Micro Achieve Questions

If you pay a price exactly equal to your willingness to pay, then your consumer surplus is:

$0

What factors determine the price elasticity of demand?

- the time available to adjust to price changes - the number of available substitutes - the proportion of the budget spent on the item

Each month, Evelyn spends exactly $50 on frappuccinos, regardless of the price. Evelyn's price elasticity of demand for frappuccinos is:

1

In the short run, to produce firms must be able to cover

Average Variable Cost (AVC)

The efficient rate of emissions occurs when:

MSB = MSC.

Mexico exports clothing to the United States, and the United States exports heavy equipment to Mexico. Proponents of the Heckscher-Ohlin model would explain this pattern of trade by noting that:

Mexico has a relatively large endowment of factors of production used in making clothing, while the United States has a relatively large endowment of factors of production used in making heavy equipment.

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if:

P = ATC.

Under monopoly, the firm produces the output where _____, and in perfect competition, the firm produces the output where _____.

P > MR = MC; P = MR = MC

Romulus and Remus each consume 2 loaves of bread at the current price. If Romulus values each loaf of bread less than Remus values each loaf of bread, then:

Remus's consumer surplus is greater than Romulus's.

The circular-flow diagram ignores a number of real-world complications in the interest of simplicity. Which of the following factors is ignored?

That many sales that firms make are not to households but to other firms.

The price of good X falls and the demand for good Y decreases. We can conclude that:

X and Y are substitutes.

If the price elasticity of demand for basketball shoes is 4:

a 20% decrease in the price of shoes will increase quantity demanded by 80%.

If the price elasticity of demand for cotton is 0.5, and the income elasticity of demand for cotton is 0.4:

a 50% increase in income will increase the quantity demanded of cotton by 20%.

A market in which there is one buyer is:

a monopsony.

Which of the following factors is key to a well-functioning market?

a right of individuals and firms to use and dispose of their private property as they see fit

If the opportunity cost of producing either of two goods is constant, the production possibility frontier is:

a straight line.

The demand curve for a monopoly is:

above the marginal revenue curve.

When economists discuss profit, they mean economic profit. Economic profit is obtained by subtracting which measure of cost from total revenue?

accounting costs and the best opportunity foregone

The income effect will play a greater role in a consumer's spending if the good:

accounts for a substantial share of the consumer's spending.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

If the cross elasticity of demand between cheese and yogurt is positive, then:

cheese and yogurt are substitutes.

A market where no single buyer or seller can influence the price is a:

competitive market.

Suppose the GoLogos logo monopoly is broken up. and the logo industry becomes perfectly competitive. We would expect _____ surplus to increase and _____ surplus to decrease after the breakup.

consumer and total; producer

A monopoly responds to a decrease in marginal cost by _____ price and _____ output.

decreasing; increasing

A Pigouvian subsidy is:

designed to encourage activities that generate external benefits.

An industry with a large number of relatively small firms producing _____ products in a market with easy entry and exit is _____.

differentiated; monopolistically competitive

The eventual increase in AVC as output increases is the _____ effect.

diminishing returns

Choices that maximize total utility generally produce demand curves that are:

downward sloping.

In a monopolistically competitive market, firms:

earn zero economic profits in the long run.

It is very easy for Evelyn to find inexpensive inputs for her business. Evelyn's supply is therefore likely to be:

elastic

The price elasticity of demand for snowboarding lessons at Jay Peak resort in Vermont is greater than 1. This means that the demand for snowboarding lessons is _____.

elastic

If the income elasticity of electric cars is positive:

electric cars are a normal good.

A Pigouvian tax is designed to reduce:

external costs.

If the price of a good exceeds the competitive equilibrium price, then:

firms produce more than the efficient quantity.

In industries characterized by a few firms that dominate the market, product differentiation is MOST likely to occur when firms:

have tacit agreements not to engage in price wars.

A perfectly elastic supply curve is:

horizontal

If the long-run market supply curve for a perfectly competitive market is upward sloping, then this industry exhibits _____ costs.

increasing

In the short run, fixed cost:

is constant.

The marginal social benefit of pollution:

is the benefit to society of one more unit of pollution.

Trade can be beneficial to an economy because:

it enables more goods and services to be obtained at a lower opportunity cost.

If the accounting profit of a firm is negative:

its economic profit must be negative.

The marginal cost curve intersects the average variable cost curve at:

its lowest point.

For a monopolistically competitive firm, marginal cost is _________ in long run equilibrium.

less than price

The _____ of a good or service is the additional benefit derived from producing one more unit of that good or service.

marginal benefit

If a tax system is designed to minimize the sum of the deadweight loss due to distorted incentives and the administrative costs of taxation, its principal goal is:

maximizing efficiency.

The profit-maximizing rule, MC = MR, is followed by firms operating in:

monopolistic competition, monopoly, and perfect competition.

When a market is in equilibrium, and there is no outside intervention to change the equilibrium price:

no mutually beneficial trades are missed.

For the Texas beef industry to be considered perfectly competitive, ranchers in Texas must have _____ on prices, and beef must be a _____ product.

no noticeable effect; standardized

A(n) ______ gives an inventor a temporary monopoly on the use or sale of an invention.

patent

When a market begins to engage in international trade:

producers in the exporting industry may be better off.

Advocates of trade barriers suggest that trade restrictions are needed for national security, job creation, and to:

protect new producers until they become more established.

To encourage consumption of a good that generates a positive externality, the BEST option for policymakers is to:

provide a subsidy to firms for each unit of the good consumed to achieve the socially optimal level of output.

The effect of product differentiation is to:

reduce the intensity of competition among firms in an oligopoly.

Brian and Luisa must pay an income tax. Both Brian and Luisa pay $10,000 in taxes each year, but Brian earns $200,000, and Luisa earns $100,000. From this information, you can infer that this tax is:

regressive.

An excise tax that the government collects from the producers of a good:

shifts the supply curve upward.

The larger the output, the more output over which the fixed cost is distributed. Called the _____ effect, this leads to a _____ average fixed cost as output rises.

spreading; lower

When firms in a particular industry informally agree to charge the same price as the largest firm in that industry, it is called:

tacit collusion.

When a monopolistically competitive firm earns zero economic profits, it produces at an output at which the average total cost curve is tangent to its demand curve. At this output:

the firm is maximizing profits, and marginal cost must equal marginal revenue.

Which factor does NOT determine the price elasticity of demand?

the slope of the supply curve

In economic analysis, at the optimal quantity of an activity:

the total benefit exceeds the total cost by the greatest amount, and marginal benefit equals marginal cost.

Tacit collusion is relatively easy for oligopolists if:

there are only a few firms in the industry.

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

The MAIN reason a monopoly engages in price discrimination is:

to increase its profits.

A demand curve that is perfectly inelastic is:

vertical

Along a straight-line downward-sloping demand curve, a decrease in the market price of a good:

will increase consumer surplus.