma?
?
who advocated trying to measure the marginal social benefit and subsidizing the producers of the primary good by the amount of the marginal social benefit of a positive extenality?
A.C. Pigou
in the case of equilibrium quantity, at point C, which of the following is the area of consumer surplus in the graph (number 27 test 2)
AFH
in the case of a quantity restriction, or quota, at point I, which is the area of consumer surplus (number 26 test 2)
AGE
which of the following methods of internalizing an externality requires an initial allocation of property rights (or pollution permits) but then allows a secondary market in those rights (or pollution permits) to establish the least cost solution?
Coasian "emissions trading"
in the case of a quantity restriction, or quota, at point I, which of the following is the area of dead weight loss in the graph shown above (number 25 on test 2)
EKH
which of the following auctions is subject to "the winner's cursw"
English auction
which of the following is (are) characteristic of monopolistic competition? I) a few firms II) free flow of information III) identical products IV) no barriers to entry and exit
I, II and IV only
For which of the following types of inputs does the principle of diminishing returns hold? I) land II) labor III) capital IV) entrepreneurship
I, II, III, and IV
which of the following is an example of a cartel? I) Walmart II) DeBeers diamond syndicate III) Home Depot IV) Organization of Petroleum Exporting Countries
II and IV only
which two of the following assumptions are most important in explaining how economic profit disappears in perfect competition in the long-run? I) many, small firms II) free flow of information III) no barriers to entry or exit IV) identical (homogeneous) products
II and IV only
which of the following would call for more government planning in the economy?
Keynesian economics
Billy Ray Zeckhauser accidentally let his boat insurance lapse. His agent has told him that he will not be able to get his policy reinstated until until the weekend. Billy Ray decided not to take his usual six-pack of Budweiser when he goes boating this weekend. Which of the following describes his action?
Moral hazard
which of the following methods of internalizing an externaility requires an army of economists to try to estimate the values of positive externailities for determining subsidies and the values of negative externailities for assessing taxes?
Pigouvian "command-and-control"
freedom of the press
Prof. A. Sen said that this is all that is necessary for political freedom
which of the following mechanisms can be thought of as individuals maximizing their utility by comparing the marginal benefits of local public goods to the marginal costs of local taxes and choosing the community that most closely matches their preferences best?
Tiebout's "voting with feet"
T or F: how much output a firm must produce in order to maximize its profit is a microeconomic questions
True
which of the following does the Dominant Firm/Competitive Fringe Model describe best?
Walmart and dollar stores
which of the following implies that if all but one of the markets in a system is in equilibrium, then that last one is, too?
Walras' Law of markets
this always results in a surplus
a binding price floor forces the going price to be above the equilibrium price
if guns are outlawed after mass shootings in Orlando and Las Vegas, then what mechanism will emerge so that only the rich will have access to guns, albeit illegally?
a black market
which of the following does the Kinked Demand Curve model describe most accurately?
a cartel like OPEC
price and quantity demanded
a change in either or both of these will change total revenue
assuming that gasoline is at most a very minor input in automobile manufacturing, an increase in the price of gasoline, ceteris paribus, will result in
a decrease in both equilibrium price and quantity of automobiles
an increase in the price of Florsheim wingtip dress shoes, ceteris paribus, results in _____ of high-quality Gold Tip dress socks
a decrease in demand
which of the following types of businesses is likeliest to operate as monopolistically competitive
a fast-food restaurant in a city (not a town like Arkadelphia)
which of the following best illustrates Economies of Scale?
a public utility like Entergy
Jim has been an art history major and has fifteen hours credit in art. he doesnt like art, but doesnt want the hours he has taken to be wasted. why might you tell Jim to drop his art history major?
abandon sunk cost
the tendency for good students to avoid blow-off classes and bad students to avoid difficult classes is an example of
adverse selection
in the bridal suite at hogwaller state park cabins facility, newlywed emmy sue decides to test bobby rays love by opening her mouth for exception, throwing her wig on the floor, and propping her knobby feet up on the table while she whips out photos of her three fatherless kids that are waiting at home. bobby ray finds himself thinking wistfully:" i could have gone to OBU on the promise scholarship and married a tri chi. at least they have good teeth, real hair, and strong enough feet so they can go out and slop the hogs!" which of the following is the existence of social clubs likeliest to prevent
adverse selection in marriage markets
in real-life, opportunity costs are likelier to be increasing instead of constant since
all of the above
which of the following can give risk to "First-Mover Advantage"
all of the above
which of the following can shift a firm's demand labor for labor curve?
all of the above (changes in technology, increases in human capital, changes in product price)
which of the following can shift labor supply?
all of the above (increases in population, changing demographics, changing alternative to labor)
which of these is a dimension along which a firm may differentiate its product/service?
all of these (service before the sale, demographcally, geographically)
in which of the following situations is specialization impossible?
an economy of one person
cable TV package deals for costumers
anti-competitive tactic: product tying and bundling
principle of parsimony
assumptions are necessary, because simpler models are better than complex models
Bobby Ray thinks Emmy Sue is the greatest girl on earth. she has all of her teeth, sports big hair, and wears shoes. he took her to the Arkadoo High School prom in a chauffeur-driven four-wheeler, bought her a while gold engagement ring fitted with a rock he found himself at Crater of Diamonds State Park, and spent half his bonus to propose to her over a candlelit dinner with a half-sober fiddle player at the Pig Pit cafe. If Emmy Sue knows that she has about 10 cavities that will require root canals in the next two years, wears a deluxe blonde wig over her shining bald head, and suffers from unsightly corns, and bunions, what best describes the situation?
asymmetric information
marginal revenue cuts ____ at its _____
average revenue, maximum
the market structure in which there is only one buyer of labor services and one seller of products in a particular location is
bilateral monopoly
the long run equilibrium position of a perfectly competitive firm is that of economic
break even
which of the following is non-excludable and rival in demand
common property resource
which of the following indicates why some people get paid more for doing really crummy jobs, like shoveling animal excrement or being university administrators, than for doing really fun and pleasant jobs, like making daisy chains or teaching OBU students?
compensating wage differentials
which of the following is assumed by a linear production possibilities frontier?
constant opportunity costs
which of the following is measured by the area below the demand curve but above prevailing price?
consumer surplus
which of the following is likeliest to happen to the market for Ouachita classes when there is a large increase in the price of textbooks, ceteris paribus?
decrease in demand for OBU classes
an increase in the cost of corn syrup is likely to bring which of the following for Dr. Pepper
decrease in supply and decrease in the quantity supplied
an increase in consumer incomes, ceteris paribus, will shift the
demand curve for an inferior good to the left
consider the market for a name brand replacement radial tires, such as Michelin or Cooper. What will be the likeliest effect, ceteris paribus, of an increase in consumer income?
demand will increase, since name brands are typically considered normal goods
in which model of oligopoly does a near-monopoly set a low price and maximize profit so that smaller firms cannot compete and eventually die off unless they can practice sufficient product differentiation?
dominant firm/ competitive fringe model
which of the following is the best response for a player to make, given any strategy that other players might choose?
dominant strategy
which of the following is a nash equilibrium
each player is playing the best strategy, given that the other players are playing their best strategy
which of the following is the reason why most economists oppose monopoly?
economic profit
which of the following properties characterizes a natural monoply?
economies of scale
which of the following properties characterizes a natural monopoly?
economies of scale
under which condition is the owner of a good able to keep people from using it?
excludable in demand
under which of the following would we classify a paper (or electronic) invoice (bill) for a good or service that a company buys from a vendor?
explicit cost
the division of labor is limited only by the
extent of the market
"command-and-control"
externalizes are internalized by government systems of taxes and subsidies
T or F: "fairness" is not only the goal of Social Justice (politics), but it also the primary consideration for Economics (the study of optimal choices under scarcity)
false
T or F: a good can never change categories between public goods, private goods, mixed goods, and common property resources over time. The categories are fixed.
false
T or F: a monopolistic competitive firm has some market power in the short-run, but can never extend this power in the long-run by continuing to differentiate its product
false
T or F: a profit-maximizing firm in a competitive marketplace should always try to pay its workers as little as possible and expect them to work as much and as hard as possible
false
T or F: bad advertising increasing demand faster/further than it increases average cost
false
T or F: cartels that engage in price-fixing are never illegal under US anti-trust laws
false
T or F: ceteris paribus, a lower minimum wage causes more unemployment
false
T or F: competition to lower prices is typically illegal in the United States
false
T or F: even if a private market does not take an externality into account, then the optimal amount of the primary good or service will always be provided bu the private market
false
T or F: in all four market structures we studied, product differentiation was allowed only in monopolistic competition and not in any other market structure
false
T or F: monopoly is the only market structure with a perfectly elastic demand curve
false
T or F: other things the same, a risk-averse investor tends to have flatter indifference curves between risk and return than does a relatively risk-tolerant investor
false
T or F: since there are few real-world approximations of perfect competition, it is useless as an economic model
false
T or F: the Battle of the Sexes, like most games, has a dominant strategy but no Nash equilibrium
false
T or F: the law of demand says that, ceteris paribus, there is an inverse or negative relationship between a good's price and quantity supplied.
false
T or F: there is only one way to look at any externality. any other way is always wrong
false
which of the following does perfect competition best describe
farming
transactions cost theory of the firm
firms exist to save on transactions costs
this good has a highly inelastic demand
gasoline in the short run
complements
goods used along with the primary good, like socks are used with shoes
physical capital
goods used to make other goods, like tools, machines, and infrastructure
what is always the source of "true, or pure, monopolies," in which the seller enjoys perfectly inelastic (vertical) demand?
government franchise or agency
perfectly competitive firm
has absolutely NO market power
if a McDonald's franchise holder buys a Whataburger franchise, what kind of merger is it?
horizontal merger
which of the following consists of skills and abilities that a person possesses?
human capital
the supply of water is fixed. Why isn't its price today extremely high?
in the long-run there are always substitutes
long run average cost curves
in theory, these are U-shaped. in practice they may be L-shaped or flat
average cost pricing
in this type of public utility regulation, the utility has no incentive to be efficient
which of the following will increase supply of a good or service?
increase in the number of sellers
for which of the following are sales likely to rise during recessions and fall during expansions?
inferior goods
dutch auction
initial price requested starts off high and descends. the first to bid wins
what do regulators who use the output regulation method hope will bring down costs (and prices) of utilities in the long-term?
investment in technology
which of the following would be considered an "injection" in a Keynesian Circular Flow model?
investment spending
emissions trading
issue each polluter a permit and let a secondary market develop for permits
Tiebout's mechanism for optimal distribution of population and preferences when cities within a region offer varying baskets of government services at a variety of tax rates is to____
let people "vote with their feet" and self-select according to their own preferences
if a government wants to increase tax revenue from increasing a sales tax on a particular good, then which of the following goods is likeliest to yield the least additional tax revenue?
luxury automobiles
which of the following tends to be more dynamic rather than static?
marginal cost
which of the following methods of utility regulation has traditionally been used for mass transit, such as Amtrak, the Massachusetts Transit Authority, and South Central Arkansas Transit?
marginal cost pricing
which of the following methods of utility regulation results in economic loss for the firm?
marginal cost pricing
profit maximization condition for inputs
marginal revenue product equals marginal factor cost
under which of the following conditions will a firm be maximizing profit?
marginal revenue= marginal cost
monopoly
market structure in which a single firm is the entire industry
what is the goal of a firm in the Neoclassical theory of the firm?
maximum total profit
which of the following involves a player's randomly selecting from several possible actions using the assignment of probabilities
mixed strategy
which of the following model is very much like monopoly in the short-run and perfect competition in the long-run?
monopolistic competition
which of the following is known as "the rule of reason"
monopoly per se (or in and of itself) is not illegal
marginal cost pricing
necessary condition for Tibout's "voting with feet" equilibrium to occur
free-rider problem
no one has the incentive to tell the truth about preferences for a public good
if a government decides to impose a sales tax on the sales of textbooks, who bears the burden of the tax when the price elasticity of supply for textbooks equals the absolute value of the price elasticity of demand for textbooks?
none of the above
which of the following attempts to measure the responsiveness of quantity demanded to a change in the price of gasoline?
none of the above
which of the following market structures consists of a few sellers, i.e., few enough that at least one firm can influence price?
oligopoly
which of the following market structures is the most complex?
oligopoly
which of the following market structures is usually claimed to be the most common in the U.S., measured by dollars of sales revenue?
oligopoly
which of the following is a market structure in which there are a few demanders?
oligopsony
a break through in technology is likeliest to affect
only supply curves
which of the following is an example of an implicit cost?
opportunity cost of owner's salary
in this free-market method of utility regulation, the regulator requires a minimum amount of service but asks no questions about the utility's cost, etc., relying on consumer demand to regulate to utility's price and profit.
output regulation
which of the following attempts to measure the responsiveness of production (quantity supplied) to a change in the price of the product being sold?
own price elasticity of supply
which of the following sources of market power is NOT considered a marketing tactic?
patent, trademark, or copyright
financial markets
perfect competition is a good approximation for how this situation works
in which of the following kinds of games may one player's success not be offset by another player's failure so that all the payoffs between all players may add up to greater than zero?
positive-sum games
which of the following is the practice of charging less than average cost in a competitive environment while charging more than average cost in a non-competitive environment?
predatory pricing
if the price of personal computer software increases, ceteris paribus, what will happen to the equilibrium price and quantity of personal computers (if the software is installed by the seller)?
price will increase and quantity will decrease
according to the circular flow model, which of the following is likeliest when the government taxes in more in taxes than it spends?
prices and income both fall
what is the idea that economic models should tend toward simplicity rather than complexity?
principle of parsimony
in which of the following is the "free-rider problem" inevitable?
public good
which of the following is probably an inferior good (in the economic sense) for most people?
ramen noodles
In the Prisoner's dilemma, which of the following allows for the players to learn from their mistakes and eventually cooperate, making both better off?
repeated game
which of the following implies that there is not enough of a good to go around (no excess capacity)
rival in demand
inferior goods
sales for this kind of product rise during recessions and fall during expansions
production possibilities frontier
set of all potential combinations of two goods that an individual or country can produce
consider Slobovia, a country that makes only two types of goods: bread (measured along the y-axis), and guns (measures along the x-axis). If Slobovia is able to discover a cheap, reliable source of good quality steel, ceteris paribus, then the production possibilities frontier will likley
shift outward along the x-axis
in economics, which of the following is the period when at least one input is fixed?
short-run
consumer equilibrium
situation at which MUx/Px=MUy/Py for all X and Y; highest total utiloty subject to budget
in the agency theory of the firm, which stakeholder group most closely aligns to the role of "principal" in a modern corporation?
stockholders
consider the market for Jim Beam bourbon whiskey. An increase in the price of oak barrels, a key part of producing Jim Beam, ceteris paribus, shifts which curve?
supply for Jim Beam to the left
which of the following anti-competitive tactics is when conspirators do not actually physically meet or explicitly communicate, but instead communicate their willingness to keep prices high through their publicly-stated prices?
tacit collusion
own price elasticity of demand
tends to be greater than one in absolute value for luxury goods
average measures
tends to be historical (long memory) rather than recent (short memory)
the winner's curse
the good news is: you won the auction. the bad news is: you paid too much
adverse selection
the insurers' nightmare: where good risks exit the pool and bad risks stay
Bobby Ray thinks Emmy Sue is the greatest girl on earth. she has all of her teeth, sports big hair, and wears shoes. he took her to the Arkadoo High School prom in a chauffeur-driven four-wheeler, bought her a while gold engagement ring fitted with a rock he found himself at Crater of Diamonds State Park, and spent half his bonus to propose to her over a candlelit dinner with a half-sober fiddle player at the Pig Pit cafe. which of the following best describes what is likely to happen to Bobby Ray is Emmy Sue accepts his marriage proposal?
the winners curse
mercantilists
these thought that gold, obtained through trade, was what made a nation wealthy
dead-weight loss
this area describes inefficiency from a government distortion of a market
transitive preference
this assumption is responsible for the result that indifference curves cannot cross
diminishing marginal utility
this assumption results in convex (bowed-inward) indifference curves
diminishing marginal productivity
this concept applies only to producers, not to consumers
production function
this concept relates labor or some other input to output
neoclassical theory of the firm
this concept treats firms like black boxes who buy inputs and sell outputs
employee stock ownership plans
this is one way to lower agency costs for a firm
dead-weight loss
this is the worse aspect of a market distortion, according to economists
natural monopoly
this kind of firm has economies of scale (LRAC never rises)
predatory pricing
this marketing tactic has been used by Walmart to eliminate competitors
marginal cost pricing
this method results in producing a lot of a good at a very low price
seller bears full burden of a sales tax
this occurs when supply is perfectly inelastic or demand is perfectly elastic
diseconomies of scale
this occurs with scales of production that are in the rising part of LRAC
positive externality
too little of this will be provided by the market for a private good
the law of diminishing marginal utility states that as quantity consumed increases,
total utility rises at a decreasing rate
T or F: Changes in variables like consumer income, prices of related goods, and tastes have the effect of shifting the demand curve for the primary good (change in demand) while changed in the primary good's price or quantity demanded are reflected as movement along the demand curve for the primary good (change in quantity demanded)
true
T or F: a firm might rationally want to operate at higher than the optimal scale of production since its goal is profit maximization rather than simple cost minimization
true
T or F: according to Adam Smith, a nation's wealth is determined by how much gold it possesses. That is why Smith advocated high protective tariffs on imported goods.
true
T or F: after the government imposes a non-binding price ceiling on a market, demand or supp;y may change so the ceiling may eventually become binding
true
T or F: because of the ceteris paribus assumption, only two variables are allowed to change at one time in our comparative statics methodology
true
T or F: biased economic growth occurs when the PPF sifts outwards along only one axis
true
T or F: defining a market as narrowly as possible tends to result in more antitrust prosecution, ceteris paribus
true
T or F: equilibrium price is always optimal in the sense that we cannot move away from it without making someone (either the consumer, the producer, or both) worse off
true
T or F: if an expert at a game is playing a beginner, it is possible for the Nash equilibrium not to occur, since one of the sufficient conditions for a Nash equilibrium to occur is that all the players know the planned equilibrium strategy of all the other players
true
T or F: if transactions costs are zero or small, then the initial assignment of property rights does not affect the ultimate allocation of resources
true
T or F: it is possible for the burden of a sales tax to fall entirely on the consumer
true
T or F: it is possible for the same event to cause both positive and negative externalities at the same time
true
T or F: it is possible to use indifference curve analysis to determine the best allocation between consumption of a good (such as return) versus a bad (such as risk)
true
T or F: most circular flow models are biased in favor of demand, not supply
true
T or F: opportunity cost is highly subjective and differs dramatically between people
true
T or F: the consumer equilibrium condition that the marginal utility divided by price had to be equalized between all goods tends to be self-enforcing because of the law of diminishing marginal utility
true
T or F: there are many cases on record of how a company's advertising actually helped the competition more than the company itself
true
T or F: to increase total revenue, a seller of an inelastic good should increase price
true
T or F: utility comparisons between people are meaningless because utility is a subjective concept that is not directly comparable between individuals
true
T or F: when playing a game against someone who does not know how to play very well, sometimes the best solution (Nash equilibrium) is to make moves randomly (mixed strategy)
true
T or F: whenever a government imposes a non-binding price ceiling on a market, the ceiling may eventually become binding if supply falls or demand rises through time.
true
T or F: whether or not there is monopoly power always depends upon how narrowly or broadly one defines the market
true
complements
two goods for which cross price elasticity of demand is negative
substitutes
two goods for which cross price elasticity of demand is positive
opportunity cost
value of the highest valued forsaken alternative
Luxottica, an Italian eyewear company, sought to increase its US market share by buying Pearle Optical, which optometrist service and eyeglass lenses. which kind of merger best describes the situation?
vertical merger
which of the following types of mergers involves merging between components of either the supply chain or marketing channel and is hard to detect by regulators
vertical merger
total utility
very subjective concept that represents satisfaction or happiness for an individual
mechanism to avoid asymmetric information
warrantees for used products in order to protect buyers
tragedy of the commons
when common property resources are not rationed through licenses, this occur