Econ CH 5-11 SB
An industry structure in which a small number of firms produce products that are either close or perfect substitutes is a(n) _______. a. oligopoly b. monopolistically competitive market c. pure monopoly d. perfectly competitive market
a. oligopoly
A firm is profitable if its total revenue exceeds its _____. a. total cost b. fixed cost c. variable cost
a. total cost
The law of demand states that people do less of what they want to do a. when they don't need to do it. b. as the cost of doing it rises. c. as the cost of doing it falls.
b. as the cost of doing it rises.
Subsidies _____ lead to a loss in total economic surplus. a. never b. do not always c. always
b. do not always
Taxes _____ improve economic efficiency. a. never b. always c. sometimes
c. sometimes
If a monopolist can perfectly price discriminate, then they will produce a. less than the socially optimal level of output. b. more than the socially optimal level of output. c. the socially optimal level of output.
c. the socially optimal level of output.
When making this decision, the buyer's reservation price measures the a. marginal cost: the cost of production. b. marginal cost: the lowest amount the buyer is willing to pay for a product. c. marginal benefit: the value of the resources used in production. d. marginal benefit: the highest price that a buyer is willing to pay for a product.
d. marginal benefit: the highest price that a buyer is willing to pay for a product.
True or false: Economists believe that our preferences for different goods and services can be influenced by our culture.
true
True or false: For a natural monopoly, average cost declines as the number of units produced increases over the relevant output range.
true
Two car manufacturers, Nissan and Honda, have fixed costs of $1 billion and marginal costs of $10,000 per car. If Nissan produces 50,000 cars per year and Honda produces 200,000, calculate the average production cost for each company. Average production cost for Honda: $
$15,000
Two car manufacturers, Nissan and Honda, have fixed costs of $1 billion and marginal costs of $10,000 per car. If Nissan produces 50,000 cars per year and Honda produces 200,000, calculate the average production cost for each company. Average production cost for Nissan: $
$30,000
Kai's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Kai maximizing her total utility from the two beverages? Kai is receiving how many utils / dollar on coffee?
250 utils/dollar
Kai's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Kai maximizing her total utility from the two beverages? Kai is receiving how many utils / dollar on orange juice?
300 utils/dollar
Suppose that when the price of a sandwich from Dagwood's Deli is $5, there are 200 people who buy 1 sandwich per week and 100 people who buy 2 sandwiches per week. Thus, at a price of $5, the market demand each week for sandwiches from Dagwood's Deli is _______
400
If Mitch's Surf Shop has $30,000 in revenue each month and if the total cost of operating the shop is $26,000 each month, then the monthly profit for Mitch's Surf Shop is ________ dollars
4000
Two car manufacturers, Nissan and Honda, have fixed costs of $1 billion and marginal costs of $10,000 per car. If Nissan produces 50,000 cars per year and Honda produces 200,000, calculate the average production cost for each company. On the basis of these costs, which company's market share do you think will grow in relative terms?
Honda
Let MUa and MUb denote the marginal utility of apples and bananas, respectively, and let pa and pb denote the price of apples and bananas, respectively. The rational spending rule is satisfied when
MUa/Pa = MUb/Pb
Kai's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Kai maximizing her total utility from the two beverages?
No, MUoj/Poj does not equal MUc/Pc (Marginal utility/price)
Suppose Michelle owns a women's clothing boutique. Each year, her total revenue is $300,000 and her explicit costs are $160,000. In addition, Michelle estimates that the opportunity cost of the resources she puts into her business is $90,000 per year. What is Michelle's economic profit? a. $50,000 per year b. $210,000 per year c. $90,000 per year d. $140,000 per year
a. $50,000 per year
If the formula for a monopolist's demand curve is P = a - bQ, then the formula for the monopolist's marginal revenue curve is ______. Multiple choice question. a. P = a - 2bQ b. Q = a - 2bP c. P = a - b/2Q d. P = 2a - bQ
a. P = a - 2bQ
Which of the following gives the inventors or developers of new products the exclusive right to sell those products for a specified period of time? a. Patents b. Antitrust laws c. Copyrights
a. Patents
Which of the following states that spending should be allocated across goods so that the marginal utility per dollar is the same for each good? a. The rational spending rule b. The law of demand c. The law of diminishing marginal utility d. The purchasing power parity rule
a. The rational spending rule
If the production of a good generates a positive externality, Social demand is constructed by _____ to every value along Private demand. a. adding the external benefit b. subtracting the external cost c. subtracting the external benefit d. adding the external cost
a. adding the external benefit
The Coase theorem states that if people can at no cost negotiate the purchase and sale of the right to perform activities that cause externalities, then they can ____ arrive at efficient solutions to the problems created by externalities. a. always b. never c. sometimes
a. always
If all inputs are increased by a fixed proportion, and you observe output increases by that same proportion, then the production process exhibits a. constant returns to scale. b. increasing returns to scale. c. decreasing returns to scale.
a. constant returns to scale.
If two people are involved in a dispute over the right to perform an activity that causes an externality, then the Coase theorem _____ that the people should be indifferent about who has the legal right to perform the activity. a. does not imply b. implies
a. does not imply
The market equilibrium quantity will be higher than the socially optimal quantity for a good whose production generates: a. external costs b. both external costs and external benefits c. external benefits
a. external costs
All else equal, a monopolist that price discriminates will tend to have _____ profits than one that does not. a. higher b. lower
a. higher
If a firm doubles all of its inputs and output more than doubles, then the production process exhibits a. increasing returns to scale. b. constant returns to scale. c. decreasing returns to scale.
a. increasing returns to scale.
If a good generates a negative externality, then at the market equilibrium, the marginal social cost of an additional unit _____ the marginal benefit of an additional unit. a. is greater than b. is equal to c. is less than
a. is greater than
If a good generates a negative externality, then at the market equilibrium, the marginal social cost of an additional unit _____ the marginal benefit of an additional unit. a. is greater than b. is less than c. is equal to
a. is greater than
A monopolist's marginal revenue from selling an additional unit of an output a. is less than its price. b. is greater than its price. c. is equal to its price.
a. is less than its price
A monopolist's profit-maximizing level of output is inefficient because the marginal cost of the last unit produced is _____ than the marginal benefit to society of the last unit produced. a. less than b. equal to c. greater than
a. less than
Individuals who engage in activities that generate positive externalities will tend to engage in those activities a. less than is socially optimal. b. at the socially optimal level. c. more than is socially optimal.
a. less than is socially optimal.
When someone receives a vaccination, others who come into contact with that person also benefit because they too are less likely to become ill. Thus, we would expect the equilibrium quantity of vaccinations in an unregulated market to be ______. a. less than the socially optimal quantity b. more than the socially optimal quantity c. equal to the socially optimal quantity
a. less than the socially optimal quantity
Suppose that in your town there are a large number of gas stations that sell similar grades of gasoline, but that differ in terms of their exact location. This is an example of ________. a. monopolistic competition b. monopoly c. oligopoly d. perfect competition
a. monopolistic competition
If the person sitting near you in the library is bothering you because they are typing loudly on their laptop, then that person's typing generates a a. negative externality. b. positive externality.
a. negative externality.
The more people use a given social media platform like Facebook, the more valuable it becomes. This suggests that _____ are likely to be an important source of market power for Facebook. a. network economies b. exclusive control of inputs c. government licenses d. constant returns to scale
a. network economies
Which of the following factors would impact a buyer's reservation price for a given good or service? (select all that apply) a. peer influence b. the cost of producing the item c. the price of a good
a. peer influence b. the cost of producing the item
The essential difference between perfectly competitive firms and imperfectly competitive firms is that perfectly competitive firms face _____ demand curves while imperfectly competitive firms face _____ demand curves. a. perfectly elastic; downward-sloping b. perfectly inelastic; downward sloping c. downward sloping; perfectly elastic d. downward sloping; perfectly inelastic
a. perfectly elastic; downward-sloping
In the long run, new firms will enter a market if existing firms are earning a a. positive economic profit. b. negative economic profit. c. positive accounting profit. d. negative accounting profit.
a. positive economic profit.
Suppose the owners of Serenity Yoga are upset because loud music from a nearby bar disrupts their yoga classes. According to the Coase theorem, whether the owners of Serenity Yoga and the owners of the bar are able to negotiate an efficient solution to this conflict _____ depend on whether the bar has a legal right to play loud music. a. should not b. should
a. should not
Monopolists _____ earn an economic profit. a. sometimes b. never c. always
a. sometimes
The socially optimal level of a negative externality is a. the level at which the marginal cost of reducing the externality equals the marginal benefit of reducing the externality. b. the level at which the marginal benefit of reducing the externality equals zero. c. zero since negative externalities impose costs on others.
a. the level at which the marginal cost of reducing the externality equals the marginal benefit of reducing the externality.
When the costs and benefits to individual participants in the market differ from those experience by society as a whole, a. the market equilibrium will not be socially optimal. b. the market will not be in equilibrium. c. individuals will no longer seek opportunities for personal gain.
a. the market equilibrium will not be socially optimal.
In general, which of the following market structures tend to have higher profits? a. the price-discriminating monopolist b. a firm in perfect competition c. a non-price-discriminating monopolist d. a non-price-discriminating monopolistic competitor
a. the price-discriminating monopolist
If a monopolist can perfectly price discriminate, then a. the socially optimal quantity will be produced. b. the price that the monopolist will charge for each unit will equal the marginal cost of producing that unit. c. consumer surplus will be maximized.
a. the socially optimal quantity will be produced.
The Equilibrium Principle states that: a. when the market is in equilibrium, there are no further opportunities for gain available to individuals b. when the market is in equilibrium, there are no unexploited opportunities available to society as a whole c. there are never unexploited opportunities in the market
a. when the market is in equilibrium, there are no further opportunities for gain available to individuals
If a single firm controls an input essential to the production of a given product, then that firm a. will have market power. b. will not have market power. c. will be perfectly competitive.
a. will have market power.
You are having lunch at an all-you-can-eat buffet. If you are rational, what should be your marginal utility from the last morsel of food you swallow?Marginal utility from the last morsel of food you swallow should be_______ a. zero b. positive c. negative
a. zero
If a firm's revenue increases from $1,150 to $1,200 when it the firm produces another unit of output, then the firm's marginal revenue is: a. $1,200 b. $50 c. $1,150
b. $50
Suppose Valerie owns a hardware store. Each year, her revenue is $600,000 and her explicit costs are $550,000. In addition, Valerie estimates that the opportunity cost of all the resources she puts into her business is $100,000 per year. What is Valerie's accounting profit? a. -$50,000 per year b. $50,000 per year c. $450,000 per year d. $500,000 per year
b. $50,000 per year
Consider a price-discriminating monopolist. Which of the following statements is correct? a. A monopolist that price discriminates will tend to produce the same as one that doesn't. b. A monopolist that price discriminates will tend to produce more than one that doesn't. c. Monopolists rarely price discriminate. d. A monopolist that price discriminates will tend to produce less than one that doesn't.
b. A monopolist that price discriminates will tend to produce more than one that doesn't.
f the formula for a monopolist's marginal revenue curve is, P = a - 2bQ, then the formula for the monopolist's marginal demand curve is ______. a. Q = a - 2bP b. P = a - bQ c. P = a - b2Q d. P = 2a - bQ
b. P = a - bQ
The profit-maximizing level of output for a monopolist is inefficient because at the profit-maximizing level of output: a. P < MC b. P > MC c. MR > MC
b. P > MC
A natural monopoly that attempts to charge the socially desirable price will invariably suffer an economic loss because a. marginal cost is equal to zero. b. average cost is higher than marginal cost. c. average cost is lower than marginal cost. d. average cost and marginal cost are equal.
b. average cost is higher than marginal cost.
The government is more likely to develop laws and regulations concerning activities that generate externalities when it is _____ for people to negotiate the purchase and sale of the right to perform those activities. a. easy b. difficult
b. difficult
If a firm has market power, then it faces a(n) ________. a. horizontal demand curve b. downward sloping demand curve c. upward sloping demand curve
b. downward sloping demand curve
The demand curve facing an imperfectly competitive firm is a. a horizontal line at the market price. b. downward sloping. c. upward sloping.
b. downward sloping.
The market equilibrium quantity will be higher than the socially optimal quantity for a good whose production generates: a. external benefits b. external costs c. both external costs and external benefits
b. external costs
A firm that has market power: (select all that apply) a. can sell as much as it wants at any price. b. faces a downward-sloping demand curve. c. can raise the price of its good without losing all of its sales. d. faces a horizontal demand curve.
b. faces a downward-sloping demand curve. c. can raise the price of its good without losing all of its sales.
When the government issues a license giving one firm the right to produce and sell a product exclusively, it is ______. a. building a system of domestic tariffs b. granting the firm market power c. creating a perfectly competitive market d. trying to drive down wages in that industry
b. granting the firm market power
When the market is _____, there are no further opportunities for gain available to individuals. a. not in equilibrium b. in equilibrium
b. in equilibrium
The primary distinction between the profit-maximizing decision rule for a monopolist and a perfectly competitive firm is a. in the calculation of marginal cost. b. in the calculation of marginal revenue. c. in the calculation of total cost. d. in the calculation of total revenue.
b. in the calculation of marginal revenue.
A natural monopoly results from a. decreasing returns to scale. b. increasing returns to scale. c. constant returns to scale.
b. increasing returns to scale.
A monopolist's marginal revenue from selling an additional unit of an output a. is equal to its price. b. is less than its price. c. is greater than its price.
b. is less than its price.
If the price of a good or service lands above the equilibrium, we can conclude that ______. a. it's always possible to design a transaction that will help only sellers b. it's always possible to design a transaction that will help both buyers or sellers c. it's never possible to design a transaction that will help both buyers or sellers d. it's always possible to design a transaction that will help only buyers
b. it's always possible to design a transaction that will help both buyers or sellers
If an imperfectly competitive firm raises the price of its product by a small amount, then it will ______. a. not lose any of its customers b. lose some, but not all, of its customers c. lose all of its customers
b. lose some, but not all, of its customers
The market price measures the a. marginal cost: what the buyer is willing to pay. b. marginal cost: the amount that buyer will actually have to pay. c. marginal benefit: the value of the resources used in production. d. marginal cost: the cost of production.
b. marginal cost: the amount that buyer will actually have to pay.
If a good generates a negative externality, then the private equilibrium quantity will be a. equal to the socially optimal quantity. b. more than the socially optimal quantity. c. less than the socially optimal quantity.
b. more than the socially optimal quantity.
If a good generates a negative externality, then the private equilibrium quantity will be a. less than the socially optimal quantity. b. more than the socially optimal quantity. c. equal to the socially optimal quantity.
b. more than the socially optimal quantity.
One way to improve economic efficiency is to tax activities that generate _____ externalities. a. positive b. negative
b. negative
Ishana lives in Princeton, New Jersey, and commutes by train each day to her job in New York City (20 round trips per month). When the price of a round trip goes up from $10 to $20, she responds by consuming exactly the same number of trips as before, while spending $200 per month less on restaurant meals. Does the fact that her quantity of train travel is completely unresponsive to the price increase imply that Ishana is not a rational consumer? a. yes b. no
b. no
Suppose Min-jun owns a small convenience store. Each year, his total revenue is $550,000, his explicit costs are $480,000, and his implicit costs are $90,000. Should Min-jun continue to operate his store in the long run? a. yes b. no
b. no
Suppose the owners of Serenity Yoga are upset because loud music from a nearby bar disrupts their yoga classes. If the owners of Serenity Yoga and the owners of the bar can at no cost negotiate the purchase and sale of the right to play loud music, then should the owners of Serenity Yoga and the owners of the bar be indifferent about whether the bar has a legal right to play loud music? a. yes b. no
b. no
The essential difference between perfectly competitive firms and imperfectly competitive firms is that perfectly competitive firms face _____ demand curves while imperfectly competitive firms face _____ demand curves. a. downward sloping; perfectly elastic b. perfectly elastic; downward-sloping c. perfectly inelastic; downward sloping d. downward sloping; perfectly inelastic
b. perfectly elastic; downward-sloping
One way to improve economic efficiency is to subsidize activities that generate _____ externalities. a. negative b. positive
b. positive
In the presence of a negative externality, ______. a. the equilibrium price and quantity are socially optimal b. the true cost of producing the last unit exceeds the value to consumers c. the true cost of producing the last unit is less than the value to consumers d. the equilibrium price is socially optimal, but not quantity
b. the true cost of producing the last unit exceeds the value to consumers
The satisfaction that people derive from all of their consumption activities is called ______. a. supply b. utility c. demand d. equilibrium
b. utility
Suppose the market for marshmallows is perfectly competitive, and marshmallows sell for $3 per bag. For a firm that produces marshmallows, what's the marginal revenue from selling a bag of marshmallows? a. Greater than $3 b. Less than $3 c. $3
c. $3
If the formula for a monopolist's demand curve is P = a - bQ, then the formula for the monopolist's marginal revenue curve is ______. Multiple choice question. a. P = a - b/2Q b. Q = a - 2bP c. P = a - 2bQ d. P = 2a - bQ
c. P = a - 2bQ
The profit-maximizing level of output for a monopolist is inefficient because at the profit-maximizing level of output: a. MR > MC b. P < MC c. P > MC
c. P > MC
Sienna gets a total of 20 utils per week from her consumption of pizza and a total of 40 utils per week from her consumption of yogurt. The price of pizza is $1 per slice, the price of yogurt is $1 per cup, and she consumes 10 slices of pizza and 20 cups of yogurt each week. Which of the following statements is correct regarding Sienna's current consumption of pizza and yogurt? a. Sienna should eat more pizza and less yogurt, as she is getting more utils from her last dollar spent on pizza than her last dollar spent on yogurt. b. Sienna should eat more yogurt and less pizza, as she is getting more utils from her last dollar spent on yogurt than her last dollar spent on pizza. c. We cannot determine if Sienna is maximizing her total utility with the information provided. d. Sienna should eat more yogurt and less pizza, as she is getting more utils from the $20 spent on yogurt than from the $10 spent on pizza.
c. We cannot determine if Sienna is maximizing her total utility with the information provided.
If a monopolist has a straight-line demand curve whose vertical intercept is a and whose horizontal intercept is Q0, then the marginal revenue curve will have a vertical intercept of _____. a. a/2 b. Q0/2 c. a d. Q0
c. a
A price setter is a. a perfectly competitive firm. b. a buyer who will only purchase a product if the price is below his or her reservation price. c. a firm with at least some latitude to set its own price.
c. a firm with at least some latitude to set its own price.
Oligopoly is an industry structure in which a. a single firm is the only seller of a product with no close substitutes. b. a large number of firms sells products that are close but not perfect substitutes. c. a small number of firms sell products that are either close or perfect substitutes.
c. a small number of firms sell products that are either close or perfect substitutes.
If the production of a good generates a negative externality, Social MC is constructed by _____ to every value along Private MC. a. ignoring the external cost b. subtracting the external cost c. adding the external cost
c. adding the external cost
A cost or benefit of an activity that falls on people other than those who pursue the activity is a. a property right. b. a public good. c. an externality. d. a tragedy of the commons.
c. an externality.
A perfectly discriminating monopolist a. charges each buyer more than his or her reservation price. b. only sells to buyers whose reservation prices are above a fixed cutoff. c. charges each buyer exactly his or her reservation price.
c. charges each buyer exactly his or her reservation price.
If all inputs are increased by a fixed proportion, and you observe output increases by that same proportion, then the production process exhibits a. increasing returns to scale. b. decreasing returns to scale. c. constant returns to scale.
c. constant returns to scale.
If a firm has market power, then it faces a(n) ________. a. horizontal demand curve b. upward sloping demand curve c. downward sloping demand curve
c. downward sloping demand curve
The demand curve facing an imperfectly competitive firm is a. upward sloping. b. a horizontal line at the market price. c. downward sloping.
c. downward sloping.
The consumer will purchase the good or service only if the buyer's reservation price is a. equal to the market price. b. lower than the market price. c. equal to or higher than the market price. d. higher than the market price.
c. equal to or higher than the market price.
At the market equilibrium, the marginal social cost of an additional unit will exceed the marginal benefit of an additional unit if production of the good: a. generates either external costs or benefits b. generates external benefits c. generates external costs
c. generates external costs
At a monopolist's profit-maximizing level of output, the benefit to consumers of the last unit produced is _____ the marginal cost of producing it. a. equal to b. less than c. greater than
c. greater than
The primary distinction between the profit-maximizing decision rule for a monopolist and a perfectly competitive firm is a. in the calculation of total cost. b. in the calculation of total revenue. c. in the calculation of marginal revenue. d. in the calculation of marginal cost.
c. in the calculation of marginal revenue.
Control over important inputs. patents, economies of scale, and government licenses all contribute to ______. a. higher profits b. lower prices c. market power d. labor laws
c. market power
If a good generates a negative externality, then the private equilibrium quantity will be a. equal to the socially optimal quantity. b. less than the socially optimal quantity. c. more than the socially optimal quantity.
c. more than the socially optimal quantity.
A firm that charges each buyer exactly his or her reservation price is a _____. a. price taking monopolist b. monopolistic competitor c. perfectly discriminating monopolist d. pure monopolist
c. perfectly discriminating monopolist
Which of the following most likely exemplifies a pure monopoly? a. grocery stores b. farmers' markets c. regional utilities d. gas stations
c. regional utilities
The socially optimal level of pollution is a. the level at which the marginal benefit of pollution abatement equals zero. b. zero since pollution leads to environmental damage. c. the level at which the marginal cost of pollution abatement equals the marginal benefit of pollution abatement.
c. the level at which the marginal cost of pollution abatement equals the marginal benefit of pollution abatement
The hurdle method of price discrimination refers to ______. a. the practice by which a seller offers a free products to all buyers who overcome some obstacle b. the threshold that segregates buyers whose reservation price lies above equilibrium c. the practice by which a seller offers a discount to all buyers who overcome some obstacle
c. the practice by which a seller offers a discount to all buyers who overcome some obstacle
If a monopolist can perfectly price discriminate, then a. the price that the monopolist will charge for each unit will equal the marginal cost of producing that unit. b. consumer surplus will be maximized. c. the socially optimal quantity will be produced.
c. the socially optimal quantity will be produced.
In the presence of a negative externality, a. the true cost of producing the last unit is less than the value to consumers. b. the equilibrium price and quantity are socially optimal. c. the true cost of producing the last unit exceeds the value to consumers. d. the equilibrium price is socially optimal but not quantity.
c. the true cost of producing the last unit exceeds the value to consumers.
The Equilibrium Principle states that: a. there are never unexploited opportunities in the market b. when the market is in equilibrium, there are no unexploited opportunities available to society as a whole c. when the market is in equilibrium, there are no further opportunities for gain available to individuals
c. when the market is in equilibrium, there are no further opportunities for gain available to individuals
In the long run, all firms in an industry will tend to earn a. positive economic profit. b. negative economic profit. c. zero economic profit.
c. zero economic profit.
A price-taking, profit-maximizing firm will always produce a level of output where ______. a. Price > MC b. Total Revenue > Total cost c. Price < MC d. Price = MC
d. Price = MC
If a monopolist has a straight-line demand curve whose vertical intercept is a and whose horizontal intercept is Q0, then the marginal revenue curve will have a horizontal intercept of _____. a. Q0 b. a/2 c. a d. Q0/2
d. Q0/2
What is the socially desirable price for a natural monopoly to charge? a. The price at which the marginal benefit to the consumer is less than the marginal cost of production. b. The price at which the marginal benefit to the consumer is greater than the marginal cost of production. c. The price at which average cost equals average revenue. d. The price at which the marginal benefit to the consumer equals the marginal cost of production.
d. The price at which the marginal benefit to the consumer equals the marginal cost of production.
If the production of a good generates a positive externality, Social demand is constructed by _____ to every value along Private demand. a. adding the external cost b. subtracting the external cost c. subtracting the external benefit d. adding the external benefit
d. adding the external benefit
If the production of a good generates a positive externality, Social demand is constructed by _____ to every value along Private demand. a. subtracting the external benefit b. adding the external cost c. subtracting the external cost d. adding the external benefit
d. adding the external benefit
A cost or benefit of an activity that falls on people other than those who pursue the activity is a. a property right. b. a public good. c. a tragedy of the commons. d. an externality.
d. an externality.
Prior to November 2011, Pfizer had the exclusive right to sell atorvastatin (brand name, Lipitor), a highly effective drug to treat high cholesterol that has no close substitutes. Prior to November 2011, the market for atorvastatin was an example of a. monopolistic competition. b. oligopoly. c. perfect competition. d. pure monopoly.
d. pure monopoly.
The sum of all payments made to the firm's variable factors of production is the firm's _____. a. fixed cost b. total cost c. average total cost d. variable cost
d. variable cost
Price ________ is the practice of charging different buyers different prices for essentially the same product.
discrimination
The fact that one person's use of an antibiotic reduces the spread of their illness to others suggests that antibiotics entail an ___________, and the fact that one person's use of an antibiotic can make that antibiotic less effective at treating other people (because bacteria develop resistance to antibiotics) suggests that antibiotics entail ____________
external benefit, an external cost
Vaccinations are typically thought to entail an _______________. As a result, private markets are likely to provide ___________ the socially optimal quantity of vaccinations
external benefit, less than
Cigarettes are typically thought to entail an _____________. As a result, private markets are likely to provide ___________ the socially optimal quantity of cigarettes.
external cost, more than
True or False: The Equilibrium Principle states that when the market is in equilibrium, there are unexploited opportunities for either individuals or society as a whole.
false
True or false: If your marginal utility from watching a second hour of television is less than your marginal utility from the first hour, then watching a second hour of television will decrease your total utility.
false
True or false: In a perfectly competitive industry, the industry demand curve is horizontal, whereas for a monopoly it is downward-sloping.
false
True or false: The Coase theorem implies that there is no need for laws and regulations concerning activities that generate externalities because people should be able to arrive at efficient solutions to the problems caused by externalities.
false
A firm's profit-maximizing level of output will not change when the firm's ________ cost changes
fixed
The additional utility gained from consuming an additional unit of a good is called _______ utility
marginal
The additional utility gained from consuming an additional unit of a good is called _______ utility.
marginal
A monopoly that arises from increasing returns to scale is a ________ monopoly
natural
On graph, market equilibrium = MC intersection with what line?
private demand
According to the ______ spending rule, spending should be allocated across goods so that the marginal utility per dollar is the same for each good.
rational
On graph, socially optimal level = MC intersection with what line?
social demand
consumer surplus = top or bottom
top
True or false: Perfectly competitive firms have no control over the price they charge for their product.
true
A firm's __________ cost is the sum of all payments the firm makes to inputs whose quantities can be altered in the short run.
variable
total surplus = top or bottom
both
The fact that firms enter industries in response to positive economic profit and leave industries in response to economic loss illustrates the a. allocative function of price. b. rationing function of price.
a. allocative function of price.
When the price of a good or service goes up, consumers will tend to a. switch to less expensive substitutes. b. maintain their current purchasing patterns. c. switch to more expensive substitutes.
a. switch to less expensive substitutes.
According to the rational spending rule, spending should be allocated across goods so that a. the marginal utility per dollar is the same for each good. b. the marginal utility per dollar is the highest for the good we like the best. c. the average utility per dollar is the same for each good.
a. the marginal utility per dollar is the same for each good.
The total amount that consumers would be willing pay, in the aggregate, for the right to participate in a market is ______. a. total consumer surplus in that market b. total revenue in that market c. the sum of consumers' reservation prices
a. total consumer surplus in that market
A perfectly competitive market is a market in which a. there are no government regulations. b. the sum of consumer surplus and producer surplus is maximized. c. no individual seller has a significant influence over the market price of a product.
c. no individual seller has a significant influence over the market price of a product.
Suppose Sandy makes bracelets that she sells on Etsy.com. If her fixed cost increases, then her profit maximizing number of bracelets will _____. a. increase b. decrease c. not change
c. not change
If Charlie's consumption of chocolate bars satisfies the law of diminishing marginal utility, then if Charlie's marginal utility of going from 1 to 2 chocolate bars is 18, then his marginal utility of going from 2 to 3 chocolate bars must be a. greater than 18. b. less than 6. c. less than 9. d. less than 18.
d. less than 18.
If a firm in a perfectly competitive market chooses the level of output such that price equals marginal cost, then the firm is ______. a. maximizing its revenue b. not maximizing its profits c. breaking even d. maximizing its profits
d. maximizing its profits
The amount by which price exceeds the seller's reservation price is _____. a. total surplus b. marginal cost c. excess supply d. producer surplus
d. producer surplus
At each point along a market supply curve, __________ measures each seller's marginal cost of production.
price
Which of the following best illustrates the substitution effect of an increase in the price of peanut butter? a. The decrease in the quantity of peanut butter demanded that results because people switch from using peanut butter to almond butter. b. The increase in the quantity of peanut butter demanded that results because people switch from using almond butter to peanut butter. c. The change in the quantity of peanut butter demanded that results because people can afford less of everything.
a. The decrease in the quantity of peanut butter demanded that results because people switch from using peanut butter to almond butter.
The law of demand states that people do less of what they want to do a. as the cost of doing it rises. b. when they don't need to do it. c. as the cost of doing it falls.
a. as the cost of doing it rises.
The rationing function of price is to a. distribute scarce goods to those consumers who value them the most highly. b. direct resources away from overcrowded markets towards markets that are underserved.
a. distribute scarce goods to those consumers who value them the most highly.
The actual payments a firm makes to its factors of production and other suppliers are its a. explicit costs. b. implicit costs. c. fixed costs.
a. explicit costs.
The opportunity costs of all the resources supplied by a firm's owners are the firm's a. implicit costs. b. accounting costs. c. explicit costs.
a. implicit costs
At each point along a market supply curve, price measures each seller's _____. a. marginal cost of production b. total cost of production c. average cost of production
a. marginal cost of production
If output can be varied continuously, then firms in a perfectly competitive market maximize their profits by choosing the level of output such that _____. a. P<MC b. P=MC c. P=MR d. P>MC
b. P=MC
Economic profit is the difference between a. a firm's total revenue and its explicit costs. b. a firm's total revenue and its implicit costs. c. a firm's total revenue and the sum of its explicit and implicit costs.
c. a firm's total revenue and the sum of its explicit and implicit costs.
An input whose quantity cannot be altered in the short run is ______. a. a variable factor of production b. a diminishing factor of production c. a fixed factor of production d. a useless factor of production
c. a fixed factor of production
The law of diminishing returns explains why marginal costs eventually _____. Multiple choice question. a. decrease b. increase c. do not change
b. increase
A firm's implicit costs are a. the actual payments a firm makes to its factors of production. b. the opportunity costs of the resources supplied by the firm's owners.
b. the opportunity costs of the resources supplied by the firm's owners.
Suppose that in response to an increase in the price of sugar, people switch from using sugar to corn syrup. This is an example of ____ of a price change. a. the rationing effect b. the substitution effect c. the income effect
b. the substitution effect
The sum of all payments made to the firm's variable factors of production is the firm's _____. a. total cost b. variable cost c. fixed cost d. average total cost
b. variable cost
When Warren hires 3 workers he can produce 20 cakes per day; when he hires 4 workers he can produce 30 cakes per day; and when he hires 5 workers he can produce 35 cakes per day. Is Warren's production process consistent the law of diminishing returns? a. No b. Yes
b. yes
producer surplus = top or bottom
bottom
Which of the following capture the conditions under which firms will shutdown? a. If price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost. b. If the firm's revenue is less than the firm's total cost at all levels of output. c. If the firm's revenue is less than the firm's variable cost at all levels of output.
a. If price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost. c. If the firm's revenue is less than the firm's variable cost at all levels of output.
If the price of a product is below the equilibrium price, then it's _____ to design a transaction that will help both buyers and sellers. a. possible b. impossible
a. possible
The role that prices play in distributing scarce goods to those consumers who value them the most highly is known as the a. rationing function of price. b. allocative function of price.
a. rationing function of price.
Total consumer surplus in a market is a. the total amount that consumers would be willing to pay, in aggregate, for the right to participate in that market. b. the excess demand in a market that arises because price is below the equilibrium price. c. the total amount that consumers spend in a market.
a. the total amount that consumers would be willing to pay, in aggregate, for the right to participate in that market.
If Marjory goes from painting 6 to 8 paintings each month, her total costs increase from $620 to $720 per month. This implies that the marginal cost of one additional painting is: a. $100 b. $90 c. $50
c. $50
Julie's marginal utility from consuming coffee is 150 utils per cup, and her marginal utility from consuming Coke is 100 utils per can. If coffee costs $2 per cup and Coke costs $1 per can, then a. Julie should buy more coffee and less coke. b. Julie should not change her consumption of coffee and Coke. c. Julie should buy more Coke and less coffee.
c. Julie should buy more Coke and less coffee.
Economists assume that people ______. a. only purchase things they need b. spend as little money as they possibly can on different goods and services c. allocate their income between different goods and services to make themselves as happy as possible
c. allocate their income between different goods and services to make themselves as happy as possible
If the price of a product is below the equilibrium price, then it's ______ possible to design a transaction that will make both buyers and sellers better off. a. never b. sometimes c. always
c. always
Suppose that in response to a decrease in the price of Hondas, people switch from buying Toyotas to Hondas. This is an example of _____ of a price change. a. the allocative effect b. the income effect c. the substitution effect
c. the substitution effect
Marginal cost eventually increases because of _____. a. the shutdown condition b. increasing fixed costs c. the law of demand d. diminishing returns
d. diminishing returns
If a firm is earning a positive economic profit, then over time we would expect that firm's profit to a. rise as new firms enter the market. b. fall as existing firms exit the market. c. rise as existing firms exit the market. d. fall as new firms enter the market.
d. fall as new firms enter the market.
An input used in the production of a good or service is called ______. a. an imperfect factor b. a factor of production c. the quantity supplied d. an essential input
b. a factor of production
An imperfectly competitive firm has a. no control over price. b. at least some control over price. c. no knowledge of price.
b. at least some control over price.
The sum of all payments made to the firm's fixed factors of production is the firm's _____. a. total cost b. average total cost c. fixed cost d. variable cost
c. fixed cost
If the marginal cost of producing an additional unit of a good is less than price of that good, then the firm should a. leave production unchanged. b. decrease production. c. increase production.
c. increase production.
Suppose it's possible to find a transaction that will make some people better off without hurting others. In this case, we know the market equilibrium a. is not stable. b. is socially optimal. c. is not socially optimal.
c. is not socially optimal.
The affordable combination of goods that yields the highest total utility for a consumer a. occurs where price equals marginal utility. b. occurs where marginal utility equals zero. c. is the optimal combination of goods for a consumer. d. is consumer surplus.
c. is the optimal combination of goods for a consumer.
If Peter's consumption of carrots satisfies the law of diminishing marginal utility, then if Peter's total utility is 25 utils from consuming 1 carrot and 30 utils from consuming 2 carrots, then his total utility from consuming 3 carrots must be ______. a. less than 5 utils b. less than 35 utils c. less than 30 utils d. negative
c. less than 35 utils
If all of the firms in a market are identical and the equilibrium price in the market equals the minimum of each firm's average total cost curve, then we would expect a. exit from the market. b. entry into the market. c. neither entry into nor exit from the market.
c. neither entry into nor exit from the market.
The period of time of sufficient length that all of the firm's factors of production are variable is known as the _____. a. variable run b. long run c. short run
b. long run
In the long run, a firm should exit the market if its: a. accounting profit is negative. b. economic profit is positive. c. economic profit is negative. d. accounting profit is positive.
c. economic profit is negative.
Variable cost divided by total output is called ______. a. average marginal cost b. average variable cost c. average total cost d. marginal cost
b. average variable cost
Average variable costs is: a. a firm's variable cost divided by the number of units of the variable factor of production used by the firm b. a firm's variable cost divided by total output
b. a firm's variable cost divided by total output
It's always possible to design a transaction that will help both buyers or sellers whenever the price of a product is a. equal to the equilibrium price. b. either above or below the equilibrium price.
b. either above or below the equilibrium price.
Which of the following best illustrates the substitution effect of a decrease in the price of pasta? a. The increase in the quantity of pasta demanded that results because people switch from eating rice to pasta. b. The change in the quantity of pasta demanded that results because people are able to afford more of everything. c. The decrease in the quantity of pasta demanded that results because people switch from eating pasta to rice.
a. The increase in the quantity of pasta demanded that results because people switch from eating rice to pasta.
Which of the following are characteristics of perfectly competitive markets? (select all that apply) a. The market has many sellers, each of which sells only a small fraction of the total quantity sold in the market. b. Buyers are well informed about the prices different firms charge. c. Each firm in the market faces a perfectly inelastic demand curve.
a. The market has many sellers, each of which sells only a small fraction of the total quantity sold in the market. b. Buyers are well informed about the prices different firms charge.
A variable factor of production is a. an input whose quantity can be changed in the short run. b. an output whose quantity can be changed in the short run. c. an input whose quantity can only be changed in the long run. d. an output whose quantity can only be changed in the long run.
a. an input whose quantity can be changed in the short run.
A fixed factor of production is ______. a. an input whose quantity cannot be changed in the short run b. an output whose quantity cannot be changed in the short run c. an input whose quantity cannot be changed in the long run d. an output whose quantity cannot be changed in the long run
a. an input whose quantity cannot be changed in the short run
A variable factor of production is a. an input whose quantity can only be changed in the long run. b. an input whose quantity can be changed in the short run. c. an output whose quantity can only be changed in the long run. d. an output whose quantity can be changed in the short run.
b. an input whose quantity can be changed in the short run.
The rationing function of price is to a. direct resources away from overcrowded markets towards markets that are underserved. b. distribute scarce goods to those consumers who value them the most highly.
b. distribute scarce goods to those consumers who value them the most highly.
Suppose it's possible to find a transaction that will make some people better off without hurting others. In this case, we know the market equilibrium a. is socially optimal. b. is not socially optimal. c. is not stable.
b. is not socially optimal.
The market equilibrium is efficient if a. it's possible to find a transaction that will help some people without harming others. b. it's not possible to find a transaction that will help some people without harming others.
b. it's not possible to find a transaction that will help some people without harming others.
Utility maximization refers to the process whereby a. firms use inputs in order to produce output in such a way that they maximize their profit. b. people allocate their income between different goods and services in order to maximize their total satisfaction. c. the government collects taxes and makes spending decisions to as to maximize the welfare of its citizens.
b. people allocate their income between different goods and services in order to maximize their total satisfaction.
Consumer surplus is a. the amount a buyer actually paid for a product. b. the difference between a buyer's reservation price for a product and the price a buyer actually paid. c. the largest dollar amount a buyer is willing to pay for a product.
b. the difference between a buyer's reservation price for a product and the price a buyer actually paid.
The role that prices play in directing resources away from overcrowded markets towards markets that are underserved is known as the a. allocative function of price. b. rationing function of price.
a. allocative function of price.
Suppose that when you eat chocolate cake, you enjoy every bite, but each bite is never quite as good as the one before it. Thus, with each bite of chocolate cake, your total utility _____ while your marginal utility _____. a. increases; decreases b. increases; increases c. decreases; decreases d. decreases; increases
a. increases, decreases
The market equilibrium is efficient if a. it's not possible to find a transaction that will help some people without harming others. b. it's possible to find a transaction that will help some people without harming others.
a. it's not possible to find a transaction that will help some people without harming others.
If total consumer surplus in a market is $2,000 per day, then the total amount, in aggregate, that consumers would be willing to pay to participate in that market is ______. a. more than $2,000 per day. b. less than $2,000 per day. c. equal to $2,000 per day.
c. equal to $2,000 per day.
Suppose the West End Bakery is currently producing 6 dozen blueberry muffins each day, if the bakery's fixed cost falls, then the bakery's profit maximizing level of output will _____. a. increase b. decrease c. not change
c. not change
As prices _____, individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product. a. stabilize b. fall c. rise
c. rise
If a firm is profitable, then at its profit maximizing level of output: a. price is greater than average total cost (P>ATC). b. price is greater than marginal cost (P>MC). c. price is greater than average variable cost (P>AVC).
a. price is greater than average total cost (P>ATC).
Suppose that in response to an increase in the price of electricity, people use less electricity because they can afford less of everything. This is an example of ____ of a price change. a. the allocative effect b. the substitution effect c. the income effect
c. the income effect
If the total economic surplus from a market is thought of as a pie to be divided among the participants in the market, then imposing price controls will: a. reduce the size of the pie b. increase the size of the pie c. not affect the size of the pie
a. reduce the size of the pie
The market equilibrium is only efficient if (select all that apply) a. the market is perfectly competitive. b. the market demand curve captures all of the relevant benefits of buying another unit of the good. c. the market supply curve captures all of the relevant costs of producing another unit of the good. d. the distribution of income is sufficiently equitable.
a. the market is perfectly competitive. b. the market demand curve captures all of the relevant benefits of buying another unit of the good. c. the market supply curve captures all of the relevant costs of producing another unit of the good.
Consider a market for surfboards in which there are 5 potential buyers. The first has a reservation price of $100; the second has a reservation price of $200; the third has a reservation price of $300; the fourth has a reservation price of $400 and the 5th has a reservation price of $500. If surfboards sell for $350 and if each potential buyer only wants one surfboard, what will be total consumer surplus in this market? a. 700 b. 200 c. 900
b. 200
Accounting profit is the difference between a. a firm's total revenue and its implicit costs. b. a firm's total revenue and its explicit costs. c. a firm's total revenue and the sum of its explicit and implicit costs.
b. a firm's total revenue and its explicit costs.
When the costs and benefits to individual participants in the market differ from those experience by society as a whole, a. the market will not be in equilibrium. b. the market equilibrium will not be socially optimal. c. individuals will no longer seek opportunities for personal gain.
b. the market equilibrium will not be socially optimal.
