Chapter Three Economics Bishop
A country's currency unit changes in purchasing power: A. when there is either inflation or deflation. B. only when there is inflation. C. in none of the other cases. D. only when there is deflation.
A
A market situation where a small number of sellers compose the entire industry is called: A. oligopoly. B. monopoly. C. perfect competition. D. none of the other answers is correct. E. monopolistic competition.
A
A monopolist would charge ____ prices and produce ____ output than would exist under perfect competition. A. higher; less. B. higher; more. C. lower; more. D. the same; the same.
A
An example of an oligopoly is: A. the tobacco industry. B. the wheat market. C. the beef industry. D. the restaurant industry.
A
An individual who voluntarily leaves one job and spends a period of time seeking another is considered: A. frictionally unemployed. B. seasonally unemployed. C. structurally unemployed. D. cyclically unemployed.
A
Ceteris paribus, in which of the following cases would we expect economic profits to be greatest? A. an unregulated monopolist who is able to price discriminate. B. an unregulated monopolist who is unable to price discriminate. C. a regulated monopolist required to charge a price no greater than marginal cost. D. a regulated monopolist required to charge a price no greater than average cost.
A
Deflation exists whenever: A. the overall price level falls. B. the overall price level rises. C. the economy experiences a contraction. D. the price of a good decreases. E. either a. or d. occurs.
A
For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry later raised their prices by the same amount. Economists call this: A. price leadership. B. predatory pricing. C. a price war. D. producer sovereignty.
A
GDP is: A. the value of all final goods and services produced domestically within a given period of time. B. the value of all final good and services produced anywhere in the world by a nation's firms within a given period of time. C. the value of all final goods and services produced by a government within a given period of time. D. the sum of all currency and coins in circulation.
A
If a regulatory commission wishes to allow a firm to earn a normal rate of return, it should set price equal to: A. average total cost. B. marginal revenue. C. marginal cost. D. average variable cost.
A
If an unregulated monopolist operates in a market, then: A. all of the others will occur. B. society will not be allocating its resources efficiently. C. customers will pay higher prices than if the market were competitive. D. customers will purchase fewer units of output than if the market were competitive
A
If marginal revenue on the tenth unit of output equals $4 for a non-discriminating, profit-maximizing monopolist, then price: A. is greater than $4. B. equals $4. C. must be equal to average total cost. D. can be equal to, less than, or greater than $4. E. is less than $4.
A
Monopoly results in a welfare loss because: A. the monopolist restricts output below the socially efficient level. B. total cost is not minimized. C. average variable cost is not minimized. D. marginal revenue does not equal marginal cost.
A
Real gross domestic product is the total value of all: A. final goods and services adjusted for inflation. B. final goods and services without adjustment for inflation. C. goods and services adjusted for inflation. D. intermediate goods and services without adjustment for inflation. E. goods and services without an adjustment for inflation.
A
The aim of antitrust policy is to: A. prevent firms from acquiring or exercising undue market power. B. regulate the prices charged by perfectly competitive firms. C. provide adequate incentives for inventors and entrepreneurs. D. protect established firms by deterring new entry into industries.
A
The faster the rate of technological progress: A. the greater the rate of economic growth. B. the slower the rate of economic growth. C. the greater the rate of population growth. D. the slower the rate of growth of the money supply.
A
The index of leading economic indicators: A. can result in a self-fulfilling prophecy if business firms respond to leading economic indicator predictions. B. provide accurate information on the duration of downturns in the economy. C. provide accurate information on the depth of downturns in the economy. D. virtually always predicts downturns in the economy with a lead time of six months.
A
The largest single expenditure component of GDP is: A. consumption. B. investment. C. government purchases. D. net exports.
A
The practice of selling a product to different customers at different prices when marginal cost is the same is known as: A. price discrimination. B. monopoly pricing. C. arbitrage. D. price segregation.
A
The unemployment rate is calculated as: A. the number of unemployed persons divided by the number of employed plus unemployed persons. B. the number of unemployed persons divided by the population. C. the number of unemployed persons divided by the number of employed persons. D. the number of employed persons divided by the number of unemployed persons.
A
Which of the following is true of monopoly but not true of perfect competition? A. Firms can potentially earn economic profits in the long run. B. Total revenue is the product of price times the quantity sold. C. A profit-maximizing firm will shut down if price falls below the average variable cost. D. Firms can potentially earn economic profits in the short run.
A
A country will roughly double its GDP in twenty years if its annual growth rate is: A. 2.5 percent. B. 3.5 percent. C. 7.5 percent. D. 12 percent. E. 20 percent.
B
A key element to preserving a monopoly is: A. government subsidization of critical enterprises. B. keeping potential rivals out of the market. a) legal barriers established when the government franchises a firm as the unique seller or provider of a good or service, b) the existence of economies of scale so the large monopolistic firm can provide the output at a lower cost than other firms, c) control over an important input or key resource. C. guaranteeing the availability of substitute products. D. increased advertising expenditures.
B
A monopolist who is able to price discriminate by charging two different groups different prices: A. will set prices so that the demand curve for one group is inelastic at the price charged and the demand curve for the other group is elastic at the price charged. B. will set prices so that both group's demand curves are elastic at the prices charged C. will set prices so that both group's demand curves are inelastic at the prices charged. D. will set higher prices for the group whose demand curve is more elastic. E. will do both b. and d.
B
A price-discriminating monopolist will tend to charge a higher price to senior citizens if it believes that senior citizens: A. have a lower willingness to pay than other demanders. B. have a greater willingness to pay than other demanders. An essential characteristic to be able to exercise price discrimination is customers' willingness to pay. C. have very elastic demand curves. D. have horizontal demand curves.
B
Given a constant rate of growth of real GDP, what would cause a fall in real GDP per capita? A. a rate of population growth that is less than the rate of growth of real GDP B. a rate of population growth that is greater than the rate of growth of real GDP C. an increase in the size of the labor force D. a decrease in the capital stock E. none of the above
B
If a nation's imports exceed its exports: A. net exports will be positive. B. GDP will be less than the sum of consumption, investment, and government purchases. C. GDP will be greater than the sum of consumption, investment, and government purchases. D. none of the above apply.
B
If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, it will: A. increase output and decrease price. B. increase price and decrease output. C. increase both price and output. D. decrease both price and output.
B
If the price index is now 120, it means: A. prices are 120 percent higher than in the base year. B. prices are 20 percent higher than in the base year. C. prices are 1.2 percent higher than in the base year D. nominal GDP will be less than real GDP. E. that both b. and d. are true.
B
Interdependence among firms is characteristic of: A. perfectly competitive markets. B. oligopoly markets. C. monopolistically competitive markets. D. monopoly markets.
B
Price ____ occurs when producers charge different customers different prices for the same good or service. A. maximization B. discrimination C. regulation D. management
B
Price discrimination refers to: A. charging different prices to different groups on the basis of production cost differences. B. charging different prices to different groups without a basis for doing so because of differences in production costs. C. the ability of a firm to charge a price in excess of marginal cost. D. consumer bargain hunting.
B
The goods and services that are used in the production of other goods and services are called: A. gross domestic goods. B. intermediate goods. C. final goods. D. ultimate goods. E. preliminary goods.
B
The index of leading economic indicators usually turns downward: A. prior to economic expansions. B. prior to economic contractions. C. a full 24 months before a recession begins. D. prior to a contraction, but then turns upward before the contraction begins.
B
The investment component of GDP includes: A. funds in individual retirement accounts. B. construction of a new steel mill. C. the sale of shares of Coca-Cola stock. D. the purchase of a refrigerator by a household.
B
The prosperity of a nation today is typically measured by its: A. total output or gross national product B. output per capita C. gold reserves. D. proportionate share of international trade.
B
The term full employment implies an unemployment rate of: A. zero B. approximately 5% C. approximately 10% D. 100%
B
The total dollar value of purchases in the economy is far larger than GDP primarily because: A. GDP ignores taxes. B. GDP excludes the value of intermediate goods exchanged. C. GDP excludes the output from foreigners working in America. D. GDP ignores production in the home
B
Three airlines account for most of the air traffic in and out of a local city. If the three airlines joined together in setting fares and air travel schedules, economists would say that they were acting as: A. monopolistic competitors, as each firm would have to differentiate its airline services from its rivals. B. a cartel, as the three airlines together would attempt to coordinate policies in the local market to jointly maximize profits. C. kinked demand curve oligopolists. D. perfect competitors, as each firm would sell travel services at the same fares as the other airlines.
B
Under conditions of oligopoly markets, firms generally don't like to compete based on price. Why? A. Because consumers rarely spend time making price comparisons between different brands. B. Because competing on the basis of price can set off a price war among competitors and significantly reduce profits to the firm. C. Because no producer has a cost advantage in doing so. D. Because price competition is illegal in most states.
B
When a monopolist is able to price-discriminate: A. its profits tend to increase and its output tends to fall. B. both its profits and output tend to increase. C. both its profits and output tend to decrease. D. its profits tend to fall and its output tends to increase
B
When a monopolist is able to sell its product at different prices to different customers, it is likely engaging in: A. quality-adjusted pricing. B. price discrimination. C. price differentiation. D. illegal activities. E. None of the above.
B
Which landmark legislation made it illegal to engage in predatory pricing and also prohibited mergers if it led to weakened competition? A. Cellar-Kefauver Act B. Clayton Act C. Robinson-Patman Act D. Sherman Act
B
Which of the following is a problem with using real GDP as a measure of economic well-being? A. does not account for inflation B. does not account for production within the household C. does not account for production by foreign firms producing inside the U.S. D. all of the above
B
Which of the following is likely in a monopolized market? A. a welfare loss due to the restriction of output B. all of the others are true. C. the potential for continued profitability in the long run D. a price that exceeds marginal revenue E. a price that exceeds marginal cost
B
Monopoly is at the other end of the spectrum from ____. A. equilibrium B. perfect competition C. oligopoly D. none of the above
B. perfect competition Feedback: Correct. Monopoly is at the other end of the spectrum from perfect competition. Most markets lie between those extremes of perfect competition (many buyers and sellers, homogenous products, easy entry and exit, firms are price takers and face a perfectly elastic demand curve) and monopoly (one firm, unique product with no close substitute, large barriers to entry and the firm faces a market demand curve). In perfect competition the industry is composed of many small firms, all of which are price "takers"; in monopoly, the industry and the firm are one, the firm is a price "maker".
A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as: A. frictionally unemployed. B. underemployed. C. cyclically unemployed. D. structurally unemployed. E. a discouraged worker.
C
Fred has lost his factory job, replaced by welding robots, and soon plans to go to technical school to learn computer repair because he cannot find a similar job to the one he lost. The type of unemployment facing Fred is:. A. frictional. B. natural. C. structural. D. cyclical. E. seasonal.
C
GDP does not directly include: A. the value of final goods and services produced, but not sold, during a period. B. the value of services rendered during a period. C. the value of intermediate goods sold during a period. D. any of the above. E. either a. or c.
C
Government regulation of natural monopolies might cause which problem below? A. decreased number of firms in the market B. lack of influence from special interest groups C. reduced incentives to cut costs D. creation of excessive profits levels
C
If there are discouraged workers: A. they are included in the official count of the unemployed. B. the unemployment rate will tend to overstate the true level of unemployment. C. the unemployment rate will tend to understate the true level of unemployment. D. they are considered part of the labor force. E. both a. and d. are correct.
C
If there are economies of scale throughout the relevant output range of production, which is false? A. It is a natural monopoly. B. It is more efficient to have a single firm produce the good. C. It would typically result from a firm's possession of an exclusive patent. D. One large firm can produce at lower cost than two or more smaller firms. E. None of the above is false; all are true.
C
In a perfectly competitive industry, the industry demand curve is ____, while in a monopolistic industry, the industry demand curve is ______ A. horizontal; downward sloping. B. downward sloping; horizontal. C. downward sloping; downward sloping. D. horizontal; horizontal.
C
Mutual interdependence means that: A. each firm faces a perfectly elastic demand curve. B. firms choose price and output simultaneously. C. firms must anticipate the possible reaction of rivals to their own economic behavior. D. each firm faces a perfectly inelastic demand curve.
C
The consumer surplus lost because monopolists restrict the production of output represents a welfare loss because: A. it is transferred to producers in the form of profit. B. consumers pay a higher price than they would in a more competitive market. C. society is not using its scarce resources in the best way possible. D. of both a. and b., but not c.
C
The cost incurred when individuals reduce their money holdings because of inflation is termed as the: A. implied cost. B. nominal cost. C. shoe-leather cost. D. menu cost.
C
The services rendered by a special agent with the Federal Bureau of Investigation is included in which expenditure category of GDP? A. consumption B. investment C. government purchases D. net exports E. none of the above
C
What was the first important law regulating monopoly that prohibited "restraint of trade"? A. Clayton Act B. Cellar-Kefauver Act C. Sherman Act D. Robinson-Patman Act
C
Which of the following best describes the relationship between economic growth and literacy? A. As the economy grows, literacy declines because it becomes less and less useful in a developed economy. B. Increased literacy initially stimulates economic growth by raising labor productivity, but as the economy grows and the opportunity cost of education rises, literacy declines. C. Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education. D. There is no correlation between economic growth and literacy.
C
Which of the following groups of people would be included in the official unemployment rate? A. part-time workers B. None of the other answers are correct. C. workers temporarily laid off from jobs to which they expect to return D. discouraged workers
C
Which of the following is NOT potentially a barrier to entry into a product market? A. the control of a crucial input necessary to produce the product B. patent protection on the design of the product C. the absence of economies of scale in the product market D. All of the others are potentially barriers to entry into a product market. E. government licensing of the product's producers
C
Which of the following is a characteristic of a monopoly? A. a large number of sellers B. homogeneous products C. larger barriers to entry Feedback: Correct. A monopoly is a market structure in which a single firm sells a product with no close substitutes, and the firm is protected by high barriers to entry. A monopoly exists when barriers to entry prevent other firms from entering the market. Among possible barriers to entry are patents, copyrights and government licenses; control of a key resource or ownership of an important input; and large economies of scale (natural monopoly). D. price taking firms
C
Which of the following is generally true of monopoly? A. Marginal revenue is less than price. B. Price exceeds marginal cost. C. All of the other answers are generally true of monopoly. D. Output is restricted relative to the socially efficient level. E. Average revenue equals price.
C
Which of the following is true about price discrimination? A. Price differentials between groups will erode if reselling is easy. B. Quantity discounts are a form of price discrimination which allow a seller to charge a higher price for the first unit than for later units. C. All of the others are true of price discrimination. D. When there are a number of competing firms, price discrimination is less likely because competitors tend to undercut the high prices charged those discriminated against. E. A profit-maximizing seller will charge a higher price for those with a greater willingness to pay, and a lower price for demanders with a lower willingness to pay.
C
Why does the government allow some markets to be monopolized by granting patents? A. to promote a more equal distribution of income B. to correct for negative externalities C. to promote technological progress D. to ensure lower prices for consumers in the short run.
C
A monopolistic firm is a: A. price taker that faces the market supply curve. B. price taker that faces the market demand curve. C. price maker that faces the market supply curve. D. price maker that faces the market demand curve.
D
A natural monopoly is likely to arise when: A. patents provide protection of intellectual property. B. any of the others occur. C. the government restricts entry through licensing. D. economies of scale exist over the relevant range of demand. E. a firm controls a crucial input to production.
D
A price-taking firm and a monopoly firm are alike in that: A. price equals marginal revenue for both. B. in the long run, both earn zero economic profits. C. price exceeds marginal cost at the profit-maximizing level of output for both. D. both maximize profits by choosing an output where marginal revenue equals marginal cost.
D
At his current level of output, a monopolist has a Marginal Revenue of $10, a Marginal Cost of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, the monopolist: A. is producing at the profit-maximizing level of output. B. could increase profit by increasing his price. C. should exit the market if significant fixed costs have been incurred. D. could increase profit by increasing output.
D
Given a fixed nominal interest rate on a loan, unanticipated inflation: A. benefits savers. B. does not alter the burden of paying off the loan. C. increases the burden of paying off the loan. D. decreases the burden of paying off the loan.
D
If a regulatory board wanted to make sure that a natural monopoly chose a price resulting in the efficient level of output, it should set a price equal to: A. average total cost. B. average fixed cost. C. average total cost, plus a ten percent normal return on investment. D. marginal cost. E. average variable cost.
D
If the economy is operating at the natural rate of unemployment, which of the following is essentially eliminated? A. None of the other answers are correct. B. structural unemployment C. frictional unemployment D. cyclical unemployment
D
In a typical cartel agreement, the cartel maximizes profit when it: A. is flexible in enforcing production targets. B. behaves as a duopolist. C. behaves as a perfectly competitive firm. D. behaves as a monopolist.
D
Inflation: A. can cause a redistribution of income from creditors to borrowers. B. can decrease the value of a nation's currency relative to other nations. C. may discourage investment and economic growth. D. may result in any of the other answers.
D
Pure monopoly: A. is characterized by a single supplier. B. is a market structure in which no close substitute products are available. C. exists when entry and survival of potential competitors is extremely unlikely. D. is characterized by all of the above.
D
Say that a monopolist is currently operating on the inelastic region of its demand curve. To maximize its profits, it should: A. maintain its current price. B. lower its prices. C. either raise or lower its prices, depending on how high its marginal cost curve is. D. raise its prices.
D
Sergei has developed a new fat substitute that has no calories and produces no side effects. In order for him to be encouraged to bring this innovation to the marketplace he is likely to want which of the following the most? A. time to be able to thoroughly test the fat substitute B. an ample supply of capital to start the manufacturing process C. a trademark D. a patent
D
The demand curve of a monopolist is: A. horizontal at the market price. B. kinked because of recognized interdependence with other firms. C. downward sloping and below the marginal revenue curve. D. downward sloping and above the marginal revenue curve. E. is identical to the marginal cost curve.
D
The total labor force consists of: A. the entire population. B. the number of employed persons. C. the population over the age of sixteen. D. the number of employed persons plus the number of unemployed persons.
D
U.S. public utilities are often: A. employee-owned public enterprises. B. perfect competitors. C. created through patent protection. D. regulated natural monopolies.
D
When setting prices, the monopolist may choose to charge alternative customers different prices based on: A. geographical location. B. age. C. income. D. all of the above.
D
Which of the following groups are typically harmed by unexpected inflation? A. lenders B. borrowers C. pensioners on fixed incomes D. both a. and c. E. both b. and c.
D
Which of the following individuals would be considered unemployed? A. a computer technician who has not worked for 10 months and gave up looking 4 months ago B. a lawyer temporarily working as an assistant in a law firm C. a full time student who feels that he is taking too many classes to work D. none of the other answers
D
Which of the following is NOT generally true about a profit-maximizing monopolist? A. The monopolist charges a price that exceeds marginal cost. B. The monopolist can potentially continue to earn economic profits in the long run. C. The monopolist chooses output where marginal revenue equals marginal cost. D. The monopolist faces a perfectly elastic demand curve. E. All of the others are true.
D
Which of the following would likely be an example of a monopolistic industry? A. fast-food restaurants B. wireless phone service A monopoly is a market structure characterized by a) one seller, b) a unique product with no substitutes, c) large barriers to entry. An oligopoly is a market structure characterized by a) few sellers, b) a homogeneous or a differentiated product (real or perceived differentiation), c) large and considerable barriers to entry. C. auto manufacturing D. none of the above
D
Why do economists prefer using the term economic fluctuation rather than business cycle? A. political correctness B. number of parameters involved C. excessive volatility of the cycles D. lack of regularity of a cycle
D
A full-time college student who is enrolled in school full-time and not seeking employment is considered: A. in the labor force. B. unemployable, and not counted in official statistics. C. employed in leisure. D. underemployed. E. out of the labor force.
E
A monopolist who is unable to price discriminate: A. will never produce in the output range where marginal revenue is positive. B. will never produce in the output range where marginal revenue is negative. C. will never produce in the output range where demand is elastic. D. will never produce in the output range where demand is inelastic E. will be characterized by both b. and d.
E
A monopoly industry: A. has very significant barriers to entry. B. faces a downward sloping demand curve. C. produces a product for which there are no close substitutes. D. may earn economic profits or losses in the short run. E. has all of the above characteristics.
E
As the number of firms in an oligopoly ____, the oligopoly becomes more ____. A. decreases; competitive B. decreases; like a monopoly C. increases; like a monopoly D. increases; like perfect competition E. both b. and d.
E
Barriers that prevent the entry of new firms may arise because: A. economies of scale exist over a substantial range of industry demand. B. price exceeds marginal cost. C. marginal revenue is less than average total cost. D. the government protects some firms from competition. E. of both a. and d.
E
If a regulatory board wanted to make sure that a natural monopoly earned a normal rate of return, it should set price which is equal to: A. average fixed cost. B. average total cost, plus a ten percent normal return on investment. C. marginal cost. D. average variable cost. E. average total cost.
E
Measures of well-being include: A. life expectancy. B. infant mortality rates. C. literacy rates. D. pollution levels. E. all of the above.
E
Offering employees an efficiency wage may: A. attract the most productive workers. B. reduce turnover. C. boost employee morale. D. lead to a reduction in training costs. E. result in any of the above.
E
Which of the following factors that affect our well-being does GDP fail to adequately account for? A. changes in the quality of goods B. externalities C. leisure D. nonmarket transactions E. all of the above
E
Which of the following refers to extremely high rates of inflation for sustained periods of time? A. bust B. expansion C. depression D. deflation E. hyperinflation
E
If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals: A. 8 percent. B. 20 percent. C. 40 percent. D. 32 percent. E. 25 percent. .
E. 25 percent. Feedback: Correct. The unemployment rate is calculated as the number of unemployed persons (8 million) divided by the number of employed (24 million) plus unemployed persons (8 million). Unemployment rate = (8) / (24 + 8) = 0.25 or 25%.