Microeconomics [Final Exam]

(Ch. 13 Notes - Understand) Adjustment from the Short Run to the Long Run (An Increase in Demand; Long-Run Market Supply)

(Repeat of other Ch. 13 Notes Card) Long-run Profit Maximization In the long run companies in perfect competition make $0 economic profit • If firms make economic profits, then rival firms will be attracted to the market. • The entry of new firms will expand supply and lower price until the economic profits are eliminated. • Economic losses will cause price searchers to exit from the market. • Demand for the remaining firms' output will rise until the losses have been eliminated. (c) (Visual Graph Example)Losses result in firms leaving the market. Price rises which eliminates losses for survivors. (d) (Visual Graph Example) Profits entice companies to enter the market. Price drops which eliminates profits.

(Ch. 5 Notes - Understand) Real-World Supply and Demand Applications

*Just practice applicational questions

(Ch. 17 Notes - Understand) The Derived Demand for Labor (Factors Influencing the Elasticity of Demand for Labor; Labor as a Factor of Production)

*refer to figure Factors Influencing the Elasticity of Demand for Labor Four factors that influence the elasticity of demand for labor are: • The elasticity of demand for the firm's good • The relative importance of labor in the production process •The possibility, and cost, of substitution in production •The degree to which the marginal productivity falls with an increase in labor Labor as a Factor of Production The traditional factors of production are land, labor, capital, and entrepreneurship The labor market includes labor and entrepreneurship Entrepreneurship refers to labor services that require high degrees of organizational skills, concern, oversight responsibility, and creativity Days of entrepreneurship can be equivalent to weeks and months of non-entrepreneurial labor

(Ch. 3 Notes - Understand) Economic Institutions in a Market Economy (Fig 3-1)

*refer to figures folder (Figure 3-1) In the Factor Market, households supply factors of production to business and are paid by business for doing so. In the Goods Market, businesses produce goods and services and sells them to households and government. All economic actions and policies have unintended consequences.

(Ch. 14 Notes - Understand) Barriers to Entry and Monopoly (Natural Ability; Natural Monopolies)

*refer to graph on pg. 67

Chapter 11a: Total Revenue

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Chapter 19: Rational Choice

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Chapter 1: What is Economics?

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Chapter 3: Economic Systems

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Chapter 5: Real-World Supply and Demand

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Chapter 6: Elasticity

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Chapter 7: Producer and Consumer Surplus

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Chapter 8: Positive Externality

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Chapter 9: Comparative Advantage

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Exam #1: Chapters 1, 3-5

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Exam #2: Chapters 19, 6, 7, 8, 9, 11a

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Chapter 4: Supply and Demand

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(Ch. 14 Notes - Understand) The Key Difference between a Monopolist and a Perfect Competitor

A Monopolist has few substitutes of its product, when a Perfect Competitor has many substitutes of their product. (Monopolist: rarely competition, Perfect Competitor: much competition). A Monopolist's goal is to maximize TOTAL profit, when a Perfect Competitor's goal is to match profit. A Monopoly is basically like a "brand name". (e.g. Kelloggs, Nabisco...)

(Ch. 9 Notes - Terminology) Currency Depreciation:

A change in the exchange rate so that one currency buys fewer units of a foreign currency.

(Ch. 9 Notes - Terminology) Currency Appreciation:

A change in the exchange rate so that one currency buys more units of a foreign currency.

(Ch. 15 Notes - Terminology) Cartel:

A combination of firms that acts as if it were a single firm.

(Ch. 4 Notes - Terminology) Equilibrium:

A concept in which opposing dynamic forces cancel each other out

(Ch. 17 Notes - Terminology) Derived Demand Curve for Labor:

A curve that shows the maximum amount of labor, measured in labor hours, that a firm will hire.

(Ch. 11a Notes - Terminology) Long-Run Decision:

A decision in which a firm chooses among all possible production techniques.

(Ch. 11a Notes - Terminology) Short-Run Decision:

A decision in which the firm is constrained in regard to what production decisions it can make.

(Ch. 13 Notes - Terminology) Price Taker:

A firm or individual who takes the price determined by supply and demand as given.

(Ch. 18 Notes - Terminology) Lorenz Curve:

A geometric representation of the share distribution of income among families in a given country at a given time.

(Ch. 8 Notes - Terminology) Public Good:

A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual. That is, a good that is nonexclusive and nonrival

(Ch. 5 Notes - Terminology) Price Ceiling:

A government-imposed limit on how high a price can be charged. In other words, a government-set price below the market equilibrium price

(Ch. 5 Notes - Terminology) Price Floor:

A government-imposed limit on how low a price can be charged. In other words, a government-set price above equilibrium price.

(Ch. 4 Notes - Terminology) Supply Curve:

A graphical representation of the relationship between price and quantity supplied

(Ch. 13 Notes - Terminology) Perfectly Competitive Market:

A market in which economic forces operate unimpeded.

(Ch. 14 Notes - Terminology) Monopolistic Competition:

A market structure in which many firms sell differentiated products; there are few barriers to entry.

(Ch. 14 Notes - Terminology) Monopoly:

A market structure in which one firm makes up the entire market.

(Ch. 15 Notes - Terminology) Oligopoly:

A market structure in which there are only a few firms and firms explicitly take other firms' likely response into account; there are often significant barriers to entry.

(Ch. 15 Notes - Terminology) Contestable Market Model:

A model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm's price and output decisions.

(Ch. 8 Notes - Understand) Public Goods (Introductory comments)

A public good is nonexclusive (non one can be excluded from its benefits) and nonrival (consumption by one does not preclude consumption by others). Many goods provided by the government have public good aspects to them. There are no pure public goods; national defense is the closest example. Once a pure public good is supplied to one individual, it is simultaneously supplied to all. If a good is public no one would want to produce it: Nonrivalness - no way to prevent someone frombenefitting from itNonexcludability - no way to bar someone from it if they don't pay Government can produce it because it can tax citizens to pay for it.

(Ch. 4 Notes - Terminology) Supply:

A schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant

(Ch. 4 Notes - Terminology) Demand:

A schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.

(Ch. 20 Notes - Terminology) Nash Equilibrium:

A set of strategies for each player in the game in which no player can improve his or her payoff by changing strategy unilaterally.

(Ch. 12 Notes - Terminology) Constant Returns to Scale:

A situation in which long-run average total costs do not change with an increase in output.

(Ch. 3 Notes - Terminology) Government Failure:

A situation in which the government intervention in the market to improve market failure actually makes the situation worse.

(Ch. 3 Notes - Terminology) Market Failure:

A situation in which the invisible hand pushes in such a way that individual decisions do not lead to social desirable outcomes.

(Ch. 4 Notes - Terminology) Quantity Demanded:

A specific amount that will be demanded per unit of time at a specific price, other things constant

(Ch. 4 Notes - Terminology) Quantity Supplied:

A specific amount that will be supplied, at a specific price, other things constant

(Ch. 20 Notes - Terminology) Payoff Matrix:

A table that shows the outcome of every choice by every player, given the possible choices of all other players.

(Ch. 15 Notes - Terminology) Implicit Collusion:

A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.

(Ch. 20 Notes - Terminology) Prisoner's Dilemma:

A well-known game that demonstrates the difficulty of cooperative behavior in certain circumstances.

(Ch. 7 Quiz) (Q5) Refer to the graph shown (refer to figure in folder). Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, the equilibrium price will change to: a. $7 b. $4 c. $5 d. $8

A. $7

(Ch. 1 Notes - Terminology) Marginal Benefit:

Additional benefit above the benefits already derived

(Ch. 1 Notes - Terminology) Marginal Cost

Additional cost over and above the costs already incurred

(Ch. 3 Notes - Terminology) Socialism:

An economic system based on individuals' goodwill toward others, not on their own self-interest, and in which in principle, society decides what, how, and for whom to produce.

(Ch. 3 Notes - Terminology) Capitalism:

An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.

(Ch. 8 Notes - Terminology) Externality:

An effect of a decision on a third party not taken into account by the decision maker.

(Ch. 14 Notes - Terminology) Natural Monopoly:

An industry in which a single firm can produce at a lower cost than can two or more firms. Also: An industry in which significant economies of scale make the existence of more than one firm inefficient.

(Ch. 15 Notes - Understand) The Distinguishing Characteristics of Oligopoly

An oligopoly is a market structure in which there are only a few firms and firms explicitly take other firms' likely response into account. • Made up of a small number of firms in an industryThis makes competition is personal (U.S. aluminum => 3 large producers; CPAs => "big 6"; autos => "big 3") • In any decision a firm makes, it must take into account the expected reaction of other firms•Companies can sell homogeneous or differentiated products-homogenous: steel, zinc, copper, aluminum, lead, cement, industrial alcohol-differentiated: automobiles, tires, household appliances, electronics equipment • Oligopolistic firms are mutually interdependent • Oligopolies can be collusive or noncollusive-collusion occurs whenever firms in an industry reach an agreement to fix prices, divide up the market, or otherwise restrict competition among themselves examples of collusions: OPEC, DeBeers • Firms may engage in strategic decision making where each firm takes explicit account of a rival's expected response to a decision it is making -can have 1. economies of scale (aircraft, rubber, cement) 2. control of raw materials (gold, silver, copper) 3. patents (electronics, chemicals, photographic equipment, office machines, pharmaceuticals)

(Ch. 15 Notes - Understand) Antitrust Policy (Judgment by Performance or Structure?)

Antitrust Policy: Judgment by Performance or Structure? Antitrust policy is the government's policy toward the competitive process There are two competing views of competition: Judgment by Performance: We should judge the competitiveness of markets by the performance (behavior) of the firms in the market Judgment by Structure: We should judge the competitiveness of markets by the structure of the industry Judging Markets by Structure or Performance: The Reality - Judging by structure is practical though seemingly unfair - If a firm is competing so successfully that all the other firms leave the industry, the successful firm will be a monopolist - Judging by performance, each action of a firm must be analyzed on a case-by-case basis, which is difficult to do - Structure and performance criteria have ambiguities; there are no definitive criteria for judging whether a firm has violated the antitrust statutes

(Ch. 11a Notes - Terminology) Law of Diminishing Marginal Productivity:

As more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.

(Ch. 19 Notes - Terminology) Principle of Diminishing Marginal Utility:

As you consume more of a good, after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed, other things equal

(Ch. 11b Quiz) (Q16) Fixed cost divided by quantity produced is called ____________________.

Average Fixed Cost

(Exam 3 Q1 [fill in the blank]) Fixed cost divided by quantity produced

Average Fixed Cost

(Ch. 3 Quiz) (Q5) An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists is known as __________.

Capitalism

(Ch. 14 Notes - Understand) Monopolistic Competition (Characteristics of Monopolistic Competition; Advertising and Monopolistic Competition; Output, Price, and Profit of a Monopolistic Competitor; Comparing Monopoly, Monopolistic Competition and Perfect Competition)

Characteristics of Monopolistic Competition: Four distinguishing characteristics: 1. Many sellers that do not take into account rivals' reactions 2. Product differentiation where the goods that are sold aren't homogenous 3. Multiple dimensions of competition make it harder to analyze a specific industry, but these methods of competition follow the same two decision rules as price competition 4. Ease of entry of new firms in the long run because there are no significant barriers to entry Advertising and Monopolistic Competition: Perfectly competitive firms have no incentive to advertise, but monopolistic competitors do (because product is most likely well-known because many substitutes) The goals of advertising are to increase demand and make demand more inelastic Output, Price, and Profit of a Monopolistic Competitor: Like a monopoly, • The monopolistic competitive firm has some monopoly power so the firm faces a downward sloping demand curve • Marginal revenue is below price • At profit maximizing output, marginal cost will be less than price • Like a perfect competitor, zero economic profits exist in the long run *refer to graph on pg. 71 Monopolistic competitive firms produce similar products (good substitutes) and therefore each firm confronts a highly elastic demand curve. This means that demand is downward-sloping for the firm - when demand slopes down then marginal revenue is less than price Comparing Monopoly, Monopolistic Competition and Perfect Competition: It is possible for the monopolist to make economic profit in the long run because of the existence of barriers to entry No long-run economic profit is possible in monopolistic competition because there are no significant barriers to entry For a monopolistic competitor in long-run equilibrium, (P = ATC) ≥ (MC = MR)

(Ch. 15 Notes - Understand) Classifying Industries and Markets in Practice (The North American Industry Classification System; Empirical Measures of Industry Structure)

Classifying Industries and Markets in Practice Important: An industry seldom fits neatly into one category or another. Think of these market structures as lying on a continuum. The North American Industry Classification System North American Industry Classification System (NAICS) is an industry classification system that categorizes industries by the type of economic activity and groups firms with like production processes Empirical Measures of Industry Structure The concentration ratio is the value of sales by the top firms of an industry stated as a percentage of total industry sales The Herfindahl-Hirschman index is the sum of the squared value of the individual market shares of all firms in the industry Because it squares market shares, the Herfindahl index gives more weight to firms with large market shares than does the concentration ratio measure Rules of thumb: HHI < 1,500 => competitive marketplace 1,500 < HHI < 2,500 => moderately concentrated marketplace HHI > 2,500 => highly concentrated marketplace

(Exam 1 Q2 [fill in the blank]) Products that are usually consumed jointly

Compliments

(Ch. 15 Quiz) (Q14) The value of sales by the top firms of an industry stated as a percentage of total industry sales is called the ____________________.

Concentration Ratio

(Ch. 13 Notes - Understand) Perfect Competition as a Reference Point (Conditions for Perfect Competition; Demand Curves for the Firm and the Industry)

Conditions for Perfect Competition A perfectly competitive market is a market in which economic forces operate unimpeded For a market to be perfectly competitive, three conditions must be met: 1. Both buyers and sellers are price takers - a price taker is a firm or individual who takes the price determined by market supply and demand as given 2. There are no barriers to entry - barriers to entry are social, political, or economic impediments that prevent firms from entering a market 3. Firms' products are identical - this requirement means that each firm's output is indistinguishable from any other firm's output Demand curve for an individual company in perfect competition is horizontal • Price takers produce identical products (for example, wheat, corn, soybeans) and because the firms are small relative to the market each must take the price established in the market.

(Ch. 7 Quiz) (Q7) ____________________ is the difference between what consumers would have been willing to pay and what they actually pay. Also, the value the consumer gets from buying a product less its price.

Consumer Surplus

(Ch. 3 Notes - Terminology) Private Property Right:

Control a private individual or firm has over an asset.

(Ch. 11b Notes - Terminology) Fixed Costs:

Costs that are spent and cannot be changed in the period of time under consideration.

(Ch. 11b Notes - Terminology) Variable Costs:

Costs that change as output changes.

(Ch. 9 Quiz) (Q7) A change in the exchange rate so that one currency buys fewer units of a foreign currency is called ____________________.

Currency Depreciation

(Ch. 17 Quiz) (Q13) The concept of ____________________ looks at the demand for factors of production by firms, which depends on consumers' demands.

Derived Demand

(Ch. 9 Notes - Understand) Determination of Exchange Rates and Trade (Introductory comments, Exchange Rates and Trade)

Determination of Exchange Rates and Trade Supply and Demand in Currency Markets - The exchange rate is the rate at which one country's currency can be traded for another's - People exchange currencies to buy goods or assets in othercountries - To demand one currency, you must supply another - If forces shift the supply and demand for a currency, the exchange-rate price will change - A currency depreciationis a change in the exchange rate so that one currency buys fewer units of a foreign currency - A currency appreciationis a change in the exchange rate so that one currency buys more units of a foreign currency Exchange Rates and Trade When a country's currency appreciates - Its goods become more expensive when sold abroad - Business firms that export their products sell fewer goodsWhen a country's currency depreciates -Its goods become cheaper when sold abroad - Business firms that export their products sell more unitsHow supply and demand determine exchange rates - If the supply of a currency increases -----The currency depreciates relative to other currencies- If the demand for a currency increases -----The currency appreciates relative to other currencies

(Ch. 17 Notes - Understand) Determination of Wages (Introductory comments;Fairness and the Labor Market)

Determination of Wages *refer to figure Supply and demand forces strongly influence wages, but they do not fully determine wages Real-world labor markets are filled with examples of individuals or firms who resist these supply and demand pressures: Labor unions Professional associations Agreements among employers Fairness and the Labor Market Social and political views of fairness play a role in wage determination Efficiency wages are wages paid above the going market wage to keep workers happy and productive Comparable worth laws mandate comparable pay for comparable work Living wage laws require employers to pay a worker a wage that would support a family of four at the poverty level

(Ch. 14 Notes - Understand) A Model of Monopoly (Determining the Monopolist's Price and Output Numerically; Determining Price and Output Graphically; An Example of Finding Output and Price; Profits and Monopoly)

Determining the Monopolist's Price and Output Numerically: The goal of the monopolistic firm is to maximize profits, the difference between total revenue and total cost The monopoly maximizes profit when marginal revenue equals marginal cost The profit-maximizing condition of a monopolistic firm is: MR = MC . For a monopolistic firm, MR < P A monopolistic firm maximizes total profit, not profit per unit -----If MR > MC , The monopoly can increase profit by increasing output -----If MR < MC, The monopoly can increase profit by decreasing its output Determining Price and Output Graphically *Refer to notes pg. 50-53 Notice the profit space (pg. 51), the no-profit-no-loss space (pg. 52), and the loss space cases (pg. 53) in the graphs.

(Ch. 17 Notes - Understand) Discrimination and the Labor Market (Three Types of Direct Demand-Side Discrimination; Institutional Discrimination)

Discrimination and the Labor Market The three types of demand-side discrimination are: • Discrimination based on individual characteristics that affects job performance ex. only allowing board-certified surgeons to practice at a hospital • Discrimination based on correctly perceived characteristics of the group ex. young workers may not have the life experience to lead a large multinational corporation • Discrimination based on individual characteristics that do not affect job performance or are incorrectly perceived ex. a qualified person who may be of an ethnicity the hiring manager does not like Institutional Discrimination (From a website) An employer cannot discriminate against a single person on the basis of his or her race, religion, national origin, gender expression, family status or age. Discrimination at work against an individual can be easy to discover and identify.

(Ch. 12 Quiz) (Q7) A situation when the long-run average total costs increase as output increases is known as ___________________.

Diseconomies of Scale

(Ch. 1 Notes - Understand) Economic Forces, Social Forces, and Political Forces(Economic and Market Forces; Social and Political Forces)

Economic Forces are the necessary reactions to scarcity. Market Forces are economic forces that are given relatively free rein by society to work through the market. Social Forces are necessary reactions to societal changes. Political Forces are necessary reactions to political changes.

(Ch. 11a Quiz) (Q7) ____________________ is explicit and implicit revenue minus explicit and implicit cost. Also, a return on entrepreneurship above and beyond normal profits.

Economic Profit

(Exam 2 Q4 [fill in the blank]) Explicit and implicit revenue minus explicit and implicit cost. Also, a return on entrepreneurship above and beyond normal profits.

Economic Profit

(Ch. 12 Quiz) (Q6) ____________________ refers to a situation when long-run average total costs decrease as output increases.

Economies of Scale

(Exam 3 Q2 [fill in the blank]) A situation when long-run average total costs decrease as output increases.

Economies of Scale

(Ch. 12 Notes - Understand) The Shape of the Long-Run Cost Curve (Economies of Scale; Diseconomies of Scale; Constant Returns to Scale; The Importance of Economies and Diseconomies of Scale; Envelope Relationship)

Economies of Scale Production exhibits economies of scale when long-run average total costs decrease as output increases -----These are shown by the downward sloping portion of the long-run average total cost curve An indivisible setup cost is the cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use -----The cost of a blast furnace or an oil refinery is an example of an indivisible setup cost -----Indivisible setup costs create many real-world economies of scale Diseconomies of Scale Production exhibits diseconomies of scale when long-run average total costs increase as output increases -----These are shown by the upward sloping portion of the long-run average total cost curve Diseconomies of scale usually, but not always, start occurring as firms get large Two reasons for diseconomies of scale are: 1. Increased monitoring costs (the costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do) 2. Loss of team spirit (the feelings of friendship and being part of a team that bring out people's best efforts) Constant Returns to Scale Firms experience constant returns to scale when long-run average total costs do not change as output increases Constant returns to scale are shown by the flat portion of the long-run average total cost curve Constant returns to scale occur when production techniques can be replicated again and again to increase output -----This occurs before monitoring costs rise and team spirit is lost The Importance of Economies and Diseconomies of Scale Here's the math that explains it all: Average Cost = Total Cost / Output If you double your inputs, your costs double. --> Economies of Scale = Output more than doubles = AC will fall --> Constant Economies of Scale = Output doubles exactly = AC will be constant --> Diseconomies of Scale = Output less than doubles = AC will rise Envelope Relationship Long-run costs are always less than or equal to short-run costs because: -----In the long run, all inputs are flexible -----In the short run, some inputs are fixed There is an envelope relationship between long-run and short-run average total costs. Each short-run cost curve touches the long-run cost curve at only one point. In the short run all expansion must proceed by increasing only the variable input -----This constraint increases cost Basically, a lot of SRATC's = 1 big LRATC

(Ch. 6 Quiz) (Q8) If the percentage change in quantity is greater than the percentage change in price (E > 1) then the demand or supply curve is said to be ____________________.

Elastic

(Ch. 6 Notes - Understand) Substitution and Elasticity (Substitution and Demand)

Elastic (E > 1) = close substitutes for the good are readily available, therefore, lower demand for that specific good Inelastic (E < 1) = few, if any, close substitutes are available, therefore, higher demand for that specific good

(Ch. 4 Notes - Understand) The Interaction of Supply and Demand (Equilibrium; The Graphical Interaction of Supply and Demand; Shifts in Supply and Demand)

Equilibrium is a concept in which opposing dynamic forces cancel each other out The Graphical Interaction of Supply and Demand: - Excess Supply (Surplus): quantity supplied is greater than quantity demanded - Excess Demand (Shortage): quantity demanded is greater than quantity supplied - Prices adjust and tend to rise when there is excess demand and fall when there is excess supply to reach an equilibrium Shifts in Supply and Demand - An increase in demand or a decrease in supply > Creates excess demand at the original equilibrium price > Excess demand increase price until a new higher equilibrium price is reached > Shifts in either supply or demand change equilibrium price - A decrease in demand or an increase in supply > Creates excess supply at the original equilibrium price > Excess supply decreases price until a new lower equilibrium price is reached

(Ch. 9 Quiz) (Q8) The ____________________ is the price of one country's currency in terms of another currency.

Exchange Rate

(Ch. 11a Notes - Terminology) Economic Profit:

Explicit and implicit revenue minus explicit and implicit cost. Also, a return on entrepreneurship above and beyond normal profits.

(Ch. 8 Notes - Understand) Externalities (Effects of Positive and Negative Externalities)

Externalities are effects of Market Failure. Externalities are the effects of a decision on a third party that are not taken into account by the decision-maker. Negative Externalities occur when the effects are detrimental to others (ex. second-hand smoke and carbon dioxide emissions). Positive Externalities occur when the effects are beneficial to others (ex. education, flowers on your law). When there is a negative externality, the marginal private cost will be below the marginal social cost and the competitive price will be too low to maximize social welfare. When there is a positive externality, the marginal social benefit will be above the marginal private benefit and the market price will be too low to maximize social welfare

(Ch. 11b Quiz) (Q15) ____________________ are costs that are spent and cannot be changed in the period of time under consideration.

Fixed Costs

(Ch. 11b Notes - Terminology) Average Fixed Cost:

Fixed cost divided by quantity produced.

(Ch. 20 Notes - Terminology) Game Theory:

Formal economic reasoning applied to situations in which decisions are interdependent.

(Ch. 9 Notes - Understand) The Principle of Comparative Advantage (The Gains from Trade

Gains From Trade The principle ofcomparative advantageis that as long as the relativeopportunity costs of producing goods differ among countries, then there are potential gains from trade.Opportunity cost is what must be given up in one good in order to get another good.

(Ch. 20 Quiz) (Q10) ____________________ refers to formal economic reasoning applied to situations in which decisions are interdependent.

Game Theory

(Ch. 5 Notes - Understand) Government Intervention: Excise Taxes and Tariffs

Gov't Intervention: Excise Taxes: - Gov't impacts markets through taxation - An Excise Tax is a tax that is levied on a specific good - A tariff is an excise tax on an imported good - The result of taxes and tariffs is an increase in equilibrium quantities

(Ch. 5 Notes - Understand) Government Intervention: Price Ceilings and Price Floors (Price Ceilings; Price Floors)

Gov't Intervention: Price Ceilings: - When a gov't wants to hold prices down to favor buyers, it imposes a price ceiling - A Price Ceiling is a gov't -imposed limit on how high a price can be charged - Price ceilings create Shortages - Price ceilings below equilibrium price will have an effect on the market - With price ceilings, existing goods are no longer rationed entirely by price so other methods of rationing arise Price Floors: - When a gov't wants to prevent price from falling below a certain level to favor suppliers, it imposes a price floor - A Price Floor is a gov't -imposed limit on how low a price can be charged - Price floors create excess supply - Price floors above equilibrium price will have an effect on the market

(Ch. 3 Quiz) (Q7) A situation in which the government intervention in the market to improve market failure actually makes the situation worse is called __________.

Government Failure

(Exam 1 Q1 [fill in the blank]) A situation in which the government intervention in the market to improve market failure actually makes the situation worse

Government Failure

(Ch. 1 Notes - Terminology) Economic Decision Rule:

If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.

(Ch. 15 Quiz) (Q13) ____________________ is a type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.

Implicit Collusion

(Exam 1 Q4 [fill in the blank]) The way the burden of a tax is distributed among economic units (consumers, producers, employees, employers, and so on)

Incident of the Tax

(Ch. 19 Quiz) (Q3) The idea that says that the reduction in quantity demanded is because price increases make us poorer is known as the __________.

Income Effect

(Ch. 6 Quiz) (Q10) The ____________________ is computed by the percentage change in demand divided by the percentage change in income.

Income Elasticity of Demand

(Ch. 6 Notes - Understand) Income and Cross-Price Elasticity (Income Elasticity of Demand; Cross-Price Elasticity of Demand)

Income Elasticity of Demand: measures the responsiveness of demand to changes in incomeE(income) = (%change Demand) / (%change Income) Normal goods are those whose consumption increases with an increase in income Necessity: 0 < E(income) < 1Luxury: E(income) > 1 Inferior goods are those whose consumption decreases with an increase in income, E(income) < 0 Cross-Price Elasticity of Demand: measures the responsiveness of demand to changes in prices of other goods E(cross-price) = (%change in Demand) / (%change in Price of related good) Substitutes are goods that can be used in place of another, E(cross-price) > 1 Complements are goods that are used conjunction with other goods, E(cross-price) < 1

(Exam 2 Q2 [fill in the blank]) A demand or supply curve where the percentage change in quantity is less than the percentage change in price (E < 1).

Inelastic

(Ch. 11a Quiz) (Q10) The idea that as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall is called the ____________________.

Law of Diminishing Marginal Productivity

(Exam 2 Q5 [fill in the blank]) The idea that as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.

Law of Diminishing Marginal Productivity

(Ch. 17 Notes - Terminology) Comparable Worth Laws:

Laws mandating comparable pay for comparable work.

(Ch. 11a Quiz) (Q8) A decision in which a firm chooses among all possible production techniques is a(n) ____________________.

Long-Run Decision

(Ch. 18 Quiz) (Q3) A(n) ____________________ is a geometric representation of the share distribution of income among families in a given country at a given time.

Lorenz Curve

(Ch. 13 Notes - Terminology) Profit-Maximizing Condition:

MR = MC = P

(Ch. 1 Quiz) (Q3)__________ is the additional cost over and above the costs already incurred.

Marginal Cost

(Exam 1 Q7 [fill in the blank]) The additional cost over and above the costs already incurred

Marginal Costs

(Ch. 1 Notes - Understand) A Guide to Economic Reasoning (Marginal Costs and Marginal Benefits; The Economic Decision Rule; Opportunity Cost)

Marginal Costs are additional costs over and above the costs already incurred. Marginal Benefit is the additional benefit above the benefits already derived. The Economic Decision Rule is if the marginal benefits of doing something exceed the marginal costs, do it (MB>MC= DO IT!, MB<MC= DON'T DO IT). Opportunity Cost is the highest valued activity sacrificed in making a choice.

(Ch. 11a Quiz) (Q9) ____________________ is the additional output that will be forthcoming from an additional worker, other inputs constant.

Marginal Product

(Ch. 13 Quiz) (Q9) ____________________ is the change in total revenue associated with a change in quantity.

Marginal Revenue

(Exam 3 Q4 [fill in the blank]) The change in total revenue associated with a change in quantity.

Marginal Revenue

(Ch. 17 Quiz) (Q14) ____________________ refers to the marginal revenue a firm expects to earn from selling an additional worker's output.

Marginal Revenue Product

(Ch. 8 Quiz) (Q4) The marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good is known as ____________________.

Marginal Social Benefit

(Exam 2 Q3 [fill in the blank]) The marginal private costs of production plus the cost of the negative externalities associated with that production.

Marginal Social Cost

(Ch. 19 Quiz) (Q2) __________ is the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point.

Marginal Utility

(Exam 2 Q1 [fill in the blank]) The satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point.

Marginal Utility

(Ch. 3 Quiz) (Q6) __________ is a situation in which the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes.

Market Failure

(Ch. 15 Notes - Understand) Models of Oligopoly Behavior (The Cartel Model; The Contestable Market Model; Comparison of the Contestable Market Model and the Cartel Model)

Models of Oligopoly Behavior There is no single model of oligopoly behavior An oligopoly model can take two extremes: • The Cartel Model is when a combination of firms that acts as if it were a single firm • The Contestable Market Model is a model of oligopoly in which barriers to entry and exit, not market structure, determine price and output decisionsBasic Dilemma... if a cartel is successful in raising prices then the higher price encourages: 1. Existing companies to cheat and produce more secretly to maximize revenue, and 2. New companies to enter the marketBoth of these put downward pressure on price, threatening the cohesion of the cartel The Cartel Model A cartel is a combination of firms that acts as if it were a single firm; a cartel is a shared monopoly If oligopolies can limit the entry of other firms, they can restrict profit to a level that maximizes profits for the cartel Output quotas are assigned to individual member firms so that total output is consistent with joint profit maximization Each member must hold its production below what would be in its own interest were it not to collude with the others The Contestable Market Model The contestable market model is a model of oligopoly in which companies use pricing to create barriers to entry. Even if the industry contains only one firm, it will set a competitive price if there are no barriers to entry. Comparing Contestable Market and Cartel Models The cartel model is appropriate for oligopolists that collude, set a monopoly price, and prevent market entry The contestable market model describes oligopolies that set a competitive price and have no barriers to entry Oligopoly markets lie between these two extremes Both models use strategic pricing decisions where firms set their price based on the expected reactions of other firms

(Ch. 14 Quiz) (Q10) A market structure in which many firms sell differentiated products is called ____________________; there are few barriers to entry.

Monopolistic Competition

(Exam 3 Q5 [fill in the blank]) Vocab quest 5: A market structure in which many firms sell differentiated products. It has few barriers to entry.

Monopolistic Competition

(Ch. 14 Quiz) (Q8) A(n) ____________________ is a market structure in which one firm makes up the entire market.

Monopoly

(Ch. 8 Quiz) (Q3) A(n) ____________________ refers to the adverse effect of a decision on others not taken into account by the decision maker. It occurs when the effects of a decision not taken into account by the decision maker are detrimental to others.

Negative Externality

(Ch. 1 Notes - Understand) Economic Policy Options (Objective Policy Analysis; Policy and Social and Political Forces)

Objective Policy Analysis is the analyzation of the objectives of policies of an institution. Policy, Social, and Political Forces.

(Ch. 15 Quiz) (Q11) A(n) ____________________ is a market structure in which there are only a few firms and firms explicitly take other firms' likely response into account; there are often significant barriers to entry.

Oligopoly

(Ch. 1 Quiz) (Q4) The benefit you might have gained from choosing the next-best alternative is known as the __________.

Opportunity Cost

(Ch. 11a Notes - Terminology) Average Product:

Output per worker.

(Ch. 20 Quiz) (Q2) A table that shows the outcome of every choice by every player, given the possible choices of all other players is called a(n) ____________________.

Payoff Matrix

(Ch. 13 Quiz) (Q8) A market in which economic forces operate unimpeded is called a(n) ____________________.

Perfectly Competitive Market

(Ch. 6 Quiz) (Q9) In a case where quantity does not respond at all to changes in price (E = 0) we call the demand or supply curve ____________________.

Perfectly Inelastic

(Ch. 1 Quiz) (Q5) __________ is the study of what is and how the economy works.

Positive Economics

(Ch. 18 Quiz) (Q4) The income below which a family is considered to live in poverty is called the ____________________.

Poverty Threshold

(Ch. 5 Quiz) (Q4) A government-set price below the market equilibrium price is called a(n) __________. In other words, a government-imposed limit on how high a price can be charged.

Price Ceiling

(Exam 1 Q3 [fill in the blank]) A legally established maximum price sellers can charge for a good or resource

Price Ceilings

(Ch. 6 Quiz) (Q7) The ____________________ is the percentage change in quantity demanded divided by the percentage change in price.

Price Elasticity of Demand

(Ch. 5 Quiz) (Q6) A(n) __________ is a government-imposed limit on how low a price can be charged.

Price Floor

(Exam 3 Q3 [fill in the blank]) A firm or individual who takes the price determined by supply and demand as given.

Price Taker

(Ch. 7 Notes - Terminology) Producer Surplus:

Price the producer sells a product for less the cost of producing it.

(Ch. 14 Quiz) (Q9) To ____________________ is to charge different prices to different individuals or groups of individuals.

Price-Discriminate

(Ch. 3 Quiz) (Q4) __________ refers to the control a private individual or firm has over an asset.

Private Property Right

(Ch. 7 Quiz) (Q8) The ____________________ is the price the producer sells a product for less the cost of producing it.

Producer Surplus

(Ch. 7 Notes - Understand) Producer and Consumer Surplus

Producer Surplus is the price the producer sells a product for less the cost of producing it.It is the area above the supply curve but below the price the producer receives. It is the difference between the price and suppliers actually receive and the minimum price they would be willing to accept. It is NOT the same as profit. Consumer Surplus is the value the consumer gets from buying a product, less its price. It is the area below the demand curve and above the price the buyer pays. It is the difference between the maximum price consumers are willing to pay and the price they actually pay. It is the net gain derived by the buyers of the good. To find area of Consumer or Producer Surplus (it is a triangle), do (Area = 1/2 x base x height). The combination of producer and consumer surplus is maximized at market equilibrium.

(Ch. 13 Notes - Understand) The Profit-Maximizing Level of Output (Marginal Revenue; Marginal Cost; Profit Maximization: MC = MR; The Marginal Cost Curve Is the Supply Curve)

Profit Maximizing Level of Output > A firm maximizes profit when marginal revenue equals marginal cost > Marginal revenue (MR) is the change in total revenue associated with a change in quantity > Marginal cost (MC) is the change in total cost associated with a change in quantity > The profit-maximizing condition of a competitive firm is: MC = MR > For a competitive firm, MR = P A firm maximizes total profit, not profit per unit -----If MR > MC, a firm can increase profit by increasing output. -----If MR < MC, a firm can increase profit by decreasing its output. The Marginal Cost Curve Is the Supply Curve

(Ch. 13 Quiz) (Q10) The equation MR = MC = P is called the ____________________.

Profit-Maximizing Condition

Ch. 8 Quiz) (Q5) A(n) ____________________ is a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual. That is, a good that is nonexclusive and nonrival.

Public Good

(Ch. 4 Quiz) (Q7) __________ is a specific amount that will be demanded per unit of time at a specific price, other things constant.

Quantity Demanded

(Ch. 4 Notes - Terminology) Law of Demand:

Quantity demanded rises as price falls, other things constant. Also can be stated as: quantity demanded falls as price rises, other things constant

(Ch. 6 Notes - Terminology) Perfectly Inelastic:

Quantity does not respond at all to changes in price (E = 0).

(Ch. 6 Notes - Terminology) Perfectly Elastic:

Quantity responds enormously to changes in price (E = ∞).

(Ch. 4 Notes - Terminology) Law of Supply:

Quantity supplied rises as price rises, other things constant. Also can be stated as: quantity supplied falls as price falls, other things constant

(Ch. 19 Notes - Understand) Rational Choice and the Laws of Demand and Supply (The Law of Demand; Income and Substitution Effects)

Rational Choice and the Law of Demand: - When the price of a good goes up, the marginal utility per dollar (MU/$) from it goes down, and we consume less of it and its marginal utility increases - Quantity demanded falls as price rises - When the price of a good decreases, the MU/$ increases, and we consume more of it and its marginal utility decreases - Quantity demanded increases as price falls Income and Substitution Effects: The inverse relationship between price and quantity demanded is due to the income and substitution effects: 1. if price of A rises => buy less of A: a. substitution effect (A more expensive compared to other similar products) b. income effect (can't afford to buy as much A) 2. if price of A falls => buy more of A: a. substitution effect (A less expensivecompared to other similar products) b. income effect (A more affordable)

(Exam 1 Q5 [fill in the blank]) Fundamental concept of economics that indicates that there is less of a good freely available from nature than people would like

Scarcity

(Ch. 1 Notes - Understand) What economics is (scarcity)

Scarcity has two parts, limited wants and unlimited wants. Scarcity means the goods available are too few to satisfy individuals' desires. Scarcity means we have to allocate a limited supply of a good or resource among people.

(Ch. 4 Quiz) (Q8) The graphical representation of the effect of anything other than price on demand is called a(n) __________.

Shift in Demand

(Ch. 13 Notes - Understand) Total Profit at the Profit-Maximizing Level of Output (Determining Profit from a Table of Costs and Revenue; Determining Profit from a Graph; The Shutdown Point; Short-Run Market Supply and Demand; Long-Run Competitive Equilibrium: Zero Profit)

Shutdown Case: if the firm is making a loss, will it shut down in the short run? -----a competitive firm will maximize profit or minimize loss in the short run by producing that output at which MR = MC, provided that market price exceeds minimum average variable cost. Two questions: 1. where if profit maximizing (loss minimizing) output? -----where MR=MC 2. if suffer loss at that level of output, should we shut down? -----shut down if price < AVC -----else, continue producing and leave industry in the long run example: price is $10 and MR=MC at 20 units Long-run Profit Maximization In the long run companies in perfect competition make $0 economic profit • If firms make economic profits, then rival firms will be attracted to the market. • The entry of new firms will expand supply and lower price until the economic profits are eliminated. • Economic losses will cause price searchers to exit from the market. • Demand for the remaining firms' output will rise until the losses have been eliminated. (c) (Visual Graph Example)Losses result in firms leaving the market. Price rises which eliminates losses for survivors. (d) (Visual Graph Example) Profits entice companies to enter the market. Price drops which eliminates profits.

(Ch. 12 Notes - Terminology) Economies of Scale:

Situation when long-run average total costs decrease as output increases.

(Ch. 4 Notes - Terminology) Excess Demand (Shortage):

Situation when quantity demanded is greater than quantity supplied

(Ch. 4 Notes - Terminology) Excess Supply (Surplus):

Situation when quantity supplied is greater than quantity demanded

(Ch. 12 Notes - Terminology) Diseconomies of Scale:

Situation when the long-run average total costs increase as output increases.

(Ch. 3 Notes - Understand) Roles of Government (Specific Roles for Government; Market Failures and Government Failures)

Six Roles of a Government in a Market: 1. Providing a stable set of institutions and rules (ex. courts, regulations, laws) 2. Promoting effective and workable competition (ex. antitrust laws and regulations) 3. Correcting for externalities (ex. pollution controls) 4. Ensuring economic stability and growth (ex. macroeconomic policy) 5. Providing public goods (ex. national defense, interstate highway system) 6. Adjusting for undesirable market results (ex. protection against unsafe products). Market Failures are situations in which the market does not lead to a desire result (ex. desire for profits incentivizes companies to cut cost by not disposing of pollutants property) Government Failures are situation in which the government intervenes and makes things worse (ex. overregulation stifles entrepreneurial creativity) Policy makers must decide which failure is the least problematic, a market or government failure.

(Ch. 13 Notes - Terminology) Barriers to Entry:

Social, political, or economic impediments that prevent firms from entering a market.

(Ch. 9 Notes - Understand) Sources of U.S. Comparative Advantage (Introductory comments)

Sources of U.S. Comparative Advantage The US is good at some things because of: - U.S. physical and technological infrastructure is the best in the world - Wealth from past production and borrowing allows the U.S. to be the world's largest consumer - U.S. companies and individuals hold a large number of intellectual property rights - The U.S. has a relative open immigration policy

(Ch. 4 Quiz) (Q6) A graphical representation of the relationship between price and quantity supplied is called the __________.

Supply Curve

(Ch. 15 Notes - Terminology) Strategic Decision Making:

Taking explicit account of a rival's expected response to a decision you are making.

(Ch. 1 Notes - Understand) Using Economic Insights (The Invisible Hand Theorem)

The Invisible Hand Theorem is the price mechanism that guides our actions in a market. the invisible hand is an example of a market force. If there is a SHORTAGE, prices RISE. If there is a SURPLUS, prices FALL. According to the invisible hand theory, a market economy, through the price mechanism, will allocate resources efficiently: Price has a tendency to FALL when quantity supplied is GREATER than quantity demanded, and price has a tendency to RISE when the quantity demanded is GREATER than the quantity supplied

(Ch. 4 Notes - Understand) Demand(The Law of Demand; The Demand Curve; Shifts in Demand versus Movements along a Demand Curve; Some Shift Factorsof Demand; The Demand Table; From a Demand Table to a Demand Curve; Individual and Market Demand Curves)

The Law of Demand states that the quantity of a good demanded is inversely related to the good's price The Demand Curve is the graphic representation of the relationship between price and quantity demanded; a set of hypothetical "What If's" Shifts in Demand are factors listed below that cause the shift when Movements Along a Demand Curve are caused by a change in price Some Shift Factors of Demand include: - Income - The prices of other goods - Tastes - Expectations - Taxes and subsides The Demand Table shows a numerical version of what a Demand Curve shows From a Demand Table to a Demand Curve Individual and Market Demand Curves: A Market Demand Curve is a horizontal sum of the Individual Demand Curves

(Exam 1 Q6 [fill in the blank]) The concept that quantity supplied rises as price rises, other things constant (also can be stated as: quantity supplied falls as price falls, other things constant)

The Law of Supply

(Ch. 4 Notes - Understand) Supply(The Law of Supply; The Supply Curve; Shifts in Supply versus Movements along a Supply Curve; Shift Factors of Supply;The Supply Table; From a Supply Table to a Supply Curve; Individual and Market Supply Curves)

The Law of Supply states that the quantity of a good supplied is directly related to the good's price The Supply Curve is the graphic representation of the relationship between price and quantity supplied; a set of hypothetical "What If's" Shifts in Supply are factors listed below that cause the shift when Movements Along a Supply Curve are caused by a change in price Some Shift Factors of Supply: - Price of Inputs - Technology - Expectations - Taxes and subsides The Supply Table is a numerical version of what a Supply Curve shows from a Supply Table to a Supply Curve Individual and Market Supply Curves: A Market Supply Curve is a horizontal sum of the Individual Supply Curves

(Ch. 14 Notes - Understand) Welfare Loss From Monopoly(The Price-Discriminating Monopolist)

The Price-Discriminating Monopolist When a monopolist price discriminates, it charges different prices to different individuals or groups of individuals -----Consumers with less elastic demands are charged higher prices. -----Consumers with more elastic demands are charged lower prices Price discrimination increases output and profits *refer to graph on pg. 63

(Ch. 20 Notes - Understand) Game Theory and the Economic Way of Thinking (The Prisoner's Dilemma; Dominant Strategies and Nash Equilibrium)

The Prisoner's Dilemma The Prisoner's Dilemma is a well-known two-person game that demonstrates the difficulty of cooperative behavior in certain circumstances ex. Two criminals are brought and interrogated separately. The police know they committed a serious crime that can carry up to 10 years in prison. If neither of them confesses, the police have only enough evidence to charge each with a minor crime for which they serve 6 months. If they confess the police have the evidence to prosecute them for the serious crime. The police make the following offer to each: "If both you and the other prisoner confess, instead of being sentenced to the maximum 10 years in prison, the two of you will each serve only 5 years in jail." "If you confess but the other prisoner doesn't confess, in exchange for your serving as a witness for the prosecution, we will drop all charges and you will be set free. If, however, you don't confess and the other does, you will be sentenced to the maximum 10 years in prison. If neither confesses, both will be charged with the lesser felony and serve 6 months." The options are laid out in the payoff matrix which is a table that shows the outcome of every choice by every player, given the possible choices of all other players The payoff matrix has three elements: - Players - Strategies - Payoffs Dominant Strategies and Nash Equilibrium A Dominant Strategy is a strategy that is preferred by a player regardless of the opponent's move A Nash Equilibrium is a set of strategies for each player in the game in which no player can improve his or her payoff by changing strategy unilaterally A Nash Equilibrium doesn't have to be the solution that is jointly best for all players

(Ch. 11a Notes - Understand) The Production Process (The Long Run and the Short Run; Production Tables and Production Functions; The Law of Diminishing Marginal Productivity)

The Production Process Firms use inputs to create a product -land (natural resources) -labor (human resources) -capital (tools and machines) -entrepreneurship (the vision and ability to carry it out) In economic jargon, Q = f(K, L) Q = output"f" means "function of", or "depends on" K = capital input L = labor input The Long Run and the Short Run Short Run: A firm is constrained in regard to what production decisions it can make; Some inputs are fixed Long Run: A firm chooses from all possible production techniques; All inputs are variable The terms long run and short run do not necessarily refer to specific periods of time, but to the flexibility the firm has in changing its inputs Production Tables and Production Functions (refer to figures in folder) The Law of Diminishing Marginal Productivity (refer to figure in folder

(Ch. 11a Notes - Understand) The Role of the Firm (Firms Maximize Profit; The Difference between Economists' Profits and Accountants' Profits)

The Role of the Firm - A firm is an economic institution that transforms factors of production into goods and services - The goal of a firm is to maximize profits Note: This is the predominant secular view Profit = Total revenue - Total cost The Difference between Economists' Profits and Accountants' Profits - Accountants focus on explicit costs and revenues Accounting profit = explicit revenue - explicit cost - Economists focus on both explicit and implicit costs and revenue Economic profit = (explicit + implicit revenue) - (explicit + implicit cost)

(Ch. 11b Notes - Understand) Graphing Cost Curves (Total Cost Curves; Average and Marginal Cost Curves)

The Shapes of Cost Curves The variable and total cost curves are upward sloping -----Increasing output increases VC and TC The fixed cost curve is always constant -----Increasing output does not change FC The average fixed cost curve is downward sloping -----Increasing output decreases AFC The marginal cost, average variable cost, and average total cost curves are U-shaped -----Increasing output initially leads to a decrease in MC, AVC, and ATC but eventually they increase Reasons for the Shapes of the Average Cost Curves The U-shape of ATC and AVC curves is due to: -----When output is increased in the short run, it can only be done by increasing the variable input -----The law of diminishing productivity causes marginal and average productivities to fall -----As average and marginal productivities fall, average and marginal costs rise The marginal cost curve goes through the minimum points of the ATC and AVC curves Note: MC always crosses ATC and AVC at its minimum point. The Relationship Between Marginal Cost and Average Cost If MC > ATC, then ATC is rising If MC > AVC, then AVC is rising If MC < ATC, then ATC is falling If MC < AVC, then AVC is falling If MC = AVC and MC = ATC, then AVC and ATC are at their minimum points *Graph/visual on pg.122

(Ch. 3 Notes - Understand) Economic Systems (How Markets Work; What's Good about the Market?; Capitalism and Socialism)

The U.S. economy is a market economy, which is an economic system based on (a) private property and (b) the markets in which, in principle, individuals decide: (1) how, (2) what, and (3) for whom to produce. Markets work through a system of rewards and payments.Individuals are free to do whatever they want as long as it is legal. Fluctuations in prices play a central role in coordinating individuals' wants in a market economy. Capitalism is an economic system based on the market in which the ownership of the means of production resides with a small group of individuals (called capitalists). Socialism is an economic system based on individuals' goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce. Socialism is where all people contribute what they can and get what they need and is based on government ownership of the means of production with economic activity governed by central planning.

(Ch. 11a Notes - Terminology) Marginal Product:

The additional output that will be forthcoming from an additional worker, other inputs constant.

(Ch. 17 Notes - Terminology) Marginal Physical Product (MPP):

The additional units of output that hiring an additional worker will bring about.

(Ch. 8 Notes - Terminology) Negative Externality:

The adverse effect of a decision on others not taken into account by the decision maker. When the effects of a decision not taken into account by the decision maker are detrimental to others.

(Ch. 11a Notes - Terminology) Total Revenue:

The amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.

(Ch. 4 Notes - Terminology) Equilibrium Quantity:

The amount bought and sold at the equilibrium price

(Ch. 13 Notes - Terminology) Normal Profit:

The amount the owners of business would have received in the next-best alternative. Also: Payments to entrepreneurs as the return on their risk taking.

(Ch. 1 Notes - Terminology) Opportunity Cost:

The benefit you might have gained from choosing the next-best alternative

(Ch. 13 Notes - Terminology) Marginal Revenue (MR):

The change in total revenue associated with a change in quantity.

(Ch. 11b Notes - Understand) The Costs of Production (Fixed Costs, Variable Costs, and Total Costs; Average Costs; Marginal Cost)

The costs of fixed inputs (mortgage, insurance, security camera, etc.) are called fixed costs. The costs of variable inputs (food, labor, natural gas for the stove, etc.) are called variable costs. *Costs of Production Table pg. 119 on notes w/ graph Total Cost: sum of all costs Average Cost: average of all costs Marginal Cost: the current cost - the past cost; difference of current to past cost

(Ch. 17 Notes - Terminology) Derived Demand:

The demand for factors of production by firms, which depends on consumers' demands.

(Ch. 7 Notes - Terminology) Consumer Surplus:

The difference between what consumers would have been willing to pay and what they actually pay. Also, the value the consumer gets from buying a product less its price.

(Ch. 6 Notes - Understand) Elasticity, Total Revenue, and Demand (Total Revenue along a Demand Curve)

The elasticity of demand tells suppliers how theirtotal revenue will change if their price changes. Total revenue is price multiplied by quantity,TR = (P)(Q)If ED > 1, an increase in price decreases totalrevenue. (Price and total revenue move inopposite directions.) If ED = 1, an increase in price leaves total revenueunchanged. If ED < 1, an increase in price increases totalrevenue. (Price and total revenue move in thesame direction.) Total Revenue (TR): The total amount the seller receives from the sale of a product. Equals price times quantity (P x Q). Elastic (ED >1): TR decreases & TR increases Unit Elastic (ED = 1): TR constant & TR constantInelastic (ED < 1): TR increases & TR decreasesDeterminants of Price Elasticity of Demand: 1. substitutability-the greater the availability of substitutes, the higher the price elasticityof demand 2. proportion of income spent of product-demand for big ticket items tends to be elastic 3. luxuries vs. necessities-demand for necessities is relatively inelastic-demand for luxury goods is relatively elastic 4. time-more time to find substitutes causes elasticity to rise

(Ch. 11a Notes - Terminology) Total Cost:

The explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm.

(Ch. 1 Notes - Terminology) Scarcity:

The goods available are too few to satisfy individuals' desires

(Ch. 15 Notes - Terminology) Antitrust Policy:

The government's policy toward the competitive process.

(Ch. 4 Notes - Terminology) Shift in Supply:

The graphical representation of the effect of a change in a factor other than price on supply

(Ch. 4 Notes - Terminology) Movement Along a Demand Curve:

The graphical representation of the effect of a change in price on the quantity demanded

(Ch. 4 Notes - Terminology) Movement Along a Supply Curve:

The graphical representation of the effect of a change in price on the quantity supplied

(Ch. 4 Notes - Terminology) Shift in Demand:

The graphical representation of the effect of anything other than price on demand

(Ch. 4 Notes - Terminology) Demand Curve:

The graphical representation of the relationship between price and quantity demanded

(Ch. 18 Notes - Terminology) Poverty Threshold:

The income below which a family is considered to live in poverty.

(Ch. 7 Notes - Terminology) Deadweight Loss:

The loss of consumer and producer surplus from a tax.

(Ch. 8 Notes - Terminology) Marginal Social Benefit

The marginal private benefit of consuming a good plus the benefits of the positive externalities resulting fromconsuming that good.

(Ch. 8 Notes - Terminology) Marginal Social Cost:

The marginal private costs of production plus the cost of the negative externalities associated with that production.

(Ch. 17 Notes - Terminology) Marginal Revenue Product (MRP):

The marginal revenue a firm expects to earn from selling an additional worker's output.

(Ch. 6 Notes - Terminology) Income Elasticity of Demand:

The percentage change in demand divided by the percentage change in income.

(Ch. 6 Notes - Terminology) Cross-Price Elasticity of Demand:

The percentage change in demand divided by the percentage change in the price of a related good.

(Ch. 6 Notes - Terminology) Price Elasticity of Demand:

The percentage change in quantity demanded divided by the percentage change in price.

(Ch. 6 Notes - Terminology) Unit Elastic:

The percentage change in quantity is equal to the percentage change in price (E = 1).

(Ch. 6 Notes - Terminology) Elastic:

The percentage change in quantity is greater than the percentage change in price (E > 1).

(Ch. 6 Notes - Terminology) Inelastic:

The percentage change in quantity is less than the percentage change in price (E < 1).

(Ch. 6 Notes - Terminology) Price Elasticity of Supply:

The percentage change in quantity supplied divided by the percentage change in price

(Ch. 19 Notes - Terminology) Utility:

The pleasure or satisfaction that one expects to get from consuming a good or service

(Ch. 13 Notes - Terminology) Shutdown Point:

The point below which the firm will be better off if it temporarily shuts down than it will if it stays in business.

(Ch. 1 Notes - Terminology) Invisible Hand:

The price mechanism; the rise and fall of prices that guide our actions in a market

(Ch. 9 Notes - Terminology) Exchange Rate:

The price of one country's currency in terms of another currency.

(Ch. 4 Notes - Terminology) Equilibrium Price:

The price toward which the invisible hand drives the market

(Ch. 19 Notes - Terminology) Income Effect:

The reduction in quantity demanded because price increases make us poorer

(Ch. 19 Notes - Terminology) Substitution Effect:

The reduction in quantity demanded because relative price has risen

(Ch. 19 Notes - Terminology) Marginal Utility:

The satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point

(Ch. 1 Notes - Terminology) Economics:

The study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society

(Ch. 1 Notes - Terminology) Positive Economics:

The study of what is and how the economy works

(Ch. 1 Notes - Terminology) Normative Economics:

The study of what the goals of the economy should be

(Ch. 19 Notes - Terminology) Total Utility:

The total satisfaction one gets from consuming a product

(Ch. 15 Notes - Terminology) Concentration Ratio:

The value of sales by the top firms of an industry stated as a percentage of total industry sales.

(Ch. 14 Notes - Terminology) Price-Discriminate:

To charge different prices to different individuals or groups of individuals.

(Ch. 19 Notes - Understand) Rational Choice Theory (Total Utility and Marginal Utility; Diminishing Marginal Utility; Rational Choice and Marginal Utility)

Total Utility is the total satisfaction one gets from consuming a product. Marginal Utility is the satisfaction you get from the consumption of one additional unit of the product above and beyond what you have consumed up to that point. (The Principle of) Diminishing Marginal Utility states that after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed. As additional units are consumed, marginal utility decreases, but total utility continues to increase. When total utility is at a maximum, marginal utility is zero. Beyond this point, total utility decreases and marginal utility is negative. Rational individuals want as much satisfaction as they can get from their available resources. Any choice that does not give you as many units of utility as possible for the same amount of money is an irrational choice. (The Principle of) Rational Choice states that people spend their money on those goods that give them the most marginal utility per dollar.

(Ch. 11b Notes - Terminology) Average Total Cost:

Total cost divided by the quantity produced.

(Ch. 19 Quiz) (Q11) The name economists give to the pleasure of satisfaction that one expects to get from consuming a good or service is __________.

Utility

(Ch. 19 Notes - Understand) Maximizing Utility and Equilibrium (An Example of Maximizing Utility)

Utility is Maximized when MU1/P1 = MU2/P2 = MU3/P3

(Ch. 19 Notes - Terminology) Utility-Maximizing Rule:

Utility is maximized when the ratios of the marginal utility to price of two goods are equal

(Ch. 11b Notes - Terminology) Average Variable Cost:

Variable cost divided by quantity produced.

(Ch. 17 Notes - Terminology) Efficiency Wages:

Wages paid above the going-market wage to keep workers happy and productive.

(Ch. 6 Notes - Understand) Price Elasticity (What Information Price Elasticity Provides; Classifying Demand and Supply as Elastic or Inelastic; Elasticity Is Independent of Units; Calculating Elasticities; Other Examples; Elasticity Is Not the Same as Slope; Five Terms to Describe Elasticity)

What Information Price Elasticity Provides: It tells us exactly how quantity demanded responds to a change in price. Classifying Demand and Supply as Elastic or Inelastic: Elastic Demand: A change in price leads to a relatively large change in quantity demanded; A change in price leads to a relatively large change in quantity demanded. Inelastic Demand: change in price leads to a relatively small change in quantity demanded; Demand will be inelastic when few, if any, close substitutes are available. Elasticity is Independent of Units. Calculating Elasticities: E d/s = (%change Quantity d/s) / (%change Price) Elasticity is NOT the same as slope, but, the steeper the curve is at a given point, the less elastic demand or supply. Five Terms to Describe Elasticity: 1. elastic = a specific percentage change in price results in a larger percentage change in quantity demanded 2. inelastic = a specific percentage change in price is accompanied by a smaller percentage change in quantity demanded 3. unit elastic = a percentage change in price and the accompanying percentage change in quantity demanded are equalExtreme Cases 4. perfectly inelastic = a price change results in no change whatsoever in the quantity demanded5. perfectly elastic = a small price reduction would cause buyers to increase their purchases from zero to all they could obtain

(Ch. 8 Notes - Terminology) Positive Externality:

When the effects of a decision not taken into account by the decision maker are beneficial to others.

(Ch. 7 Notes - Understand) Burden of Taxation (Who Bears the Burden of a Tax?)

Who Bears the Burden of a Tax? The person who physically pays the tax is not necessarily the person who bears the burden of the tax. The more INELASTIC one's relative demand and supply, the LARGER the tax burden one will bear: - If demand is more inelastic than supply, consumers will pay the higher share - If supply is more than inelastic than demand, suppliers will pay the higher share The tax burden is independent of who pays tax. Administrative Costs of Compliance, which are the resources used by the government to administer the tax and individuals and businesses to comply with it

(Ch. 9 Notes - Understand) Why Economists and Laypeople Differ in Their Views of Trade(Gains Are Often Stealth; Opportunity Cost Is Relative; Trade Is Broader Than Manufactured Goods; Trade Has Distributional Effects)

Why Economists and Laypeople Differ in TheirViews of International Free Trade Main benefits of trade (there are others but these arethe main ones): 1. Lower prices for US consumers 2. More jobs in export-oriented industriesMain cost of trade (there are others but this is themain one): Loss of jobs in industries competing with importsIf trade is good, why do so many people oppose it? The gains of trade, lower prices, are harder to see than the cost, lost jobs. The public believes that lower wages in other countries give them the comparative advantage in everything, so we will lose all jobs. Laypeople often think of trade as trade only in manufactured goods (the US excels in some services). Laypeople are extremely concerned about the impact of trade on the distribution of income (especially of job losers).

(Ch. 17 Notes - Understand) The Supply of Labor (Real Wages and the Opportunity Cost of Work; The Supply of Labor and Nonmarket Activities; Income Taxation, Work, and Leisure)

Work and the Labor Market • A labor market is a factor market in which individuals supply labor services for wages to individuals and firms that demand labor services•The labor supply choice is between nonmarket activities and legal market activities • Incentive effect is how much a person will change hours worked in response to a change in the wage rate • Economists focus on the incentive effect when considering an individual's choice of whether and how much to workWork and the Labor Market • A labor market is a factor market in which individuals supply labor services for wages to individuals and firms that demand labor services•The labor supply choice is between nonmarket activities and legal market activities • Incentive effect is how much a person will change hours worked in response to a change in the wage rate • Economists focus on the incentive effect when considering an individual's choice of whether and how much to work Income Taxation, Work, and Leisure Taxes reduce the net wage of individuals, reducing the incentive to work An increase in the marginal tax rate is likely to reduce the quantity of labor supplied EU countries, which have relatively high marginal tax rates, are struggling with the problem of providing incentives for people to work For welfare recipients, the tax penalties for working create a great incentive to not work or to work "off the books"

(Ch. 14 Quiz) (Q15) Refer to the graph shown (refer to figure in folder). If the firm seeks to maximize profit, it should set a price equal to: a. $ 8 b. $ 6 c. $ 4 d. $10

a. $ 8

(Ch. 12 Quiz) (Q11) With the long-run average cost curve shown, a seller must produce 18 units just to break even if the price the seller expects is roughly (refer to figure in folder): a. $50 b. $58 c. $54 d. $52

a. $50

(Ch. 7 Quiz) (Q6) Refer to the graph shown (refer to the graph shown). If price is increased from $3 to $4, consumer surplus will fall by: a. 125 b. 50 c. 25 d. 100

a. 125

(Ch. 4 Quiz) (Q13) Refer to the graph shown (refer to figure in folder). If the price is changed from $12.00 to $4.00, the quantity demanded increases by: a. 4 CD's per week b. 2 CD's per week c. 6 CD's per week d. 8 CD's per week

a. 4 CD's per week

(Ch. 4 Quiz) (Q14) Refer to the graphs shown (refer to figure in folder). Assume the graph reflects demand in the egg market. Which arrow best captures the impact of increased consumer concern about cholesterol on the egg market? a. C b. A c. B d. D

a. C

(Ch. 4 Quiz) (Q12) Refer to the graphs shown (refer to figure in folder). The effect of an increase in price is best shown by which arrow? a. D b. A c. B d. C

a. D

(Ch. 4 Quiz) (Q9) __________ refers to the situation when quantity supplied is greater than quantity demanded. a. Excess Supply b. Excess supply c. excess supply d. No answer text provided

a. Excess Supply

(Ch. 8 Quiz) (Q8) What do economists mean when they say there is "market failure"? a. Free markets yield results that economists do not consider socially optimal b. Markets have surpluses or shortages so that government rationing is necessary c. Business has introduced a product that consumers did not want d. Free markets have led to excessive profits

a. Free markets yield results that economists do not consider socially optimal

(Ch. 11b Quiz) (Q11) The following graph shows average fixed costs, average variable costs, average total costs, and marginal costs of production (refer to figure in folder). The average total cost curve is represented by which curve? a. III b. I c. IV d. II

a. III

(Ch. 13 Quiz) (Q3) Refer to the graph shown (refer to figure in folder). What price represents the shutdown price? a. P1 b. P2 c. P4 d. P3

a. P1

(Exam 3 Q23 [multiple choice]) Why are patents important to those who hold them? a. Patents act as a barrier to entry, allowing monopoly profits b. Without patents, there would be considerably more price discrimination in the market c. Without patents, there will no longer be economies of scale in production d. Patents actually do not matter because they do not guarantee that a firm will make a profit

a. Patents act as a barrier to entry, allowing monopoly profits

(Ch. 5 Quiz) (Q5) Refer to the following graph (refer to figure in folder). Demand and supply are initially D and S1 respectively, Which of the following best describes the effect of a $0.50 per pound tariff on Danish hams imported into the United States? a. Supply shifts from S1 to S0; quantity sold declines to 60 thousand pounds and price paid by consumers rises to $2.25 a pound b. Neither supply nor demand shift, but price paid by consumers declines to $1.50 a pound while quantity sold remains at 80 thousand pounds c. Supply shifts from S1 to S0; quantity sold declines to 60 thousand pounds and price paid by consumers rises to $2.50 a pound d. Supply shifts from S1 to S2; quantity sold rises to 100 thousand pounds and price paid by consumers declines to $1.75 a pound

a. Supply shifts from S1 to S0; quantity sold declines to 60 thousand pounds and price paid by consumers rises to $2.25 a pound

(Ch. 5 Quiz) (Q1) Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold? a. The change in price is ambiguous, but the quantity sold increases b. Price of exercise bikes remains the same and quantity sold increases c. Price of exercise bikes increases and quantity sold also increases d. Price of exercise bikes decreases and quantity sold remains the same

a. The change in price is ambiguous, but the quantity sold increases

(Ch. 15 Quiz) (10) Which of the following is an argument in favor of judging competitiveness by performance rather than structure? a. Under the judgment by structure criterion, a firm may be breaking the law if it does what it's supposed to be doing: producing the best product it can at the lowest cost b. judgment by performance requires that each action of a firm be analyzed on a case-by-case basis, which is very time-consuming and expensive c. Courts know little economic theory d. structure can be a predictor of future performance

a. Under the judgment by structure criterion, a firm may be breaking the law if it does what it's supposed to be doing: producing the best product it can at the lowest cost

(Ch. 4 Quiz) (Q17) Assume the graphs shown reflect the egg market (refer to figure in folder). The arrow that would best capture the impact of cheaper, prefabricated henhouses on the egg market is: a. Y b. W c. X d. Z

a. Y

(Ch. 1 Quiz) (Q12) Based on scientific nutritional studies, in most countries an income of $1 a day does not provide sufficient food, shelter, and clothing to live. Under these conditions the medical risk of death is high. This statement is: a. a positive statement b. a subjective statement c. a normative statement d. an art-of-economics statement

a. a positive statement

(Ch. 11a Quiz) (Q14) In the long run: a. all inputs can be varied and no inputs are fixed b. some inputs can be varied and no inputs are fixed c. some inputs can be varied and some inputs are fixed d. no inputs can be varied and all inputs are fixed

a. all inputs can be varied and no inputs are fixed

(Exam 2 Q11 [multiple choice]) If nations trade on the basis of comparative advantage: a. all trading partners can gain from trade. b. importing nations gain from trade and exporting nations lose. c. exporting nations gain from trade and importing nations lose. d. a nation usually can gain from trade only at the expense of its trading partners

a. all trading partners can gain from trade.

(Ch. 17 Quiz) (Q17) Which of the following will not shift the demand for labor to the right? a. an increase in the wage rate b. an increase in the demand for output c. an increase in the competitiveness of an industry d. an increase in the price of a competing input

a. an increase in the wage rate

(Ch. 3 Quiz) (Q3) Market Failures: a. are sometimes made worse by government failures b. can always be corrected through government action c. can never be corrected through government action d. lead a desired allocation of resources

a. are sometimes made worse by government failures

(Ch. 4 Quiz) (Q5) Refer to the graphs shown (refer to figure in folder). The relevant market is corn. The impact of a poor corn harvest on the market for corn would most likely be demonstrated by which graph? a. c b. a c. b d. d

a. c

(Ch. 15 Quiz) (Q16) When OPEC reduces output to keep prices high, OPEC is acting as a: a. cartel d. price taker c. producer moving along a supply curve, cutting output as price falls d. producer in a contestable market

a. cartel

(Ch. 18 Quiz) (Q1) On its horizontal axis, a Lorenz curve measures: a. cumulative percentage of families b. amount of family income c. demand of families d. cumulative percentage of family income

a. cumulative percentage of families

(Ch. 9 Quiz) (Q2) The foreign exchange market is the market in which: a. currencies of different countries are bought and sold b. foreign stocks and bonds are bought and sold c. ideas from different countries are exchanged d. foreigners buy U.S. real estate

a. currencies of different countries are bought and sold

(Exam 2 Q14 [multiple choice]) The foreign exchange market is the market in which: a. currencies of different countries are bought and sold. b. foreign stocks and bonds are bought and sold. c. ideas from different countries are exchanged. d. foreigners buy U.S. real estate

a. currencies of different countries are bought and sold.

(Ch. 11a Quiz) (Q6) Marginal product eventually: a. declines because some inputs are fixed b. increases because some inputs are fixed c. declines because some inputs are variable d. increases because some inputs are variable

a. declines because some inputs are fixed

(Ch. 11b Quiz) (Q4) Average fixed cost: a. decreases as output increases b. remains constant and doesn't vary with output c. equals total cost divided by output d. increases as output increases

a. decreases as output increases

(Ch. 4 Quiz) (Q10) The distinction between demand and the quantity demanded is best made by saying that: a. demand is represented graphically by a curve and quantity demanded is a point on that curve b. the quantity demanded is represented graphically by a curve and demand is a point on that curve c. the quantity demanded is in a direct relation with prices, whereas demand is in an inverse relation d. the quantity demanded is in an inverse relation with prices, whereas demand is in a direct relation

a. demand is represented graphically by a curve and quantity demanded is a point on that curve

(Ch. 12 Quiz) (Q10) Economies of scale occur when a firm's long-run average total cost curve is: a. downward-sloping b. vertical c. horizontal d. upward-sloping

a. downward-sloping

(Ch. 17 Quiz) (Q4) Demand-side discrimination occurs when: a. employers pay women less than men for doing the same job b. employers hire a man who is more qualified than a woman c. women postpone having children in order to succeed professionally d. women remain in low-paying jobs because of family responsibilities

a. employers pay women less than men for doing the same job

(Ch. 15 Quiz) (Q21) For a cartel to be successful in increasing economic profits for its members: a. entry of new firms must be blocked b. price must be set equal to marginal cost c. price must be set equal to average total cost d. individual firms must be encouraged to adjust output so as to maximize their own profits at the cartel price

a. entry of new firms must be blocked

(Exam 3 Q34 [long answer - multiple choice]) Long Answer quest 3: For a monopolist, the price of the product: a. exceeds the marginal revenue b. equals the marginal revenue c. equals the marginal cost d. is less than the marginal revenue

a. exceeds the marginal revenue

(Ch. 4 Quiz) (Q15) Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause: a. farmers to substitute wheat for the production of corn b. farmers to substitute corn for the production of wheat c. farmers to lower the production of corn and wheat d. farmers to raise the production of wheat and corn

a. farmers to substitute wheat for the production of corn

(Ch. 14 Quiz) (Q7) If there were no barriers to entry: a. firms would compete away monopoly profits b. "just" monopolies would still exist c. natural monopolies would still exist d. patents could still be offered by the government

a. firms would compete away monopoly profits

(Ch. 3 Quiz) (Q14) The market where businesses sell goods and services to households and the government is called the: a. goods market b. capital market c. money market d. factor market

a. goods market

(Ch. 4 Quiz) (Q2) The more the current price exceeds the equilibrium price, the: a. greater the resulting surplus will be b. greater the resulting shortage will be c. smaller the resulting shortage will be d. smaller the resulting surplus will be

a. greater the resulting surplus will be

(Ch. 3 Quiz) (Q13) In the factor market: a. households supply factors of production to business and are paid by business for doing so b. households supply factors of production to business and are paid by government for doing so c. government produces goods and services and supplies them to households and business d. business produces goods and services and sells them to households and government

a. households supply factors of production to business and are paid by business for doing so

(Ch. 15 Quiz) (Q17) In the market for bank credit a large bank sometimes announces a change in interest rates. After the changes in interest rates are announced, other banks in the industry usually react by changing their rates in the same way. This is an example of: a. implicit collusion b. the kinked demand curve model c. monopolistic competition d. a cartel

a. implicit collusion

(Ch. 4 Quiz) (Q11) Given that diesel cards get much better gas milage than the typical car, an increase in the price of gasoline would be expected to: a. increase the demand for diesel cars b. decrease the demand for gasoline c. decrease the demand for diesel cars d. increase the demand for gasoline

a. increase the demand for diesel cars

(Ch. 19 Quiz) (Q9) Suppose Paul has chosen a combination of two goods, A and B, such that the marginal utility per dollar spend for goof A (MUa/Pa) is .6 and the marginal utility per dollar spent for good B (MUb/Pb) is 1. To increase utility with the same amount of money, Paul should: a. increase the number of B consumed and decrease the number of A consumed b. increase the number of A consumed and decrease the number of B consumed c. increase the number of both A and B consumed d. do nothing; he cannot increase total utility

a. increase the number of B consumed and decrease the number of A consumed

(Ch. 17 Quiz) (Q20) Firms pay efficiency wages because these wages: a. increase worker productivity b. increase worker rivalry c. maximize short-run profits d. minimize short-run costs

a. increase worker productivity

(Ch. 13 Quiz) (Q5) Refer to the following graph (refer to figure in folder). The perfectly competitive firm depicted is currently: a. incurring a loss, but the loss is smaller than it would be if the firm shut down b. earning positive economic profit c. incurring a loss that is larger than total fixed cost, and so the firm should shut down d. earning zero economic profit

a. incurring a loss, but the loss is smaller than it would be if the firm shut down

(Ch. 5 Quiz) (Q11) Price ceiling and price floors: a. interfere with the allocation function of prices b. cause demand and supply curves to shift thus having no effect on the rationing function of prices c. make the rationing function of markets more efficient d. cause surpluses and shortages in markets respectively

a. interfere with the allocation function of prices

(Ch. 1 Quiz) (Q13) The price mechanism that guides people's actions is called the: a. invisible hand b. invisible market force c. invisible handshake d. invisible foot

a. invisible hand

(Ch. 6 Quiz) (Q16) If the quantity of houses supplied in an area increases 10 percent when the price goes up 25 percent, the supply: a. is inelastic b. is unit elastic c. is elastic d. is perfectly elastic

a. is inelastic

(Exam 2 Q4 [multiple choice]) Refer to the following table to answer the question. A local government is looking to reduce "undesirable" behavior on the part of its citizens: drinking alcoholic beverages and smoking. Assuming people cannot shop for cigarettes or alcoholic beverages out of town, a 10 percent sin tax would have the largest proportionate effect on the sale of: a. liquor b. wine c. cigarettes d. beer

a. liquor

(Exam 3 Q17 [multiple choice]) A perfectly competitive firm in the long run: a. makes zero economic profits b. can earn positive or negative economic profits c. makes zero accounting profits d. can earn negative accounting profits as long as economic profits are positive

a. makes zero economic profits

(Ch. 12 Quiz) (Q13) Which of the following provides the best explanation for diseconomies of scale? a. monitoring costs b. indivisible setup costs c. diminishing marginal productivity d. increased specialization

a. monitoring costs

(Ch. 8 Quiz) (Q2) The best example of a public good is: a. national defense b. pollution c. government-subsidized lunches d. competition`

a. national defense

(Ch. 8 Quiz) (Q6) New developments in computer monitors have made flat panel LCD's cheaper and better than the older CRT models. Given that monitors can contain as much as 8 pounds of lead, disposing of the old monitors creates a: a. negative externality b. positive externality c. limited liability d. neutral externality

a. negative externality

(Ch. 12 Quiz) (Q8) The law of diminishing marginal productivity does not apply in the long run because: a. no inputs are fixed in the long run b. some inputs are variable in the long run c. all inputs are fixed in the long run d. some inputs are fixed in the long run

a. no inputs are fixed in the long run

(Ch. 14 Quiz) (Q17) A natural monopoly: a. occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market b. is usually subject to antitrust suits c. has an average total cost curve that reaches minimum possible average total cost at a low level of output d. is usually allowed to choose its price so as to maximize profits in the United States.

a. occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market

(Ch. 4 Quiz) (Q1) According to the law of demand, an increase in the price of baseball trading cards causes: a. people to buy fewer trading cards b. people to buy more trading cards c. the scarcity of baseball trading cards to increase d. baseball trading cards to grow in abundance

a. people to buy fewer trading cards

(Ch. 19 Quiz) (Q4) As long as total utility is increasing, we know that marginal utility is: a. positive b. decreasing c. negative d. increasing

a. positive

(Ch. 8 Quiz) (Q1) When my neighbors benefit from my cleaning up of my yard, they are experiencing a: a. positive externality b. economic pressure c. partnership d. merit good

a. positive externality

(Ch. 3 Quiz) (Q1) Market economies are based upon: a. private property and individual planning b. private property and individual good will toward others c. government planning and individual self-interest d. government planning and individual good will toward others

a. private property and individual planning

(Ch. 15 Quiz) (Q9) A firm could be guilty of antitrust violations using the judgment by structure criteria despite: a. producing the best product it could at the lowest possible cost b. restraining trade through cartels c. controlling only 10 percent of the market d. pricing goods above the competitive price

a. producing the best product it could at the lowest possible cost

(Ch. 4 Quiz) (Q16) An upward sloping supply curve implies that: a. quantity supplied increase when price increases b. quantity supplied increases when price decreases c. the law of supply is invalid d. there is no relationship between price and quantity supplied

a. quantity supplied increase when price increases

(Ch. 4 Quiz) (Q4) The increase in the availability of organic foods likely: a. raises equilibrium quantity and lowers equilibrium price for organic foods b. lowers equilibrium quantity and raises equilibrium price for organic foods c. raises equilibrium quantity and price for organic foods d. lowers equilibrium quantity and price for organic foods

a. raises equilibrium quantity and lowers equilibrium price for organic foods

(Ch. 5 Quiz) (Q8) A decrease in price and an indeterminate change in quantity are consistent with a: a. rightward shift in supply and a leftward shift in demand b. leftward shift in supply and no shift in demand c. leftward shift in supply and a rightward shift in demand d. leftward shift in demand and no shift in supply

a. rightward shift in supply and a leftward shift in demand

(Exam 1 Q14 [multiple choice]) Criteria for rationing goods and resources must be established because of a. scarcity b. the use of capitalism as the method of economic organization c. the inability of politicians to develop efficient forms of economic organizations d. shortages resulting from government inefficiency

a. scarcity

(Exam 1 Q11 [multiple choice]) How do markets respond to allocate goods and services when quantity demanded exceeds quantity supplied? a. a shortage is created b. quantities fall c. demand falls d. prices rise

a. shortage is created

(Ch. 4 Quiz) (Q3) Suppose the given supply and demand tables reflect the supply and demand for milk per week (refer to figure in folder). At a price of $1, there is a: a. shortage of 1,000 gallons per week b. shortage of 2,500 gallons per week c. surplus of 1,000 gallons per week d. surplus of 500 gallons per week

a. shortage of 1,000 gallons per week

(Exam 1 Q13 [multiple choice]) If price of movies on DVD rises while the price of movies purchased on demand through the Internet remains the same, the law of demand predicts that consumers will: a. substitute movies on DVD for movies on the Internet b. substitute movies on the Internet for movies on DVD c. buy only movies on DVD d. buy only movies on the Internet

a. substitute movies on DVD for movies on the Internet

(Ch. 15 Quiz) (Q7) Judgment by performance means that the competitiveness of a market is determined by: a. the actual behavior of firms in the market. b. the number of firms in the market. c. technological considerations. d. the structure of the industry.

a. the actual behavior of firms in the market.

(Exam 2 Q15 [multiple choice]) Implicit cost refers to: a. the opportunity cost of factors of production provided by the owners of the firm. b. the amount a firm receives for selling its product or service. c. the opportunity cost of factors of production provided by the owners of the firm. d. any increase in the value of the assets owned by the firm

a. the opportunity cost of factors of production provided by the owners of the firm.

(Ch. 5 Quiz) (Q3) If the United States imposes tariffs on steel imports: a. the supply of the imported steel shifts to the left and raises its market price b. the supply of steel shifts to the right and lowers its market price c. the demand for steel shifts to the left and raises its market price d. the demand for steel shifts to the left and lowers its market price

a. the supply of the imported steel shifts to the left and raises its market price

(Ch. 15 Quiz) (Q8) When judging the competitiveness of markets by the size and number of firms in that market, one is using the: a. "judgment by antitrust" criteria b. "judgment by structure" criteria c. "judgment by merger" criteria d. "judgment by performance" criteria

b. "judgment by structure" criteria

(Ch. 1 Quiz) (Q9) Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any calls above 600 minutes. Mary has used 300 minutes this month so far. What is her marginal cost per minute of making two more calls lasting 10 minutes each? a. 25 cents b. $0 c. 4 cents d. $2.50

b. $0

(Ch. 11b Quiz) (Q10) The following graph shows average fixed costs, average variable costs, average total costs, and marginal costs of production (refer to figure in folder). Marginal cost is minimized when output equals: a. 6 units b. 12 units c. 25 units d. 21 units

b. 12 units

(Ch. 6 Quiz) (Q14) As the manager of a ski resort, you want to increase the number of lift tickets sold by 8 percent. Your staff economist has determined that the price elasticity of demand for lift tickets is 2. To increase sales by the desired amount, you should decrease the price of a lift ticket by: a. 8 percent b. 4 percent c. 2 percent d. 16 percent

b. 4 percent

(Ch. 13 Quiz) (Q17) Refer to the graph shown (refer to figure in folder). To maximize profit, this perfectly competitive firm should produce: a. 40 units of output b. 50 units of output c. 30 units of output d. 60 units of output

b. 50 units of output

(Ch. 11a Quiz) (Q3) Refer to the table shown (refer to figure in folder). If seven workers are employed, total output equals: a. 35 b. 53 c. 5 d. 56

b. 53

(Ch. 11a Quiz) (Q18) Refer to the table shown (refer to figure in folder). The average product when eight workers are employed is: a. 4 b. 6 c. 3 d. 5

b. 6

(Ch. 11a Quiz) (Q5) Refer to the graph shown (refer to figure in folder). Within which section(s) of the production function is marginal product increasing? a. A and B b. A c. B d. C

b. A

(Ch. 5 Quiz) (Q10) Suppose caviar sales soars at the same time price increases. What would lead to both a higher quantity sold and higher price of caviar? a. A shift in demand to the left and a smaller shift in supply to the right b. A shift in demand to the right and a smaller shift in supply to the left c. A shift in demand to the right and a larger shift in supply to the right d. A shift in demand to the left and a smaller shift in supply to the left

b. A shift in demand to the right and a smaller shift in supply to the left

(Ch. 9 Quiz) (Q9) When Ross Perot ran for president as a third party candidate in the 1992 presidential elections, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation of why few economists agreed with Perot? a. Although economists predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs b. Although economists agreed that in some areas the United States would lose jobs, they expected that the United States would gain jobs in other areas c. Economists did not believe that any jobs would be lost in the United States d. Economists believed that the U.S. unemployment rate would rise

b. Although economists agreed that in some areas the United States would lose jobs, they expected that the United States would gain jobs in other areas

(Exam 3 Q14 [multiple choice]) Refer to the graph shown. The supply curve for the perfectly competitive firm is best represented by the segment: a. DE b. CE c. BD d. AB

b. CE

(Ch. 7 Quiz) (Q4) Refer to the graph shown (refer to figure in folder). When the market is in equilibrium, producer surplus is area: a. A plus area F b. F c. A d. C plus area D plus area E

b. F

(Ch. 5 Quiz) (Q9) Refer to the following graphs (refer to figure in folder). A recent report indicates that the device known as the right heart catheter used to diagnose heart conditions poses more risks than previously thought. The effect of the report on the market for right heart catheters is best shown by which of the graphs? a. IV b. I c. III d. II

b. I

(Exam 2 Q13 [multiple choice]) If the U.S. dollar appreciates against the Japanese yen: a. U.S. goods will be cheaper for Japanese consumers. b. Japanese goods will be cheaper in the United States. c. the U.S. dollar will buy fewer Japanese yen. d. Japanese goods will be more expensive in the United States

b. Japanese goods will be cheaper in the United States.

(Ch. 12 Quiz) (Q15) Refer to the graph shown (refer to figure in folder). If a firm wants to produce 300 units of output, it should use the plant size represented by: a. SATC2 b. SATC1 c. SATC3 d. SATC4

b. SATC1

(Ch. 12 Quiz) (Q14) Which of the following is most likely an example of diseconomies of scale? a. The per-unit costs on Excel Publishing Company's manuals fell after it received a large order from the government b. The XYZ Co. increased production capacity by 25 percent and experienced a 30 percent increase in its total cost c. Alpha-Beta Inc. raised its price by 10 percent after a 5 percent increase in production costs d. Widget Manufacturing doubled its production by opening a new plant that was identical to its old plant

b. The XYZ Co. increased production capacity by 25 percent and experienced a 30 percent increase in its total cost

(Ch. 11a Quiz) (Q1) Total revenue minus explicit measurable costs equals: a. average profit b. accounting profit c. normal profit d. economic profit

b. accounting profit

(Ch. 17 Quiz) (Q18) An increase in the wages of truck drivers might be explained by which of the following factors? a. a reduction in the demand for transportation b. an increase in shipments in the retail and wholesale industries c. an increase in the price of gasoline d. a reduction in the price of rail transportation

b. an increase in shipments in the retail and wholesale industries

(Ch. 11b Quiz) (Q1) Total fixed costs: a. decrease as output increases b. are positive even when no output is produced c. increase as output increases d. are zero when no output is produced

b. are positive even when no output is produced

(Exam 3 Q12 [multiple choice]) Perfectly competitive firms: a. are individually able to influence the market price b. are price takers, since they are not large enough to influence the market price c. can influence the prices of other firms in the same industry by altering their own prices d. will succeed by charging a price higher than that charged by the rest of the market

b. are price takers, since they are not large enough to influence the market price

(Exam 2 Q1 [multiple choice]) The principle of diminishing marginal utility states that: a. you don't enjoy consuming more of a good. b. as you consume more of a good, you enjoy the additional units less than you did the previous units. c. you enjoy consuming more of a good if it is good. d. as you consume more of a good, you enjoy the additional units more than you did the initial units.

b. as you consume more of a good, you enjoy the additional units less than you did the previous units.

(Ch. 11b Quiz) (Q6) You run a small business producing picture frames. This month your total cost is $10,000, your variable cost is $5,000, and your output is 5,000 picture frames. Given this information, your: a. average total cost is $1 b. average fixed cost is $1 c. average variable cost is $2 d. average total cost is $3

b. average fixed cost is $1

(Ch. 11b Quiz) (Q14) If marginal cost is less than average total cost: a. average variable cost is increasing with output b. average total cost is decreasing with output c. average total cost is increasing with output d. average variable cost is decreasing with output

b. average total cost is decreasing with output

(Exam 2 Q12 [multiple choice]) The country with a comparative advantage in the production of good X is the one that: a. has the greatest supply of the natural resources used in producing good X. b. can produce good X at the lowest opportunity cost. c. can produce good X with the least labor. d. has the greatest technical efficiency in producing good X

b. can produce good X at the lowest opportunity cost.

(Ch. 15 Quiz) (Q4) If an industry has a Herfindahl index of 3,000, the contestable market model probably would predict that the industry would be more likely to have a: a. competitive price b. competitive price if there are no barriers to entry c. monopolistic price d. monopolistic price if there are no barriers to entry

b. competitive price if there are no barriers to entry

(Ch. 7 Quiz) (Q2) The distance between the demand curve and the price the consumer has to pay for a product (given quantity demanded) is referred to as: a. producer surplus b. consumer surplus c. market shortage d. market surplus

b. consumer surplus

(Ch. 13 Quiz) (Q7) Refer to the graph shown (refer to figure in folder). Suppose that the market price is $5. At this price, a perfectly competitive firm should: a. continue to produce in the short run but shut down in the long run b. continue to produce in both the short run and the long run c. shut down in the short run but continue production in the long run d. shut down immediately

b. continue to produce in both the short run and the long run

(Exam 1 Q3 [multiple choice]) According to the law of demand an increase in the price of gasoline will: a. increase the quantity demanded of gasoline, other things constant b. decrease the quantity demanded of gasoline, other things constant c. increase the demand for gasoline d. decrease the demand for gasoline

b. decrease the quantity demanded of gasoline, other things constant

(Ch. 12 Quiz) (Q12) 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. downward-sloping at first but then upward-sloping

(Ch. 20 Quiz) (Q4) The formal game theory model assumes that: a. the dominant firm in the industry will set product price and other firms will follow b. each player tries to anticipate the reaction of his or her rivals when making a decision c. markets are contestable when no barriers to entry exist d. each player ignores the possible reaction of his or her rivals when making a decision

b. each player tries to anticipate the reaction of his or her rivals when making a decision

(Ch. 12 Quiz) (Q1) A firm finds that producing 30,000 vases costs $180,000 and producing 40,000 vases costs $200,000. This pattern might be explained by: a. diseconomies of scale b. economies of scale c. diminishing marginal productivity d. economies of scope

b. economies of scale

(Exam 2 Q10 [multiple choice]) If a market has no externalities, marginal private costs: a. are below marginal social costs. b. equal marginal social costs. c. exceed marginal social costs. d. intersect marginal social costs.

b. equal marginal social costs.

(Ch. 1 Quiz) (Q8) The marginal benefit from consuming another unit of a good: a. equals the total benefit obtained from the consumption of all prior units b. equals the increase in total benefits from consuming the unit c. must equal the marginal cost or the unit will not be consumed d. must be less than the marginal cost or the unit will not be consumed

b. equals the increase in total benefits from consuming the unit

(Ch. 3 Quiz) (Q11) Suppose that at the current price consumers would like to purchase 10 million large-screen televisions and 15 million are available. When the market coordinates the demand and supply for large-screen televisions, the price of large-screen televisions will: a. be fixed by the government b. fall c. stay the same d. rise

b. fall

(Ch. 18 Quiz) (Q9) Other things equal, tax cuts favoring the rich and reductions in funding for government programs favoring the poor would be expected to: a. decrease income inequality, causing the Lorenz curve to bend toward the diagonal line b. increase income inequality, causing the Lorenz curve to bend away from the diagonal line c. increase income inequality, causing the Lorenz curve to bend toward the diagonal line d. decrease income inequality, causing the Lorenz curve to bend away from the diagonal line

b. increase income inequality, causing the Lorenz curve to bend away from the diagonal line

(Ch. 13 Quiz) (Q15) If the marginal revenue of the next widget a firm produces is $50 and its marginal cost is $35, a firm should: a. reconsider past production decisions b. increase production c. decrease production d. hold production constant

b. increase production

(Ch. 5 Quiz) (Q12) An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage that all other things remain constant, will: a. reduce the number of unemployed b. increase the number of unemployed c. shift the demand of labor to the right d. shift the supply of labor to the right

b. increase the number of unemployed

(Exam 1 Q6 [multiple choice]) The price mechanism that guides people's actions is called the: a. invisible market force b. invisible hand c. invisible handshake d. invisible foot

b. invisible hand

(Exam 1 Q5 [multiple choice]) Brooke and Sandy both attend the same college and have the same expenses for tuition, books, and supplies. However, Brooke is a famous actress who could earn $2 million per year if she were not attending college whereas Sandy could earn $10,000 a year serving hamburgers if he were not attending college. It follows that the opportunity cost of attending college: a. is the same for both Brooke and Sandy b. is greater for Brooke than for Sandy c. is greater for Sandy than for Brooke d. for Brooke and Sandy cannot be compared

b. is greater for Brooke than for Sandy

(Exam 2 Q3 [multiple choice]) If quantity demanded does not change at all when the price changes, the demand: a. is elastic. b. is perfectly inelastic. c. is perfectly elastic. d. has unit elasticity.

b. is perfectly inelastic.

(Ch. 1 Quiz) (Q11) Opportunity Cost: a. is nonexistent for some economic choices b. is the net benefit forgone by not undertaking the next best alternative c. is the same as sunk cost d. includes only monetary outlays

b. is the net benefit forgone by not undertaking the next best alternative

(Ch. 6 Quiz) (Q1) In general, the greater the elasticity, the: a. smaller the responsiveness of quantity to changes in price b. larger the responsiveness of quantity to changes in price c. larger the responsiveness of price to changes in quantity d. smaller the responsiveness of price to changes in quantity

b. larger the responsiveness of quantity to changes in price

(Ch. 11b Quiz) (Q13) The marginal cost curve is a mirror image of the: a. average variable cost curve b. marginal product curve c. total product curve d. average product curve

b. marginal product curve

(Ch. 9 Quiz) (Q13) If the euro rises in price, it becomes: a. cheaper for Americans to buy European products and cheaper for Europeans to buy American products b. more expensive for Americans to buy European products but cheaper for Europeans to buy American products c. cheaper for Americans to buy European products but more expensive for Europeans to buy American products d. more expensive for Americans to buy European products and more expensive for Europeans to buy American products

b. more expensive for Americans to buy European products but cheaper for Europeans to buy American products

(Ch. 17 Quiz) (Q7) The marginal revenue product of an input tends to decrease as: a. the price of output increases b. more of the input is used c. productivity increases d. the price of the input decreases

b. more of the input is used

(Ch. 13 Quiz) (Q1) Which of the following is one of the necessary conditions for perfect competition? a. indivisible setup costs b. no barriers to entry c. differentiated products d. diminishing utility

b. no barriers to entry

(Exam 3 Q27 [long answer - multiple choice]) Long Answer quest 2: The law of diminishing marginal productivity does not apply in the long run because: a. some inputs are fixed in the long run b. no inputs are fixed in the long run c. some inputs are variable in the long run d. all inputs are fixed in the long run

b. no inputs are fixed in the long run

(Ch. 1 Quiz) (Q2) Positive economics seeks to: a. determine what government economic policies are best b. objectively explain how the economy functions c. objectively explain how societies value different economic outcomes d. determine the most appropriate economic goals for society

b. objectively explain how the economy functions

(Ch. 15 Quiz) (Q12) Which of the following market structures does not have predictable price and output decisions at which the firms will arrive rationally? a. perfect competition b. oligopoly c. monopoly d. monopolistic competition

b. oligopoly

(Exam 2 Q2 [multiple choice]) The price elasticity of supply is the: a. percentage change in the price divided by the percentage change in the quantity supplied. b. percentage change in the quantity supplied divided by the percentage change in price. c. change in the quantity supplied divided by the change in price. d. change in the price divided by the change in the quantity supplied

b. percentage change in the quantity supplied divided by the percentage change in price.

(Ch. 7 Quiz) (Q1) If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive: a. producer surplus in the amount of $210,000 b. producer surplus in the amount of $25,000 c. consumer surplus in the amount of $25,000 d. consumer surplus in the amount of $210,000

b. producer surplus in the amount of $25,000

(Ch. 18 Quiz) (Q12) The U.S. income tax is a: a. regressive tax b. progressive tax c. singular tax d. proportional tax

b. progressive tax

(Exam 1 Q4 [multiple choice]) You're deciding whether to install an $800 moonroof and $400 security system in your car. Suppose the marginal benefit from the moonroof is $700 and the marginal benefit from the security system is $600. The economic decision rule dictates that you should: a. purchase only the moonroof because that will provide you with the greatest marginal benefit b. purchase only the security system because its marginal benefit exceeds its marginal cost c. purchase both options because the combined cost of both is less than the combined benefit d. not purchase either because the benefits of each do not exceed the costs

b. purchase only the security system because its marginal benefit exceeds its marginal cost

(Exam 1 Q9 [multiple choice]) If the construction of a new hospital would create $6 million worth of benefits for citizens and would cost $8 million to construct, then using the criterion of economic efficiency, the hospital a. should be built b. should not be built c. results in a substantial improvement to the welfare of society d. should be built if it passes by a majority votes

b. should not be built

(Ch. 11a Quiz) (Q13) In the short run: a. firms can use any input combination they want b. some inputs are fixed c. all inputs are variable d. firms can choose among all possible production techniques

b. some inputs are fixed

(Ch. 20 Quiz) (Q5) Taking explicit account of a rival's expected response to a decision you are making is called: a. monopolistic decision making b. strategic decision making c. competitive decision making d. economic decision making

b. strategic decision making

(Ch. 1 Quiz) (Q7) Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should: a. study for the quiz as long as her hourly wage rate is more than $20 b. study for the quiz as long as her hourly wage rate is less than $20 c. study for the quiz only if her hourly wage rate is exactly $20 d. not study for the quiz because earning a higher grade cannot have a dollar value

b. study for the quiz as long as her hourly wage rate is less than $20

(Ch. 17 Quiz) (Q16) The demand for labor is a derived demand because: a. many workers are self-employed b. the demand for labor comes from the demand for output c. the demand for output comes from the demand for labor d. the income workers earn adds to the demand for output

b. the demand for labor comes from the demand for output

(Exam 3 Q33 [long answer - multiple choice]) Long Answer quest 3: The demand curve for a monopolist is: a. not relevant since the monopolist sets price b. the market demand curve c. perfectly elastic d. perfectly inelastic

b. the market demand curve

(Ch. 14 Quiz) (Q12) Marginal revenue is not equal to price for a monopolist because: a. total revenue increases as output increases b. the monopolist must lower the price of all units in order to sell more c. the monopolist's demand curve is below its marginal revenue curve d. the monopolist sets price equal to marginal cost

b. the monopolist must lower the price of all units in order to sell more

(Ch. 14 Quiz) (Q3) Under monopolistic competition, a firm's ability to influence the price of the product it sells arises because: a. sellers in the market have large market shares b. the product of each seller is differentiated from that of others c. each seller sells a standardized product d. sellers in the market have small market shares

b. the product of each seller is differentiated from that of others

(Ch. 15 Quiz) (Q20) The contestable market model of oligopoly bases pricing and output decisions on: a. market share b. the threat of new entrants into the market c. the degree of product differentiation d. market structure

b. the threat of new entrants into the market

(Ch. 11b Quiz) (Q2) Fixed costs plus variable costs equal: a. average total costs b. total costs c. marginal costs d. average costs

b. total costs

(Ch. 14 Quiz) (Q13) Refer to the table shown, which shows the demand schedule for a product sold by a monopolist (refer to figure in folder). Marginal revenue is positive: a. when price is $10 b. when price is above $10 c. for every price d. when price is below $10

b. when price is above $10

(Ch. 1 Quiz) (Q1) Which of the following is NOT one of the three central coordination problems of the economy given in the book? a. how b. whether c. for whom d. what

b. whether

(Exam 1 Q1 [multiple choice]) Which of the following is not one of the three central coordination problems of the economy given in the book? a. what b. whether c. for whom d. how

b. whether

(Exam 1 Q8 [multiple choice]) The actual incidence (or burden) of a tax refers to: a. the government agency responsible for collecting the tax b. who actually bears the burden of a tax once changes in market price are taken into account c. the degrees of progressiveness in the rate structure of the tax d. who the tax is legally or statutorily imposed on

b. who actually bears the burden of a tax once changes in market price are taken into account

(Ch. 1 Quiz) (Q10) The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-Shirt reflects its marginal cost to Mary and Mary uses economic reasoning, she: a. will sell the T-shirts she has to others who are willing to pay $10 b. will buy another T-shirt this month c. cannot gain by buying another T-shirt d. will not buy a T-shirt this month

b. will buy another T-shirt this month

(Ch. 17 Quiz) (Q2) All of the following are possible explanations for the fact that on average women earn lower wages than men in the United States except: a. women are discriminated against in labor markets b. women are more productive than men on average c. women enter and leave the labor force more frequently than men, causing them on average to have less experience and a lower productivity than men d. women choose to work in low-wage industries

b. women are more productive than men on average

(Ch. 11b Quiz) (Q7) Refer to the table shown (refer to figure folder) If the output of bicycles is 4 per week, the marginal cost of producing another bicycle per week is: a. $130 b. $120 c. $140 d. $110

c. $140

(Exam 2 Q16 [multiple choice]) 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. $0. b. $1,000. c. $500. d. $1,500.

c. $500.

(Ch. 6 Quiz) (Q12) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about: a. 0.0 b. 0.6 c. 0.4 d. 2.5

c. 0.4

(Ch. 6 Quiz) (Q3) Refer to the graph shown (refer to figure in folder). Calculate the approximate average elasticity of demand as the price falls from $18 to $0: a. 2/3 b. 3/2 c. 1 d. 3

c. 1

(Ch. 7 Quiz) (Q3) Refer to the graph shown (refer to figure in folder). In equilibrium, consumer surplus is equal to: a. 1,200 b. 600 c. 1,400 d. 2,000

c. 1,400

(Ch. 6 Quiz) (Q15) Compute the approximate elasticity of supply from the following data: a. 0.2 b. 5.0 c. 2.1 d 0.5

c. 2.1

(Ch. 15 Quiz) (Q3) The top four firms in the industry have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The four-firm concentration ratio of this market is: a. 8 b. 264 c. 32 d. 66

c. 32

(Ch. 11a Quiz) (Q17) Refer to the table shown (refer to figure in folder). The marginal product of the sixth worker is: a. 7 b. 9 c. 6 d. 8

c. 6

(Ch. 17 Quiz) (Q8) Refer to the table shown (refer to figure in folder) The marginal physical product of the sixth worker is _____, and the average product of six workers is _____. a. 15; 6 b. 13; 2 c. 6; 15 d. 2; 13

c. 6; 15

(Ch. 13 Quiz) (Q2) Refer to the graph shown (refer to figure in folder). The supply curve for the perfectly competitive firm is best represented by the segment: a. AB b. BD c. CE d. DE

c. CE

(Ch. 9 Quiz) (Q1) Assume that in Canada the opportunity cost of producing one television set is two bushels of wheat. Assume that in the United States the opportunity cost of producing one bushel of wheat is two television sets. If these two countries specialize according to comparative advantage and then trade with each other: a. the United States will export both televisions and wheat b. the United States will export wheat and import televisions c. Canada will export wheat and import televisions d. Canada will export both televisions and wheat

c. Canada will export wheat and import televisions

(Ch. 9 Quiz) (Q10) Which of the following statements correctly summarizes a difference between the layperson's and the economist's views of the net benefits of trade? a. Economists most often argue that the costs of trade outweigh the benefits while laypeople often argue that the benefits of trade outweigh the costs b. Economists often argue that most U.S. jobs are at risk of outsourcing while laypeople intuitively recognize that inherent in comparative advantage is that each country has a comparative advantage in the production of some good c. Economists often argue that the gains from trade in the form of low consumer prices tend to be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and readily identifiable d. Economists focus on trade in manufactured goods while laypeople also focus on trade involving the services of people who manage the trade

c. Economists often argue that the gains from trade in the form of low consumer prices tend to be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and readily identifiable

(Exam 2 Q6 [multiple choice]) Which of the following would most likely generate a positive externality? a. Pollution b. Roller coaster rides c. Education d. Alcoholic beverages

c. Education

(Ch. 19 Quiz) (Q8) Joan is deciding where to spend her spring break. If she goes to Cancún, Mexico, the trip will give her 9,000 units of utility and will cost her $300. If she travels to Florida instead, the trip will give her 8,000 units of utility and will cost her only $200. Joan will do best going to: a. Mexico because her pleasure per dollar will be greater b. Florida because her total cost will be lower c. Florida because her pleasure per dollar will be greater d. Mexico because her total pleasure will be greater

c. Florida because her pleasure per dollar will be greater

(Ch. 13 Quiz) (Q16) The profit-maximizing condition for a perfectly competitive firm is: a. P = AVC b. MR = AVC c. P = MC d. MR = P

c. P = MC

(Ch. 18 Quiz) (Q5) On the Lorenz curve, a perfectly equal distribution of income would be represented by: a. a horizontal line b. an upward-shaped curve c. a line with a slope of 1 d. a vertical line

c. a line with a slope of 1

(Exam 3 Q18 [multiple choice]) A monopoly firm is different from a perfectly competitive firm in that: a. there are many substitutes for a monopolist's product whereas there are no substitutes for a competitive firm's product. b. a competitive firm has a U-shaped average cost curve whereas a monopolist does not. c. a monopolist can influence market price whereas a competitive firm cannot d. a monopolist's demand curve is perfectly inelastic whereas a competitive firm's demand curve is perfectly elastic

c. a monopolist can influence market price whereas a competitive firm cannot

(Exam 2 Q7 [multiple choice]) Assuming government's goal is to benefit society as much as possible: a. actions with negative and positive externalities should be restricted. b. actions with negative and positive externalities should be encouraged. c. actions with negative externalities should be restricted and actions with positive externalities should be encouraged. d. actions with negative externalities should be encouraged and actions with positive externalities should be restricted.

c. actions with negative externalities should be restricted and actions with positive externalities should be encouraged.

(Ch. 20 Quiz) (Q9) Don and Susanne have both been accused of insider trading. Don knows that if he confesses while Susanne keeps silent, he will receive a 1-month jail sentence. He also knows that if Susanne confesses and he keeps silent, he will receive a 12-month jail sentence. If neither of them confesses, there will be insufficient evidence to convict either of insider trading, but there is enough evidence to convict each of them individually of obstructing justice, which carries a 2-month sentence. If both of them confess, they will both serve a 3-month jail sentence. This situation is: a. not realistic because those accused of insider trading always keep silent b. not realistic because those accused of insider trading are never encouraged to confess c. an application of the prisoner's dilemma d. an example of cartel behavior

c. an application of the prisoner's dilemma

(Ch. 13 Quiz) (Q4) An increase in the number of firms in a perfectly competitive market causes: a. an increase in each firm's supply curve b. a movement along the market supply curve c. an increase in the market supply curve d. a decrease in the market supply curve

c. an increase in the market supply curve

(Exam 3 Q15 [multiple choice]) An increase in the number of firms in a perfectly competitive market causes: a. a movement along the market supply curve b. an increase in each firm's supply curve c. an increase in the market supply curve d. a decrease in the market supply curve

c. an increase in the market supply curve

PLUS (Ch. 17 Quiz) (Q15) Which of the following is most likely to reduce the supply of labor? a. an increase in population b. a decrease in labor productivity c. an increase in the value placed on leisure by workers d. a decrease in the value placed on leisure by workers

c. an increase in the value placed on leisure by workers

(Exam 1 Q12 [multiple choice]) Opportunity cost is defined: a. only in terms of money spent b. as the value of all alternatives not chosen c. as the value of the best alternative not chosen d. as the difference between the benefits from a choice and the benefits from the next best alternative

c. as the value of the best alternative not chosen

(Ch. 14 Quiz) (Q5) Under monopolistic competition, a long-run equilibrium exists when price equals: a. marginal cost b. marginal revenue c. average total cost d. minimum average total cost

c. average total cost

(Exam 3 Q9 [multiple choice]) If marginal cost is less than average total cost: a. average total cost is increasing with output b. average fixed cost is increasing with output c. average total cost is decreasing with output d. average variable cost is increasing with output

c. average total cost is decreasing with output

(Ch. 3 Quiz) (Q9) In a market economy: a. workers are directed by government planning boards to produce what is in society's best interest b. government owns the means of production so that it can produce what is in society's best interest c. businesses design their plans to maximize their profit and the market is relied upon to see that individual self-interest is consistent with society's interest d. government sets prices to make necessities affordable because it is in society's best interest to make necessities affordable

c. businesses design their plans to maximize their profit and the market is relied upon to see that individual self-interest is consistent with society's interest

(Exam 3 Q20 [multiple choice]) A monopolist: a. earns a profit in the short run and the long run b. can never incur losses c. can earn profits or incur losses in the short run d. earns a profit in the short run but not in the long run

c. can earn profits or incur losses in the short run

(Ch. 15 Quiz) (Q15) To prevent price wars and enhance profits, firms in a cartel may: a. encourage foreign competition b. establish a contestable market c. collude d. accept the price in the marketplace

c. collude

(Ch. 17 Quiz) (Q21) Comparable worth laws are laws that mandate comparable pay for: a. people with comparable levels of seniority b. everyone c. comparable work d. people with comparable abilities

c. comparable work

(Exam 3 Q6 [multiple choice]) Average fixed cost: a. increases as output increases b. equals total cost divided by output c. decreases as output increases d. remains constant and doesn't vary with output

c. decreases as output increases

(Exam 1 Q15 [multiple choice]) When policymakers impose price controls, they a. are usually performing the advice of mainstream economists b. usually improve the efficiency of economic activity c. distort the signals that normally guide the allocation of resources d. demonstrate a willingness to sacrifice equity in order to improve efficiency

c. distort the signals that normally guide the allocation of resources

(Ch. 11b Quiz) (Q3) Average variable cost is total variable cost: a. multiplied by price b. divided by input c. divided by output d. multiplied by output

c. divided by output

(Ch. 8 Quiz) (Q12) The best example of a positive externality is: a. pollution b. roller coaster rides c. education d. alcoholic beverages

c. education

(Ch. 3 Quiz) (Q12) A socialist economy in theory: a. requires private ownership of property b. expects people to be selfish c. expects people to be altruistic d. is coordinated by the invisible hand

c. expects people to be altruistic

(Ch. 3 Quiz) (Q8) Which of the following is NOT a characteristic of pure capitalism? a. worker freedom b. private ownership of land c. government ownership of capital d. freedom of enterprise

c. government ownership of capital

(Exam 1 Q17 [multiple choice]) In socialism: a. economic forces do not operate b. individuals are encouraged to act for their own benefit c. government planning, rather than the market, is relied upon to coordinate economic activity d. distribution is determined by the individual's ability

c. government planning, rather than the market, is relied upon to coordinate economic activity

(Exam 1 Q7 [multiple choice]) Suppliers recognize there is a shortage in the market for their product when they notice that: a. the quantity supplies exceeds the quantity demanded b. the quantity demanded is falling c. inventories are falling d. production exceeds new orders for the product

c. inventories are falling

(Exam 3 Q8 [multiple choice]) The marginal cost curve is a mirror image of the: a. average variable cost curve b. total product curve c. marginal product curve d. average product curve

c. marginal product curve

(Exam 3 Q11 [multiple choice]) Which of the following is one of the necessary conditions for perfect competition? a. differentiated products b. indivisible setup costs c. no barriers to entry d. diminishing utility

c. no barriers to entry

(Ch. 20 Quiz) (Q6) The prisoner's dilemma is a well-known game in which: a. cooperation between prisoners is always the best independent action b. players never cheat c. noncooperation between prisoners is not the best joint action but is the best independent action d. players always cheat

c. noncooperation between prisoners is not the best joint action but is the best independent action

(Ch. 14 Quiz) (Q6) Why are patents important to those who hold them? a. without patents, there will no longer be economies of scale in production b. without patents, there would be considerably more price discrimination in the market c. patents act as a barrier to entry, allowing monopoly profits d. patents actually do not matter because they do not guarantee that a firm will make a profit

c. patents act as a barrier to entry, allowing monopoly profits

(Ch. 13 Quiz) (Q13) In a perfectly competitive market, the demand curve faced by an individual firm is: a. perfectly inelastic b. relatively elastic c. perfectly elastic d. relatively inelastic

c. perfectly elastic

(Exam 2 Q5 [multiple choice]) If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive: a. consumer surplus in the amount of $210,000. b. consumer surplus in the amount of $25,000. c. producer surplus in the amount of $25,000. d. producer surplus in the amount of $210,000.

c. producer surplus in the amount of $25,000.

(Ch. 11a Quiz) (Q16) When labor is the variable input, the average product equals the: a. marginal product multiplied by the number of workers b. marginal product divided by the number of workers c. quantity of output divided by the number of workers d. number of workers divided by the quantity of output

c. quantity of output divided by the number of workers

(Ch. 17 Quiz) (Q10) If the law of diminishing marginal product holds true and workers emigrate from Haiti, the marginal product of the workers remaining in Haiti will: a. fall because more workers are working with the same amount of capital b. fall because fewer workers are working with the same amount of capital c. rise because fewer workers are working with the same amount of capital d. rise because more workers are working with the same amount of capital

c. rise because fewer workers are working with the same amount of capital

(Ch. 11b Quiz) (Q12) The marginal cost curve: a. declines until average total cost increases b. rises when the average total cost curve lies above the average variable cost curve c. rises when the point of diminishing marginal productivity is reached d. first rises and then declines

c. rises when the point of diminishing marginal productivity is reached

(Exam 3 Q7 [multiple choice]) The marginal cost curve: a. first rises and then declines b. declines until average total cost increases c. rises when the point of diminishing marginal productivity is reached d. rises when the average total cost curve lies above the average variable cost curve.

c. rises when the point of diminishing marginal productivity is reached

(Ch. 13 Quiz) (Q12) Each firm in perfect competition: a. follows the reactions of competitors b. follows the output of other firms c. sets quantity based on market price d. follows the pricing decisions of other firms

c. sets quantity based on market price

(Ch. 17 Quiz) (Q1) The labor market is a market in which: a.labor supply and labor demand alone determine wages and employment b. firms determine the supply of labor c. social and political pressures are particularly strong d. the Invisible Hand operates unimpeded by other forces

c. social and political pressures are particularly strong

(Ch. 9 Quiz) (Q15) The Mexican demand for American goods leads to: a. the demand for Mexican pesos and the supply of U.S. dollars on the foreign exchange market b. the demand for U.S. dollars and the demand for Mexican pesos on the foreign exchange market c. the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market d. the demand for U.S. dollars and the supply of U.S. dollars on the foreign exchange market

c. the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market

(Ch. 20 Quiz) (Q7) Every value in a payoff matrix represents: a. the worst possible outcomes of various players in a game b. the gains and losses of decisions for each player regardless of the decisions of other players c. the gain or loss of a decision for each player given the decisions of other players d. the best possible outcomes of various players in a game

c. the gain or loss of a decision for each player given the decisions of other players

(Ch. 14 Quiz) (Q4) Refer to the graph shown of a monopolistically competitive firm (refer to figure in folder). You can conclude that: a. new firms will enter the industry in the long run b. existing firms will exit the industry in the long run c. the industry is in long-run equilibrium d. the price of ladies' dresses is equal to the minimum possible average total cost

c. the industry is in long-run equilibrium

(Ch. 11a Quiz) (Q4) Mr. Woodard's cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodard has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation? a. the law of supply b. the law of supply c. the law of diminishing marginal productivity d. the law of diminishing marginal utility

c. the law of diminishing marginal productivity

(Ch. 3 Quiz) (Q10) Markets coordinate economic activity through: a. asking individuals what to do b. commanding individuals what to do c. the price mechanism d. the legal mechanism

c. the price mechanism

(Exam 3 Q22 [multiple choice]) Under monopolistic competition, a firm's ability to influence the price of the product it sells arises because: a. each seller sells a standardized product b. sellers in the market have small market shares c. the product of each seller is differentiated from that of others d. sellers in the market have large market shares

c. the product of each seller is differentiated from that of others

(Ch. 18 Quiz) (Q10) The U.S. official poverty threshold is: a. three times the U.S. Department of Housing's minimum housing allowance b. the level of welfare benefits received by an eligible family c. three times the U.S. Department of Agriculture's minimum food budget d. the level of income earned by a person receiving minimum wage

c. three times the U.S. Department of Agriculture's minimum food budget

(Ch. 15 Quiz) (Q2) The North American Industry Classification System (NAICS) categorizes firms by: a. market structure, ranking them from perfectly competitive to monopoly b. profits, since profits tend to be higher in more concentrated industries c. type of economic activity, and groups firms with like production processes d. market share, and groups firms with like market power

c. type of economic activity, and groups firms with like production processes

(Ch. 6 Quiz) (Q17) Refer to the table shown to answer the question (refer to figure in folder). Between $2 and $2.20, demand is: a. perfectly elastic b. inelastic c. unit elastic d. elastic

c. unit elastic

(Ch. 9 Quiz) (Q4) The supply of euros on the foreign exchange market slopes: a. upward because European consumers buy more foreign goods when the value of the euro decreases b. downward because European consumers buy fewer foreign goods when the value of the euro decreases c. upward because European consumers buy fewer foreign goods when the value of the euro decreases d. downward because European consumers buy more foreign goods when the value of the euro decreases

c. upward because European consumers buy fewer foreign goods when the value of the euro decreases

(Ch. 9 Quiz) (Q3) Which of the following exchange rates between the dollar and the peso would a Mexican buyer of American goods most prefer? a. $0.20 = 1 peso b. $0.15 = 1 peso c. $0.05 = 1 peso d. $0.25 = 1 peso

d. $0.25 = 1 peso

(Ch. 5 Quiz) (Q13) Refer to the following graph (refer to figure in folder). A price ceiling would be binding, resulting in a market shortage if it is set at: a. either $3.00 or $1.50 b. $2.25 c. $3.00 d. $1.50

d. $1.50

(Ch. 11b Quiz) (Q5) A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost? a. $300 b. $50 c. $1 d. $100

d. $100

(Ch. 11a Quiz) (Q11) 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, economic profit equals: a. $64 b. $236 c. $0 d. $176

d. $176

(Ch. 12 Quiz) (Q2) At one time sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the total cost of making two fake killer whales would be: a. $11,000 b. $16,000 c. $10,000 d. $21,000

d. $21,000

(Ch. 11b Quiz) (Q8) Refer to the table shown (refer to figure in folder). The average total cost of producing 5 units of output is: a. $25 b. $15 c. $10 d. $5

d. $5

(Ch. 20 Quiz) (Q8) The equilibrium solution for the following payoff matrix is (refer to figure in folder): a. -1, -1 b. 0, 2 c. 2, 0 d. 1, 1

d. 1, 1

(Ch. 9 Quiz) (Q14) If 1 Canadian dollar costs 0.60 U.S. dollar, 1 U.S. dollar costs: a. 0.40 Canadian dollar b. 0.60 Canadian dollar c. 1.40 Canadian dollars d. 1.67 Canadian dollars

d. 1.67 Canadian dollars

(Ch. 12 Quiz) (Q3) With the long-run average cost curve above, the minimum efficient scale of production is (refer to figure in folder): a. 16 b. 21 c. 23 d. 18 to 21

d. 18 to 21

(Ch. 19 Quiz) (Q10) If the price of one can of Alpo is $0.50 and the price of each McBurger is $1, which of the following would Ms. Tightwad, a utility-maximizing consumer, buy with her $4 (refer to figure in folder)? a. 4 McBurgers b. 2 McBurgers and 4 cans of Alpo c. 1 McBurger and 6 cans of Alpo d. 3 McBurgers and 2 cans of Alpod.

d. 3 McBurgers and 2 cans of Alpo

(Ch. 18 Quiz) (Q8) Refer to the graph shown. The top 20 percent of the families earn: a. 54.7 percent of the income b. 32.6 percent of the income c. 67.4 percent of the income d. 45.3 percent of the income

d. 45.3 percent of the income

(Ch. 6 Quiz) (Q13) If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a: a. 20 percent decrease in quantity supplied b. 5 percent decrease in quantity supplied c. 20 percent increase in quantity supplied d. 5 percent increase in quantity supplied

d. 5 percent increase in quantity supplied

(Exam 2 Q17 [multiple choice]) Refer to the table shown. The marginal product of the sixth worker is: a. 7. b. 9. c. 8. d. 6.

d. 6.

(Ch. 19 Quiz) (Q1) The following table lists the utility that Sarah receives from consuming bananas at $0.25 a banana (refer to figure in folder). What is the marginal utility of consuming the fourth banana? a. 40 b. 32 c. 2 d. 8

d. 8

(Ch. 9 Quiz) (Q11) The text mentions 10 sources of U.S. comparative advantage. Which of the following is not one of them? a. Extensive natural resources b. Wealth from past production c. The fact that English is the international language of business d. A substantial policy to limit immigration

d. A substantial policy to limit immigration

(Ch. 6 Quiz) (Q5) Refer to the graph shown (refer to figure in folder). When price is $40, revenue equals areas: a. A, B, C, D, and E b. A and B only c. A only d. A, B, and D only

d. A, B, and D only

(Ch. 18 Quiz) (Q7) Refer to the graph shown. The Lorenz curve showing the most income equality is: a. A b. D c. C d. B

d. B

(Exam 3 Q29 [long answer - multiple choice]) Long Answer quest 2: Which of the following provides the best explanation for diseconomies of scale? a. Diminishing marginal productivity b. Indivisible setup costs c. Increased specialization d. Monitoring costs

d. Monitoring costs

(Ch. 6 Quiz) (Q18) The demand for a good is inelastic. Which of the following would be an explanation for this? a. The time interval considered is long b. The good is specifically defined c. The good costs a large portion of one's total income d. The good is a necessity

d. The good is a necessity

(Ch. 18 Quiz) (Q6) A Lorenz curve that becomes less bowed out implies: a. no change in income distribution b. an increase in poverty c. a change in income distribution toward more inequality d. a change in income distribution toward more equality

d. a change in income distribution toward more equality

(Ch. 9 Quiz) (Q6) If the United States were to stop trading with other nations, economists would predict that in the long run the United States would end up with: a. more jobs b. lower prices c. a higher standard of living d. a lower standard of living

d. a lower standard of living

(Ch. 14 Quiz) (Q1) A monopoly firm is different from a competitive firm in that: a. there are many substitutes for a monopolist's product whereas there are no substitutes for a competitive firm's product b. a competitive firm has a U-shaped average cost curve whereas a monopolist does not c. a monopolist's demand curve is perfectly inelastic whereas a competitive firm's demand curve is perfectly elastic d. a monopolist can influence market price whereas a competitive firm cannot

d. a monopolist can influence market price whereas a competitive firm cannot

(Ch. 14 Quiz) (Q11) The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for: a. a monopolist lies below its marginal revenue curve b. a competitive firm lies above its marginal revenue curve c. a competitive firm is inelastic d. a monopolist is the market demand curve

d. a monopolist is the market demand curve

(Exam 1 Q16 [multiple choice]) The statement "Government should provide affordable health care coverage for every member of society" is: a. a statement that everyone agrees with b. a statement that everyone disagrees with c. a positive statement d. a normative statement

d. a normative statement

(Ch. 5 Quiz) (Q14) The most likely impact of an effective price floor is: a. a shortage will develop b. the demand curve will shift to the left c. the supply curve will shift to the right d. a surplus will develop

d. a surplus will develop

(Ch. 8 Quiz) (Q7) Assuming government's goal is to benefit society as much as possible: a. actions with negative and positive externalities should be restricted b. actions with negative and positive externalities should be encouraged c. actions with negative externalities should be encouraged and actions with positive externalities should be restricted d. actions with negative externalities should be restricted and actions with positive externalities should be encouraged

d. actions with negative externalities should be restricted and actions with positive externalities should be encouraged.

(Ch. 12 Quiz) (Q5) In the long run: a. all inputs are fixed b. per-unit costs are fixed c. some inputs are not variable d. all inputs are variable

d. all inputs are variable

(Exam 3 Q10 [multiple choice]) In the long run: a. some inputs are not variable b. per-unit costs are fixed c. all inputs are fixed d. all inputs are variable

d. all inputs are variable

(Ch. 11a Quiz) (Q15) Which of the following is the best example of a long-run decision? a. a business consulting firm considering whether to hire some interns to assist with research and data processing b. a business consulting firm considering whether to hire some interns to assist with research and data processing c. an automobile manufacturing company considering whether to expand its existing workforce while keeping the same factory and equipment d. an automobile manufacturing company considering whether to invest in robotic equipment to develop a more cost-effective production technique

d. an automobile manufacturing company considering whether to invest in robotic equipment to develop a more cost-effective production technique

(Ch. 5 Quiz) (Q2) Refer to the following graph (refer to figure in folder). A government-imposed price ceiling of $2 will result in: a. neither excess supply nor excess demand since it is not binding b. neither excess supply nor excess demand since it is binding c. an excess supply of 2 d. an excess demand of 2

d. an excess demand of 2

(Exam 2 Q9 [multiple choice]) Economists generally call the effect of an agreement on others that is not taken into account by the parties making the agreement: a. Pareto optimality. b. excess burden. c. welfare loss. d. an externality.

d. an externality.

(Ch. 15 Quiz) (Q6) A market has the following characteristics: There is strategic pricing, output is somewhat restricted, there is interdependent decision making, and some long-run economic profits are possible. This market is: a. perfectly competitive b. a monopoly c. monopolistically competitive d. an oligopoly

d. an oligopoly

(Ch. 13 Quiz) (Q11) Perfectly competitive firms: a. can influence the prices of other firms in the same industry by altering their own prices b. will succeed by charging a price higher than that charged by the rest of the market c. are individually able to influence the market price d. are price takers, since they are not large enough to influence the market price

d. are price takers, since they are not large enough to influence the market price

(Ch. 18 Quiz) (Q11) A higher tax rate could result in lower tax revenues if: a. individuals switch from leisure to labor b. fewer people qualify for government assistance c. the tax has no incentive effects d. attempts to avoid or evade taxes increase

d. attempts to avoid or evade taxes increase

(Ch. 11b Quiz) (Q9) Which short-run cost curve continually declines as output increases? a. marginal cost b. total cost c. average variable cost d. average fixed cost

d. average fixed cost

(Ch. 19 Quiz) (Q6) The following table describes utility for consuming cans of soda (refer to figure in folder). At what point does the law of diminishing marginal utility set in? a. marginal utility never diminishes b. between four and five cans c. marginal utility diminishes everywhere d. between three and four cars

d. between three and four cans

(Exam 1 Q18 [multiple choice]) Which of the following occur in the real world? a. neither market failures nor government failures b. government failures but not market failures c. market failures but not government failures d. both market failures and government failures

d. both market failures and government failures

(Ch. 14 Quiz) (Q16) A monopolist: a. can never incur losses b. earns a profit in the short run and the long run c. earns a profit in the short run but not in the long run d. can earn profits or incur losses in the short run

d. can earn profits or incur losses in the short run

(Ch. 12 Quiz) (Q4) The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate: a. economies of scale b. diseconomies of scale c. decreasing marginal productivity d. constant returns to scale

d. constant returns to scale

(Ch. 17 Quiz) (Q19) A reduction in the demand for labor will cause wages to: a. increase and employment to decrease b. decrease and employment to increase c. increase and employment to increase d. decrease and employment to decrease

d. decrease and employment to decrease

(Ch. 3 Quiz) (Q15) Government is on the: a. supply side of factor markets and the demand side of goods markets b. demand side of factor markets and the supply side of goods markets c. supply side of both factor markets and goods markets d. demand side of both factor markets and goods markets

d. demand side of both factor markets and goods markets

(Ch. 9 Quiz) (Q16) In the graph below, the value of the dollar is: a. depreciating because the dollar buys more yuan b. appreciating because the dollar buys more yuan c. appreciating because the dollar buys fewer yuan d. depreciating because the dollar buys fewer yuan

d. depreciating because the dollar buys fewer yuan

(Ch. 17 Quiz) (Q5) The price of apples is currently $1 per pound. If apples are sold in a competitive market and the price of apples increases to $2 per pound, the marginal revenue product (MRP) of labor used to produce apples would: a. not change b. change in a manner that cannot be determined without additional information c. be cut in half d. double

d. double

(Exam 3 Q28 [long answer - multiple choice]) Long Answer quest 2: The long-run average cost curve is typically: a. always upward-sloping b. upward-sloping at first but then downward-sloping c. always downward-sloping d. downward-sloping at first but then upward-sloping

d. downward-sloping at first but then upward-sloping

(Exam 3 Q21 [multiple choice]) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a: a. horizontal demand curve and price equals marginal cost in equilibrium b. downward-sloping demand curve and price equals marginal cost in equilibrium c. horizontal demand curve and price exceeds marginal cost in equilibrium d. downward-sloping demand curve and price exceeds marginal cost in equilibrium

d. downward-sloping demand curve and price exceeds marginal cost in equilibrium

(Ch. 8 Quiz) (Q9) If a market has no externalities, marginal private costs: a. exceed marginal social costs b. are below marginal social costs c. intersect marginal social costs d. equal marginal social costs

d. equal marginal social costs

(Exam 2 Q18 [multiple choice]) The law of diminishing marginal productivity implies that the marginal product of a variable input: a. never declines. b. always declines. c. is constant. d. eventually declines

d. eventually declines

(Ch. 6 Quiz) (Q4) The price elasticity of demand for insulin by diabetic patients is much smaller than the price elasticity of demand for leather shoes. This is an example of how the price elasticity of demand: a. falls the less specifically the good is defined b. rises the more a good is a necessity c. rises the less specifically the good is defined d. falls the more a good is a necessity

d. falls the more a good is a necessity

(Ch. 11a Quiz) (Q2) Refer to the table shown (refer to figure in folder). Diminishing marginal productivity begins when the: a. sixth worker is hired b. third worker is hired c. fourth worker is hired d. fifth worker is hired

d. fifth worker is hired

(Ch. 14 Quiz) (Q18) When a monopolistically competitive industry is in long-run equilibrium: a. firms earn economic profits b. price equals minimum average total cost c. price equals marginal cost d. firms earn zero economic profits

d. firms earn zero economic profits

(Ch. 17 Quiz) (Q9) Refer to the table shown (refer to figure in folder). If the price per unit of product is $2 and the wage rate is $25, a profit-maximizing firm operating in competitive markets would hire: a. six workers b. three workers c. five workers d. four workers

d. four workers

(Ch. 15 Quiz) (Q5) One advantage of the Herfindahl index over the concentration ratio is that it: a. takes into account only the leading firms in an industry b. tells about only the top 50 firms in an industry c. is easier to calculate d. gives extra weight to firms that are especially large

d. gives extra weight to firms that are especially large

(Exam 1 Q10 [multiple choice]) Which of the following is not a characteristic of pure capitalism? a. private ownership of land b. freedom of enterprise c. worker freedom d. government ownership of capital

d. government ownership of capital

(Ch. 9 Quiz) (Q5) Refer to the graph shown (refer to figure in folder). If the price of shekels is $1.10, the quantity of shekels supplied is: a. less than the quantity demanded. This causes the shekel to gain value b. less than the quantity demanded. This causes the shekel to lose value c. greater than the quantity demanded. This causes the shekel to gain value d. greater than the quantity demanded. This causes the shekel to lose value

d. greater than the quantity demanded. This causes the shekel to lose value

(Ch. 13 Quiz) (Q6) Long-run competitive equilibrium in an industry implies that no firm: a. is earning a normal profit b. is earning accounting profits c. is producing at the output level where price equals long-run average total cost d. has an incentive to enter or exit the industry

d. has an incentive to enter or exit the industry

(Ch. 6 Quiz) (Q6) An economist estimates the elasticity of demand for baseball tickets to be 0.23. Using this information, a club that wants to raise revenues should: a. lower ticket prices b. raise the prices of other goods sold at games c. leave ticket prices unchanged, because it is maximizing revenue d. increase ticket prices

d. increase ticket prices

(Ch. 17 Quiz) (Q12) The opportunity cost of leisure: a. has nothing to do with wages b. remains the same as wages get higher c. decreases as wages get higher d. increases as wages get higher

d. increases as wages get higher

(Exam 3 Q16 [multiple choice]) Refer to the following graph. The perfectly competitive firm depicted is currently: a. earning zero economic profit b. earning positive economic profit c. incurring a loss that is larger than total fixed cost, and so the firm should shut down d. incurring a loss, but the loss is smaller than it would be if the firm shut down

d. incurring a loss, but the loss is smaller than it would be if the firm shut down

(Ch. 12 Quiz) (Q9) Economies of scale are associated with: a. zero setup costs b. the short run c. diminishing marginal productivity d. indivisible setup costs

d. indivisible setup costs

(Ch. 6 Quiz) (Q11) If quantity demanded falls by 25 percent when price rises by 50 percent, demand is said to be: a. unit elastic b. proportional c. elastic d. inelastic

d. inelastic

(Ch. 6 Quiz) (Q2) GreenTree Corporation sells live Christmas trees. It observes that when it increases the price of Christmas trees by 10 percent, revenue rises by 25 percent. The demand for Christmas trees is: a. perfectly elastic b. elastic c. unit elastic d. inelastic

d. inelastic

(Ch. 20 Quiz) (Q3) Game theory is designed to study situations in which each agent's decisions are: a. constrained b. independent c. uninformed d. interdependent

d. interdependent

(Ch. 20 Quiz) (Q1) Game theory: a. is more restrictive than the standard supply/demand model b. replaces the standard supply/demand model c. replaces the monopoly model d. is more flexible than the standard supply/demand model

d. is more flexible than the standard supply/demand model

(Ch. 15 Quiz) (Q19) Refer to the graph shown (refer to figure in folder). If a firm operating as if it were faced with a kinked demand curve believes that if it raises price from P2 to P1, its rival will not go along: a. it probably will raise price, since lower output means lower costs and greater profit b. D2 is the relevant demand curve c. the demand curve used by the firm for decision making is highly inelastic d. it probably won't raise price, since doing so would cause sales to drop from Q3 to Q1

d. it probably won't raise price, since doing so would cause sales to drop from Q3 to Q1

(Ch. 15 Quiz) (Q18) Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut. In this case, the firm perceives its demand curve to be: a. kinked, being steeper above the going price than below b. linear, being less elastic at lower prices c. linear, being more elastic at higher prices d. kinked, being steeper below the going price than above

d. kinked, being steeper below the going price than above

(Ch. 5 Quiz) (Q6) An increase in price and decrease in quantity are consistent with a: a. leftward shift in demand and no shift in supply b. rightward shift in supply and a rightward shift in demand c. rightward shift in supply and a leftward shift in demand d. leftward shift in supply and no shift in demand

d. leftward shift in supply and no shift in demand

(Ch. 18 Quiz) (Q2) When the top marginal tax rate fell from 40 to 35 percent, with other things the same, the U.S. income tax system became: a. more progressive b. regressive c. proportional d. less progressive

d. less progressive

(Ch. 19 Quiz) (Q7) In choosing between two products, a rational consumer will choose the product that gives her the: a. least marginal utility per dollar b. greatest total utility regardless of cost c. highest cost per additional unit of utility d. lowest cost per additional unit of utility

d. lowest cost per additional unit of utility

(Exam 2 Q8 [multiple choice]) Some economists believe that the market will not solve all problems. They are referring to: optional policy. a. the need to balance the good of the individual with the good of b. society as a whole. c. market incentive plans. d. market failure.

d. market failure.

(Ch. 17 Quiz) (Q6) The derived demand curve for labor shows the: a. minimum amount of labor, measured in dollar value, that a firm requires at various wages b. maximum amount of labor, measured in dollar value, that a firm will hire at various wages c. minimum amount of labor, measured in labor hours, that a firm requires at various wages d. maximum amount of labor, measured in labor hours, that a firm will hire at various wages

d. maximum amount of labor, measured in labor hours, that a firm will hire at various wages

(Ch. 8 Quiz) (Q10) Alex is playing his music at full volume in his dorm room. The other people living on his floor find this to be nuisance, but Alex does not care. Alex's music playing is an example of a: a. positive externality b. normative normality c. Pareto externality d. negative externality

d. negative externality

(Exam 1 Q2 [multiple choice]) Scarcity exists because: a. individuals cannot solve the three central coordination problems b. governments cannot solve the three central coordination problems. c. the supply of goods is always less than the demand d. new wants continue to develop and willingness to meet is limited

d. new wants continue to develop and willingness to meet is limited

(Ch. 1 Quiz) (Q6) Scarcity exists because: a. individuals cannot solve the three central coordination problems b. the supply of goods is always less than the demand c. governments cannot solve the three central coordination problems d. new wants continue to develop and willingness to meet them is limited

d. new wants continue to develop and willingness to meet them is limited

(Ch. 9 Quiz) (Q12) The foreign exchange rate is the rate at which: a. foreign good are traded between domestic consumers b. taxes are imposed on foreign imports c. immigrants are exchanged between countries d. one country's currency can be traded for another country's currency

d. one country's currency can be traded for another country's currency

(Ch. 11a Quiz) (Q12) Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include: a. neither the expenses incurred for office space, equipment, and supplies nor her forgone salary of $42,000 per year b. only her forgone of $42,000 per year c. both the expenses incurred for office space, equipment, and supplies and her forgone salary of $42,000 per year d. only the expenses incurred for office space, equipment, and supplies

d. only the expenses incurred for office space, equipment, and supplies

(Exam 3 Q13 [multiple choice]) In a perfectly competitive market, the demand curve faced by an individual firm is: a. relatively inelastic b. perfectly inelastic c. relatively elastic d. perfectly elastic

d. perfectly elastic

(Ch. 19 Quiz) (Q5) If Steve willingly consumes another slice of pizza, you can be sure that his marginal utility is: a. negative b. falling c. rising d. positive

d. positive

(Ch. 17 Quiz) (Q11) Refer to the graph shown (refer to figure in folder) If labor supply shifts from S1 to S2, the firm will: a. raise employment from q1 to q0 to maximize profit where MRP = W b. reduce employment from q0 to q1 to maximize profit where MRP = W c. raise employment from q2 to q1 to maximize profit where MRP = W d. reduce employment from q1 to q2 to maximize profit where MRP = W

d. reduce employment from q1 to q2 to maximize profit where MRP = W

(Ch. 8 Quiz) (Q13) When you purchase and eat a hamburger, no one else can eat the same hamburger. When you download a file on the Internet, the file is still available for others to download. Economists explain this difference between hamburgers and computer files by saying that the hamburger is: a. excludable whereas the computer file is not b. nonrival in consumption whereas the computer file is not c. nonexcludable whereas the computer file is not d. rival in consumption whereas the computer file is not

d. rival in consumption whereas the computer file is not

(Ch. 15 Quiz) (Q1) Taking explicit account of a rival's expected response to a decision you are making is called: a. competitive decision making b. economic decision making c. monopolistic decision making d. strategic decision making

d. strategic decision making

(Ch. 3 Quiz) (Q2) Governments do all of the following EXCEPT: a. demand labor services from households in the factor market b. oversee the interaction of households and businesses in the goods and factor markets c. demand goods and services from businesses in the goods market d. supply labor services to businesses in the factor market

d. supply labor services to businesses in the factor market

(Ch. 13 Quiz) (Q14) Marginal revenue is equal to: a. the change in total profits associated with a change in quantity b. marginal cost c. total revenue divided by its output d. the change in total revenue associated with a change in quantity

d. the change in total revenue associated with a change in quantity

(Ch. 8 Quiz) (Q11) When negative externalities are present, market failure often occurs because: a. the existence of imports from foreign countries takes jobs (and income) away from U.S. citizens b. consumers will consume the good at a level at which their individual marginal benefits exceed the marginal costs borne by the firm producing the good c. the cost borne by a third party not involved in the trade is reflected in the market price d. the cost borne by a third party not involved in the trade is not reflected in the market price

d. the cost borne by a third party not involved in the trade is not reflected in the market price

(Ch. 14 Quiz) (Q2) As firms leave a monopolistically competitive industry that is sustaining economic losses: a. the market supply curve shifts to the right b. total quantity demanded increases for the industry c. the demand curves facing the remaining firms in the industry shift to the left d. the demand curves facing the remaining firms in the industry shift to the right

d. the demand curves facing the remaining firms in the industry shift to the right

(Ch. 13 Quiz) (Q18) The supply curve of a perfectly competitive firm is: a. the marginal cost curve only if price exceeds average total cost b. the average total cost curve only if price exceeds average variable cost c. nonexistent d. the marginal cost curve only if price exceeds average variable cost

d. the marginal cost curve only if price exceeds average variable cost

(Ch. 17 Quiz) (Q3) Institutional discrimination exists when: a. discrimination is based on correctly perceived statistical characteristics of a group. b. discrimination is based on individual characteristics not related to job performance c. discrimination is based on individual characteristics related to job performance d. the structure of a job makes it difficult for certain groups of individuals to succeed

d. the structure of a job makes it difficult for certain groups of individuals to succeed

(Exam 3 Q19 [multiple choice]) Refer to the table shown, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is positive: a. for every price b. when price is below $10 c. when price is $6 d. when price is above $10

d. when price is above $10

(Ch. 14 Quiz) (Q14) If a firm has a monopoly over the sale of photographic paper and seeks to maximize profits, it: a. will set the price of the product equal to the marginal cost of production b. will set the price of the product equal to the average total cost of production c. adjusts the price of the product until demand becomes perfectly inelastic d. will set the price of the product so that its marginal revenue equals its marginal cost

d. will set the price of the product so that its marginal revenue equals its marginal cost

(Ch. 17 Notes - Understand) Appendix: Derived Demand (The Firm's Decision to Hire)

• The demand for resources is derived from the demand for the products that the resources help produce. Ex. A repair shop hires mechanics because of their customers' demand for maintenance and repair services. • A change in product demand will cause demand for the resources used to produce the product to change in the same direction. • A change in productivity of the resource will alter resource demand. • Productivity of a resource rises, demand for the resource will rise. • A change in price of related inputs will alter demand for a resource. The following will increase resource demand: • an increase in a substitute input price • a decrease in a complimentary input price The following will decrease resource demand: • a decrease in a substitute input price • an increase in a complimentary input price MARGINAL REVENUE PRODUCT • Profit-maximizing firms will hire additional units of a resource up to the point where the marginal revenue product of the resource equals its price. • Marginal revenue product (MRP): Change in total revenue from the employment of an additional unit of a resource. MRP = Marginal Product x Marginal Revenue Marginal Product = change in output / change in variable input Marginal Revenue = change in revenue / change in output