E/M Final Study Guide
Which of the following best explains why cartel agreements are hard to maintain?
Each firm in the cartel has the incentive to increase production and earn higher profits
Private goods can be provided by competitive markets because they are:
Excludable, providing an incentive to pay for and thus produce these goods
the marginal value of resources is high, and more resources need to flow into the industry
If an industry is highly profitable, it is an indication that:
the invisible hand does not work perfectly
If markets are not competitive:
regulation
If the government were to limit the release of air pollution produced by a steel mill to 50 ppm, the policy would be considered a:
zero
In a competitive equilibrium, firms earn _______ economic profits.
ensure that labor and capital move across industries to optimally balance production
In a competitive industry, entry and exit decisions:
the lure of above normal profits may give a firm an incentive to develop new products and technologies
In a monopoly market:
perfectly elastic
In competitive markets, the demand curve faced by the individual firm is:
A competitive automobile company buys its steel from a competitive steel producer
In which of the following scenarios will automobile prices be the lowest?
Loyalty programs, such as frequent flyer plans, tend to:
Increase prices
Workers in many foreign countries such as India are paid much less for work that is very similar to the work done by workers in the US. One reason for this is that:
India is a less productive economy
Marginal costs
Invisible hand property 1 says that without any single person in charge, free markets will result in equal _____ and price will be set to it
Club goods are likely to have _____ fixed costs and ______ marginal costs
Large; Small
Government policy toward cartels and oligopolies typically leads to:
Lower quality, lower output, higher prices
a speculative market designed so that prices can be interpreted as probabilities and used to make predictions
Prediction market
A free rider is a person who:
Recieves the benefits of a good but avoids paying for it.
The firm is not making a profit--it is making a loss of $220
Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?
8
Refer to the table. How many barrels of oil should the company produce to maximize profit?
$224
Refer to the table. The maximum profit available to the company is:
36
Refer to the table. What is the marginal cost of producing the seventh barrel of oil?
50
Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?
raise the price of both foreign and domestic automobiles
Restricting the importation of foreign automobiles will:
A tragedy of the commons often results from _____ and _____.
Rivalry; nonexcludability
The US uses ______ to prevent businesses from engaging in anticompetitive practices
antitrust laws
how to arrange our scarce resources to satisfy as many of our wants as possible
The great economic problem is:
the right mix of resources will be found in each industry, maximizing the total value of production
The invisible hand property 2 maintains that:
consumers benefit while some suppliers are harmed
Which of the following statements is TRUE about the removal of trade barriers?
Monopolies create incentives for additional research and development
Which of the following statements is true?
Trade makes people better off when preferences differ
Which of the following statements regarding trade is true?
international producers and domestic consumers
Who does protectionism hurt?
A forced rider is someone who:
pays a share of the costs of a public good but does not enjoy the benefits
creative destruction
"[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization . . . competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called:
Refer to the table. What is the marginal product of labor for the fifth worker?
$180
Refer to the table. If the market wage for each worker is $100 per day, how many workers will the company hire?
6
Refer to the table. If the market wage for each worker rose from $100 to $125 per day, how many workers would the firm hire?
6
Fishermen who go deep sea crab fishing (e.g., The Deadliest Catch) earn:
A compensating wage differential
Tying
A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good. (Printer and Ink)
the invisible hand
A free market can naturally allocate production across firms in an industry to minimize total costs due to:
a cost paid by the consumer or the producer trading in the market
A private cost is:
Which of the following is a list of common resources only?
A public beach, soup kitchen meals, public roads.
tax on imports
A tariff is a:
Which of the following solutions allows for an efficient allocation of a public good?
Advertising
is a cost paid by people other than the producer or consumer trading in the market.
An external cost:
innovation
Apple's iPod provides an example that market power may arise from:
private markets will undersupply college classes
Because there are external benefits from higher education:
A trade quota on imports:
Benefits domestic producers and hurts domestic consumers
the requirement that products be bought together in a bundle or package
Bundled
How might unions benefit workers?
By demanding improved labor management relations and improving worker safety and work conditions
they lack the flexibility to allow buyers and sellers to choose the least costly methods to alter their behavior
Command and control methods do not always produce the most efficient outcomes because:
P>AC
Competitive firms want to enter industries in which:
Refer to the figure. A cartel facing the market in this diagram would try to cayse industry output to:
Decrease from 6 to 3
If people with unusual first names are more likely to commit a crome than people with more popular names and employers use this information to avoid hiring people with unusual first names, they are practicing:
Discrimination
The tragedy of the commons is more likely to apply to:
Forests, fish, and elephants
A firm is willing to hire a worker when the marginal product of labor is:
Greater than the wage
$1,000
If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit?
$0
If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is:
I and II only
Market solutions to eternality problems work when: I. Property rights are easily identifiable. II. Transaction costs are relatively low. III. The market quantity is above the efficient quantity.
Both public goods and common resources are:
Nonexcludable
People have little incentive to produce a public good because:
Of the free rider problem
The tragedy of the commons refers to the:
Overuse of a rival but nonexcludable good
Refer to the table. Which of the following statements is true?
Section 3 includes cable TV
increases; decreases
Studies show that more openness to trade ______ income and _______ child labor.
less than the marginal cost of production on farm 2
Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is:
both destroy jobs in the short run but increase the standard of living in the long run
Technology and trade:
trade quota
The US government restricting the quantity of sugar imports into the country is an example of a(n):
above normal profits will be eliminated by the entry of new firms into the industry
The elimination principle illustrates the idea that:
above normal profits are temporary
The elimination principle, a general feature of competitive markets, tells us that:
An example of a common resource is:
The environment
higher is the monopolist's price markup
The more inelastic the demand curve for a product is, the:
expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.
The oil industry is an increasing cost industry because:
market power
The power to raise price above marginal cost without fear that other firms will enter the market is:
Aside from your skills and how hard you work, what does your marginal product of labor reflect?
The productivity of everyone else in your economy
Coase theorem
The proposition that private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the:
Which of the following statements is true?
The rising returns to human capital labor market issues may be attributable to the growing importance of advanced technology
perfect price discrimination
The situation that exists when each customer is charged his maximum willingness to pay
Select the true statement regarding profits for monopolistically competitive firms
They can make short run profits, and zero economic profits in the long run
at the market price
To maximize profits, a firm in a highly competitive industry should set its price:
Compared to private goods, the free market would _______ public goods.
Underproduce
$384
Use the figure. At a price of $46, the firm earns profit of:
In which case below is there the potential for the free rider problem?
Voluntary payments for a smog reduction program
Prices of the industry's units do not change as the industry expands.
What condition is necessary in a constant cost industry?
supply increases and the price declines, which in tirn lowers profits
What happens in a competitive industry when more firms enter?
In a free market, the total costs of producing output are minimized because each firm produces up to the point where P=MC
What is the invisible hand property 1?
MR=MC
What is the profit maximization condition for a monopolist?
A natural monopoly
When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is:
Will be lower, and monopoly price will be higher
When comparing a monopoly with a competitive industry, monopoly quantity:
secondhand smoke
Which is an example of an external cost?
trade can result in a net job gain in the whole country
Which of the following arguments is valid in the economics of international trade?
P>MR
Which of the following is always true for monopolies?
some consumers are willing to pay more than the monopolist's marginal cost of production, but the monopolist does not produce these units
Which of the following represents the nature of a monopolists deadweight loss?
In general, wages are determined:
by the skills of the worker and the productivity of the entire economy
A person ______ be cheaply prevented from using national defense, a(n) ______ good.
cannot; nonexcludable
Which of the following makes a cartel short lived?
cheating
the reduction in economic surplus resulting from a market not being in competitive equilibrium
deadweight loss
Customer based discrimination is weakened by:
economic growth
contracts to buy or sell at a specific date in the future at a price specified today
futures
A cartel is a:
group of suppliers that tries to act as if they were a monopoly
A dominant strategy is a strategy that:
has a higher payoff than any other strategy, no matter what the other player does.
some industries deserve protection because they provide spillover effects to the rest of the economy
industries argument
Oligopolies tend to set prices:
lower than monopolies but higher than competitive markets.
Firms operating in a cartel have a large incentive to cheat on the agreement by:
lowering the prices and increasing production
Cartels for natural resources tend to be ______ than cartels for manufactured goods.
more successful
Suppose that being an accountant and being a musician require similar amounts of skills, education, training, and so on. If accountants are paid higher wages than musicians, the supply of:
musicians would decrease and the supply of accountants would increase
a maximum price allowed by law
price ceiling
a minimum price for a good or service
price floor
a price ceiling on rental housing
rent control
The market supply curve for labor:
slopes up
An involvement in risky business transactions in an effort to make a quick or large profit.
speculation
The individual supply curve for labor:
starts sloping up and then bends back as wages rise
Game theory is the study of:
strategic decision making
price discrimination
the business practice of selling the same good at different prices to different customers
Arbitrage
the purchase of securities in one market for immediate resale in another to profit from a price discrepancy
The pridoner's dilemma refers to a situation in which:
the pursuit of individual interests leads to an outcome that is in the best interest of no one
Discrimination is:
using information about group averages to make conclusions about individuals
Statistical discrimination is:
using information about group averages to make conclusions about individuals