ABM 1041 Final Exam

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

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 ceiling 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 floor for water.

A

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 negative externality. B. a positive externality. C. the Coase theorem. D. environmental mugging.

A

Zenon Corporation operates in a network industry and charges existing customers $9.99 per month for its services, but it offers new customers who sign a three-year contract six months of service for $1 per month. This new customer offer is known as A. a teaser strategy. B. a switching cost. C. a lock-in strategy. D. an intertemporal pricing strategy.

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

Target executives believe that if they raise prices, then customers will switch to shopping at Walmart across the street. However, if they decrease their prices, then Walmart will respond by decreasing their own prices, with no customers switching from Walmart to Target. This scenario implies that A. Target should decrease its prices in an effort to drive Walmart out of business. B. prices charged by both retailers will be relatively stable. C. both retailers are locked in destructive competition. D. Target should not have a pricing strategy.

B

The "dilemma" in the Prisoner's Dilemma is that A. one of the players cannot get the best outcome. B. both players would be better off by cooperating, but not cooperating is a dominant strategy. C. both players would be better off by not cooperating, but cooperating is a dominant strategy. D. the player with first-mover advantage always gets the better outcome.

B

Tim woke up this morning with a stomachache and decided to skip class in order to get more rest.What is the opportunity cost of Tim's decision to sleep in? A. The improvement in how he feels by getting more rest. B. The value of attending the class he decided to miss. C. The level of pain he endured from the stomachache. D. The actual enjoyment of lying in bed instead of sitting in class. E. None of the above

B

Which characteristic does monopolistic competition NOT have in common with perfect competition? A. Entry and exit are easy. B. Products of individual firms are different. C. Individual firms earn normal profits in the long run. D. Each firm has an insignificantly small market share.

B

Which event would be an example of a common property resource market failure? A. Use of portable buildings in elementary schools B. Highway congestion C. Increased instances of leukemia among neighbors of nuclear plants D. Gasoline that costs $5 a gallon

B

Which of these is a policy idea that the government could use to correct a negative externality? A. Encouraging the over-allocation of resources of production that create negative externalities. B. Imposing a fee on waste from the production of goods that create negative externalities. C. Providing government subsidies to producers of goods that create negative externalities. D. Providing financing of the additional production of goods that create negative externalities.

B

A country operating inside of its production possibilities frontier (PPF) is operating A. efficiently. B. inefficiently and at an unattainable level. C. inefficiently but in an area that can be attained. D. in the unattainable region.

C

Consider the market for breakfast cereal. Which of the following will cause higher 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.

C

Consider the market for new cars. Which of the following will cause lower prices and a lower 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.

C

Consider the market for wool sweaters. Which of the following will cause higher prices and a lower 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.

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. i t is rival in consumption and nonexcludable. D. i t is nonrival in consumption and nonexcludable.

C

If an individual's primary objective is to maximize his or her salary, then which action would NOT be considered a rational decision? A. Accepting a boring job that pays $60,000 per year over a fun job that pays $40,000 per year. B. Accepting a fun job that pays $70,000 per year over a boring job that pays $60,000 per year. C. Accepting a fun job that pays $40,000 per year over a boring job that pays $60,000 per year. D. Accepting a boring job that pays $95,000 per year over a fun job that pays $90,000 per year.

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 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

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 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

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

Home football games at your college are free for students and most of the students like to go to the game. What is the non-monetary cost for you to go to the game? A. Gas that you will need for your car. B. Money you paid for body painting and artificial hair. C. The outrageous price you had to pay for hot dogs and soda. D. The 2 hours you waited in the line to pick up a ticket. E. The price you paid for your brother's ticket.

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

Spraying for mosquito control in a local community is an example of a public 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.

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

Which statement is TRUE regarding the Coase theorem? A. The final distribution of income is independent of the initial distribution of property rights. B. The Coase theorem applies only to positive externalities. C. There are few real-world applications of the Coase theorem. D. If transactions costs are small, the outcome is efficient regardless of how property rights are distributed.

D

Suppose the government could stimulate spending in one of the following expenditure categories. In which category would the spending increase contribute most to an expansion of the country's production possibilities frontier? A. Government purchases B. Net exports C. Social goods D. Consumption goods E. Capital goods

E

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

False

A firm should (at least temporarily) shut down its production facility if variable costs are less than revenues.

False

A network good is one with which the benefit to the user rises if there is a small number of other users of the good.

False

In a market economy, most economic decisions are made by central governments.

False

Product differentiation gives a firm control over prices except when there is competition.

False

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

False

Suppose numerous research studies document the adverse health effects of prolonged social media use. As a result, we can expect that the stock price of social media companies will increase.

False

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

False

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

False

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

True

A positive externality is an external benefit that accrues to others outside of the market, while a negative externality is an external cost that accrues to others outside of the market.

True

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a model.

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 consumer income will increase the demand for products and services that are income normal.

True

At an all-you-can eat buffet, a person will stop eating when marginal utility is equal to zero,

True

If a market generates a negative externality, then an appropriately designed tax can move the market toward a more efficient outcome.

True

If the United States has a comparative advantage over France in producing corn, the opportunity cost of the United States producing corn is lower than France's opportunity cost of producing corn.

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.

True

In contrast to casual users, core users are often willing to pay relatively high prices for network goods.

True

In perfectly competitive markets, no firm has the ability to affect the market price.

True

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

True

One characteristic of oligopoly is that firms in an industry will usually have to consider the reactions of competitors when they formulate strategy.

True

Providing government subsidies for higher education could be both economically efficient and socially equitable if higher education results in positive externalities.

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

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 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

When demand is downward sloping, consumers who buy a good at the market equilibrium price will receive consumer surplus from the purchase of the good.

True

____ A fire that destroys a food processing facility will likely result in shortages, thus causing an increase in the price of those food products

True

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

false