Economics Exam

How does monopolistic competition differ from perfect competition?

-A monopolistic firm's marginal revenue is not its price (marginal revenue is below its price/marginal revenue changes as output changes and is not equal to the price) -A monopolistic firm's output decision can affect price

What are the 3 important types of barriers to entry

-natural profit -natural monopoly -government created monopoly

Definition of Monopoly. What is the primary reason for its existence?

A market system in which one firm makes up the entire market. Primary reason: economies of scale

T/F: If the demand for insulin is highly inelastic, the burden of a tax insulin will be borne almost entirely by the sellers

False

Why are barriers to entry necessary to maintain a monopoly?

If there were no barriers, non profit-maximizing firms would compete away monopoly profits

Understand price discrimination in full. What must be done for it to be successful?

Price discrimination is when a firm charges different prices to different individuals or groups of individuals

T/F: According to the principle of rational choice, a consumer should spend money on those goods which provide the most marginal utility per dollar

True

T/F: If marginal utility is declining but still positive, total utility is increasing

True

T/F: The minimum wage is an example of a price floor

True

Even though 80,000 individuals in the United States wait for kidney transplants and, for a price, there are many individuals who would be willing to supply a kidney (a healthy person can donate one kidney without any problems), it remains illegal to buy and sell organs in the United States. A market for kidneys does not exist because of: a. political forces b. social forces c. market forces d. economic forces

a

Long-run average costs at any output will: a. always be less than or equal to short-run average total costs b. always be greater than or equal to short-run average total costs c. sometimes be less than and sometimes greater than short-run average total costs d. always be equal to short-run average total costs

a

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused: a. the supply curve for gasoline to shift inward b. the quantity of gasoline supplied to move in along the supply curve c. the quantity of gasoline demanded to move out along the demand curve d. the supply curve for gasoline to shift outward

a

The forgone income that the owner of a business could have made by spending time working in another job is called: a. opportunity cost b. marginal cost c. explicit cost d. total cost

a

The law of demand states that consumers buy more of a good when its price declines: a. provided all else remains constant b. only if their income increases at the same time c. because their income increases at the same time d. even if other demand determinants change at the same time

a

A business is most likely to be characterized as a corporation if: a. it has only one owner b. each owner is liable only to the extent of his or her own investment c. it is legally treated as a person and owned by stockholders who are liable for the actions of the corporate "person" regardless of their investment d. it has two or more owners, with each liable for every other owner's actions

b

A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, accounting profit for 50 items is: a. $300 b. $236 c. $176 d. $64

b

A business produces 400 items and sells them for $15 each for a total of $6,000. The total cost of producing the items is $4,500 in explicit cost and $1,000 in implicit cost. Economic profit is: a. $1,000 b. $500 c. $1,500 d. $0

b

An economic force given relatively free reign by society to work through the market is: a. a price mechanism b. a market force c. a social force d. a political force

b

The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely: a. decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall b. increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise c. decreased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall d. increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall

b

The consumption of an additional unity of a good provides additional satisfaction, which is called: a. average utility b. marginal utility c. total benefit d. marginal social benefit

b

The long-run average cost curve is typically: a. always downward-sloping b. downward-sloping at first but then upward-sloping c. upward-sloping at first but then downward-sloping d. always upward-sloping

b

The total satisfaction one gets from from one's consumption of a product is called: a. minimum utility b. total utility c. marginal utility d. a unit of utility

b

The underlying psychological foundation of individual choice and economic reasoning is: a. bounded rationality b. self-interest c. generosity d. focal point equilibrium

b

Implicit and explicit revenues minus implicit and explicit costs equals: a. zero profit b. accounting profit c. economic profit d. implicit profit

c

When a hurricane destroys a significant portion of an apple crop: a. apple prices decline, and quantity sold falls b. apple prices rise, and quantity sold rises c. apple prices rise, and quantity sold falls d. apple prices decline, and quantity sold rises

c