ECON STUDY GUIDE

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

supply curve for paper would shift to the left

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left)

Approximately what percentage of the world's economies experience scarcity?

100%

The government's benefit from a tax can be measured by

tax revenue

Welfare economics is the study of how

the allocation of resources affects economic well-being

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

In economics, the cost of something is

what you give up to get it

In a market, the marginal buyer is the buyer

who would be the first to leave the market if the price were any higher

The maximum price that a buyer will pay for a good is called

willingness to pay

If the firm doubles its output from 3 to 6 units, total revenue will

increase by exactly $15

When a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls

The firm will earn zero economic profit if the market price is

$6

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases

If the market price is $10, what is the firm's total revenue?

$50

If the market price is $6, what is the firm's shorten economic profit?

$0

This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

$1.60 and 42 unites, respectively

This graph represents the tobacco industry. The socially optimal price and quantity are

$1.80 and 35 units, respectively

If the market price is $10, what is the firm's shorten economic profit?

$15

If the market price is $10, what is the firm's total cost?

$35

The firm's shorten supply curve is its marginal cost curve above

$4.50

In Figure 3-4, the equilibrium price is

$5

If the price of the product is $130, then who would be wiling to purchase the product?

Calvin and Sam

If the price of the product is $110, then who would be willing to purchase the product?

Calvin, Sam, and Andrew

If the firm is currently producing 14 units, what would you advise the owners?

MC = MR

Over what race of output is marginal revenue declining?

Marginal revenue is constant over the entire range of output

Which quantity represents the social optimum for this market?

Q3

A market structure with barriers to entry is

a monopoly

An increase in the population will lead to

a rightward shift in the market demand curve

The firm will earn positive profit if the market price is

above $6

The firm will earn a positive economic profit in the short run if the market price is

above $6.30

A society allocates its scarce resources to various jobs. These scarce resources include:

all of the above (land, people, machines)

Which of the following products would be considered scarce?

all of the above are correct (bread, baseballs autographed by Babe Ruth, motorcycles)

The impact of one person's actions on the well-being of a bystander is called

an externality

All of the following, except one, would increase the demand for a particular model of a Ford automobile. Assume that this model is a normal good. Which is the exception?

an increase in buyer's incomes

Which of the following could cause the market demand curve for hot dogs to shift to the left?

an increase in the price of mustard

Which of the following could explain a movement from point F to point G in Figure 2-3? Assume that the good represented is an inferior good.

an increase in the price of the good

Over which range of output is average revenue equal to price?

average revenue is equal to price over the entire range of output

Which of the following is a characteristic of a monopoly?

barriers to entry

On a graph, consumer surplus is represented by the area

below the demand curve and above price

A monopolistically competitive market has characteristics that are similar to

both a monopoly and a competitive firm

Which of the following statements is correct?

buyers always want to pay less and sellers always want to be paid more

A tax affects

buyers, sellers, and the government

A monopoly can earn positive profits because it

can maintain a price such that total revenues will exceed total costs

The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

competitive market

Which of the following tools help us evaluate how taxes affect economic well-being?

consumer surplus, producer surplus, tax revenue, and deadweight loss

The fully understand how taxes affect economic well-being, we must compare the

decrease in total surplus to the increase in revenue raised by the government

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left)

Which of the following is not a characteristic of a competitive market?

entry is limited

A monopolist's average revenue is always

equal to the price of its product

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

When a tax is imposed on a good, the

equilibrium quantity of the good always decreases

Each firm in a monopolistically competitive market

faces a downward-sloping demand curve

Which of the following is NOT a characteristic of a monopoly?

free entry and exit

When goods do not have a price, which of the following primarily ensures that the good is produced?

government

What you give up to obtain an item is called your

opportunity cost

A restaurant that has market power can

influence the market price for the meals it sells

A competitive firm

is a price taker, whereas a monopolist is a price maker

Consumer surplus

is measured using the demand curve for a product

Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly

is often not in the best interest of society

The firm should shut down if the market price is

less than $4.50 (the AVC)

The firm will earn a negative economic profit but remain in business in the short run if the market price is

less than $6.30 but more than $4.50

A monopolistically competitive industry is characterized by

many firms selling products that are similar but NOT identical

Which of the following statements about markets is false?

markets are used to allocated resources in market systems

Willingness to pay

measures the value that a buyer places on a good

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly

The market for novels is

monopolistically competitive

If the market price is $5.00, the firm will earn

negative economic profit in the short run but remain in business

If the market price falls below $4.50, the firm will earn

negative economic profits in the short run and shut down

A cost imposed on someone who is neither the consumer nor the producer is called a

negative externality

This graph represents the tobacco industry. The industry creates

negative externality

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

people face tradeoffs

The phrase "no such thing as a free lunch" means

people must face tradeoffs

If the market price rises above $6.30, the firm will earn

positive economic profits in the short run

A key characteristic of a competitive market is that

producers sell nearly identical products

In a market system, prices are determined by

production costs

To internalize the externality in this market, the government should

provide a subsidy for this product

The amount of good or service that buyers would be willing and able to purchase at a specific price is known as

quantity supplied

Efficiency

refers to how much a society can produce with its resources. equality refers to how evenly the benefits from using resources are distributed among members of society

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied

The phenomenon of scarcity stems from the fact that

resources are limited

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked

The law of demand states that the quantity demanded of a good and

the price of a substitute are positively related

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

the value of electricity to consumers equals the private cost of producing electricity

Suppose that initially the market for DVDs is at point A on demand curve D2 in Figure 3-3. If the price of cassette tapes decreases

there will be no change from point A