ECON final set 2

The demand for any resource is equal to

the marginal revenue of that resource

T/F Oligopoly is characterized by large barrier to entry - usually economies of scale

true

what is a characteristic of a perfectly competitive market?

no barriers to entry

In order to maximize profit, a firm operating as a monopoly will produce a quantity at which

MR=MC

production at a point lying outside a production curve is

Not possible

True or false? Allocative efficiency implies at a quantity where MC=D

True

If a union establishes a wage floor above the equilibrium wage in a typical, competitive labor market, what will be the result?

an increase in wages and a decrease in the quantity of workers employed

An increase in supply will

increase price and increase quantity

an income elasticity of demand equal to -2.0 represents which type of good?

inferior

an income elasticity of demand equal to 0.4 represents which type of good?

necessity

if the avg firm in a perfectly competitive industry is currently generating an economic profit, which of the following would be expected to occur?

new firms will enter the market decreasing price and profits

price elasticity of demand with an absolute value of 2.5 would indicate

relatively elastic demand

Price elasticity of demand with an absolute value of .88 would indicate

relatively inelastic demand

a cross price elasticity of demand equal to 3.5 indicates that two goods are

substitutes

What correctly expresses the law of supply

there is a direct relationship because as price decreases, producers want to sell less.

What correctly expresses the law of demand

there is an inverse relationship because as price decreases, consumers want to buy more

economic profit equals

total revenue minus both implicit and explicit costs

If demand is relatively inelastic and supply is relatively elastic, consumers would bear the greater burden of a tx.

true

In the long run perfectly competitive firms produce with both productive and allocative efficiency but monopolistic competitive firms do not

true

MC intersects AVC the lowest point on the AVC curve

true

T/F All firms in a perfect competition, monopoly, monopolistic competition, and oligopoly must always produce at a quantity at which marginal revenue equals marginal cost in order to maximize profits

true

T/F Oligopoly is characterized by only a few sellers- usually less than 12

true

T/F The term cartel does not necessarily describe an organization that produces any one good but rather an organization that promotes collusion among a group of sellers

true

for a perfectly competitive firm, marginal revenue is always equal to demand

true

if a decrease in price leads to an increase in total revenue, the demand must be elastic

true

if the demand for a good is elastic and a producer lowers his/her price, the result will be an increase in total revenue

true

if the demand for a good is inelastic and a producer raises his/her price, the result will be an increase in total revenue

true

in general, a long run supply curve will be more elastic than a short run supply curve for the same product

true

t/f the demand curve for a perfectly competitive firm us perfectly elastic

true

true or false? at any point in time for any one firm, economic profit will always be less than or equal to accounting profit

true

If a good that includes a positive externality (external benefit) is produced in a free market, the good will be

underproduced and undervalued

What are characteristics of monopoly?

-a unique good - substantial control over the market

The firm's demand curve is equal to the market demand curve because consumers have no other options

Demand curve for a monopolistic firm

What would increase the supply of labor?

- A decrease in the value of the stock market and retirement plans -an increase in the level of fringe benefits like gym memberships

What would increase the demand for smart phones?

- decrease in the price of data & calling plans needed to use the phones -an increase in the price of standard cell phones -an increase in the expected future prices of smart phones

The kinked demand curve faced by oligopolistic firms implies what?

-Firms are likely to follow price reductions - firms are unlikely to follow suit on increases -Marginal revenue will drop substantially if once firm drops its price below the established market price

What are the negative results of a monopoly?

-allocative inefficiency -productive inefficiency -limited options for consumers -potential for limits on technological advancement

What would increase the demand for labor?

-an increase in the price of automation- a substitute resource -an increase in the demand for the final product that labor produces -an increase the productivity of labor

What would give the union more negotiating power?

-an inelastic demand for the final product -no available substitute inputs -an inability to stockpile inventory

Which of the following acts prohibited trying contracts?

Clayton Act

True or false? Productive efficiency implies production at a quantity where MC=MR

False

true or false? an increase in prices across a nation will lead to an increase in that nation's PPC

False

What act prohibited overt collusion?

Federal Trade Commission Act

Which act prohibited unreasonably low prices associated with predatory pricing?

Robinson- Patman Act

a decrease in demand will result in

a decrease in price and a decrease in quantity

What would decrease the demand for a new car? - a normal good

a decrease in the average income level

What us necessary in order for price discrimination to occur?

a downward sloping demand curve

an increase in demand will result in

an increase in price and an increase in quantity

A decrease in supply will

an increase in price and decrease in quantity

what correctly describes the area of a producer surplus?

below price and above supply

Production at a point lying on the production possibilities curve is

both possible and efficient

a cross price elasticity of demand equal to 0.0 indicates that two goods are

completely unrelated

What is a characteristic of monopolistic competition?

differentiated products

If a union established a wage floor against a monopsony, the result will be a new MF curve that is

equal to the wage floor

if the avg firm in a perfectly competitive industry is currently generating an economic loss, what is expected to occur?

existing firms will exit the market increasing price and profits

if a good that includes a negative externality in a free market, the good will be

overproduced and undervalued

price elasticity of demand with an absolute value of zero would indicate

perfectly inelastic demand

Production at a point lying inside a production possibilities curve is

possible but not efficient