ECON 231 Final Exam Review
The most obvious benefit of specialization and trade is that they allow us to
consumer more goods than we otherwise would be able to consume
The invisible hand of the market works to promote general well-being in the economy primarily through
prices and peoples pursuit of self interest
A key characteristic of a competitive market is that
producers sell nearly identical products
Which of the following is an example of a normative-as opposed to a positive-statement?
the government should increase the tax on gasoline
The study of how allocation of resources affect economic well-being is called
welfare econmics
Which of the following statements is correct
A completive firm is price taker, whereas monopolist is a price maker
Which of the following is not an example of the principle that can make everyone better off A. Americans buy tube socks from chine B. A homeowner hires the kid next door to mow the lawn C. Residents of Maine Drink orange juice from flordia D. All of the above are examples of the principles that trade can make everyone better off
All of the above are examples of principle of trade that can make everyone better off
Moral Hazard Occurs when
An employee lacks an incentive to promote the best interest of the employer, and the employer cannot observe the actions of the employee
Suppose the US and Mexico both produce semiconductors and auto parts and the us has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts. IS the US exports semiconductors to Mexico and imports auto parts from mexico
Both countries, as a whole will be better off
Which of the following areas of study describes microeconomics as opposed to macroeconmics? A. A comparison of alternative tax policies and their respective impacts on the rate of the nations economic growth B> the impactt of faster money growth on the rate of inflations C. the impact of minimum wage laws on employment in the fast food indutry D. The effect of changes in household saving rates on the growth of national income
C. the impact of miniumum wage laws on employment in the fast food industry
For a firm in a perfectly competitive market the price of good is always
Equal to marginal revenue
Which of the following can lead to market failure? A. Externalities and market power B. Externalities but not market power C. Market power but not externalities D. neither externalities nor market power
Externalities and market power
Which of the following is an example of a barrier to entry? i) A key resource is owned by a single firm ii) The costs of production make a single producer more efficient than a large number of producers iii) the government has given the existing monopolist the exclusive right to produce the good
I,II,III
What must be given up to obtain an item is called
Opprotunity cost
Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?
Pens will rise
Competitive firms that earn loss in the short run should
Shut down if P<AVC
Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin is determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle of econmics
Trade can make everyone better off
Which of the following examples illustrates an oligopoly market
a city with two firms who are licensed to sell school uniforms for the local school
Which of the following is not an example of a principal-agent relationship
a man and his neighbor
The term market failure refers to
a market that fails to allocate resources efficiently
An example of a private good would be
a pair of pants
Because elephants roam freely in many countries in Africa, each individual African elephant poacher has
a strong incentive to kill as many elephants as he can find
Good that are rival in consumption include both
common resources and private goods
Rational people make decisions at the margin by
comparing marginal costs and marginal benefits
Total surplus with a tax is equal to
consumer surplus plus producer surplus plus tax revenue
"Signaling" refers to actions by an informed party for the sole purpose of
credibly revealing private information
The social cost of a monopoly is equal to its
dead weight loss
Deadweight loss is the
decline in total surplus that results from a tax
Taxes create deadweight losses because they
distort incentives
Competitive Markets are characterized by
free entry and exit by firms
When goods do not have a price, which of the following primarily ensures that the good is produced?
government
Demand is inelastic if the price elasticity of demand is
less than 1
in general, game theory is the study of
how people behave in strategic situations
Economics is the study of
how society manages it scarce resources
As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
implicit costs
Goods produced abroad and sold domestically are called
imports
The marginal product of any input is the
increase in total output from one additional unit of that input
Economies of scale occur when a firm's
long-run average total costs are decreasing as output increases.
Consumer surplus
measures the benefit buyers receive from participating in a market
The efficient scale of the firm is the quantity of output that
minimizes average total cost
Each of the following would be considered a common resource except
national defense
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
If the demand for good falls when income falls, then the good is called a
normal good
When asymmetric information affects a relationship between two parties, it is always the case that
one party is better informed than the other party
When a good is rival in consumption,
one person's use of the good diminishes another person's ability to use it
When a good is excludable
people can be prevented from using the good
When a monopolist is able to sell its product at different prices, it is engaging in
price distribution
The price elasticity of demand measures how much
quantity demanded responds to a change in price
A free rider is a person who
receives the benefit of a good but avoids paying for it
A life insurance company requires new applicants to have medical exam prior to writing the insurance policy. This requirement is an example of
screening
A seller in a competitive market can
sell all he wants at the going price, so he has little reason to charge less
If a tax is imposed on a market with inelastic supply and demand then,
sellers will bear most of the burden of the tax
When fixed costs are ignored because they are irrelevant to a business productions decision they are called
sunk costs
In a market economy,
supply and demand determines prices and prices, in turn, allocate the economy scarce resources
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers
Elascity is
the measures of how much buyers and sellers respond to change in market conditions
Which of the following is not a determinant of the price elescity of demand for a good?
the steepness or flatness of the supply curve for the good
Adverse selection is
the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party
Producers surplus directly measures
the well being of sellers
In the absence of market failures, the Invisable hand leads a market to maximize
total benefit to society from the market
Averaget total costs is equal to
total cost/output
An overcrowded beach is an example of
tragedy of commons