EXAM 3 ECON
When market leaders produce on a mass scale, new entrants:
have a hard time competing.
When new sellers enter a market, existing sellers will:
have less market power.
Compensating differentials lead to:
higher salaries for more unpleasant jobs.
A useful rule of thumb is that the higher the marginal benefit a consumer gains from a product, the
higher the buyers' reservation price will be.
An efficiency wage is a:
higher wage paid to encourage greater worker productivity.
Adhika is deciding whether to open a company to produce step stools. He should start the company if he expects that:
his price will exceed his average cost.
Malia earns a yearly salary of $130,000 in her job and earns $1,000 per year in interest on her savings. After she quits her job to start a company, she uses all her savings to purchase manufacturing equipment for her company. Given the above information and the data summarizing her first year in business in the table, how much economic profit or loss does Malia earn?
$19,000
Which graph shows the scenario where the substitution effect dominates labor supply decisions?
/ ---> individual supply labor curve looks like this
The three key labor market decisions that you make do NOT include how many workers to hire. whether to work. what kind of work to do. how many hours to work.
how many workers to hire.
The income effect measures
how people's choices change when they have more income.
The accumulated knowledge and skills that make a worker more productive are known as:
human capital.
Consideration of the benefits of choosing an occupation should NOT include
if you find it easy.
Consider the labor market, predict which of the following create an incentive for investment in capital?
Higher wages
Which of the following is a valid explanation of why a star movie actor earns many times more than a star Broadway actor?
In one evening, many more people can view a movie than can see a Broadway play.
Marta owns a food truck. Which of the following would limit Marta's ability to price discriminate?
Marta has little understanding of how much each customer values her product.
Patents on drugs to treat AIDS were removed in South Africa. How would the market for these drugs have been different if there had never been patents on drugs?
The drugs would not have been developed.
The formula for calculating accounting profit is total revenue minus _____ costs.
explicit financial
The two main types of implicit opportunity costs are:
forgone wages and forgone interest.
(Figure: Output Level) According to the rational rule, what output and price should the firm in the following example choose?
quantity = 4; price = $7.00
Bayside Shoe Shop offers a BOGO (buy one, get one) special where customers can buy one pair at full price and get another pair at half-price. This form of price discrimination is referred to as
quantity discount.
Sellers try to avoid the entry of new rivals through the use of demand-side strategies. These demand-side strategies do NOT include:
raising the market demand for the product.
Studies of the minimum wage indicate that minimum wage laws _____ employment opportunities for low-skilled workers, but there is less agreement regarding _____.
reduce; the amount of the reduction
A price-discriminating company can attract more customers by _____ price, as long as _____.
reducing; the price is above its marginal cost
In a labor market graph, _____ is measured on the vertical axis, and _____ is measured on the horizontal axis.
wage; hours of labor
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Which of the following statements is true?
A firm with economic profits will also have accounting profits.
Once an original decision has been made, what happens on a game tree with each additional decision made by a player?
A new branch is formed.
Which criteria for market segmentation would be easiest to use for an online retailer?
Account address
What is collusion?
Agreements between sellers to increase their market power
Which of the following is NOT true regarding discrimination in labor markets?
Any differences in wages between members of different racial or age groups is due to discrimination.
Which of the following is NOT one of the four steps for making good strategic decisions?
Assume that others will defer to your action.
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What impact has technology had on the difference between the income of the best engineers and that of good engineers?
It has increased the gap in income significantly.
What problem arises in coordination games with multiple equilibria?
It is difficult to achieve the commonly desired outcome.
The marginal revenue product of labor is equal to:
MP(Labor) × P.
_____ using specific business practices that increase a seller's market power and excludes other sellers is illegal under U.S. law.
Monopolizing
Which of the following is an example of a company practicing price discrimination?
Most passengers traveling on an airplane pay different prices for their tickets.
Michelle owns the largest florist shop in her town. Each week, she orders a truckload of flowers from the flower wholesaler. The other two florists in town order only one-third as many flowers. Because Michelle's order fills the delivery truck, the wholesaler sells flowers to her at a lower price than the other florists must pay. How will this situation impact potential new entrants?
New florists will be discouraged from entering the market because of the difficulty of competing on cost.
Which of the following statements regarding a Nash equilibrium is TRUE?
No player can do better by unilaterally changing his or her choice.
Sun Do sells key chains with leather fobs for $12 and $9. The key chains are very similar and have identical manufacturing costs. The difference is that the stitching on the leather fob is in a less precise pattern on the $9 key chain than it is on the $12 key chains. What approach to price discrimination is Sun Do using?
Offering imperfect goods as part of the hurdle method.
In which market structure do the actions of a rival have a significant impact on your operations?
Oligopoly
Which of the following is NOT a strategy used by a company to "lock-in" customers to ensure demand for its product?
Pressuring the government to require a license for entry into the market
lives up to a core set of ideals that workers identify with.
Provide a retirement savings plan.
How can a company's hiring manager attract workers who are motivated to advance in their field?
Provide training.
Corinne gives private art lessons to children. She wants to price discriminate based on the household income of her students. She does not know the exact household income of her students but wants to estimate it, to put them into different price segments. What easily verifiable measure of income could she use?
Public or private school attendance
Which of the following is NOT an example of the hurdle method of price discrimination?
Segmenting the market into identifiable groups with different prices.
Which of the following markets is an example of a perfectly competitive market?
Shares of McDonald's stock
What factor determines how many segments to divide your demand in for group pricing?
The amount of consumer information available to the company.
How would the discount effect on marginal revenue differ for a seller increasing sales from 100 units to 101 units compared to an increase in sales from 1,000 units to 1,001 units?
The discount effect would be smaller for a change from 100 to 101 units than 1,000 to 1,001 units.
Which of the following would shift the labor supply curve?
The government increases its provision of childcare services.
The population of Japan is declining. What impact will this have on the labor market for optometrists in Japan?
The optometrist labor supply curve shifts leftward.
What will happen in the labor market for aestheticians if the government deregulates the industry and no longer requires individuals to obtain a license to work as aestheticians?
The supply of workers will increase, resulting in a lower wage and higher quantity of labor.
Which of the following is a characteristic of monopoly that is not present in other market structures?
There is only one seller.
Hassan is a student who received a coupon to buy pizza from Pizza House at $4 off the regular price. Students at Hassan's school seem to receive the coupons frequently. Which of the following is an assumption that the owners of Pizza House are making about students at Hassan's school?
They are price-sensitive.
Mario's company definitely has economic losses in which of the following situations?
Total costs exceed total revenue.
How does the pay of unionized workers compare with that of nonunionized workers in similar jobs, on average?
Unionized workers earn more.
When a player faces the same strategic interaction a fixed number of times, the player is engaged in _____ game.
a finitely repeated
Alena manages a small theme park. She hires one more custodian at $450 per week, and her park is cleaner and more attractive. As a result of this improvement, ticket sales rise by 40 tickets per week. Tickets sell for $12. Use the Rational Rule for Employers to determine if hiring the extra custodian was a good move.
Yes, it was a good move because it added more to revenue than to cost.
A Nash equilibrium can be identified on a payoff table when:
a check mark is put next to each player's best response, and there is a cell with a check mark for each player.
When it is hard to monitor worker productivity, employers often pay:
a higher wage.
A market with a large number of sellers and a high level of product differentiation is known as
a monopolistically competitive market.
Walmart has a large aisle that displays many different kinds of toothpastes. This observation indicates that the toothpaste market is
a monopolistically competitive market.
Price discrimination leads to _____ than a one-price system.
a more efficient output
When using coordination games to look at the issue of bank runs, the best outcome occurs when:
all people keep their money in the bank.
When a player's best response is to take a different (but complementary) action to the other player, then both participants are playing _____ game.
an anti-coordination
When price discriminating, a company owner should set price _____ for each customer.
at or just below the marginal benefit
Coordination problems can be solved through each of the following approaches EXCEPT:
backward reasoning.
The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _____ to _____.
brand proliferation; deter new entrants
Price ceilings tend to create shortages when used to
bring down price in a competitive market.
When a company practices price discrimination, it will keep adding customers until the point where the
company's marginal cost equals the last customer's marginal benefit.
The costs of working do NOT include what
could have been bought with the income earned.
Why does an employer's labor demand curve slope downward?
diminishing marginal product
A simultaneous game is one in which:
each player must choose without knowing the other player's choice.
Because _____ profit is calculated based on _____ costs, it allows firm owners to make better decisions about _____.
economic; total; entering and exiting a market
Consumer backlash against price discrimination often focuses on the issue of
fairness.
As output rises, average fixed costs:
fall.
A furniture store owner allows its salespersons to lower a price by up to ten percent to gain a sale if the buyer appears price sensitive. The owner also instructs salespersons to confer with management about the possibility of higher discounts if needed to make a sale. This example of individually negotiated prices is a form of price discrimination known as
haggling.
Callie's firm uses a proprietary and complicated production process to ensure product quality. Her workers are carefully trained in this process as soon as they are hired. Callie thereby:
invests in job-specific skills.
If a seller can create switching costs for its product, then:
it is difficult or costly for customers to switch to another seller of the product.
Unions are organizations that:
jointly represent a group of workers in negotiating with employers.
Supermarkets need to hire fewer cashiers, due to self-checkout counters. Which graph shows what happens to the labor market for cashiers?
labor demand curve shifts left and down the supply curve. \ <--- \
If a company incurs expenses to start providing childcare at work so that employees can have lunch with their preschool children, the company's demand curve for labor will shift to the
left because employees are more expensive to the firm.
Employees will be motivated to work hard and try to help their employer succeed if the company:
lives up to a core set of ideals that workers identify with.
The higher the level of market power among the sellers in a market, the _____ when the Rational Rule for Sellers is applied.
lower the market output
When players in a game collude, they:
make agreements not to compete with each other and, typically, to charge high prices.
When government regulations are influenced by lobbyists for the producers in a market, the regulations often:
make it more difficult for new producers to enter the market.
A basic logic that applies to all strategic interactions is:
making a good choice requires that you anticipate what others will do.
The three sources of discrimination do NOT include:
malevolent bias.
According to the Rational Rule for Sellers, a seller should choose the output level where _____ and the price level _____.
marginal cost equals marginal revenue; that is on the seller's demand curve at that output level
If the demand for Ono Yo's organic frozen yogurt increases, then the _____ Ono Yo's workers will _____.
marginal revenue product of; increase
The marginal revenue from hiring an additional worker is known as
marginal revenue product.
An employer who discriminates in hiring based on prejudice is likely to have higher costs than necessary because:
more productive workers may be forgone in order to hire less productive workers who have preferred characteristics.
Kaila wants her employer to pay her 20% more for making night deliveries in a high-crime neighborhood than the day delivery people receive. Most of the delivery people are willing to make night deliveries in the neighborhood for only a 10% differential. Kaila is seeking:
more than a compensating differential because she has greater concerns than most workers.
The strong incentive of sellers to deter the entry of new sellers is a major reason that:
most markets are imperfectly competitive.
When the typical seller in a market has economic profits, then:
new sellers will enter the market.
The labor supply curve for social workers will shift to the right when:
nonwage benefits increase for social workers.
When a company has market power, it is _____ in its market.
not a price-taker
The Rational Rule for Workers is to work
one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure.
When resources are shared or owned in common, the Nash equilibrium leads to:
overuse of resources.
Linking your workers' earnings to their performance is called:
pay-for-performance.
What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?
positive
A preconceived bias against a group that's not based on reason or experience is known as:
prejudice.
A certain shampoo is on sale twice a year, every year. This is an example of a seller using _____ as a form of _____ to achieve price discrimination.
price fluctuation; the hurdle method
When buyers in a market have market power, then the
product price is lower.
A Grim Trigger strategy is to:
punish rivals who do not cooperate.
Selling alternative versions of a product at different prices is a way to identify the _____ of customers and charge them different prices.
reservation price
When firms in a market with free entry and exit experience economic losses, then:
some sellers will exit the market, reducing average seller losses.
When the government requires that a person have a license to work in a particular occupation, then in the labor market for that occupation:
supply decreases.
In the labor market for computer programmers, the labor demand represents
the employers looking to hire programmers.
When a seller offers lower prices to those buyers who are willing to overcome some obstacle to get it, the seller is using _____ to get buyers to reveal their _____.
the hurdle method; reservation price
Price discrimination can be successful only if
the product cannot be resold.
Game theory is:
the science of making good decisions in situations involving strategic interactions.
The Rational Rule for Employers implies that they keep hiring until
the wage equals the marginal revenue product of the last worker hired.
In a perfectly competitive labor market, employers will not pay less than the market wage because at a wage below the equilibrium
they would not be able to hire anyone.
One of the market failures caused by market power is
underproduction.
The opportunity cost of working is
what you would have done during the time if you were not working.
(Figure: Market Power) Based on the demand curves for four sellers, which of the following sellers has the most market power?
when demand is vertical ---> |
To avoid harm to society, the government often becomes the supplier of a good or service when the respective market
would be a natural monopoly, and the good or service is considered essential.
