EC 201 Final

How did IBM price discriminate its laser printers?

IBM offered two different printers: a fast printer and a slow printer.

A monopolistic industry will have lower output and higher prices than a competitive industry.

True

A monopoly can be defined as a single firm in a given market.

True

A person may decide to work fewer hours as his or her wage increases (i.e., the labor supply need not always slope upwards).

True

GlaxoSmithKline attempts to prevent arbitrage of its drug Combivir by selling different color pills, which are in special bar-coded packages, to identify and track distributors in different markets.

True

If an indifference curve is straight (i.e., it doesn't "bow" inward), the marginal rate of substitution is always constant.

True

Indifference curves can never cross.

True

Marginal utility is the additional utility from consuming an additional unit of a good.

True

The demand curve is downward sloping because of diminishing marginal utility.

True

The slope of the indifference curve is equal to the marginal rate of substitution

True

To succeed at price discrimination the monopolist must prevent arbitrage

True

Tying is a form of price discrimination in which one good, called the base good, is tied to a second good called the variable good.

True

Within consumer choice, apples and oranges can be compared.

True

In consumer choice, one maximizes ______ subject to a budget constraint.

Utility

An example of monopoly would be:

a sole provider of electrical power in a city.

When a good has relatively few substitutes:

a. monopolists will tend to increase their mark-up for the good.

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?

arbitrage

Economic theory suggests that college graduates receive higher wages than those with only a high school education because:

college graduates are more productive.

By assuming diminishing marginal utility, we mean that

consumers value additional units of a good less and less.

Bundling and tying are:

different practices of price discrimination

One of the great lessons of economics is that:

good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest towards social destruction.

A firm will keep hiring workers as long as the marginal product of labor is

greater than the wage

Deregulation of cable TV rates led to:

higher prices for cable TV

Airlines try to differentiate their customers by willingness to pay based on:

how long in advance a person books their flight

Office cleaners in India earn less than office cleaners in the U.S. because

in general, the American economy is more productive than the Indian economy

A college education in the United States:

has been shown to earn a wage premium

GlaxoSmithKline owns a government grant of temporary monopoly rights on Combivir, the AIDS drugs, due to:

patents

Which of the following is an example of price discrimination?

senior citizen discounts

Consumers maximize their utility when

the marginal utility per dollar is equal across all goods consumed and all income is spent. they consume the good on which they place the highest overall value.

A natural monopoly occurs when:

there are economies of scale over the relevant range of output

Statistical discrimination is:

using information about group averages to make conclusions about individuals.

A compensating differential is mainly a cause of a difference in:

wages compensating for the difference in working conditions.

For a monopolist, MR is always less than P because:

when a monopolist lowers the price to sell more units, it must lower the prices of all units sold.

Inelastic

A firm would prefer that its product demand curve is:

What does a single indifference curve represent?

A level of utility

Discrimination by employees:

All of the above are correct

Why is it not completely accurate to say that women earn less than men?

Because this statistic compares the wages of all women with the wages of all men.

A point above the budget constraint is sometimes affordable

False

Although price discrimination may increase the profits of drug companies, it reduces the incentive for drug companies to develop new drugs.

False

If the marginal utility per dollar for hamburgers is higher than the marginal utility per dollar for tacos, then to maximize utility the consumer should only consume hamburgers.

False

Regardless of prices, if the marginal utility of apples is 4 and marginal utility of grapes is 4, the consumer is maximizing utility.

False

Which of the following best describes the major factor in making jobs safer?

Increased wealth created by economic growth makes workers less willing to take on excessive risk.

Apple enjoys an extensive monopoly power in the market for MP3 players as Apple's iPod:

Is hard to duplicate

The opportunity cost of income is typically termed

Leisure

Many people argue that the U.S. government should control pharmaceutical prices. What would most likely happen as a result of this policy?

Lower prices would mean lower profits and hence less incentive for firms to engage in research and development of new drugs

Which of the following is not a source of monopoly power?

Marketing

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil

More inelastic

Arbitrage is ________ in one market and ________ in another market

None of the answers is correct

When the income effect from a wage increase is greater than the substitution effect, the supply curve for labor

Slopes downward

Economist Michael Kremer offered a unique solution to the problem of deadweight loss created by monopolies that have control of an innovation. What solution did he propose that would leave the drive to innovate uncompromised?

The government should buy out the rights of the patent from the monopoly

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is true?

The insurance companies are not practicing price discrimination

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases.

A budget constraint shows all affordable bundles of goods given income and prices

True

Fishermen who go deep sea crab fishing (like those on The Deadliest Catch) earn

a compensating wage differential

Why is student financial aid a profit maximizing decision for universities?

because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit

To perfectly price discriminate, a firm must have full information of:

every customer's willingness to pay.

Which of the following is most likely to improve the productivity of workers?

investment in human capital

The market demand curve for labor is based on the:

marginal product of labor.

A consumer is ________ likely to be sensitive to price if the purchase ________ covered by insurance.

less; is

Concerning public utilities, the stated reason for resorting to regulation of a monopoly, rather than promoting competition through antitrust, is that the industry in question is believed to be a:

natural monopoly

In the labor market the normal shape of the market supply curve is:

positively sloped

A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 Rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of:

price discrimination

Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to:

sell sports and music channels in one bundle to both types of viewers

Evidence from studies by some economists on professional basketball found there has been:

statistical discrimination against white European players

Marián Hossa was paid $7.4 million by the Detroit Red Wings for the 2008-09 season. We can conclude that

the Red Wings expected Marián Hossa to increase the team's revenue by at least $7.4 million

The marginal product of labor is:

the increase in firm revenue when an additional worker is employed

Human capital:

the skills and knowledge gained by a worker through education and experience

Suppose that being an accountant and a musician require similar amount of skills, education, training, and so forth. If accountants are paid higher wages than musicians,

the supply of musicians would decrease and the supply of accountants would increase

Perfect price discrimination results in:

zero dollars of consumer surplus