ECON 202 Exam 3

The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that:

a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium.

A monopolist faces

a downward sloping demand curve

Adverse selection occurs when there is

an unobserved characteristic

If in the market for used bikes only sellers can distinguish between good quality and bad quality used bikes, then in that market there exists:

asymmetric information

In the long run, the entry of new firms in an industry

benefits consumers by forcing prices down to the level of average cost.

Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the 300th unit is $8, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $6. Based on this information, the firm is:

earning an economic profit of $600

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

game theory

Most economists believe that a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Which of the following factors is not another factor that explains part of this gap? differing preferences for jobs differences in experience geographic location differences in education

geographic location

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that

in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.

The main difference between the short run and the long run is that:

in the short run, at least one of the firm's input levels is fixed

A strategy is dominant if

it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players

Suppose that Figure 10.4 shows a monopolist's demand curve, marginal revenue, and its costs. The monopolist would maximize its profit by producing a quantity of:

30 units

The following figure depicts four sequential games. Player A is the first to move and Player B is the second to move. Refer to the figure above. In which game do both players win money in equilibrium?

(1)

The following figure depicts four sequential games. Player A is the first to move and Player B is the second to move. Refer to the figure above. In which game do both players lose money in equilibrium?

(2)

Bonita's Braidworks hires workers to braid hair. The store sells the service for $25 per customer. The marginal revenue product of this store's fifth worker is $50. The marginal product of the fifth worker is

2 braided customers

In long-run perfectly competitive equilibrium, which of the following is false? Firms will earn economic profit Economies of scale are exhausted There is efficient, low cost production at the minimum efficient scale Economic surplus is maximized

Firms earn economic profit

Sarah is a high school graduate and James is a college graduate. Which of the following statements is true? Both Sara and James are likely to have the same amount of human capital. Both Sara and James are likely to earn the same wage in the labor market. James is likely to have more human capital than Sara. Sara is likely to have more human capital than James.

James is likely to have more human capital than Sara

If a firm shuts down in the short run,

its loss equals its fixed costs

Ajax Corporation has just decided to let managers work from home one day a week. This decision will make working conditions better and will

lead to an increase in the supply curve of labor for managers

The substitution effect of a wage increase is observed when

leisure's higher opportunity cost causes workers to take less leisure and work more.

When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

moral hazard

As the wage rate falls, other things constant, perfectly competitive firms will employ

more workers

If the government sets a maximum price for gasoline above the equilibrium price,

quantity demanded of gasoline will be equal to quantity supplied of gasoline

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

When wages increase, the income effect of labor supply ________ the quantity of labor supplied because ________.

reduces; workers acquire more of all normal goods (including leisure) when income increases

If labor supply is low relative to labor demand, then we can expect the equilibrium wage to be

relatively high

A cooperative equilibrium is most likely to arise in a

repeated game with a small number of players.

A dominant strategy ________.

results in a higher payoff irrespective of the strategy chosen by the other player

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

sequential games

A player has a dominant strategy when:

she has only one best response to every possible strategy of the other player.

A best response is _________

one player's optimal action choice taking the other player's action as given

A warranty is an example of ________.

signaling

You decide to carry a letter of recommendation from your college professor while going for your first interview. This is an example of ________.

signaling

For many jobs, as wages increase, the quantity supplied of labor increases. This set of facts is evidence that the

substitution effect is larger than the income effect and the supply of labor curve is upward sloping.

Which of the following factors will not cause the labor demand curve to shift? increases in human capital changes in technology the wage rate a change in the price of the product produced with labor

the wage rate

If the equilibrium wage is below the actual wage:

the wage rate will fall

In an oligopoly, firms can increase their market power by

colluding to set prices

If a pet grooming salon hires an additional groomer, that worker can groom 4 additional pets per day. The average grooming fee is $25. The most the salon would be willing to pay that groomer is

$100 per day

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

$15

Which is true about dominant strategies in the game in Scenario 13.15? $80 is dominant for Simple; $25 is dominant for Boring. $35 is dominant for Simple; $25 is dominant for Boring. $80 is dominant for Simple; $70 is dominant for Boring. $35 is dominant for Simple; $70 is dominant for Boring. There are no dominant strategies in the above game.

$80 is dominant for Simple; $25 is dominant for Boring.

Suppose the market wage facing a firm in the perfectly competitive candle-making industry is $20 per hour, and the firm sells its candles for $2 each. Given this information, the firm should hire workers until the marginal product of labor equals ________.

10 candles per hour

Other things remaining the same, which of the following is likely to cause a left shift in the supply curve for labor? A decrease in population An increase in the demand for the final product that the labor is used to produce An increase in population A decrease in the demand for the final product that the labor is used to produce

A decrease in population

"Ban-the-box" laws that prohibit employers from asking about criminal records. Economic research on the impacts of these laws on the employment of minority men with low levels of education has shown:

A decrease in their employment, since employers' inability to observe actual criminal records leads to more statistical discrimination and assumptions these men may have a criminal record.

Which of the following is a problem that arises in a health insurance market? There exists a fierce competition between the insurance providers. A disproportionate number of high-risk individuals are attracted to buy insurance. Only risk-averse individuals buy insurance. There are a large number of buyers of various insurance programs.

A disproportionate number of high-risk individuals are attracted to buy insurance.

The introduction of a better outside option for not working (like unemployment insurance or welfare) results in:

A leftward shift of the labor supply curve, lower equilibrium employment, and higher equilibrium wages

________ occurs when one agent in a transaction knows about a hidden characteristic of a good.

Adverse selection

Which of the following is true of a simultaneous move game? Players choose their actions after knowing the action of the first player. All relevant benefits and costs of each action are taken into account. It involves strategic interactions among a large number of players. This game cannot be represented by a payoff matrix.

All relevant benefits and costs of each action are taken into account

All of the following statements about asymmetric information are true except: Asymmetric information can only be solved through government intervention. Asymmetric information occurs when one party to a transaction has relevant information to the transaction that the other party does not have. Asymmetric information occurs in the market for used cars and in the insurance market. Asymmetric information creates market failures because it makes it harder for individuals to engage in transactions that would take place in the presence of perfect information.

Asymmetric information can only be solved through government intervention.

Which of the following most resembles a case of taste-based discrimination? Tatiana only hires men as bartenders and women as cocktail servers at her upscale bar. Austin has a deep-seeded hatred of bald-headed men and refuses to hire any to work at his car wash. Rodrigo will only hire bilingual people because a majority of his customers speak either English or Spanish. Katelyn prefers not to hire women under the age of 35 because she is afraid they will eventually want to take maternity leave.

Austin has a deep-seeded hatred of bald-headed men and refuses to hire any to work at his car wash

In the market for used boats there are high-quality boats and poor-quality boats. Potential buyers cannot determine prior to purchase whether the boat is high quality or low quality. Which of the following statements best describes what is likely to happen in this market? A) No used boats will be bought or sold given the uncertainty faced by the buyer. B) The price of a used boat will be between the value of a high-quality and low-quality boat. This will encourage people to withdraw high-quality boats from the market. C) The price of a used boat will be very close to the value of a high-quality motorcycle, which will encourage people to sell high-quality boats. D) The price of a used boat will be very close to the value of a low-quality boat, since the buyer will not be willing to pay any more than this price given the uncertainly of what they will get.

B

Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose. Refer to the scenario above. Which of the following is likely to happen if Elly is known to be vengeful?

Both Elly and her employee will earn money

Sears and Wal-Mart must decide whether to lower their prices, based on the economic profits shown in the table above. Which of the following is TRUE? (Quiz 12.5)

Both Sears and Wal-Mart would jointly be better off if they could each keep their prices high.

Firm A is a monopoly because of network effects, whereas Firm B is a natural monopoly. Which of the following statements is likely to be true in this context? A) The average total costs of both firms decrease as they increase their output. B) Firm A enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm B enjoys a monopoly status because the value of its product increases as more consumers buy it. C) Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases as more consumers buy it. D) The value of the product that both firms produce increases with an increase in the number of buyers.

C) Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases

Which of the following is an example of signaling in a market with asymmetric information? Rent controls imposed by the government Certification of used cars by third parties Taxation of alcoholic beverages Discounts offered by sellers during the holiday season

Certification of used cars by third parties

In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome?

Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.

eBay has a seller reputation system to provide

Consumers with a signal concerning seller quality

Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market? Employers who discriminate pay an economic penalty. Employers who discriminate are likely to do so in overt ways such as awarding some workers with benefits-in-kind. Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences. Ultimately, employers who discriminate cannot remain profitable.

Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences.

What is the dominant strategy in the prisoner's dilemma?

Each prisoner confesses because this is the rational action to pursue.

Which of the following statements is true? Employers are willing to forego profits when engaging in taste-based discrimination. Employers are willing to forego profits when engaging in cultural discrimination. Employers are willing to forego profits when engaging in statistical discrimination. Employers are willing to forego profits when engaging in special interest group discrimination.

Employers are willing to forego profits when engaging in taste-based discrimination.

Assume a perfectly competitive firm is in long-run equilibrium and there is a decrease in market demand for the firm's output. Which of the following will occur?

Existing firms will reduce output in the short run

T/F Due to adverse selection, very few lemons will be sold in the market for used cars.

False

T/F If marginal cost is above the average variable cost, then average variable cost is decreasing.

False

T/F Technological advancements that increase labor's productivity shift the labor supply curve to the right.

False

________ discourage low-risk individuals from seeking health insurance.

High premiums

Which of the following helps in reducing the problem of adverse selection in health insurance markets? High premiums Insurance mandates Insurance coverage High rates of taxation

Insurance mandates

Which of the following statements best describes the economic short run?

It is a period during which at least one of the firm's inputs is fixed

What role does a company like J.D. Power (which provides product satisfaction reviews) serve?

It provides a signal of quality

What is allocative efficiency?

It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.

What is adverse selection?

It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

Which of the following is true of a payoff matrix? It is the representation of only the best response of each player. It takes into account all relevant costs and benefits associated with each action of the players. It shows the payment made to each factor of production for the production of a good. It does not represent all the costs and benefits associated with the choices of the players.

It takes into account all relevant costs and benefits associated with each action of the players.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Nash equilibrium

Which of the following is true of a Nash equilibrium? A game can have only one Nash equilibrium. A Nash equilibrium occurs if each player earns a zero payoff irrespective of the strategy he chooses. No player can improve his payoff by changing his strategy once in Nash equilibrium. A Nash equilibrium cannot occur if each player is aware of the strategies of other players.

No player can improve his payoff by changing his strategy once in Nash equilibrium.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Productive efficiency

The average price of gasoline in your neighborhood is $2.15 per gallon. Your neighbor, Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $2.06 per gallon However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to you?

No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station.

Wages for people with economics degrees have increased substantially over the past decade. From this information, you can conclude that: The supply of people with economics degrees has fallen The demand for people with economics degrees has risen Firms view an economics degree as a signal that a worker is high quality Firms are engaging in statistical discrimination against people with other types of degrees None of these

None of these

A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of soybeans is $6 a bushel, the wage rate is $30, the farmer employs eight workers and the marginal product of the eighth worker is 4 bushels. What would you advise this farmer to do?

Reduce employment because the wage paid is more than the marginal revenue product.

A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of wheat is $2 a bushel, the wage rate is $10, the farmer employs five workers and the marginal product of the fifth worker is 3 bushels. What would you advise this farmer to do?

Reduce employment because the wage paid is more than the marginal revenue product.

Suppose you pre-ordered a non-refundable movie ticket to X-Men: Apocalypse. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not.

Suppose you pre-ordered a non-refundable movie ticket to Avengers: Infinity War. On the day of the movie you decide that you would rather not go to the movie. According to economists, what isthe rational thing to do?

Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision.

Anchoring is more closely associated with which of the following factors? Suggestions that affect your final decision Suppliers offering discounts for purchasing in bulk Bias against higher prices Stereotypes that affect your decisions

Suggestions that affect your final decision

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.

Which of the following is likely to be used as a signal in the job market? An announcement of vacancy The letter of appointment The degree obtained by the applicant The job description

The degree obtained by the applicant

Which of the following would cause an increase in the equilibrium wage? The demand for labor increases faster than the supply of labor. The supply of labor increases and the demand for labor decreases. The supply of jobs increases less than the demand for jobs. The supply of labor increases more than the demand for labor.

The demand for labor increases faster than the supply of labor.

Which of the following correctly identifies the difference between the demand for labor and the demand for final goods? The demand for labor is fixed over time, whereas the demand for final goods changes according to changes in tastes and preferences. The demand for final goods is fixed over time, whereas the demand for labor changes according to the changes in tastes and preferences. The demand for labor is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for labor. The demand for final goods is derived from the demand for labor, whereas the demand for labor is independent of the demand for final goods.

The demand for labor is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for labor.

What is likely to happen in a used-car market if the buyers feel that the best they can do is to buy a lemon?

The entire market shuts down

T/F Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

True

What does it mean to say that a game is in "extensive form"?

The game is presented as a decision tree.

Which of the following statements is true? The slope of the labor supply curve depends only on the substitution effect of a wage rate change. The income effect and the substitution effect of a wage rate change work in the same direction. The slope of the labor supply curve depends only on the income effect of a wage rate change. The income effect and the substitution effect of a wage rate change work in opposite directions.

The income effect and the substitution effect of a wage rate change work in opposite directions.

Other things remaining the same, which of the following is likely to cause a decrease in both the wage rate and the number of workers hired in a glass factory? The introduction of labor-complementary technology in the factory An increase in the population in the region where the factory is located A decrease in the population in the region where the factory is located The introduction of labor-saving technology in the factory

The introduction of labor-saving technology in the factory

The proportion of the tax burden that falls on consumers depends on

The price elasticity of demand The price elasticity of supply

Suppose that in 2015, 12 million cars were purchased at $25,000 each, while in 2016, 10 million cars were purchased at $22,000 each. What might have caused this change?

The price of airplane tickets (a substitute for cars) fell

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

The prisoner's dilemma does not apply to most business situations that are repeated over and over.

Assume that there is rent control in Chicago. Which of the following is true? All consumers in the rental market will benefit because the rent will be lower. The total surplus will fall because there will be a shortage of apartments. Consumer surplus will increase and as a result all consumers in the rental market will benefit. The total surplus will rise because consumer surplus will increase.

The total surplus will fall because there will be a shortage of apartments.

Which of the following would NOT shift an industry's supply of labor curve? The wage rate in the particular industry falls. Wage rates in industries using similar labor rise. Working conditions within the industry become less desirable. Wage rates in other industries fall.

The wage rate in the particular industry falls

T/F Higher wages that compensate workers for unpleasant aspects of a job are called compensating differentials.

True

Other things remaining the same, which of the following is likely to happen if there is a decrease in the price of flour products? There will be an increase in both the wage rate and the employment levels in the flour industry. There will be a decrease in both the wage rate and the employment levels in the flour industry. There will be an increase in the wage rate and a decrease in the employment levels in the flour industry. There will be a decrease in the wage rate and an increase in the employment levels in the flour industry.

There will be a decrease in both the wage rate and the employment levels in the flour industry.

Other things remaining the same, which of the following is likely to happen if all homemakers in an economy start working as paid labor?

There will be a fall in the wage rate in the country and an increase in the employment level.

Assume that a comparable worth law is passed that determines that kindergarten teachers and bricklayers have comparable jobs; therefore, workers in both of these occupations should be paid the same wages. Assume that prior to the law, bricklayers were paid a higher wage than kindergarten teachers. Which of the following is the most likely result of the comparable worth law? There will be surplus in the market for bricklayers and a shortage in the market for kindergarten teachers. There will be a shortage in the market for bricklayers and a surplus in the market for kindergarten teachers. The equilibrium wage will be the same for kindergarten teachers and bricklayers. Some former bricklayers will become kindergarten teachers and some former kindergarten teachers will become bricklayers.

There will be a shortage in the market for bricklayers and a surplus in the market for kindergarten teachers.

T/F If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost.

True

T/F The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.

True

The typical labor supply curve is upward sloping but it is possible for the curve to be backward bending — negatively sloped — at very high wage levels. Which of the following would cause a backward-bending supply curve? This would occur when the income effect from an increase in the wage becomes larger than the substitution effect. This would occur when a large number of workers choose leisure rather than employment at low wages; only a very large increase in the wage will lead these workers to prefer employment to leisure. This would occur if leisure is an inferior good. This would occur when the substitution effect from an increase in the wage becomes larger than the income effect.

This would occur when the income effect from an increase in the wage becomes larger than the substitution effect.

T/F A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

True

Which of the following will not cause the supply of labor curve to shift in the economics professor industry? Universities have discovered a way to make professors more productive. a decrease in the wage rate for Ph.D. economists in the banking industry a decrease in the number of courses a professor must teach University professors are going to be required to spend more time in their offices.

Universities have discovered a way to make professors more productive

The total value to society of having garbage removed is greater than the value of baseball games. Why, then, are baseball players paid more than garbage collectors?

Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors.

Which of the following statements is false? The marginal cost curve intersects the average variable cost curve and the average total cost curve at the minimum points The differences between average total cost and average fixed cost is average variable cost Firms often refer to the process of lowering average fixed cost as "spreading the overhead." When marginal cost equals average total cost, average total cost is at its highest value

When marginal cost equals average total cost, average total cost is at its highest value

Which of the following is a likely reason for wage inequality between men and women? Women tend to spend more time out of the labor force as compared to men. Men generally tend to have higher education qualifications than women. Men tend to spend more time out of the labor force as compared to women. Women generally tend to have higher educational qualifications than men.

Women tend to spend more time out of the labor force as compared to men

Which of the following is an example of a compensating wage differential? In the market for lawyers, top graduates from the top programs earn starting salaries that are significantly higher than the starting salaries earned by lower-ranked graduates from the lower-ranked programs. Workers in a radioactive uranium mine receive higher wages than if they worked in other jobs that require the same level of skills. Popular movie stars like George Clooney command much higher salaries than other talented but lesser-known actors. Nurse anesthetists are paid less than anesthesiologists (who have medical degrees).

Workers in a radioactive uranium mine receive higher wages than if they worked in other jobs that require the same level of skills.

You want to purchase a new car. You have gone to 3 dealerships that sell the type of car you want. The price of the car is different at each of the dealerships. You have estimated that if you go toanother dealership, the marginal amount you may save will be $250, but the marginal cost of goingto the dealership would be $350. Which of the following statements is accurate?

You should not go to the next dealership because the marginal cost of this action exceeds the marginal benefit.

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision? a decision tree a decision matrix a sequential matrix an either-or graph

a decision tree

Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you. Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness?

You will trust the mechanic and he will cooperate

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player

a Nash equilibrium is reached

A price maker is

a firm that has some control over the price of the product it sells

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

A firm can use anchoring to influence consumer choices so as to increase sales by marking

a high​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain.

Consider a used car market in which half the cars are good and half are bad (lemons). If buyers are rational, the prices being offered for used cars will result in

a larger proportion of lemons being sold and consequently, producer surplus is increased.

Suppose more people drive SUVs because they believe they are safer than cars. The number of car-related deaths may increase if

a moral hazard problem causes people to drive more recklessly

A dominant strategy is

a strategy that is the best for a firm no matter what strategies other firms use.

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

adverse selection

Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly lemons at this price. What is the term used to describe this situation?

adverse selection

Without warranties, used car buyers can assume that all used cars are "lemons" because of

adverse selection

The demand for labor is: derived from the demand for the products it is used to produce. determined by the price of consumer products. determined by the demand for consumer products. all of the above

all of the above

A dominant strategy is one that

always yields the highest benefit regardless of what the other players do.

The effect of higher wages on the individual supply of labor is ________ and the effect of higher wages on the market supply of labor is ________.

ambiguous; to increase the quantity supplied

The figure above shows the market supply of labor curve. Which of the following might be the reason the labor supply curve shifted from S 0 to S 1?

an increase in the adult population

An increase in the supply of capital, which is a complement to labor, will lead to

an increase in the demand for labor

Which of the following will lead to an outward shift in the firm's short-run demand for labor? a decline in labor productivity an increase in the price of output less capital per unit of labor a reduction in average consumer income

an increase in the price of output

A decrease in the wage rate causes

an increase in the quantity of labor demanded.

Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction. Refer to the scenario above. You should use ________ to arrive at a decision.

backward induction

The first mover in an extensive-form game should use ________ to win the game.

backward induction

To be a natural monopoly a firm must

be in a government-regulated market

Why does a monopoly cause a deadweight loss?

because it stops producing output at a point where price is above marginal cost

As more output is produced, the marginal product of labor declines

because of the law of diminishing returns.

Which of the following explains why talented major league baseball players command much higher salaries than neurosurgeons? because it takes far more skill and training to be a major league baseball player than to be a neurosurgeon because the supply of talented major league baseball players is relatively low compared to the supply of neurosurgeons. Therefore, major league baseball players exert far more market power than neurosurgeons. because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon. because the total value of baseball games is much higher than the total value of neurosurgery

because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon.

The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. Both firms setting a high price is not a Nash equilibrium because

both firms can improve their payoff by setting a low price given that the other firm is setting a high price.

In the market for health​ insurance, asymmetric information problems arise because

buyers of health insurance policies always know more about the state of their health than do the insurance companies.

In the figure above, the substitution effect outweighs the income effect in all segments EXCEPT bc. 0a. 0c. cd

cd

Marginal cost is equal to

change in total cost divided by change in output change in total variable cost divided by change in output

Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. A's best strategy is to

conduct R&D regardless of what B does.

The dollar value of the marginal product of labor is the:

contribution of an additional unit of labor to a firm's revenue.

A game in which each player adopts its dominant strategy

could result in a Nash equilibrium

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?

decision nodes

A government report that makes working in a particular industry less attractive to workers will most likely ________ the number of workers hired in that industry, and ________ the wage paid to those workers.

decrease; increase

If the price of output increases, the labor ________ curve shifts to the ________.

demand; right

In order to be useful as a signal in a market with information asymmetry, the signal must be ________.

difficult to obtain

A more realistic theory than the traditional theory of consumer behavior would: introduce some rules of thumb to explain complex behavior that the basic theory cannot explain. take into account the fairness of an economic transaction. the context, or setting one is in. do all of the above.

do all of these

When a firm hires a worker for one hour, the marginal benefit to that firm equals the:

dollar value of the goods produced by that worker in one hour.

In game theory, the strategy that always yields the highest benefit for the player using it is the

dominant strategy

The demand curve for a monopoly is...

downward sloping

Both buyers and sellers are price takers in a perfectly competitive market because

each buyer and seller is too small relative to others to independently affect the market price.

A Nash equilibrium occurs if ________.

each player chooses strategies that are mutual best responses

If two duopolists can collude successfully, then both will

earn greater profits than if they did not collude

In the area of market signaling, education is a strong signal in the job market because

education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price.

In behavioral economics, we assert that: people sometimes do things because they think it is the fair thing to do,

even if there is no financial or other material benefit.

A public franchise

is a government designation that a private firm is the only legal producer of a good or service.

Sam Walton chose a very different strategy for locating his Wal-Mart discount stores than did his rivals in the 1960s. Specifically, Walton chose to locate his stores in cities that were much smallerthan locations chosen by his rivals. Walton believed that once he located a store in these smaller communities, there would be no incentive for a rival discount retailer to build another store in the community. This is an example of ________.

first-mover advantage

A Nash equilibrium occurs if all players in a game play their best strategies...

given what their competitors do

A perfectly competitive industry achieves allocative efficiency when

goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Based on the given information, we can conclude that the market for used cell phones in Barylia:

has asymmetric information

Compensating differentials are associated most closely with which of the following? differences in education comparable worth hazardous jobs economic discrimination

hazardous jobs

In an extensive-form game, payoff to a player is usually higher if ________.

he is the first mover

The difference between an extensive-form game and a simultaneous-move game is that ________.

in extensive-form games the player can observe the other player's action before deciding, but in simultaneous-move they can't

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers fairness to money, ________.

he will accept the offer if offered an equal share of the money

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund.Refer to the scenario above. If Joseph prefers money to fairness, ________.

he will always accept any offer made to him

Compensating differentials are

higher wages that compensate workers for unpleasant aspects of a job.

M&M and Dove are both considering issuing themed holiday candy. The profits for each strategy, regular candy or holiday candy, are summarized in the payoff matrix above.The Nash Equilibrium in this game is that Dove produces ________ and M&M produces ________.

holiday candy; holiday candy

Firms use information on labor's marginal revenue product to determine

how many workers to hire at each wage rate

A person's stock of skills to produce economic value is referred to as:

human capital

When the ________ effect dominates the ________ effect, the labor supply curve is ________.

income; substitution; negatively sloped

If the price of output increases, the equilibrium wage of workers who produce that output will ________ and ________ workers will be hired.

increase; more

A decrease in the supply of labor could be caused by

increased wage rates in another industry

An increase in the supply of musicians ________ the number of musicians employed, and ________ the wages paid to musicians.

increases; decreases

Which of the following is not part of an oligopolist's business strategy? choosing what new technologies to adopt independently setting a product's price without consideration of its rivals' pricing policies selecting which new markets to enter deciding on how to manage relations with suppliers

independently setting a product's price without consideration of its rivals' pricing policies

CARFAX is a company that compiles and sells histories of used cars. CARFAX reduces the:

information asymmetry in the used car market

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

is incurring a loss

A monopoly firm's demand curve..

is the same as the market demand curve

One consequence of imperfect information in the health insurance market is that:

less healthy individuals are more likely to buy insurance, driving up the cost of insurance for everyone.

The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is the value of the:

marginal product of the worker should be equal to or greater than the wage rate.

What does a firm use to decide how much labor to hire at a particular wage?

marginal revenue product of labor

A firm's demand for labor curve is also called its

marginal revenue product of labor curve.

One interesting feature of a prisoner's dilemma game is that

non-cooperative behavior leads to lower payoffs than cooperative behavior.

A Nash equilibrium occurs when ________.

none of the players can increase their payoffs by choosing a different strategy

Alejandro is a computer programmer employed by XYZ Tech Corp. He is Hispanic. He gets an offer from another company that is trying to lure him away from XYZ and is willing to pay him a higher salary than XYZ pays him. Alejandro asks his boss whether the company is willing to match the offer to keep him at XYZ. His boss says, "Don't let the door hit you on your way out." Why did the boss fail to match the other firm's offer?

not clear why XYZ did not match the other firm's offer

In order to identify their used cars as plums (high-quality), many used car dealers:

offer money-back guarantees

The highest-valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

Painters who paint water towers earn higher wages relative to painters who paint houses because

painting water towers is more risky than painting houses.

Adverse selection in employment is more likely when:

people's abilities are difficult for potential employers to observe.

Because perfectly competitive firms are price takers, each firm faces a demand that is

perfectly elastic

With respect to labor supply, the substitution effect means a

person increases his or her hours of labor in response to a higher wage rate.

In a Nash equilibrium,

players may or may not have dominant strategies.

Adverse selection is created by

private information

Sequential games are used to analyze

situations in which one firm acts and other firms respond.

Employers engaging in ________ try to enhance their profits.

statistical discrimination

When expectations cause people to discriminate against a certain group, it is referred to as:

statistical discrimination

Economically rational means that consumers and firms

take actions that are appropriate to reach goals given available information.

Discrimination that occurs because the discriminator dislikes another person's gender, race, or some other personal characteristic is known as

taste-based discrimination

The term "derived demand" refers to

the demand for a factor of production that is derived from the demand for the good the factor produces.

A firm's primary interest when it hires an additional worker is

the extra revenue the firm realizes from hiring that worker.

The income effect of a wage increase is observed when

the higher wage income causes workers to take more leisure and work less.

If Alan Shaw reduces his work hours when his salary increases, then

the income effect of his salary increase dominates the substitution effect.

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is

the marginal revenue product of baseball players is greater than the marginal revenue product of college professors.

Applied to perfectly competitive labor markets, the marginal principle tells firms to hire workers until:

the marginal revenue product of the last worker hired equals the wage.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

the principle-agent problem

The government of Eduland provided generous unemployment benefits to all the unemployed workers. However, the new government that came into power reduced the amount of unemployment insurance paid to each worker. This increased the average number of hours spent daily by unemployed workers in looking for jobs. This suggests that ________ exists in the labor market in Eduland.

the problem of moral hazard

If the marginal productivity of labor decreases, then

the quantity of labor demanded at every possible wage rate will be less

What is behavioral economics?

the study of situations in which people act in ways that are not economically rational

Taxes may cause deadweight losses because

they lower the surplus in the market

All of the following are ways by which existing firms can deter the entry of new firms into an industry except threatening to raise prices. earning less than maximum profit. advertising products aggressively. continuously producing new and improved products.

threatening to raise prices

After learning about behavioral economics, it is clear that:

traditional theory does not explain all consumer decisions, but it sheds light on many of them.

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. This is an example of a(n) ________

ultimatum game

Scenario: Robert and Alice are participating in a reality show on television. Robert is offered an amount of $500 and told that he can keep the money provided he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money. Refer to the scenario above. This is an example of a(n) ________.

ultimatum game

Game theory is applicable to oligopoly behavior because oligopolists

use strategic behavior

Because warranties are potentially ________, low-quality goods are ________ to have warranties.

very expensive; less likely

The prisoner's dilemma illustrates

why firms will not cooperate if they behave strategically

If Sara receives a pay increase from $15 to $16 an hour and she chooses to work more, then the substitution effect for leisure demand is stronger than the income effect. take more vacation, then the income and substitution effects are working in the same direction with regard to leisure because it is a normal good. work more, then the income effect is equal to the substitution effect. take more vacation, then the income effect is weaker than the substitution effect.

work more, then the substitution effect for leisure demand is stronger than the income effect.

Worker discrimination occurs when

workers refuse to work with persons of a different race.

Alice, Bud, and Celia can produce rubber bands in a perfectly competitive market. If they enter the market, the minimum average total cost for a bundle of rubber bands, for the three of them is $2, $3, and $4, respectively. If the market price is $2.10 per bundle, then

only Alice will enter the market

Which of the following describes a situation in which a good or service is produced at the lowest possible cost? allocative efficiency marginal efficiency productive efficiency profit maximization

productive efficiency

A monopoly is the only seller of a product..

without a close substitute

A profit-maximizing monopoly's price is

greater than the price that would prevail if the industry was perfectly competitive.

In the short run, average total cost is

higher than average variable cost

The demand curve faced by the individual perfectly competitive firm is:

horizontal

Shama is producing candles in a perfectly competitive market. When she produces 500 candles, her total cost is $250. If she produces one additional candle, her total cost increases to $260. In order to maximize her profit, she should produce the additional candle

if the market price for a candle is $12

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and account profit will:

increase

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

increase its output

Suppose a perfectly competitive firm faces the following cost and revenue conditions: ATC = $25.50; AVC = $20.50; MC = $25.50; MR = $28.50. The firm should

increase output

A public franchise..

is a government designation that a private firm is the only legal producer of a good or service.

If a perfectly competitive firm's price is above its average total cost, the firm

is earning a profit

Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per pencil is $2, and the marginal cost is $2, then Peter

is maximizing his profit and is making an economic profit

Diet Coke ________ considered a product in a monopoly market, because ________.

is not; it has many substitutes

The monopolist's marginal revenue curve

lies below the demand curve

The rutabaga market is perfectly competitive. Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a

lower price, economic losses by rutabaga farmers, and exit from the market.

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

new firms are attracted to the industry

If perfectly competitive firms are making an economic profit, then

new firms will enter the market

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should..

not produce this additional batch

A natural monopoly exists when..

one firm can supply an entire market at a lower average total cost than can two or more firms.

If your business earns $10,000 in revenues, has explicit costs of $8,000, and implicit costs of $5,000, your economic profit is

-$3,000

Which one of the following about a monopoly is false? A monopoly status could be temporary. A monopoly could make profits in the long run. A monopoly could break even in the long run . A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

Which of the following is TRUE about the long run? All resources are fixed At least one resource is fixed All resources are variable None of the above

All resources are variable

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Allocative efficiency

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions? Amazon took these actions to compete more effectively with existing online booksellers. Amazon took these actions to deter entry into its market by new online booksellers. Amazon feared government regulation if its profits were too high. Amazon was forced to take these actions because of the bargaining power of its suppliers.

Amazon took these actions to compete more effectively with existing online booksellers

Which of the following statements is true? As output increases, average fixed cost becomes smaller and smaller. When marginal cost is greater than average fixed cost, average fixed cost increases. Average fixed cost does not change as output increases. The marginal cost curve intersects the average fixed cost curve at its minimum point.

As output increases, average fixed cost becomes smaller and smaller

As word processing on personal computers expanded, sales of typewriters began to disappear. Which competitive force does this event demonstrate?

Competition from substitute goods or services

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?

Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

Which of the following statements is correct? Accounting profit is the same as economic profit. Accounting profit is not relevant in preparing the firm's financial statement. Economic profit takes into account all costs involved in producing a product. Economic profit always exceeds accounting profit.

Economic profit takes into account all costs involved in producing a product.

If, as an entrepreneur, I am earning accounting profits of $70,000 per year and the opportunity cost of my time is $50,000...

I am earning economic profits of $20,000

Which of the following is not a characteristic of a perfectly competitive market structure? There are restrictions on exit of firms There are no restrictions to entry by new firms. All firms sell identical products. There are a very large number of firms that are small compared to the market.

There are restrictions on exit of firms

What is the difference between perfect competition and monopolistic competition?

In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.

Which of the following is NOT a characteristic of a perfectly competitive market? Each firm is a price taker. The products sold by the firms in the market are homogeneous. There are many buyers and sellers in the market. It is difficult for a firm to enter or leave the market.

It is difficult for a firm to enter or leave the market

What is moral hazard?

It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

Which one of the following statements is false? MC = TC divided by Q ATC = AFC + AVC AFC = TFC divided by Q TC = TFC + TVC

MC = TC divided by Q

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

MR > AVC MR < ATC

McDonald's is a fast food restaurant chain. Which of the following would be a long-run decision for McDonald's? Replace the manager of a restaurant Open a new restaurant in a city Supply more hamburgers in one restaurant Hire one more worker in a restaurant location

Open a new restaurant in a city

In the above figure, a perfectly competitive market will have a price of ________, and a monopoly will have a price of ________.

P 2 and quantity of Q 2; P 1 and quantity of Q 1

Which of the following is an implicit cost of production? Interest paid on a loan to a bank Rent that could have been earned on a building owned and used by the firm Wages paid to labor plus the cost of carrying benefits for workers The utility bill paid to water, electricity, and natural gas companies

Rent that could have been earned on a building owned and used by the firm

What is always true at the quantity where a firm's average total cost equals average revenue?

The firm breaks even

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output

In which of the following markets are buyers likely to have private information? The market for fresh fruits and vegetables The market for banking services The market for used cars The market for health insurance

The market for health insurance

Which of the following statements regarding the relationship between average and marginal costs is INCORRECT? When marginal costs are greater than average costs, the latter must rise. There is always a definite relationship between average and marginal cost. When marginal costs are less than average costs, the latter must fall. There is no way for average variable costs to fall when marginal costs are falling.

There is no way for average variable costs to fall when marginal costs are falling

Which of the following costs will NOT change as output changes? average fixed cost marginal cost total fixed cost total variable cost average variable cost

Total fixed cost

T/F For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.

True

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true? Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus. Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized.

Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Relative to a perfectly competitive market, a monopoly results in

a gain in producer surplus less than the loss in consumer surplus

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

a long-run decision

A natural monopoly is most likely to occur in which of the following industries?

an industry where fixed costs are very large relative to variable costs

A firm encounters its "shutdown point" when:

average variable cost equals price at the profit-maximizing level of output.

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?

because Microsoft could potentially lose sales if it sets prices indiscriminately

Fixed costs are..

costs that a firm incurs even when output is zero

Compared to a similar perfectly competitive industry, a monopoly

creates a deadweight loss and decreases consumer surplus

Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output. If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should..

decrease its production

Economic Profit is..

equal to the firm's total revenue minus its opportunity costs

The perfectly competitive market structure benefits consumers because

firms are forced by competitive pressure to be as efficient as possible

When considering perfect competition the absence of entry barriers implies that..

firms can enter and leave the industry without serious impediments

If total costs are $50,000 when 1000 units are produced, and total costs are $50,100 when 1001 units are produced, we can conclude that

marginal costs are $100

In the case of a perfectly competitive firm:

marginal revenue equals the market price

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs? Price equals marginal cost. Marginal revenue equals marginal cost. Average revenue equals average cost. Marginal revenue is less than price.

marginal revenue is less than price

The price of a seller's product in perfect competition is determined by

market demand and market supply

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

moral hazard

Christine works as a receptionist in an office. She is not supposed to use the Wi-Fi connection provided by the company to access social-networking Web sites. However, she often uses the Wi-Fi to access these Web sites because her browsing activities are not monitored by her employer. This is an example of ________.

moral hazard

Joseph starts driving with much less care after buying car insurance. His behavior is an example of ________.

moral hazard

Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________.

moral hazard

If a typical firm in a perfectly competitive industry is incurring losses, then

some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms.

In the long run, a perfectly competitive market will

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

A natural barrier to entry is defined as a barrier that arises because of

technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.

All of the following are possible characteristics of a monopoly except: the existence of some advertising. the firm is a price taker. there is a single firm. the firm produces a unique product

the firm produces a unique product

Which of the following parties is likely to have the most information about the health of an individual who is trying to purchase a health insurance policy? the individual who is applying for the health insurance policy the employer of the individual who is trying to purchase the health insurance policy the company that issues the health insurance policy All parties in the health insurance market have access to the same level of information.

the individual who is applying for the health insurance policy

When an entrepreneur invests his own financial capital in order to start a business...

the opportunity cost of capital should be included in the economic cost of doing business

Which is the best example of a firm's implicit costs?

the opportunity cost of owner-provided labor

If productive efficiency characterizes a market

the output is being produced at the lowest possible cost.

A key aspect of the principal-agent problem is that..

the principal cannot perfectly monitor the agent's actions.

For a firm in a perfectly competitive industry, the demand curve for its own product is

the same as the marginal revenue curve

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

there are many other suppliers of similar goods or services

Marginal cost is defined as the change in ________ cost when output changes by one unit. In the short run, marginal cost can also be measured by the change in ________ cost when output changes by one unit.

total; variable