Vandana Jain URI ECN 201

A progressive income tax would cause the after-tax Lorenz curve, compared with the before-tax Lorenz curve, to be: A) Less bowed toward the southeast B) More bowed toward the southeast C) A vertical line D) A horizontal line

A less bowed toward the southeast

In the U.S., the percentage of total population living in poverty fell significantly during which of the following periods? A) 1959-1969 B) 2008-2011 C) 1969-1979 D) 2001-2004

A. 1959-1969

In the long-run equilibrium of a monopolistically competitive industry: A) P > minimum (ATC) B) P < MC C) P = minimum (ATC) D) P = MC

A. P > Minimum ATC

Given the diagram above, which level of output should the entrepreneur choose? A) X3 since any increase in output will reduce profits B) Either X1 or X3 since the profit level will be the same C) X2 since at this level the difference between MR and MC is maximized D) X1 since any decrease in output will reduce profits

A. X3 since any increase in output will reduce profits

Refer to the graph above, showing the long-run supply and demand curves in a purely competitive market. The curves suggest that this industry is: A) A constant-cost industry B) Decreasing-cost industry C) Increasing-cost industry D) Not possible, because the supply curve always slopes up

A. a constant cost industry

france makes 3 machines and 1 wine. germany makes 1 machine and 1 wine. we can see that A) Germany has a comparative advantage in producing wine B) France has a comparative advantage in producing wine C) Germany can produce machines at a lower opportunity cost than France D) Neither country has a comparative advantage in producing wine

A. germany has a comparative advantage in producing wine

Which of the following statements about a competitive firm is correct? A) In long-run equilibrium a competitive firm will produce at the point of minimum average costs B) A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost C) To maximize profits a competitive firm should produce at that output at which total revenue is greatest D) A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

A. in long run equilibrium a competitive firm will produce at the point of minimum average costs

Under pure monopoly, a profit-maximizing firm will produce: A) In the elastic range of its demand curve B) Only where marginal costs are decreasing C) Only where marginal revenue is increasing D) In the inelastic range of its demand curve

A. in the elastic range of its demand curve

Which statement concerning monopolistic competition is false? A)Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit B)Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms C)The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly D)Monopolistic competition is likely to result in a greater variety of product brands than pure competition

A. long run equilibrium in monopolistic competition des not entail any economic inefficiency because of easy entry exit

A major reason that firms form a cartel is to: A) Maximize joint profits B) Enlarge the market share for each producer C) Minimize the costs of production D) Reduce the elasticity of demand for the product

A. maximize joint profits

Compared to pure competition, monopolistic competition: A) Provides greater product differentiation at the cost of some excess capacity B) Provides greater product differentiation and achieves greater productive efficiency C) Offers less product differentiation and lower productive efficiency D) Offers less product differentiation but attains equal productive efficiency

A. provides greater product differentiation at the cost of some excess capacity

A potential negative effect of advertising for society is that it can: A) Be self-canceling and contribute to economic inefficiency B) Reduce mutual interdependence and increase competition C) Be the major cause of price wars among firms in the industry D) Lower barriers to entry and undermine profits in the industry

A. self canceling and contribute to economic inefficiency

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect: A) Some firms to exit causing the market price of corn to rise B) New firms to enter causing the market price of corn to fall C) Some firms to exit causing the market price of corn to fall D) New firms to enter causing the market price of corn to rise

A. some firms to exit causing the market price f corn to rise

In the standard model of pure competition, a profit-maximizing firm will produce the output quantity in the short run where the gap between: A) Total revenue and total cost is the largest, with revenue higher than cost B) Marginal revenue and marginal cost is the largest, with revenue higher than cost C) Average revenue and average variable cost is the largest D) Average revenue and average cost is the largest, with revenue higher than cost

A. total revenue and total cost is the greatest with revenue higher than cost

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating: A) With a loss B) With positive profits C) At the break-even point D) At a non-optimal level of output

A. with a loss

In 2010, the bottom 90% of households in the U.S. owned about how many percent of total wealth in the nation? A) 52% B) 36% C) 65% D) 23%

B 36%

Some economists prefer to look at the distribution of consumption rather than that of income. A Review of Economic Studies article in 2006 reported that consumption inequality in the U.S. is: A) Highly unstable from one year to the next B) Less severe than the income inequality C) Worse than the income inequality D) About the same as the income inequality

B less severe than than income inequality

The difference between income and wealth is that income: A) Is accumulated, while wealth is earned B) Refers to a flow of earnings, while wealth is the stock of assets one has C) May not be in cash, while wealth is in cash D) Is measured at a point in time, while wealth is measured over a period of time

B refers to flow of earnings while wealth is the stock of assets

The average household income in the United States in 2011 was about: A) $100,000 B) $70,000 C) $50,000 D) $35,000

B. 70,000

Refer to the graph above. At equilibrium, consumer surplus would be represented by the area: A) a + b + c B) a C) b + c D) a + b

B. a

Refer to the above graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price: A) Below P3 B) Above P2 C) Below P2 D) Above P1

B. above P2

The economic inefficiency in an oligopoly may be reduced by the following, except: A) Limit pricing due to potential entrants B) Aggressive advertising by rivals C) Economic profits used to fund technological advance D) Increased competition from foreign producers

B. aggressive advertising by rivals

Collusion refers to a situation where rival firms decide to: A) Compete aggressively against each other B) Agree with each other to set prices and output C) Combine their operations and merge with each other D) Cheat on each other

B. agree with each other to set prices for output

The principal concept behind comparative advantage is that a nation should: A) Maximize its volume of trade with other nations B)Concentrate production on those products for which it has the lowest domestic opportunity cost C) Strive to be self-sufficient in the production of essential goods and services D) Use tariffs and quotas to protect the production of vital products for the nation

B. concentrate production on those products for which it has the lowest domestic opportunity cost

Which of the following antipollution policies is least likely to make use of cost-benefit analysis? A) Private bargaining B)Enacting legislation that bans pollution C)Charging polluters an emission fee D) Creating a market for pollution rights

B. enacting legislation that bans pollution

Refer to the payoff matrix above. If Firm A adopts the low-price strategy, then Firm B would adopt the: A) Low-price strategy and earn $325 B) High-price strategy and earn $200 C) Low-price strategy and earn $175 D) High-price strategy and earn $250

B. high price strategy and earn 200

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of: A) Import competition B) Interindustry competition C) Overt collusion D) Covert collusion

B. interindustry competition

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called: A) Nondiscrimination B) Nonexcludability C) Nontaxability D) Nonrivalry

B. nonexcludability

When producers do not have to pay the full cost of producing a product, they tend to: A) Under-produce the product because of a demand-side market failure B) Over-produce the product because of a supply-side market failure C) Over-produce the product because of a demand-side market failure D) Under-produce the product because of a supply-side market failure

B. over produce the product because of a supply side market failure

Excess capacity implies: A) Productive efficiency B) Productive inefficiency C) Allocative inefficiency D) Allocative efficiency

B. productive ineficiency

Which market model assumes the least number of firms in an industry? A) Monopolistic competition B) Pure monopoly C) Pure competition D) Oligopoly

B. pure monopoly

In a two-nation world, comparative advantage in the production of a particular product means that one nation can produce: A) The product with fewer inputs than the other nation B) The product at a lower domestic opportunity cost than the other nation C) The product at lower average cost than the other nation D) More of the product than the other nation

B. the product at a lower domestic opportunity cost than the other nation

A) The demand for the output from the hydroelectric power plants to increase B) The supply of the output from the hydroelectric power plants to increase C) The supply of the output from the hydroelectric power plants to decrease D) The demand for the output from the hydroelectric power plants to decrease

B. the supply of output from the hydroelectric power plants to increase

External benefits in consumption refer to benefits accruing to: A) Those who bought and consumed the product B) Those other than the ones who consumed the product C) Those who are consuming the product abroad D) Those who are selling the product to the consumers

B. those other than the ones who consumed the product

Refer to the above table. When this game reaches a Nash equilibrium, the payoffs will be A) $5 for firm A and $15 for firm B. B) $15 for firm A and $5 for firm B. C) $17M for both firms. D) $3M for both firms.

C. 17 milllion for both firms

In Germany, one worker can produce either one cuckoo clock or one beer mug. In Taiwan, one worker can produce either two cuckoo clocks or three beer mugs. Who has the comparative advantage in each good? A) Taiwan in clocks and Germany in mugs B) Germany in both goods C) Germany in clocks and Taiwan in mugs D) Taiwan in both goods

C. Germany in clocks and taiwan in mugs

Refer to the above graph showing the revenue curves for a monopolist. Total revenue will be greatest at what output level? A) Q1 B) Q2 C) Q3 D) Q4

C. Q3

A cartel is: A) Legal in the United States B) Always successful in raising profits C) A formal agreement among firms to collude D) A form of covert collusion

C. a formal agreement among firms to collude

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below: A) Marginal cost B) Average cost C) Average variable cost D) Average fixed cost

C. average variable cost

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are: A) Increasing B) Constant C) Decreasing D) At their minimum point

C. decreasing

Compared to the purely competitive industry, a pure monopoly: A)Produces an equal amount of output, but charges higher prices to cover all costs in the market B)Is often more efficient from society's perspective because it has big plants and it uses the newest technology C)Is able to use barriers to entry and maintain positive economic profits in the long run D)Will always become competitive in the long run because positive economic profits will induce competitors into the market

C. is able to use barriers to entry and maintain positive economic profits in the long run

If the supply and demand curves above represent the market supply and demand for a purely competitive industry, then the demand curve that an individual firm in the industry faces: A) Is equal to the marginal-revenue curve which is a flat line at P0 B)Has the same slope as the market demand, but at P0 its quantity demanded is only a fraction of Q0 C) Is identical to the market demand D)Is more elastic than the market demand but has a marginal-revenue curve lying below it

C. is identical to the market demand

Which is a valid counter-argument to the infant industry argument for protective tariffs? A) The objective would be better achieved by import quotas and nontariff barriers B) The objective would be better achieved through strategic trade policy C)It is difficult to determine which infant industries will become mature industries with a comparative advantage D) It results in too many benefits for domestic firms that export goods and services

C. it is difficult to determine which infant industries will become mature industries

The problem with adopting a fair-return pricing policy for a natural monopoly is that: A) It is not productively efficient B) Economic profits will be negative C) It is not allocatively efficient D) Economic profits will be positive

C. it is not allocatively efficient

Mutual interdependence would tend to limit control over price in which market model? A) Pure monopoly B) Pure competition C) Monopolistic competition D) Oligopoly

C. monopolistic competition

The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In Korea, the domestic opportunity cost of producing a television is 10 bushels of wheat. In this case: A) The United States has a comparative advantage in the production of televisions B) Korea has a comparative advantage in the production of wheat C)Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States D)Mutual gains from trade can be obtained if the United States imports wheat from Korea and Korea imports televisions from the United States

C. mutual gains from trade can be obtained if the US imports TVs and imports wheat with korea

Which of the following is a barrier to entry? A) Close substitutes B) Diminishing marginal returns C) Patents and licenses D) Buyers' incomes

C. patents and lisences

Which characteristic would best be associated with pure competition? A) Product differentiation B) Nonprice competition C) Price takers D) Few sellers

C. price takers

Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be: A) $1,200,000 B) $1,500,000 C) $1,400,000 D) $1,250,000

D. 1,250,000

If Nation A requires more resources to produce each bale of cloth than Nation B does, then we say that: A) Nation B has the comparative advantage over Nation A in producing cloth B) Nation A has the comparative advantage over Nation B in producing cloth C) Nation A has the absolute advantage over Nation B in producing cloth D) Nation B has the absolute advantage over Nation A in producing cloth

D. Nation B has to absolute advantage over Nation A

Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would set what price and quantity levels in the short run? A) P1 and Q1 B) P2 and Q3 C) P3 and Q2 D) P4 and Q1

D. P4 and Q1

`Refer to the above graph showing the revenue curves for a monopolist. At what output level is demand inelastic? A) Q1 B) Q2 C) Q3 D) Q4

D. Q4

Which of the following countries had the smallest share of exports as a percentage of GDP in 2011? A) United Kingdom B) France C) Canada D) United States

D. US

Adam Smith recognized the benefits from trade based on ________, and David Ricardo recognized the benefits from trade based on ________: A) Comparative advantage; absolute advantage B) Absolute advantage; resource endowments C) Comparative advantage; resource endowments D) Absolute advantage; comparative advantage

D. absolute advantage, comparative advantage

When the production of a good generates external costs, the firm's supply curve will be: A) Horizontal B) Above the true-cost supply curve C) Vertical D) Below the true-cost supply curve

D. below the true-cost supply curve

Which of the following situations is not an example of market failure: A)Ben's Place is the only restaurant in town and thus he has significant power to set menu prices B)Ben's Industries is dumping its wastewater into the unregulated river behind the factory C)Ben's Department Store cannot charge passers-by for using the sidewalk outside the store D) Ben cannot afford to buy a high-end Mercedes Benz luxury car

D. ben cannot afford to buy a high end mercedes benz car

Which of the following is an example of a negative externality? A) The higher price you pay when you buy a heavily advertised product B)An increase in the value of land you own when a nearby development is completed C) The costs paid by a company to build an automated factory D)Falling property values in a neighborhood where a disreputable nightclub is operating

D. falling property values in a neighborhood where a disreputable nightclub is operating

From an economic perspective, studies of the costs of trade barriers show that they: A) Are about equal to the benefits from trade barriers B) Are outweighed by the reduction in foreign competition provided by the barriers C) Are much less than benefits for domestic producers and workers D) Far exceed their benefits for society

D. far exceed their benefits for society

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product? A) The quantity of the product demanded is very large B) Firms do not make long-run profits C) The market demand curve cannot be increased D) Firms produce a homogeneous product

D. firms produce a homogeneous product

Refer to the above payoff matrix. Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm B will now A) Lose $75 million in profit and firm A will gain $50 million in profit B) Gain $50 million in profit and firm A will lose $50 million in profit C) Gain $50 million in profit and firm A will lose $75 million in profit D) Gain $75 million in profit and firm A will lose $50 million in profit

D. gain 75 million in profit and firm A will lose 50 million in profit

Which of the following is a measure of the degree of industry concentration? A) S&P-500 Index B) Dow Jones Industrial Index C) Employment Cost Index D) Herfindahl Index

D. herfindahl index

Which of the following is a valid counterargument to a call for higher tariffs "to save U.S. jobs"? A) U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low B) The need to protect U.S. workers from the dumping of foreign products C)Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions D)Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment

D. imports may eliminate some US jobs but they create others so they may have little or no effect on employment

In the short run, fixed costs for a profitable firm are: A) Zero B) Negative C) Important determinants of the output level D) Irrelevant in determining the optimal level of output

D. irrelevant in determining the optimal level of output

The demand curve faced by a monopolistically competitive firm: A) Will shift outward as new firms enter the industry B) Is more elastic than the demand curve faced by the purely competitive firm C) Is less elastic than the monopolist's demand curve D) Is more elastic than the monopolist's demand curve

D. is more elastic than the monopolists demand curve

Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem? A)Levy a tax on the producers of electricity and use the tax revenues to clean up the river B)Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources C)Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products D)Levy a tax on the producers of paper products and use the tax revenues to clean up the river

D. levy a tax on the producers of paper products and use the tax revenues to clean up the river

When tariffs on imported products are removed by a nation, it will result in: A) Lower prices and lower quantities consumed in that nation B) Higher prices and lower quantities consumed in that nation C) Higher prices and higher quantities consumed in that nation D) Lower prices and higher quantities consumed in that nation

D. lower prices and higher quantities consumed in that nation

A unique feature of an oligopolistic industry is: A) Diminishing marginal returns B) Low barriers to entry C) Standardized products D) Mutual interdependence

D. mutual interdependence

Which of the following products is a leading import of the United States? A) Grains B) Aircraft C) Generating equipment D) Petroleum

D. petroleum

Which statement about oligopoly is false? A) One firm's behavior is a function of what its rivals do B) A few firms play an important role in the sale of a product C) Oligopolistic firms recognize their interdependence D) Prices in oligopoly are predicted to fluctuate widely and frequently

D. prices in oligopoly are predicted to fluctuate widely and frequently

Ending discrimination against minority groups in educational processes and in employment situations would cause total domestic output to: A)Fall, since trained minority workers would force some present workers out of their jobs B) Rise, because spending on consumer goods and services would decrease C) Fall, because of the increased costs of training and living D) Rise, because of an increase in the productivity of the labor force

D. rise because of an increase in the productivity of the labor force

The benefits to trading nations based on comparative advantage accrue from: A) Specialization only B) Protection of domestic industries C) Trading only D) Specialization and trading

D. specialization and trading

The former food-stamp program is now the Supplemental Nutrition Assistance Program (SNAP) and eligible households now receive: A) Credit cards and they forward the monthly bills to the government B) Cash payments C) Vouchers for food purchases D)Specialized debit cards that get monthly deposits of electronic money from the government

D. specialized debit cars that get monthly deposits of electronic money from the government

In an unregulated monopoly at equilibrium, the output level is higher than the economically efficient level.

FALSE

In the long run equilibrium, a monopolist will earn zero economic profits.

FALSE

The United States can be classified as an "open" economy in that foreign trade accounts for more than 50% of its GDP.

Flase

France makes 3 machines and 1 wine. Germany makes 1 machine and 1 wine. A) Germany can produce machines at a lower opportunity cost than France B) France has a comparative advantage in producing wine C) Neither country has a comparative advantage in producing wine D) Germany has a comparative advantage in producing wine

Germany has a comparative advantage in producing wine

Brand names and packaging are forms of product differentiation under monopolistic competition.

TRUE

Creative destruction entails both costs as well as benefits.

TRUE

If a monopolist finds itself operating in the inelastic portion of its demand curve, then it should never lower its price because doing so would reduce its profits.

TRUE

In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and the firm earns normal economic profits.

TRUE

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

TRUE

Nash equilibriums can exist even in games that lack dominant strategies.

TRUE

Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost. If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.

TRUE

The consumer wifi-service providers' market is best described as a: A) Homogeneous oligopoly B) Monopoly C) Monopolistic competition D) Differentiated oligopoly

differentiated oligopoly

In terms of trade volume, China is the largest trading partner of the United States.

false

In the long run, typical firms that are monopolistically competitive earn economic profits.

false

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

false

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

true

Export subsidies tend to hurt domestic consumers and benefit the foreign consumers

true

The U.S. has a sizable trade surplus in services

true