Econ Final Exam

What is the marginal cost of the 120th unit of output in Figure 21.2?

$288.00.

In Figure 24.2, a profit-maximizing monopolist will charge a price of Select one:

$5.50.

The equilibrium price and quantity in Figure 3.2 are, respectively,

$9 and 30 units.

The human and capital resources used by businesses to satisfy regulatory requirements are known as compliance costs.

'True'.

Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is

-$500.

In Figure 35.1, what is the opportunity cost of motorcycles in Japan? Select one:

1/2 of a DVD player per motorcycle.

Compared to the early 1950s, today farm output per labor hour is

10 times greater than it was then

The marginal physical product of the third unit of labor in Figure 21.1 is Select one:

12.0 units per day.

Refer to Figure 19.2. The total utility of five apples is

17 utils.

Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, profit per unit is maximized at an output of Select one:

31 units.

Peanut butter and jelly are complements. A decrease in the price of one will result in

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded

If a product has a high marginal utility, then

A consumer is willing to pay a high price for it.

Assuming labor is a variable input, an increase in labor productivity will result in

A downward shift in the MC curve.

An emission charge is

A fee imposed on polluters based on the quantity of pollution they generate.

Diminishing returns occur because

A firm increases the amount of a variable input without changing a fixed input.

A lower quantity demanded of a good reflects, ceteris paribus,

A higher price of the good.

Which of the following is a gain from trade?

A higher standard of living for all trading countries.

The infant industry argument can be justified because

A new industry may be difficult to start in the face of existing foreign competition.

A movement from point F to point D in Figure 1.3 results in Select one:

A reallocation of resources from broom production to mop production.

A technological advance would best be represented by

A shift outward of the production possibilities curve.

If a price is below equilibrium,

A shortage will cause the price to rise and the quantity supplied to increase.

A tax imposed on imported goods is

A tariff

An agreement to reduce the volume of trade in a specific good is

A voluntary restraint agreement.

In Figure 20.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function? Select one:

ATC3 only.

The book Wealth of Nations was written by

Adam Smith in 1776.

The most common form of nonprice competition is

Advertising.

Which of the following is not a determinant of market power?

Age of the industry.

The term opportunity cost refers to

All of the choices are correct.

The major aim of government regulation is to

Alter industry behavior.

Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles?

An increase in consumers' income

Which of the following is a consequence of competition?

An unrelenting squeeze on prices and profit.

Which of the following is a form of government intervention that is designed to correct market failures?

Antitrust laws

Explicit costs

Are the sum of actual monetary payments made for resources used to produce a good.

select the letter of the diagram in figure 29.4 that best represents the effect of each event on the United Stated wheat market, ceteris paribus: transport costs for farm products increase

B

Which panel of Figure 3.3 represents the changes in the market for cigarettes when the government increases subsidies for the production of tobacco and at the same time bans smoking in public buildings?

B.

Monopolistically competitive firms have a "monopoly" element to them because

Brand loyalty gives them a captive audience.

Product differentiation occurs when

Buyers perceive differences in the products of several companies

select the letter of the diagram in figure 29.4 that best represents the effect of each event on the United Stated wheat market, ceteris paribus: the dollar increases in value in the foreign exchange markers

C

At which point is society employing some of its available technology but not all of it? (See Figure 1.1.) Select one:

C.

Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods that obey the law of increasing opportunity costs: Select one:

C.

Entrepreneurship

Can result in economic losses.

Marginal utility is the

Change in total utility obtained by consuming one extra unit of a good or service.

A monopoly

Charges higher prices than competitive firms, ceteris paribus.

A consequence of the economic problem of scarcity is that

Choices have to be made about how resources are used.

The Clean Air Acts of 1970 and 1990 reduced pollution through

Command-and-control regulatory standards.

The benefit that consumers get when they buy goods at the equilibrium price but were willing to pay more is called

Consumer surplus.

The goal of antitrust laws is to

Control the structure of an industry and alter industry behavior.

A firm that makes zero economic profits

Covers all its costs, including a provision for normal profit.

Like a competitive industry, a monopoly must

Deal with the law of demand.

when interest rates rise, farm profits

Decrease because interest rates represent a major cost for farm production

Higher prices will increase total revenue if

Demand is inelastic.

When tariffs are imposed, the losers include

Domestic consumers and foreign producers.

Accounting costs and economic costs differ because

Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

Which of the following is a barrier to entry in a monopoly market?

Economies of scale.

The purpose of the World Trade Organization (WTO) is to

Enforce the rules of free trade.

When a firm experiences positive economic profits over the long run,

Equity may not be achieved.

Economies of scale

Explain why average total costs decline as output increases in the long run.

The profit-maximizing rate of output in Figure 24.1 is Select one:

F.

A cartel is a group of firms with an implicit, informal agreement to fix prices and output shares in a particular market.

False

All consumers in the market enjoy a consumer surplus.

False

An increase in the market share of one oligopolist will not affect the market share of the other firms in the industry

False

An oligopoly will maximize profits where price equals marginal cost, just like a perfectly competitive firm.

False

Barriers to entry are obstacles, such as patents, that make it difficult for new consumers to enter a market.

False

Because a perfectly competitive firm has no market power, its marginal cost curve is flat (i.e., horizontal).

False

Diseconomies of scale imply that the average total cost curve is downward-sloping in the long run.

False

Markets require a physical location to permit sellers to supply money to buyers for goods and services

False

Most goods are normal goods, and their demand shifts to the left when income rises.

False

Pollution abatement does not impose opportunity costs on society because a decrease in pollution is desirable.

False

The key to pollution abatement lies in forcing polluters to externalize their pollution costs.

False

Total revenue plus total cost equals profit.

False

When compared to a competitive market, monopolists tend to charge a higher price and produce a greater level of output.

False

A U-shaped average total cost curve implies

First marginal cost below average total cost, and then marginal cost above average total cost.

When an economy is producing efficiently, it is

Getting the most goods and services from the available resources.

CO2 emissions are a

Global externality.

Government failure occurs when

Government intervention fails to improve economic outcomes.

The benefits from international trade include

Greater efficiency in the use of the world's limited resources.

According to the law of increasing opportunity costs,

Greater production of one good requires increasingly larger sacrifices of other goods.

According to the law of demand, a demand curve

Has a negative slope.

If a firm can change market prices by altering its output, then it

Has market power.

A major difference between oligopoly and monopolistic competition is that oligopolies do not

Have many competitors.

When a country imposes tariffs, it is likely to cause

Higher prices for the import-competing goods

Elasticity of supply tells us

How much sellers will increase production in response to a change in price.

Economics can be defined as the study of

How scarce resources are allocated on a macro level to best meet society's goals or on a micro level to best meet an individual's or firm's goals.

Goods and services purchased from international sources are

Imports

If a good is normal, its

Income elasticity of demand is positive.

Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

Increase by 95 percent.

Price leadership is a method by which oligopolies can

Increase prices without explicit price-fixing.

As more satisfaction is achieved from consuming a good with diminishing marginal utility, then total utility

Increases at a decreasing rate.

A five-cent container deposit on bottles

Increases the incentive to recycle.

Product differentiation

Involves advertising unique product features.

A competitive firm

Is a price taker.

For perfectly competitive firms, price

Is equal to marginal revenue.

The marginal cost curve

Is the short-run supply curve for a competitive firm at prices above the AVC curve.

A natural monopoly is a desirable market structure because

It allows the producer to deliver products to the market at the lowest possible cost.

Average total cost is important to a business because

It tells the firm what the profit per unit produced is.

Refer to Figure 1.7. The benefit of producing at point G rather than point D is Select one:

KL units of clothing.

Which of the following are factors of production?

Land, labor, capital, and entrepreneurship

The basic factors of production include

Land, labor, capital, and entrepreneurship.

The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the

Law of diminishing marginal utility.

Which of the following can be used to correct market failure?

Laws and regulations.

If payroll taxes are increased, there will be a

Leftward shift of the labor supply curve.

Economic profit is

Less than accounting profit by the amount of implicit cost.

A monopolist will find that its marginal revenue curve

Lies below its demand curve and is steeper than its demand curve.

Refer to Figure 26.2 for a monopolistically competitive firm. At the profit-maximizing output and price, this firm is experiencing economic

Losses but should keep producing in the short run.

A competitive firm should always continue to operate in the short run as long as

MR > AVC.

Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige, who failed to consider the enormous opportunity of selling his property to Disneyland, will

Make more money when they shut down.

Monopolists are price

Makers, but competitive firms are price takers.

Which of the following characterizes monopolistic competition?

Many firms produce a particular type of product, but each maintains some independent control over its own price.

Ceteris paribus, the law of diminishing returns states that beyond some point, the

Marginal physical product of a factor of production diminishes as more of that factor is used.

The change in total output associated with one additional unit of input is the

Marginal physical product.

the determinants of labor demand include

Marginal physical productivity.

Total utility is maximized when

Marginal utility is zero

A consumer maximizes total utility from a given amount of income when the

Marginal utility obtained from the last dollar spent on each good is the same.

Which of the following statements about markets is not true?

Markets necessarily have a physical location.

The profit motive can encourage businesses to do all of the following except

Maximize social welfare

A profit-maximizing producer seeks to

Maximize total profit.

A production function shows the

Maximum output that can be produced with varying combinations of factor inputs

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded

Means that price has changed and there is movement along the demand curve.

In a perfectly competitive market, when price is equal to the

Minimum average total cost, economic profit is zero.

The true economic costs of pollution control are the

Most highly valued alternative goods and services that could be produced if the resources were not used to reduce pollution.

A line that slopes downward from left to right has a

Negative slope.

Which of the following may not characterize an oligopoly?

No market power.

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because

Of product differentiation and brand loyalty.

All of the following are arguments to have less antitrust enforcement except for

Oligopolies can lead to less output and higher prices.

Profit per unit is equal to

P - ATC.

Examples of barriers to entry include

Patents.

The law of diminishing marginal utility suggests that

People are willing to buy additional quantities of a good only if its price falls.

A market in which final goods and services are exchanged is a

Product market.

Which of the following is used as an antitrust tool that focuses on the structure of industry?

Prohibiting mergers and acquisitions

The concentration ratio measures the

Proportion of total output produced by the four largest producers in a specific market

Figure 29.1 if the government wished to institute a set-aside program to support the price at P1 rather than P2 in figure 29.1 by how much would market output be reduced

Q3 to Q2

Price discrimination allows a producer to

Reap the highest possible average price for the quantity supplied.

The elimination of import restrictions will

Redistribute income from import-competing industries to export industries.

The entry of firms into a market, ceteris paribus,

Reduces the economic profit of each firm already in the market.

The point where the budget constraint and an indifference curve are tangent

Represents the optimal consumption point.

Collusion is undesirable and illegal because

Resources are misallocated and the level of output is restricted.

According to the text, there is no such thing as a free lunch because

Resources used to produce the lunch could be used to produce other goods and services

Price elasticity of demand shows how

Responsive the quantity demanded is to a change in price.

Marginal cost

Rises as a direct result of diminishing returns.

The behavior of profit-maximizing producers is guided by

Self-interest.

Price discrimination occurs when

Sellers charge two separate prices for the same product to two different groups.

Which of these examples is an example of price discrimination?

Seniors pay one price at the movie theater and adults pay more.

An increase in the price of gasoline will

Shift the automobile demand curve to the left.

Each producer in monopolistic competition has

Some market power.

Oil and alternative sources of energy such as wind and solar are

Substitute goods.

Ceteris paribus, for a farmer, corn and wheat are

Substitutes in production

In Figure 30.2, a minimum wage of $20 will result in a

Surplus of 32 workers

Short-run supply determinants include

Technology.

Economic losses are a signal to producers

That they are not using resources in the best way

Maximum total revenue occurs when

The absolute value of the price elasticity of demand is 1.0.

The invisible hand refers to

The allocation of resources by market forces.

Market share can be computed by dividing

The amount sold by a single firm by the total sold in the market.

A buyer is said to have a demand for a good only when

The buyer is both willing and able to purchase the good

For a monopolist, marginal revenue equals

The change in total revenue divided by the change in quantity.

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that

The company's total revenue will decrease.

If demand is perfectly elastic,

The demand curve is horizontal.

If advertising is successful,

The demand curve shifts to the right and becomes steeper.

External costs are

The difference between social and private costs.

Consumer surplus measures

The difference between the maximum price a consumer is willing to pay and the price actually paid

Profit is

The difference between total revenue and total cost.

A natural monopoly occurs because of

The existence of economies of scale.

The production possibilities curve illustrates

The limitations that exist because of scarce resources.

When choosing among products, consumers look at

The marginal utility per dollar and their budget constraint.

Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market? Select one:

The market price of the product will fall.

The equilibrium price in a market is found where

The market supply curve intersects the market demand curve.

the determinants of the market supply of labor include all of the following except

The market wage rate.

Refer to Figure 23.2 for a perfectly competitive firm. If this firm produces the level of output corresponding to point C in the short run, it will earn Select one:

The maximum profit possible

a production process is defined as

The mix of resources used to produce output.

An industry's market structure refers to

The number and size of the firms in the industry.

If two goods are substitute goods,

The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.

If the demand for a product is elastic, then

The percentage change in quantity demanded is greater than the percentage in price.

Which of the following is a determinant of supply?

The prices of the factors of production.

A payoff matrix shows

The profits or losses that result from strategic decisions of one firm and another firm.

If the elasticity of demand is 3, and the price rises by 15 percent, then

The quantity demanded will fall by 45 percent.

A country's export ratio is

The ratio of exports to GDP.

Total utility is

The sum of the marginal utilities from the consumption of good.

A country will not trade unless

The terms of trade are superior to domestic opportunities.

In economics, the long run is considered to be

The time period when all costs are variable.

Social costs are

The total resource costs of an economic activity.

If the United States has a trade deficit, this means that

The trade balance is negative

The market mechanism may best be defined as

The use of market prices and sales to signal desired output.

World output of goods and services increases with specialization because

The world's resources are being used more efficiently.

If the actual market price were fixed at $15 per unit in Figure 3.2,

There would be a surplus of 40 units.

According to the text, which of the following is a form of water pollution?

Thermal pollution.

Which of the following is an example of government failure?

Too much regulation resulting in wasted resources.

A firm maximizes total profit when

Total revenue exceeds total cost by the greatest amount.

Economic profit is the difference between

Total revenues and total economic costs.

If marginal utility is negative, then

Total utility will decrease with additional consumption.

Refer to Figure 21.3. The vertical difference between the total cost curve and the total fixed cost curve represents Select one:

Total variable costs.

A perfectly competitive firm has no market power.

True

An embargo is a prohibition against trading particular goods

True

Economic profit is zero when a firm's revenues just cover its economic cost.

True

Every time we use scarce resources in one way, we give up the opportunity to use them in other ways.

True

Free trade benefits the nation as a whole but may hurt specific industries and workers.

True

Game theory is the study of strategic interaction between rival firms.

True

Marginal physical product is the change in total output associated with one additional unit of input.

True

Marginal utility represents the additional satisfaction obtained from one more unit of a good or service.

True

Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

True

Perfect information is a necessary condition of perfect competition.

True

Pollution will decrease when firms are forced to consider externalities as a production cost.

True

Quotas are a much greater threat to competition than are tariffs because quotas preclude additional imports at any price.

True

Requiring that a firm engage in pollution abatement tends to reduce the firm's profits.

True

Scarcity results when available resources cannot satisfy all desired uses of those resources.

True

The Latin phrase ceteris paribus refers to holding other variables constant.

True

The major focus of the Clayton Act is to prevent the development of monopolies.

True

The ultimate constraint on market power is the market demand curve.

True

When the number of buyers in a market changes, the market demand curve shifts even if individual demand curves do not shift.

True

The Herfindahl-Hirschman Index is

Used to identify cases worthy of antitrust concern.

the opportunity cost of working is the

Value of leisure time that must be given up.

A demand curve that is perfectly inelastic is

Vertical.

Unit labor cost is equal to the

Wage rate divided by MPP.

In 2007 the United Nations concluded that global warming

Was the result of human activity with a 90 percent probability

If a monopolistic competitor is maximizing profit, it is producing at a point where marginal cost

When new firms enter a monopolistically competitive industry, ceteris paribus, the

Market price decreases.

Which of the following characterizes monopolistic competition?

Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run, it will earn Select one:

Zero economic profit.

Because farm products have a low elasticity of demand, a small change in output will have

a larger effect on price

An embargo is

a prohibition on exports or imports

other things being equal, which of the following would increase the market demand for labor

an increase in the marginal productivity of labor

the demand for labor and other factors of production typically decline in a recession because those factors

are derived from the demand for final output, which also declines in a recession

if the price for a box of kiwis is 40$, the wage rate for kiwi laborers is $10 per hour, and a laborer can pick 3 boxes of kiwis per hour, the

cost efficiency is 3/10 of a box per dollar

if the demand for alarm clocks decreases, the effect on the alarm clock job market will be to

decrease the demand for labor and reduce equilibrium wages

If consumers decide to buy fewer strawberries, then the

demand for strawberry pickers will fall

The demand will be ________ if the consumer has ________ substitute goods to choose from

elastic; more

In a perfectly competitive farm market with economic losses, farmers will

exit until profits are normal

Individual consumers supply ________ and purchase ________.

factors of production; final goods and services

Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will ________.

fall; fall

The farming industry experiences high barriers to entry because of the large amounts of acreage and expensive equipment that are needed

false

in general it can be said that leisure is a free good

false

when the minimum wage is set below market equilibrium wage, it does not affect the market

false

Farm prices support programs most often take the form of price

floors, which causes surpluses

For a minimum wage to have any impact on a labor market, it must be set at a level

higher than the equilibrium wage

when an individuals MRP is not measurable, his or her market wage is usually determined by

his or her opportunity wage

a program of counter-cyclical payments is best classified as a federal

income support program

as more hours are worked, the marginal utility of leisure time tens to

increase

Workers typically require higher wages in order to work additional hours because of the

increasing opportunity cost of labor

the willingness to work a certain amount of time at a given wage rate is known as

labor supply

In the United States, in general, farmers believe like

perfect competitors

an advantage of set-aside programs over price support programs is that they

raise the price of agricultural production but do not lead to a surplus of output

the wage rate is

the payment for labor

if there is an increase in immigration into specific labor market, then

the supply of labor shifts rightward and the equilibrium wage will fall

An indifference curve shows the combinations of two goods that yield the same level of utility.

true

One consequence of airline deregulation in the 1980s was an increased concentration ratio.

true

which of the following is consistent with farming as a competitive market?

zero economic profit in the long run