yeye

Refer to the above diagram. A shortage of 160 units would be encountered if price was:

$.50.

Refer to Exhibit 23-8. What is the total revenue of Firm B at the point where it produces in the short run? 1. $300 2. $700 3. $1,000 4. $400

$1000

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result the ABC Corporation lost $100 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of:

$300 million.

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4? 1. $5 2. $4 3. $1 4. $3

$4

Calculating Percentage Change in Equilibrium Price When the demand curve shifts

% change in demand / Es + Ed

Calculating Elasticity of Demand

% change in quantity demanded / % change in price

Calculating Elasticity of Supply

% change in quantity supplied / % change in price

Calculating percentage change in equilibrium price when the supply curve shifts

% change in supply/ Es + Ed

Calculation for marginal revenue product of labor

(Marginal product of labor) x Price

Economic profit =

(price - average total cost) x quantity produced

Calculating Economic profit

(total revenue - economic cost) OR (profit - implicit costs)

Four characteristics of monopolies

1 - Potentially many buyers 2 - one seller 3 - seller is the price maker 4 - imperfect market knowledge

The 5 features of a perfectly competitive market

1 - there are many sellers 2 - there are many buyers 3 - the product is homogeneous 4 - there are no barriers to market entry 5 - both buyers and sellers are price takers

The Sherman anti trust act makes it illegal to...

1) Explicitly price fix 2) for competing business firms to discuss pricing strategies 3) form cartels/ monopolies

What are some reasons for Tariff Barriers?

1) Infant Industry Protection - new industry is just developing and cant compete internationally so they are protected, developed, and then protections are lifted once they are ready for the global market 2) National defense 3) Income distribution - protecting domestic labor 4) Discouraging the consumption of a certain product

Characteristics of a monopolistic competition

1) Many buyers and sellers 2)Relatively imperfect market knowledge 3) independent buyers and sellers 4) Heterogeneous products (similar but slightly different) 5) no barriers

Effects of rent seeking

1) Wastes resources 2) slows entrepreneurs 3) locks in inefficient technology

Oligopolies make lots of money but you rarely see new business firms enter the market because of...

1) government barriers - from patents, or controlling the number of business licenses 2) economies of scale - the business firms are producing so much, which makes the cost of each product very low. (new business firms cannot produce nearly as much, making the cost of each good higher, which causes them not able to compete with the larger firms) 3) advertising - in some markets, a firm cant enter the market without a large investment in an advertising campaign. You need a huge advertising campaign to get a foothold in many of these markets, which only the largest business firms can do.

Characteristics of an oligopoly

1) many buyers 2) few sellers 3) Heterogeneous Products (similar but different) 4) Imperfect market knowledge 5) large barriers from entry due

The negatives of raising the minimum wage ---

1) many workers lose their jobs 2) the increase in wages increases the cost of production, therefore increasing market cost 3) minimum wage acts as a price floor. - This price floor decreases the quantity of labor demanded, and increases the quantity of labor supplied. - This causes a large amount of people unemployed in an industry.

Types of product differentiation

1) physical characteristic - product is different because of its shape, color, or size 2) location - attatches their city origin to the company if it is a city with a positive image, flooding a location with stores for added convenience, and making a store feel like your home store by making all the stores the same 3) service - tech companies offering free assistance, helpful customer service within stores, restaurants offering home delivery 4) aura/image

What are benefits of international trade?

1. Gains from specialization 2. A higher level of material well-being 3. A more efficient allocation of resources 4. Deterring monopoly 5. Promoting competition 6. Reducing the threat of war

The three key economic questions:

1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services?

If a market is unit elastic, and the price of a good goes up 10%, the quantity demanded goes down...

10% (%change in QD = %change in P)

If accounting profit for a firm is 20% of sales, and the implicit cost of financial capital is equal to 8% of sales, then what does the firm's economic profit equal? 1. 28% of sales 2. 10% of output 3. 12% of sales 4. 8% of output

12% of sales

The table below shows the market demand for a bushel of wheat in a market where there are just three buyers (data are hypothetical).

17 bushels at $6 and 37 bushels at $5

Reasons for why monopolies arise

1: governments (they are the #1 reason for why monopolies exist) 2: Patents 3: Regulations 4: Natural Resources 5: Franchise/ licencing scheme 6: Natural Monopoly

A cartel is...

2 or more business firms working together to coordinate their price and quantity decisions

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is:

2,400.

Non-medical patents last for ___________ years.

20

The Herfindahl index for an industry is 2550. Which of the following sets of market shares and industry with four firms would produce such an index?

20, 25, 25, and 30

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is:

2150

Neil's Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100. Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He earns $2 for each cinnamon bun that is sold. The following table shows how many cinnamon buns he can sell, depending on the number of workers he hires. Refer to the table below. To maximize his profits in this competitive market, how many workers should he hire? 1. 2 workers 2. 3 workers 3. 4 workers 4. 5 workers

3 workers

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, Big Country needs to give up

3/4 units of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit Y and should produce Y

Medical patents last for ____________ years.

7

Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is:

85 percent

What is a barrier to entry? Give some examples.

A barrier to entry is an obstacle such as government regulation or high startup costs that prevents new competition from entering the market.

Change in quantity demanded

A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by movement along the demand curve.

Sunk cost

A cost that a firm has already paid or committed to pay, so it cannot be recovered

An indifference curve is...

A curve showing the different combinations of two goods that generate the same level of utility or satisfaction.

Market demand curve

A curve showing the relationship between price and quantity demanded by all consumers

A total product curve is..

A curve showing the relationship between the quantity of labor and the quantity of output produced

Production possibilities curve

A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.

Individual demand curve

A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer

Individual supply curve

A curve that shows the relationship between the price of a good and quantity supplied by an individual firm

The characteristic most closely associated with oligopoly is:

A few large producers

What is predatory pricing?

A firm uses the threat of sharp price cuts to discourage competition.

A cartel is:

A formal agreement among firms to collude

A monopoly is:

A market served by 1 business firm

A Monopolistic Competition is..

A market served by many business firms that sell slightly different products.

Perfectly competitive market

A market with many buyers and sellers of a homogeneous product and no barriers to entry.

A duopoly is...

A market with only 2 firms

Price elasticity of demand (Ed)

A measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price

What us a natural monopoly?

A monopoly that exists due to the high fixed or startup costs of conducting a business in a specific industry.

An insecure monopoly is....

A monopoly that is at risk of another business firm coming in to compete.

Utility is...

A number representing the satisfaction you get from consuming a good or service

Which cannot be a characteristic of an oligopolistic industry?

A perfectly elastic firm demand curve

How to find the terms of trade.

A producer will trade a product if they can get more for it than how much it cost them to produce it, and the person accepting the product will buy it if its cheaper for them than producing the same product. (For example - If it costs Canada .5 desks to produce 1 truck, and it costs the US 1.5 desks to produce 1 truck; the terms of trade will be .5 desks < terms of trade for trucks < 1.5 desks. Canada will trade a truck if they can sell it for more than .5 desks. And the US will buy a truck from Canada if it costs less than 1.5 desks. An acceptable terms of trade for trucks would be anywhere between .5 and 1.5)

What is a quota?

A restriction on imports

Elastic demand

A situation in which consumer demand is sensitive to changes in price

Marginal Change

A small, one-unit change in value

Supply schedule

A table that shows the relationship between the price of a product and the quantity supplied

The principle of voluntary exchange

A voluntary exchange between two people makes both better off. Example: When you work, you trade your time for money. The money is more valuable than the time to you, and your time is more valuable than the money to your employer.

Principle of Voluntary Exchange

A voluntary exchange between two people makes both people better off

A 25 percent decrease in the price of breakfast cereal to a 20 percent increase in the quantity of cereal demanded. As a result: A.) total revenue will decrease. B.) total revenue will increase. C.) total revenue will remain constant. D.) the elasticity of demand will increase.

A.

If the supply curve for a product is horizontal, then the elasticity of supply is: A.) equal to infinity. B.) greater than 1 but less than infinity. C.) equal to 1. D.) equal to zero.

A.

Refer to the diagram above. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply (2) curve? A.) as wages increase over this range, the quantity of hours worked also increases. B.) as wages increase over this range, the quantity of hours worked changes very little. C.) as wages increase over this range, the quantity of hours worked actually decreases. D.) as wages increase of this range, the quantity of hours worked is inelastic.

A.

The marginal utility of two goods changes __________. A.) with the quantities consumed B.) for the better, if taxes are imposed C.) if they are intertemporal choices D.) if the mother controls the household budget

A.

The most common pattern for marginal utility is __________. A.) diminishing marginal utility B.) a budget constraint model C.) a long-term perspective theoretical model D.) substitute consumption

A.

The term __________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less or an addition to utility than the previous unit. A.) diminishing marginal utility B.) marginal utility pattern C.) marginal income utility D.) decreasing marginal utility

A.

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found? A.) the marginal utility per dollar is the same for both goods B.) the marginal utility per dollar is controlled by trade-offs C.) the quantities demanded change so total utility rises D.) the demand curves are flatter reducing quantity

A.

The percentage of workers belonging to a union is higher in the A. 45-64 age range. B. 25-45 age range. C. 40 -65 age range. D. 30-50 age range.

A. 45-64 age range.

5. In presidential elections over the last few decades, about ____________ of voting-age citizens actually turned out to cast their votes. A. 55-65% B. 45-50% C. 30-45% D. 70-75%

A. 55-65%

The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each Based on this information, the four-firm concentration ratio is A. 70 B. 68 C. 65 D. 73

A. 70

_____________ has occurred if a government-owned firm becomes privately owned. A. Privatization B. Nationalization C. Deregulation D. Regulatory capture

A. Privatization

Government passed the ______________________ to limit the power of large, consolidated firms that were run by trustees as if they were a single firm. A. Sherman Act in 1890 B. Thatcher Act in 1980 C. Antitrust Act in 1890 D. Competition Act in 1980

A. Sherman Act in 1890

Which of the following is a true statement? A. The government approves most proposed mergers. B. Government regulators agree that few mergers are beneficial to consumers. C. Government regulators agree that all mergers are beneficial to consumers. D. The government disapproves most proposed mergers.

A. The government approves most proposed mergers.

The FTC and the Department of Justice guidelines state that, in the US market-driven economy, firms will be forbidden to A. agree to rig bids or allocate lines of commerce. B. agree to let the market set prevailing prices or output. C. refuse to share customers, suppliers or territories. D. refuse to share or divide markets.

A. agree to rig bids or allocate lines of commerce.

Antitrust regulations would most likely require one of the following in order to determine whether or not a merger may enhance competition. Which one is it? A. analysis using numerical tools. B. obvious objective judgments. C. readily qualified judgments. D. highly complex analytical tools.

A. analysis using numerical tools.

For the past two years, a cellphone manufacturer has been selling to a group of distributors, who then sell the products to retailers to sell to the general public. The firm has now informed its distributors that each of them must sell the cellphones for a minimum price the manufacturer has set. In these circumstances, A. any resulting minimum resale price maintenance agreements will be illegal. B. the purpose of this contract is to encourage competition between the distributors. C. any resulting agreement to give dealers exclusive distribution rights is illegal. D. these tie-in sales encourage competition between the manufacturer's distributors.

A. any resulting minimum resale price maintenance agreements will be illegal.

Antitrust laws were created to give government the power to A. block certain mergers and break up large firms into smaller ones. B. block cartels, and break up regulatory capture. C. force the firm to sell off the profitable parts of its operation. D. block certain mergers that are determined to be uncompetitive.

A. block certain mergers and break up large firms into smaller ones.

A labor union seeks to __________________ between employers and workers. A. change the balance of negotiations B. change the economic balance C. force employers to deal with individual workers D. lobby government for changes

A. change the balance of negotiations

The U.S. government strongly encouraged unions to be formed in the early 1940s because they held the view that unions would help to A. co-ordinate the all-out production efforts needed during World War II. B. develop uniform procedures for forming unions across the country. C. raise the standard of living of the American people during World War II. D. end the racial discrimination that was prevalent in American workplaces.

A. co-ordinate the all-out production efforts needed during World War II.

Negotiations between unions and a firm or firms is called __________________ . A. collective bargaining B. cooperative bargaining C. united bargaining D. organized bargaining

A. collective bargaining

A local regulator has calculated the average cost of production for the public water utility. The regulator has allowed an adjustment for the normal rate of profit the firm should expect to earn, and then set the price that consumers can be charged accordingly. In this instance, the regulator has used which of the following? A. cost-plus regulation B. cost-plus analysis C. price-cap regulation D. market-price analysis

A. cost-plus regulation

Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as A. cost-plus regulation. B. price cap regulations. C. regulatory capture. D. profit regulation.

A. cost-plus regulation.

Although the earnings gap between men and women in the U.S. labor market ___________ in the 1970s, it has _________________________ . A. did not change much; been declining since 1980 B. did not change much; been on the increase since 1980 C. increased, ; been declining since 1980 D. declined, been increasing since 1980

A. did not change much; been declining since 1980

As a result of the American workers' ability to sell their labor though a union, profit-making firms must pay wages A. exceeding the equilibrium wage those firms would otherwise have selected. B. at the intersection of the demand and supply labor curves. C. below the equilibrium wage level those firms would otherwise be able to pay. D. that match the preferred equilibrium wage these firms have selected.

A. exceeding the equilibrium wage those firms would otherwise have selected.

Which of the following industries is the least likely to employ a unionized labor force? A. finance, insurance and real estate B. transportation and public utilities C. government D. precision, production, and repair

A. finance, insurance and real estate

Any government policy that provides __________________ and _________________ deserves to be looked at twice, or even three times. A. gains to those with higher incomes; imposes costs on those with lower incomes B. gains to those with lower incomes; imposes costs on those with higher incomes C. public schooling; welfare benefits D. local tax revenue; state tax revenue

A. gains to those with higher incomes; imposes costs on those with lower incomes

The presence of organized labor in the U.S. labor market creates a situation that resembles a A. government acting as a negotiator between workers and employers. B. union official acting like lawyers negotiating legal agreements. C. for profit-firm acting cooperatively to reduce unequal wealth distribution. D. union acting as a monopoly in selling labor to firms.

A. government acting as a negotiator between workers and employers.

12. The political systems in most Latin American nations differ from the political system in the United States because most Latin American nations A. have laws that require voting. B. have laws requiring voters to cast informed votes. C. are not recognized as democracies ruled by electoral majorities. D. are ruled by dictatorships.

A. have laws that require voting.

Norway's government nationalized the country's oil resources, and it has been accumulating a massive sovereign wealth fund worth billions of dollars ever since. This sovereign fund is used as a monetary source for government funded national education and healthcare. This is because the wealth generated by nationalized industries A. is used to serve the citizens of the country. B. is used to serve the interests of oil industry. C. always charge high prices and reduce output. D. never return value to citizens of the country.

A. is used to serve the citizens of the country.

10. In some instances where voters have more than two choices in a democratic election, the principle that the __________________ will decide the outcome may no longer make logical sense. A. majority of voters B. under-educated voters C. economically challenged D. eligible voters

A. majority of voters

The term ____________ refers to the percentage share of a firm's total sales in the market. A. market share B. concentration ratio C. total market ratio D. market cap

A. market share

What role does the US government play with respect to market competition? A. policing anticompetitive behavior and prohibiting contracts that restrict competition B. preserving competition by regulating price and/or quantity of output C. intervening in the price and output decision of businesses D. maintaining abundant government-owned firms to ensure consumer friendly pricing

A. policing anticompetitive behavior and prohibiting contracts that restrict competition

7. The theory of __________________ holds that people won't bother incurring the costs of becoming informed and voting, because they know that their vote ___________________________________________. A. rational ignorance; won't be decisive in the election B. imperfect competition; has little impact on election outcomes C. inequality of incomes; won't be decisive in the election D. democracy by majority rule; won't impact election outcomes

A. rational ignorance; won't be decisive in the election

18. Why are politicians more likely to focus their political actions on individuals with higher incomes and higher levels of education? A. research shows this group has greater informed voter participation B. research shows this group has a higher percentage of conservatives C. research shows this group has a higher percentage of liberals D. research shows members of this group have employment concerns

A. research shows this group has greater informed voter participation

There have been two especially important shifts in how markets are defined in recent decades: one involves _________________ and the other involves _____________. A. technology; globalization B. the Internet; technology C. communication technologies; the Internet D. globalization; communication technologies

A. technology; globalization

There is little evidence that countries with high union membership _______________________________, and also very little evidence that the reduction in U.S. union membership over time has brought ___________________ for the U.S. economy as a whole. A. tend to suffer economic damage as a result; broad benefits or costs B. have economically benefited; economics benefits C. have broader benefits as a result; economic damage D. tend to enjoy economic benefits as a result; harmful economic costs

A. tend to suffer economic damage as a result; broad benefits or costs

Factors that contributed to the current level of the earnings gap in the U.S. labor market between black and white workers include: A. the combination of changes in law and changes in social attitudes B. changes in production techniques made white workers unproductive C. a large decline in the average education levels for white workers D. a vast increase in the number of well-educated black workers and a

A. the combination of changes in law and changes in social attitudes

Which of the following concerns would groups like the Consumer Federation of America and Public Knowledge most likely raise with regulators considering a merger application? A. the merger would reduce competition B. the merger would create regulatory capture C. the merger would lead to future decades of lower prices D. the merger would increase output and all of the above

A. the merger would reduce competition

Which of the following completes the argument against deregulation of U.S. banks that began with the phrase: "if banks competed to pay higher rates of interest", A. they might also compete to make riskier loans, potentially imperiling the safety of the banking system. B. they might also compete to make less riskier loans, potentially imperiling the U.S. consumers' reliance on credit. C. they will end up playing a large role in setting the regulations that they will follow. D. they will send lobbyists to offer well-paid jobs to some of the retiring members of the regulatory board

A. they might also compete to make riskier loans, potentially imperiling the safety of the banking system.

A minimum resale price maintenance agreement requires a dealer who buys from a manufacturer ______________________________ . A. to sell for at least a certain minimum price B. to avoid engaging in restrictive practices. C. to guarantee a certain percentage of market share D. to sell for at least a certain maximum price

A. to sell for at least a certain minimum price

The proportion of workers in a number of the world's high-income economies who belong to unions, when compared to unionized workers in the U.S., is A. very high. B. very low. C. about the same, compared to Canada. D. high, compared to France and Spain.

A. very high

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where:

AC = P, MR = MC < P

Collusion refers to a situation where rival firms decide to:

Agree with each other to set prices and output

Suppose a court rules that the ABC Corporation is in violation of the antitrust laws because it produces 70 percent of the output of its industry. This decision is consistent with the:

Alcoa case.

The government was successful in gaining an antitrust conviction in the:

Alcoa case.

In game theory, each player is assumed to have the following, except:

Alternative partners or co-players

The dominant strategy is...

An action that is the best choice for a player, no matter what the other player does. (this is always the safest choice because you don't know what the other player will do.)

What is a voluntary export restraint?

An agreement between two nations to restrict their exports. Occurs when nations are in trade negotiations

Market Economy

An economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets

Centrally planned economy

An economy in which the government decides how economic resources will be allocated

____________occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

An oligopoly

Positive Analysis

Answers the question "What is?" or "What will be?" (Most modern economics is based on this one)

Normative Analysis

Answers the question "What ought to be?"

__________give government the power to block certain mergers, and in some cases, to break up large firms into smaller ones.

Antitrust laws

Which one of the following is not correct?

Antitrust suits can only be originated by the Federal Trade Commission.

What is the law of diminishing marginal utility?

As consumption increases, marginal utility decreases.

What is the input substitution effect?

As wages increase --> it becomes easier to substitute capital or other labor for current labor (simpler version - as wages increase, it becomes easier for business firms to use machinery or switch locations than to pay higher wages)

What is the output effect?

As wages increase, costs increase As costs increase, prices increase And as price increases, demand decreases, then demand for labor decreases

What is the labor substitution effect?

As wages increase, the cost of leisure increases, Therefore we work more (opportunity cost of working decreases and opportunity cost of leisure increases)*

What is the income effect?

As wages increase, we want to work less because we are happy with our level of income.

The variety of products and features which consumers may choose from in monopolistically competitive industries:

At least partially offsets the economic inefficiencies of this market structure

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

Attract other firms to enter the industry, causing the firm's profits to shrink

What happens to the 1st firms average cost of production when a new firm enters into the market and why?

Average cost of production increases because the decrease in quantity produced causes the firm to move upward along its negatively sloped average-cost curve

Monopolistic competitive firms are productively inefficient because production occurs where:

Average total cost is greater than the minimum average total cost

A decrease in consumer preference for a product, other things being equal, will cause: A.) a decrease in supply. B.) market demand to shift to the left. C.) market demand to shift to the right. D.) quantity demanded is not a price function.

B.

A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and __________, shown on the horizontal axis. A.) demand B.) quantity C.) quantity supplied D.) quantity demanded

B.

As a general rule, utility-maximizing choices between consumption goods occur where the: A.) rise in income has created the greatest utility. B.) price ratio and marginal utilities ratio of two goods is equal. C.) higher-income households have the greatest satisfaction. D.) constraints on budget expenditures has fallen substantially.

B.

But nearly all supply curves share a basic similarity: they slope __________. A.) down from left to right B.) up from left to right C.) up from right to left D.) down from right to left

B.

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. A.) elastic B.) unit elastic C.) inelastic D.) independent

B.

Economic theory offers __________ about the full range of possible events and responses, which can prevent __________about how households will respond to changes in prices or incomes. A.) one budget constraint theory; unrealistic possibilities B.) a systematic way of thinking; misguided conclusions C.) two budget constraint theories; misguided possibilities D.) systematic consumption choices; unrealistic conclusions

B.

Even with wage increases, the supply curve of labor is most often inelastic for which of the following? A.) part-time workers B.) full-time workers C.) lawyers D.) massage therapists

B.

If the demand curve is perfectly elastic, then an increase in supply will: A.) decrease the price but result in no change in the quantity exchanged. B.) increase the quantity exchanged but result in no change in the price. C.) increase the price but result in no change in the quantity exchanged. D.) increase both the price and the quantity exchanged

B.

In economics, the demand for a good refers to the amount of the good that people: A.) would like to have if the good were free. B.) will buy at various prices. C.) need to achieve a minimum standard of living. D.) will buy at alternative income levels.

B.

In microeconomic terms, the ability of a good or a service to satisfy wants is called: A.) opportunity cost. B.) utility. C.) utility maximization. D.) profit potential.

B.

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses? A.) one-fourth B.) one-third C.) one-quarter D.) two-thirds

B.

Refer to Figure 3-3. A change from Point A to Point E represents a(n): A.) increase in supply. B.) decrease in supply. C.) increase in quantity supplied. D.) decrease in quantity supplied.

B.

Saving money is a(n) __________, because it involves less consumption in the present, but the ability to consume more in the future. A.) budget constraint B.) intertemporal choice C.) risk premium D.) opportunity cost

B.

The __________ is the quantity where quantity demanded and quantity supplied are equal at a certain price. A.) quantity demanded B.) equilibrium quantity C.) demand schedule D.) supply schedule

B.

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________. A.) elastic B.) inelastic C.) perfectly elastic D.) negative

B.

The term __________ refers to the additional utility provided by one additional unit of consumption. A.) utility B.) marginal utility C.) added utility D.) Giffen utility

B.

The theoretical model of the intertemporal budget constraint for the U.S. economy as a whole suggests that the most common pattern seems to be that: A.) the quantity of savings automatically adjusts to changes in the rate of return. B.) the quantity of savings doesn't adjust much to changes in the rate of return. C.) the result of a higher rate of return is a higher quantity of saving. D.) the result of a lower rate of return is a lower quantity of saving.

B.

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she: A.) is decreasing utility. B.) is maximizing utility. C.) likely has negative savings. D.) must reduce the quantity.

B.

When demand is inelastic: A.) price elasticity of demand is greater than 1. B.) consumers are not very responsive to changes in price. C.) the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price. D.) demand curves appear to be fairly flat.

B.

__________ refers to the total amount of units purchased at that price. A.) quantity B.) quantity demanded C.) supply D.) market quantity

B.

The information below sets out the estimated market revenue for the television manufacturing market. Firm Revenue (in millions of $) Hitachi 525 Philips/Magnavox 1,270 JVC 630 Matsushita/Panasonic 840 Mitsubishi 520 Samsung 650 Sharp 615 Sony 1,930 Toshiba 950 10 more firms 1,120 Based on this information, the Herfindahl-Hirschman Index is A. 896.73 B. 1,074.04 C. 1,505.13 D. 1,742.10

B. 1,074.04

The information below sets out the estimated market shares for the cellular phone manufacturing market are given in the table below. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each If Samsung were to acquire Sanyo, the Herfindahl-Hirschman Index would be A. 1,272 B. 1,884 C. 1,836 D. 2,216

B. 1,884

__________________ involves active efforts to improve the job opportunities or outcomes of minority groups or women. A. Meritorious action B. Affirmative action C. Anti-discriminative action D. Aligned action

B. Affirmative action

______________ give government the power to block certain mergers, and in some cases, to break up large firms into smaller ones. A. Market regulations B. Antitrust laws C. Nationalization policies D. Restrictive practices

B. Antitrust laws

Which of the following government institutions bears the responsibility of enforcing US antitrust laws? A. Federal Trade Commission B. Department of Justice C. Supreme Court D. Congress and Senate

B. Department of Justice

Which of the following has the power to allow a merger, prohibit it, or allow it if certain conditions are met? A. antitrust regulators at the FTC B. Department of Justice C. Congress and/or Senate D. Supreme Court

B. Department of Justice

3. ________________ occurs when a group of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor. A. Pork-barrel spending B. Logrolling C. Competitive spending D. Politically conservative spending

B. Logrolling

1. _______________________ are numerically small, but well organized groups that are able to exert a disproportionate effect on political outcomes. A. Bipartisan reform organizations B. Special interest groups C. Social scientists organizations D. Bipartisan campaign reformers

B. Special interest groups

What Act was passed to allow American workers to opt out of the union in their workplace? A. Labor Relations Act of 1947 B. Taft-Hartley Act of 1947 C. National Labor-Management Relations Act of 1935 D. National Workers' Rights Act of 1940

B. Taft-Hartley Act of 1947

Which of the following would a market competition regulator be most likely to assign the maximum HHI valuation to? A. a perfect competitor B. a monopoly C. an oligopoly D. a monopolistic competitor

B. a monopoly

20. When ___________________ occurs, the result will be determined by the order in which choices are presented and voted on, not by_____________, because every choice is both preferred to some alternative and also not preferred to another alternative. A. vote splitting; special interests B. a voting cycle; majority rule C. vote splitting; a runoff round D. a voting cycle; a reduction in candidates

B. a voting cycle; majority rule

Of the many available policies to reduce discrimination by race and gender in the U.S. labor market, the most controversial is likely to be A. laws prohibiting discrimination B. affirmative action goals and quotas C. increased access to child care D. improved educational opportunities

B. affirmative action goals and quotas

Members of labor unions are able to use their ________________ to achieve better economic outcomes. A. cooperative nature B. bargaining power C. secret ballot votes D. excess supply of labor

B. bargaining power

Which of the following may be legal and even common practice in a market economy? A. making the ability to buy one product conditional on also buying another B. bundling several products together and selling them as a package C. deterring new market entrants with short term predatory pricing D. selling product for less than the average variable cost of producing same.

B. bundling several products together and selling them as a package

If the U.S. electricity and the telecommunications industry are deregulated, the challenge that will need to be met will involve A. injecting competition into industries where the arguments for deregulation are not obvious. B. combining competition where possible with regulation where necessary. C. focusing on the grid of wires that bring electricity to all categories of consumers. D. plans for aiding the concealment of Enron-style antitrust activities.

B. combining competition where possible with regulation where necessary.

16. Pork-barrel spending can be thought of as another case where democracy is challenged by _______________ and __________________. A. specials interest groups; disconnected voters B. concentrated benefits; widely dispersed costs C. conventional wisdom; lawyers and judges D. higher income earners; low-educated individuals

B. concentrated benefits; widely dispersed costs

17. Research on voting behavior in the U.S. has shown that, on average, people who are more __________________ tend to _______________________. A. involved with a political party; vote more frequently B. connected to society; vote more frequently C. conservative; vote less frequently D. liberal; vote less frequently

B. connected to society; vote more frequently

The concept of restrictive practices in the U.S. market economy is ____________________. A. set out in law that remains relatively constant B. continually evolving C. useful and fair D. closed to interpretation

B. continually evolving

Government policy-makers often must decide how to balance the potential benefits of ______________ against the potential benefits of _____________ . A. competition; nationalization B. corporate size; competition C. corporate size; predatory pricing D. nationalization; privatization

B. corporate size; competition

. In recent years, the U.S. labor market has experienced a __________ in the earnings gap between men and women. One of the main factors behind this is ____________________ . A. big decline; men have steadily been less productive and their wages have fallen B. decline; women's' career focus and rewards gained with top-level job expertise C. increase; women are getting married and having children earlier in life D. big increase; an increase in gender-based discrimination in labor markets

B. decline; women's' career focus and rewards gained with top-level job expertise

In competitive settings, profits will lead firms to _________________ and losses will lead firms ___________, so the incentives for producing at low cost and coming up with new ways of pleasing customers are strong. A. privatize; nationalize B. enter the market; to exit C. monopolize; to lower costs D. reduce output; increase price

B. enter the market; to exit

Today, a common starting point is for US antitrust regulators to use statistical tools and real-world evidence to_______________________ faced by firms proposing a merger of their respective businesses. A. define the market and count up total sales B. estimate the demand and supply curves C. preserve competition in certain local markets D. analyze companies and narrowly defined markets

B. estimate the demand and supply curves

Once the U.S. government opened its domestic markets to international trade, the competition from imported cars, steel, and other products caused demand for similar U.S. goods to A. continually increase leading to an overall increase in union membership. B. fall, leading to lower output, fewer workers, and an overall decline in union membership. C. decline, causing workers to call upon governments to pass indexed wage protection laws. D. rise, but laws made it difficult for new workers to become union members.

B. fall, leading to lower output, fewer workers, and an overall decline in union membership.

The earnings gap in the U.S. labor market between black and white workers __________ in the 1960s and 1970s, but, since 1980, the gap _______________. A. rose substantially; has not changed much B. fell substantially; is pretty well unchanged C. rose substantially, has declined substantially D. fell substantially, has substantially increased

B. fell substantially; is pretty well unchanged

There is sufficient evidence showing that union workers in the manufacturing sector generally A. tend to hold those jobs for less time than non-union workers. B. have higher productivity than non-union workers. C. have fewer years of experience than non-union workers, D. have lower productivity than non-union workers

B. have higher productivity than non-union workers.

13. Since the 1980s, national elections in Germany, Spain and France have all recorded ______________ than was recorded for presidential elections in the United States. A. lower voter participation B. higher voter participation C. a 50% higher number of votes cast D. a 50% lower number of votes cast

B. higher voter participation

A narrowly defined market will tend to make concentration appear _________, while a broadly defined market will tend to make it appear _________. A. concerning; less concerning B. higher; smaller C. less concerning; concerning D. smaller; higher

B. higher; smaller

In the United States, the number of unionized government jobs has __________________. A. increased dramatically B. increased modestly C. modestly declined D. dramatically declined

B. increased modestly

The Taft-Hartley Act made the legal climate ____________________ , and union membership levels ___________________ . A. more encouraging to women seeking to unionize; increased B. less encouraging to union movements; soon started declining C. friendlier to blacks seeking to form unions; increased sharply D. less friendly for firefighters wanting to unionize; stagnated.

B. less encouraging to union movements; soon started declining

With regard to labor unions, which of the following is an accurate statement? A. percentage of members is higher for women than men B. membership is lower for agriculture or service-oriented jobs C. membership is lower in government and manufacturing D. membership is higher for blacks or Hispanics than for whites

B. membership is lower for agriculture or service-oriented jobs

In the closing decades of the nineteenth century, many industries in the U.S. economy were dominated by a single firm that had most of the sales for the entire country. In many cases these large firms were ___________________ . A. as efficient and innovative as they could be B. organized in the legal form of a trust C. able to provide consumers with the lowest price products D. using illegal practices to dominate the US economy

B. organized in the legal form of a trust

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing A. deregulation. B. price cap regulation. C. cost-plus regulation D. regulatory capture rules.

B. price cap regulation.

Since the Margaret Thatcher era of the 1970s, many countries have sold off vast numbers of government-owned firms to _________________ . A. private monopolies B. private ownership C. decrease regulation capture D. increase output

B. private ownership

Splitting up a the natural monopoly held by a public utility that produces and provides electricity would A. raise the total cost of production for all and force their profits to zero. B. raise the average cost of production and force consumers to pay more. C. evolve the structure of costs and demand to make competition less costly. D. evolve the structure of costs and demand to make competition more likely.

B. raise the average cost of production and force consumers to pay more.

In the United States, the share of wage and salary for workers who belong to unions A. declined sharply in the 1930s and 1940s. B. rose sharply in the 1930s and 1940s. C. rose sharply in the 1950s and 1960s. D. declined sharply in the 1940s and 1950s.

B. rose sharply in the 1930s and 1940s.

9. Legislators who focus on local spending projects for their own district typically show a lack of sufficient concern for A. meeting the demands of special interest groups. B. spending in the interest of the nation as a whole. C. law and non-market based economics. D. the prevalence of voting cycles.

B. spending in the interest of the nation as a whole.

The statistical models currently used by competition regulators do require some degree of ___________________, and can become the subject of ___________ between the antitrust authorities and the companies that wish to merge. A. objective judgment; legal disputes B. subjective judgment; legal disputes C. subjective judgment; expertise D. objective judgment; expertise

B. subjective judgment; legal disputes

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using ____________ to increase its profits. A. exclusive dealing B. tie-in sales C. predatory pricing D. bundle dealing

B. tie-in sales

If U.S. immigration consists of mainly low-skilled workers, then an increase in immigration __________ the wages of low-skilled workers. A. will increase B. will reduce C. may increase or reduce D. will not affect

B. will reduce

If the largest four firms in an industry control less than half the market, their competitive concentration ratio A. would be considered to be especially high. B. would not be considered particularly high C. would not be considered particularly low. D. would be considered to be especially low.

B. would not be considered particularly high

Collusion among oligopolistic firms:

Becomes more difficult if the firms all have different cost and demand curves

Identifying consumer surplus on a graph

Below demand and above the price

Identifying Producer Surplus on a graph

Below the price, and above the supply

A firm in an oligopoly is similar to a monopoly in that:

Both firms could have significant market power and control over price

examples of monopolistic competition

Bread, clothing, restaurant meals, and gasoline. In each case, firms in the market sell products that are close, but not perfect, substitutes.

An inferior good is a product: A.) for which demand increases as income increases. B.) for which there is no demand. C.) for which demand decreases as income increases. D.) that has an upward sloping demand curve.

C.

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans? A.) Consumer Spending Survey B.) Consumer Income Budget Survey C.) Consumer Expenditure Survey D.) Consumer Income Survey

C.

In terms of microeconomic analysis, what is the function of "utils"? A.) a form of budget constraint B.) applies to changes in income C.) a measurement of utility D.) relates to a consumers original choice

C.

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts: A.) are the negative result of a change in wage levels and a higher work effort. B.) the result of personal preferences and intertemporal budget constraints. C.) are being offset by negative savings or less savings in other kinds of accounts. D.) the result of a higher interest rates and preferences about present consumption.

C.

Marginal utility can: A.) be positive or negative, but not zero B.) decrease, but not become negative C.) be positive, negative, or zero D.) increase positively, but not negatively

C.

Refer to Figure 3-1. Using the graph above and beginning on D1, a shift to D2 would indicate a(n): A.) increase in quantity demanded B.) decrease in quantity demanded C.) increase in demand D.) decrease in demand

C.

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve? A.) 0.235 B.) 2.00 C.) 4.25 D.) 6.33

C.

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A.) 0.1 B.) 0.8 C.) 1.0 D.) 10.1

C.

The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each Based on this information, the Herfindahl-Hirschman Index is A. 1,272 B. 2,216 C. 1,836 D. 1,800

C. 1,836

What is the maximum value that can be reached using the HHI? A. 100 B. 1,000 C. 10,000 D. 100,000

C. 10,000

The information below sets out the estimated market revenue for the television manufacturing market is given in the table below. Firm Revenue (in millions of $) Hitachi 525 Philips/Magnavox 1,270 JVC 630 Matsushita/Panasonic 840 Mitsubishi 520 Samsung 650 Sharp 615 Sony 1,930 Toshiba 950 10 more firms 1,120 Based on this information, the four-firm concentration ratio is A. 45.3 B. 50 C. 55.1 D. 62.5

C. 55.1

If an economist were to disregard unionized government employees, then current U.S. labor market statistics would show that A. 10% of the workers employed by private firms work for a union. B. 98% of the workers employed by private firms aren't unionized. C. 8% of the workers employed by private firms work for a union. D. 80% of the workers employed by private firms aren't unionized.

C. 8% of the workers employed by private firms work for a union.

14. At the time the United States was formed, mandatory voting was required in each of the following states with one exception. Which one is it? A. Virginia B. Maryland C. Alabama D. Delaware

C. Alabama

6. In ____________________, when there is no president race, the voter turnout is typically ___________________________. A. Senate elections; more than half of eligible voters B. Congressional elections; more than half of eligible voters C. Congressional elections; less than half of the eligible voters D. Senate elections; less than half of eligible voters

C. Congressional elections; less than half of the eligible voters

What was created by the U.S. government in 1914 to specifically define what types of competition were legally unfair? A. Department of Justice B. Antitrust Act C. Federal Trade Commission D. Supreme Court

C. Federal Trade Commission

2. ____________________ is a particular type of spending that mainly benefits a single political district. A. Logrolling B. Special interest spending C. Pork-barrel spending D. An appropriate spending program

C. Pork-barrel spending

Union members earn ______________ than non-union members, even after adjusting for factors such as _____________________________ . A. about 10% more; racial discrimination and immigration. B. about the same; union dues and cost of lawyers for collective bargaining. C. about 20% more; years of work experience and education level. D. about 30% more; healthcare and retirement benefits.

C. about 20% more; years of work experience and education level.

A business ________________ occurs when, for practical purposes, one firm purchases another. A. merger B. loss C. acquisition D. antitrust violation

C. acquisition

Which of the following denotes a weakness that is common to both the four firm concentration ratio and the HHI? A. assuming the subject market is poorly defined relative to measuring its concentration of competition B. case-by-case analysis of the extent of competition is highly subjective. C. assuming the subject market is well-defined relative to measuring how sales are divided within it. D. case-by-case analysis of the extent of competition is highly objective.

C. assuming the subject market is well-defined relative to measuring how sales are divided within it.

The term "tie-in sales" is synonymous with A. price maintenance B. exclusive dealing C. bundling D. predatory pricing

C. bundling

Which of the following has become a common condition for allowing a merger of large firms? A. commitment to operate in a market-oriented economy B. commitment to open a new factory C. commitment to sell off certain parts of the firms D. commitment to hire more workers

C. commitment to sell off certain parts of the firms

The US Federal Trade Commission justifies their record of approval of most mergers by asserting that, even though competition is diminished by consolidating two firms into one, mergers actually benefit A. competition and consumers by forcing firms to lower consumer pricing. B. competition and consumers in the short-run. C. competition and consumers by allowing firms to operate more efficiently. D. competition and consumers at the outset.

C. competition and consumers by allowing firms to operate more efficiently.

Because attempting to define a particular market can be difficult and controversial the Federal Trade Commission has begun to look less at market share and more at the data on actual ______________________________. A. competition in the overall economy B. selective anti-competitive industry practices C. competition between businesses D. market definition

C. competition between businesses

The four-firm ___________________ measures the percentage share of the total sales in the industry that is accounted for by the largest four firms. A. coordination ratio B. market share ratio C. concentration ratio D. production ratio

C. concentration ratio

Since 1960, the earnings gap between men and women in the U.S. labor market has A. steadily risen. B. been completely eliminated. C. continued to narrow. D. increased throughout the 1970s.

C. continued to narrow.

Say the average increase in pay for non-union workers in 2011 is 2% across the U.S. If a workers' union successfully negotiates a 3 year collective agreement that provides a 4.5% raise in 2011, and a 4.3% raise in 2013, then the for-profit employer will typically A. begin to fire its older union workers. B. replace union workers with non-union workers. C. curtail expansion of labor as a trade-off. D. replace union workers with foreign workers.

C. curtail expansion of labor as a trade-off.

An agreement between a manufacturer and a distributor stipulating that a dealer will only distribute that manufacturer's products would be classified as a form of A. predatory pricing. B. tie-in-sales arrangement. C. exclusive dealing. D. price maintenance.

C. exclusive dealing.

Union membership has ____________ in the United States because of _________________________ . A. risen; the shift from service to manufacturing industries B. risen; increased global trade from U.S. manufacturers C. fallen; laws enacted making it more difficult to unionize D. fallen; laws making workplace protection more difficult

C. fallen; laws enacted making it more difficult to unionize

The earnings gap in the U.S. labor market between black and white workers ___________________. A. was completely eliminated by the end of the 1960s B. has not diminished at all since 1960 C. has diminished since 1960, but a gap still remains D. existed in the 1960s but was reversed throughout the 1970s

C. has diminished since 1960, but a gap still remains

In the U.S. manufacturing sector, unionized jobs have _________________ in recent years. A. increased modestly B. have trended up C. have trended down D. declined dramatically

C. have trended down

Measured in absolute numbers, the level of immigration during the 1990s into the United States was _________ compared with the levels of previous decades. When considered as a percentage of the population at the time, the level of immigration into the United States during the 1990s was ________ than the levels experienced during the earlier decades of the twentieth century. A. lower, higher B. lower, lower C. higher, lower D. higher, higher

C. higher, lower

The application of current US antitrust law A. extends its long reach to block mergers that reduce competition. B. reaches beyond the subjective judgments of antitrust regulators. C. includes a wide arrange of anticompetitive practices. D. includes a narrow range of anticompetitive practices.

C. includes a wide arrange of anticompetitive practices.

A merger will likely lessen competition if A. they are very beneficial to consumers. B. less concentration in the market results. C. it enables the new single firm to raise price. D. both b and c above are correct answers.

C. it enables the new single firm to raise price.

A _____________ is an organization of workers that negotiates with employers as a group over wages and working conditions. A. affirmative union B. collective union C. labor union D. cooperative union

C. labor union

19. Which of the following is an oversimplified term that is sometimes used to describe the meaning of democracy? A. voting cycles B. majority opinion C. majority rule D. majority vote

C. majority rule

The Herfindahl-hirschman index is calculated by taking ___________________, squaring it, and adding them up to get a total. A. concentration ratio of each firm in the industry B. total revenues of each firm in the industry C. market share of each firm in the industry D. market capitalization of each firm in the industry

C. market share of each firm in the industry

Which of the following is a valid criticism of the reduction of competition that results from corporate mergers? A. merged firms generally are as efficient and innovative as they can be B. consumers will have greater access to lower priced goods and services C. merged firms can increase price and maintain permanently higher profits D. merged firms are better positioned to take advantage of economies of scale

C. merged firms can increase price and maintain permanently higher profits

The term _______________ is used to describe circumstances where government takes over ownership of a business. A. privatization B. regulatory capture C. nationalization D. deregulation

C. nationalization

A government sanctioned merger between two companies can sometimes lead to a clash _______________________ that makes both firms worse off. A. with government regulators B. other market participants C. of corporate personalities D. with market-oriented economy fundamentals

C. of corporate personalities

The costs that immigrants impose on governments arise mainly in terms of _________, which are primarily the responsibilities of the _________ government(s). A. administration, state and local B. administration, federal C. public schools and healthcare, state and local D. public schools and healthcare, federal

C. public schools and healthcare, state and local

Following the commencement of deregulation of US airline industry in the 1970s, reduced airfares saved consumers billions of dollar a year however, the more recent string of airline mergers has A. government safety regulators increasing employment opportunities for safety inspectors every year. B. doubled the number of high-paying jobs in the airline industry year after year. C. raised new concerns over how competition in the industry can once again be strengthened. D. encouraged deregulators to push further and consider industries where deregulation needs are not obvious.

C. raised new concerns over how competition in the industry can once again be strengthened.

The most famous restrictive practices case of the last several decades involved a series of lawsuits by the U.S. government against Microsoft. These particular lawsuits were encouraged by A. all of Microsoft's competitors. B. U.S. consumers. C. some of Microsoft's competitors. D. U.S. antitrust regulators.

C. some of Microsoft's competitors.

The study of unions and their economic effects needs to focus on ___________________, not on _____________ . A. economic benefits; economic harms B. economic harms; economic benefits C. specific situations; generalities D. generalities; specific situations

C. specific situations; generalities

If a for-profit firm that has paid out record bonuses to its executive every year while underfunding contributions to unionized workers' pensions required under the collective agreement then attempts to reduce workers' pension entitlements, the union members will most likely A. enter into collective bargaining. B. be unable to defend against this action. C. take defensive strike action. D. receive higher wages instead.

C. take defensive strike action.

In the 1980s, the FTC followed guidelines stipulating that, should a proposed merger result in an HHI of less than 1,000, A. the FTC would probably challenge it. B. the FTC would scrutinize the proposal. C. the FTC would probably approve it. D. the FTC make a case-by-case decision.

C. the FTC would probably approve it.

Antitrust law includes specific rules against restrictive practices in particular because A. they're effective in creating natural monopolies. B. they're very disruptive and controversial practices. C. their effects can reduce competition. D. their specific contracts are complicated.

C. their effects can reduce competition.

Prior to the onset of deregulation in the US during the 1970s, it was common for measurements of concentration ratios and HHIs A. to exceed 1,000 B. to exceed 10,000 C. to stop at national borders. D. to extend past national borders.

C. to stop at national borders.

Which of the following arguments would most likely be presented by a critic of labor unions? A. unions oppose suppression of wages by profit-seeking firms B. unions have a tendency to gain as much as possible in the long-term C. unions can prohibit economic growth if new technology is blocked D. unions have a higher percentage of women members than men

C. unions can prohibit economic growth if new technology is blocked

Which is not a common form of nonprice competition in monopolistic competition?

Cash rebates and discount coupons

What is feather bedding?

Caused by labor unions. It requires more labor than is needed for a given task.

Which of the following amended the Clayton Act's prohibition against mergers that substantially lessen competition?

Celler-Kefauver Act of 1950

Calculation for Marginal Product of Labor (MPL)

Change in output from one additional unit of labor

Marginal cost

Change in total cost from 1 more unit of production

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

Clayton Act of 1914

Tying contracts are illegal under the:

Clayton Act of 1914.

What method do labor unions employ?

Collective bargaining - everybody is in agreement about what they hope to accomplish

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Collusion

Social, as distinct from industrial, regulation is the major focus of the:

Consumer Products Safety Commission.

Calculating total surplus

Consumer surplus + producer surplus

Examples of perfectly competitive markets

Corn, wheat, plain t-shirts

Fixed Cost

Costs that dont change when an output changes (examples: lease, or rent)

What are the two main types of unions?

Craft unions - work on a single craft such as baking, plumbing, etc; Industrial unions - all of the semi skilled workers from a single industry (for the most part they work on an assembly line)

Landrum-Griffin Act (1959)

Created private elections for unions

Approximately what portion of annual consumption is typically spent by American households on shelter? A.) one-fourth B.) one-half C.) one-quarter D.) one-third

D.

Refer to the above diagram. In this instance: A.) the BC line is diagonal because the amount of spent on both goods is less or equal to income. B.) the consumer will find that every point along the I3 line is outside the budget constraint. C.) the consumer will find the highest utility where x and y just touch the I2 line. D.) all of the above and the consumer can choose any point on or below the budget constraint line BC.

D.

Refer to the diagram above. What is the significance of the point at the top of the backward bending of the supply curve marked L3? A.) as wages increase over this range, the quantity of hours worked also increases. B.) as wages increase over this range, the quantity of hours worked changes very little. C.) as wages increase of this range, the quantity of hours worked is more inelastic. D.) as wages increase over this range, the quantity of hours worked actually decreases.

D.

Refer to the diagram above. Which of the following is a true statement? A.) backward-bending supply curves for labor are typically in the short run B.) workers react to higher wages by working more hours in the long run C.) long run reaction to higher wages is an increase in hours worked to gain more income D.) backward-bending supply curves for labor are not typical in the short run

D.

Which of the following occurs simultaneously with an income effect? A.) backward-bending supply curve B.) Giffen good effect C.) preferences effect D.) substitution effect

D.

In the U.S., about __________ of all reported merger and acquisition transactions in 2008 exceeded $500 million, while about _________ exceeded $1 billion. A. 80%; 20% B. 99%; 1% C. 60%; 40% D. 25%; 10%

D. 25%; 10%

The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each If Samsung were to acquire Sanyo, the four-firm concentration ratio would be A. 70 B. 68 C. 65 D. 73

D. 73

The implicit assumption that competitive conditions across industries are similar enough to make a decision about the effects of a merger is A. fundamental to case-by-case analysis of how sales are divided in a particular market. B. fundamental to antitrust regulators for conducting case-by-case competitive analysis. C. a fundamentally sound principle found in all antitrust law. D. a weakness of the concentration ratio analysis method.

D. a weakness of the concentration ratio analysis method.

Discriminatory impulses in the labor market can emerge at a number of levels: A. among managers B. among workers C. among customers D. all of the above

D. all of the above

In order to analyze the effects of a particular business merger, economists typically measure whether the competitive change has A. helped consumers. B. hurt consumers. C. made much difference. D. all of the above.

D. all of the above.

The result of regulatory capture is that government price regulation can often become a way for existing competitors to work together to A. reduce output. B. limit competition. C. keep prices high. D. all of the above.

D. all of the above.

Firms operating under cost-plus regulation have an incentive to generate high costs by building huge factories or employing lots of staff, A. because doing so creates efficiencies and innovation. B. because the market changes dramatically and they have incentive to meet new demand. C. because this will reduce the firm's costs more quickly and it can make a high level of profit. D. because what they can charge is linked to the costs they incur.

D. because what they can charge is linked to the costs they incur.

The existence of labor unions forces employers to deal with workers ________________________ . A. individually, rather than as a collective B. cooperatively, rather than uncooperatively C. equitably, rather than inequitably D. collectively, rather than as individuals

D. collectively, rather than as individuals

4. The absence of which of the following best explains why government agencies are slower to correct mistakes than private firms. A. imperfect information B. discrimination in wealth distribution C. monopoly over the economy D. competition or a threat of new entry

D. competition or a threat of new entry

If immigration consists of mainly high-skilled workers, then a(n) ________ in immigration will ________ the wages of high-skilled workers. A. increase, increase B. increase, not affect C. decrease, decrease D. decrease, increase

D. decrease, increase

Currently, the approach to antitrust regulation involves A. defining a market and counting up total sales. B. market concentration ratio. C. HHI and concentration ratio. D. detailed analysis of specific markets and companies.

D. detailed analysis of specific markets and companies.

In the US, which of the following has likely been the most influential with respect to the increased level of competition faced by many local retail businesses? A. vast improvement in communications technologies B. development of the Internet C. global business-to business websites D. globalization and all of the above

D. globalization and all of the above

Of all the available policies to reduce discrimination by race and gender, the most costly is likely to be: A. affirmative action outreach B. affirmative action goals and quotas C. laws prohibiting discrimination D. improved educational opportunities

D. improved educational opportunities

From a competitive firms' point of view, the key question regarding the higher wages paid to union workers is whether the higher wage level A. is matched by non-union producers. B. can be passed on to its costumers. C. leads to workers with more experience. D. is matched with higher productivity.

D. is matched with higher productivity.

11. In Canada, voters typically choose between three or more candidates in an election, which can lead to situations where A. actors in the political system are presumed to follow their own self-interest. B. there will be a disproportionately large impact on conservative politicians. C. there will be a disproportionately large impact on liberal politicians. D. it becomes impossible for the majority to decide who it prefers.

D. it becomes impossible for the majority to decide who it prefers.

Why would regulators find that a proposed merger is likely to lessen competition? A. it can lead to lower prices B. it can increase availability of goods C. it can enhance innovation D. it can lead to lower quality products

D. it can lead to lower quality products

Which of the following typically leads to two formerly separate firms being under common ownership? A. government regulation B. business mergers C. business acquisitions D. mergers and acquisitions

D. mergers and acquisitions

For the restaurant industry in Seattle, with dozens or hundreds of extremely small competitors, the value of the HHI A. might drop as low as 100, but not less. B. might reach as low as 1,000, but not less. C. might reach as high as 1,000, but not more. D. might drop as low as 100 or even less.

D. might drop as low as 100 or even less.

Which of the following poses a difficult challenge for U.S. competition policy? A. monopoly B. monopolistic competition C. perfect competition D. natural monopoly

D. natural monopoly

Unions can be perceived as being economically harmful when they A. strike infrequently B. successfully negotiate higher wages C. support modernization and new technology D. none of the above

D. none of the above

In order to provide its workforce with an alternative to forming a union, the U.S. government passed laws about work conditions, namely, A. minimum wage and employment insurance. B. regulation of workers' pensions. C. paid parental leave for workers. D. overtime and all of the above.

D. overtime and all of the above.

Which of the following is most likely to have a large union membership that experiences little import competition? A. telemarketing B. lawyers in the legal services sector C. the real estate industry D. police services

D. police services

Labor unions can: A. be a primary line of defense against suppressed wage levels. B. be controversial in a for-profit market driven economy. C. bring better economic gains for their memberships. D. protect workers' pensions and all of the above.

D. protect workers' pensions and all of the above.

The term ______________ refers to a situation where the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow. A. regulatory tie-in B. deregulation C. privatization D. regulatory capture

D. regulatory capture

Practices that reduce competition without actual documented agreements between firms to raise price are commonly referred to as ______________________ . A. legal practices B. competitive practices C. regulated practices D. restrictive practices

D. restrictive practices

In the 1980s, the FTC followed guidelines stipulating that, should a proposed merger result in an HHI between 1,000 and 1,800, then it would A. make a case-by-case decision on the proposal. B. probably challenge the proposal. C. probably approve the proposal. D. scrutinize the proposal prior to doing a above.

D. scrutinize the proposal prior to doing a above.

In the Unites States, worker membership in labor unions has been A. steadily growing for 50 years. B. steadily growing in the last decade. C. steadily growing due to immigration. D. steadily declining for 50 years.

D. steadily declining for 50 years.

8. Which of the following is not one of the proposals that have been offered to encourage greater voter turnout? A. making it easier to register to vote B. keeping the polls open for more hours C. moving election day to a weekend D. tax incentives for active voters

D. tax incentives for active voters

If an industry is perfectly competitive or monopolistically competitive, then the government has relatively little reason for concern about A. regulatory recapture. B. taking advantage of economies of scale. C. new ways of pleasing customers. D. the extent of competition.

D. the extent of competition.

If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger? A. consumers can purchase better quality goods or services at a lower price B. the newly created firm is able to take advantage of economies of scale C. the newly created firm could eliminate duplicative investments D. the new firm will produce more efficiently and all of the above

D. the new firm will produce more efficiently and all of the above

The fundamental belief behind the market-oriented US economy is that firms are in the best position to know if their actions will A. contravene antitrust regulations. B. lead to attracting more customers. C. let them produce more efficiently. D. the right answer is both b and c

D. the right answer is both b and c.

If unions help workers secure pension benefits, so that those workers are less dependent on government social assistance after their retirement, then A. the for-profit unionized industries will be less productive. B. the for-profit unionized industries will be harmed. C. the union is economically harmful. D. the union is economically beneficial.

D. the union is economically beneficial.

The main challenge for antitrust regulators is A. to figure out how to best benefit consumers. B. to facilitate privatization of government assets. C. to promote the concept of a market-oriented economy. D. to determine when a merger may hinder competition.

D. to determine when a merger may hinder competition.

Why would a competition regulator need details relating to how firms are competing to cut prices, raise output levels, or build a high quality reputation? A. to be able to determine and specify how competition occurs in an industry B. to build a statistical model to estimate the likely outcome of a merger C. to block mergers that would reduce competition and harm consumers D. to permit competitive mergers to proceed, as well as all of the above

D. to permit competitive mergers to proceed, as well as all of the above

15. In a 1948 novel titled "Walden II", one of the characters states: "The chance that one man's vote will decide the issue in a national election...is less than the chance that he will be killed on his way to the polls." This statement addresses A. why laws against pork-barrelling and logrolling cannot be legislated. B. why the United States spends too much money on elections. C. why the margin of victory in elections is measured in hundreds, thousands, and millions of votes. D. why a utility-maximizing person may rationally decide not to vote or become informed about elections.

D. why a utility-maximizing person may rationally decide not to vote or become informed about elections.

Discrimination in labor markets arises if _________________________, as measured by education, receive different pay because of their _______________________ . A. workers with different skill levels; race or gender B. workers with no experience; race or marital status C. workers with work experience; race or marital status D. workers with the same skill levels; race or gender

D. workers with the same skill levels; race or gender

If the two smallest firms in a competitive market merged, the four-firm concentration ratio _______________ because ____________________________ . A. would change; the degree of competition is notably diminished B. would not change; especially high concentration ratios can benefit consumers C. would change; the largest firms high concentration ratio is diminished D. would not change; the degree of competition isn't notably diminished

D. would not change; the degree of competition isn't notably diminished

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will:

Decide to increase advertising expenditures even if it means a reduction in profits

An increase in the price of rubber used in the production of tires

Decrease

In a marginal utility graph, as you consumer more of x, utility (increases/decreases)

Decreases

In a total utility graph, as you consumer more of x, total utility increases at a (decreasing/increasing) rate.

Decreasing

How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?

Demand curve for perfectly competitive firm is a price taker so its a straight horizontal line while demand for a monopolist is not a price taker and is the same as the market demand curve

The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring is to:

Detect those member countries which are depressing prices by producing more than their assigned quotas

examples of price discrimination

Discounts on airline tickets, coupons for groceries/restaurant food, rebates, senior-citizen discounts, student discounts at movie theaters or restaurants.

In which of the following cases was the firm found not guilty of violating the Sherman Act?

DuPont cellophane case

Which 2 non-tariff barriers are explicitly illegal?

Dumping and Export subsidies

A low concentration ratio means that:

Each firm accounts for a small market share of the industry

What happens when trade occurs between 2 nations?

Each nation can consume more of each product. (look at page 387 in the text book to understand this better)

In the long run, a representative firm in a monopolistically competitive industry will end up:

Earning a normal profit, but not an economic profit

The incentive to cheat within a cartel increases with an increase in the following factors, except:

Economic performance and industry sales

The smaller someone's budget is, they tend to be more (elastic/inelastic).

Elastic

Demand is (elastic/inelastic) along the upper half of a linear demand curve

Elastic (so an increase in quantity from a decrease in price increases total revenue)

A flat supply/demand curve implies that the supply is (elastic/inelastic).

Elastic, because it shows a large increase in production/quantity demanded after an increase in price.

Which one of the following is concerned with social regulation?

Equal Employment Opportunity Commission

In a perfectly competitive market you produce at the ________________.

Equilibrium point (where the marginal cost/supply curve meets the demand curve)

In the long run, the representative firm in monopolistic competition tends to have:

Excess capacity

Product variety in monopolistic competition comes at the cost of:

Excess capacity

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Federal Communications Commission

The antitrust laws are enforced by the:

Federal Justice Department and the Federal Trade Commission.

A high concentration ratio indicates that:

Few firms produce most of the output in an industry

In an oligopolistic market there are:

Few sellers

Which statement concerning monopolistic competition is false?

Firms may experience positive economic profits in the long run

Total Cost

Fixed cost + Total Variable cost

Average fixed cost

Fixed cost / quantity produced

What is GATT?

General Agreement on Tariffs and Trade. It reduced tariffs and trade barriers around the world. GATT eventually morphed into the World Trade Organization

What are labor unions?

Group of workers who organize to increase job security, improve working conditions, and increase benefits.

Wagner Act (1935)

Guarantees workers to be able to join unions

When there is a quantity restriction, the price is (higher/lower).

Higher

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

Higher price and lower output

The U.S. primary steel industry is best described as a(n):

Homogeneous oligopoly

A Perfectly Elastic graph has a ________ demand/supply curve.

Horizontal (Ed = ∞)

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain:

How the current price gets determined

When a monopolist identifies its profit-maximizing quantity of output, how does it decide what price to charge?

If making an additional product decreases marginal revenue then the firm sticks with that quantity.

What is a natural monopoly?

If you leave the market alone it will eventually form a monopoly.

What impact do foreign imports have on domestic price and quantity?

Imports REDUCE domestic price, INCREASE consumption and DECREASE domestic production

A shift of the budget line is a change in __________.

Income

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

The marginal principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

Increase the level of output

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Increased brand loyalty toward the firm's product

What is the principle of diminishing returns?

Increasing one input while keeping the others fixed will increase output at a decreasing rate.

When start-up costs are high relative to marginal cost, the production process is likely to exhibit which of the following?

Increasing returns to scale

Necessity - The more you need a product, the more (inelastic/elastic) the product is.

Inelastic

Demand is (elastic/inelastic) along the lower half of a linear demand curve.

Inelastic (so an increase in quantity from a decrease in price decreases total revenue)

A steep supply/demand curve implies that the supply is (elastic/inelastic).

Inelastic, because it shows a small increase in production/quantity demanded after an increase in price.

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of:

Interindustry competition

Which has not contributed to the development of oligopolies in the U.S. economy?

Interindustry competition

The demand curve faced by a monopolistically competitive firm:

Is more elastic than the monopolist's demand curve

What is the effect of feather bedding?

It causes an increase in price to the consumer.

Implicit Costs are...

It is an opportunity cost that does not involve a monetary payment. These are also known as forgone payments. Includes forgone rent, interest, wages, salary. (generally its things you could have done instead of what you did).

In what sense is a natural monopoly "natural"?

It is natural because they arise when the marginal cost of adding an additional customer is low once fixed costs are in place.

What is the college premium?

It is the increase in earnings from a college degree. (you usually earn double the amount with a college degree than you would if you only had a high school degree)

What is the terms of trade?

It is the rate at which units of one product can be exchanged for units of another product.

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:

It is unclear what the firm should do without knowing marginal revenue

What are the affects of dumping?

It makes all competitors not able to compete with your price, making them go out of business. Then the company still in business that was dumping raises its price.

What was the Smoot-Hawtley tariff and the outcome of it?

It was a 59% tax on all imports. It caused international trade to stop and the US depression worsened

If a business firm in a perfectly competitive market decides to charge higher than the market price, it will sell (less/nothing)

It will sell nothing

What is a tariff?

Its a tax on imported goods

Duopolist Dilemma: Its best for both business firms to collude and make prices ____________ to maximize profits. But due to the dominant strategy, both end up always making their prices __________.

Its best for both business firms to collude and make prices high to maximize profits. But due to the dominant strategy, both end up always making their prices lower.

Prisoners Dilemma: Its best for both parties to _____________. But due to imperfect/asymmetrical knowledge, they usually both end up _____________.

Its best for both parties to not confess. But due to imperfect/asymmetrical knowledge, they usually both end up confessing.

What is export promotion?

Its encouraging domestic industries to take action to become more efficient, and gain comparative advantage

What is the WTO?

Its the World Trade Organization It was set up to enforce the GATT treaty rulings, and it also rules on present day trade agreements.

What is the learning effect?

Its the increase in a persons wages due to the learning of skills required for certain occupations (used as an explanation of the college premium)

The Marginal Cost curve looks like a...

J or a check mark (because at the beginning MC drops due to business firms becoming more efficient because of labor specialization. It then increases due to diminishing returns)

(Consider This) According to the Consider This box on catfish and art, which of the following airlines in 2007 agreed to pay $300 million fines for fixing fuel surcharges on passenger tickets and cargo?

Korean Air and British Airlines

Entry conditions for a monopoly

Large barriers due to economies of scale, or government policies

The monopolistically competitive seller's demand curve will become more elastic the:

Larger the number of competitors

One of the tactics used by a leader in the price leadership model of oligopoly is:

Limit pricing

Examples of monopolies

Local phone service, cable TV, US Postal Service, or patented drugs

Long run average cost is...

Long run total cost / the quantity produced

Which statement concerning monopolistic competition is false?

Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit

Which is true of pure competition but not of monopolistic competition?

Long-run equilibrium occurs at the minimum point on the ATC curve

The profit-maximizing rule for a monopolist is to choose the level of output such that _____.

MR=MC (marginal revenue)

What is the World Bank?

Made to reconstruct nations after WWII Focused on infrastructure such as schools, power plants, roads, and bridges

When looking at a market graph, you know the quantity to produce at where ____________________, and you know what price to charge at from ___________________.

Marginal Cost = Marginal Revenue The demand curve

In the kinked demand model, there will be a vertical break in the firm's:

Marginal revenue curve

An oligopoly is...

Market in which a few firms serve the entire market

What happens to market price when a new firm enters into a monopolistic competitive market and why?

Market price decreases due to competition. (competition causes demand for the 1st business firm to decrease)

A major reason that firms form a cartel is to:

Maximize joint profits

Price Ceiling

Maximum price set by the government

In the Microsoft antitrust case, the Federal government said in essence that:

Microsoft was a "bad monopoly."

Price Floor

Minimum Price set by the government

When are where is our final exam?

Monday, 10:15am, in our normal classroom.

Is a monopolist allocatively efficient? Why or why not?

Monopolies are not allocatively efficient because they do not produce enough for the public, they under produce.

Which 2 kinds of markets have differentiated products?

Monopolistic Competition and Oligopoly (in a monopoly there is only 1 kind of that product making it unique, and in a perfectly competitive market the products are homogeneous)

If the top 4 firms control 40% or less of output, then the market is....

Monopolistic competitive

Is a monopolist a price taker? Explain briefly.

No, a monopolist is not a pricetaker because it can manipulate the price of then good its selling.

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to:

Not change their prices

In which market model is there mutual interdependence?

Oligopoly

If price is > average variable cost we ___________ because we offset the fixed cost.

Operate

What is the opportunity cost of 1 truck, if you produce 100 trucks and 50 desks per month?

Opportunity cost of 1 truck = .5 desks 50/100 = .5

What is the opportunity cost of 1 truck, if you produce 40 trucks and 60 desks per month?

Opportunity cost of 1 truck = 1.5 desks 60/40 = 1.5

What is the International Monetary Fund?

Organization that lends money to a nation when there is an international payment/debt crisis

If an oligopolist's demand curve has a "kink" in it, then:

Over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price

In long-run equilibrium in a monopolistically competitive industry:

P > minimum AC

Prices are higher when a good 1st hits the market due to ___________.

Patents

Which of the following gives the inventors or developers of new products the exclusive right to sell those products for a specified period of time?

Patents

What are patents and how do they help monopolies arise?

Patents are: the exclusive rights to be the only producer/supplier of a certain good for a period of time. The company producing the product will become a monopoly for a period of time.

Accounting Cost is...

Payments to non-owners of the business firm such as utility cost, cost of good sold, rent. (these are explicit payments)

For which population does the income effect take place more?

People close to retirement, and with college students.

labor

People with all their efforts; one of the four factors of production; does not include the entrepreneur

How is monopoly different from perfect competition?

Perfect competition involves markets with no market power that respond to market price, unlike monopolies that have plenty of market power by producing all output in a market.

A pivot of the budget line is a change in ________.

Price

Calculating Total Revenue

Price per unit x quantity sold

Break even price

Price when economic profit = 0 also It is where price = average total cost

The economic inefficiency of monopolistic competition means that:

Producers produce at an output short of, and charge a price greater than, minimum average total cost

Demand and marginal revenue curves are downsloping for monopolistically competitive firms because:

Product differentiation allows each firm some degree of monopoly power

Compared to pure competition, monopolistic competition:

Provides greater product differentiation at the cost of some excess capacity

What happens to quantity produced to the 1st business firm once a new firm enters into the market and why?

Quantity produced decreases due to competition. (competition causes marginal revenue for the 1st firm to decrease)

Collusive control over price may permit oligopolists to:

Reduce uncertainty, increase profits, and possibly limit entry of new firms

What are reasons for a low supply of labor

Required skills (sports, the arts) High training costs If the job is undesirable Dangerous job

Natural Resources

Resources provided by nature and used to produce goods and services.

Calculating Profit

Revenue - Accounting Cost

The kinked demand model of oligopoly assumes that:

Rivals will ignore price increases but will match price cuts

Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by:

Secretly lowering price and increasing sales to a few customers

(Last Word) In 2001, Microsoft was found guilty of violating:

Sections 1 and 2 of the Sherman Act.

What is cost based dumping?

Selling a product below the cost of production.

What is price based dumping?

Selling a product internationally below the market price.

What is dumping?

Selling goods way below market price

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will:

Set price above marginal cost

Taft-Hartley Act (1947)

Set up right to work laws in states (Allows workers to be employed but not have to join a union)

Which of the following made monopoly and restraints of trade criminal offenses against the Federal government?

Sherman Act of 1890

Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The Federal government would most likely file charges under the:

Sherman Act, Section 1.

If price is < average variable cost we ______________ because we can not offset fixed cost.

Shutdown (operating will continue to make you lose more money in this situation)

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except:

Solitaire

(Consider This) According to the Consider This box on catfish and art, which of the following firms were recently convicted of price fixing?

Sotheby's and Christy's (art auction houses)

In which of the following cases did the final court decision result in a breakup of the firm into competing businesses?

Standard Oil case

What are export subsidies?

Subsidizing a domestic business firm based on per-unit production. (encourages dumping)*

What is the biggest driver of wage differences?

Supply of labor (wages are supply driven)* If supply for labor is low, wages are high. And if the supply for labor is high, wages are low.

The principle of diminishing returns

Suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. Beyond some point—called the point of diminishing returns—output will increase at a decreasing rate.

Informal collusion to restrict output and increase prices is sometimes referred to as a:

Tacit understanding

To maximize utility using an indifference curve, you must find the point where...

The MRS = the price ratio. (where the budget line meets the indifference curve that gives the most utility)

Comparative advantage

The ability of a country to produce a good at a lower cost than another country can.

Absolute advantage

The ability of one person or nation to produce a product at a lower resource cost than another person or nation.

What is the absolute advantage?

The ability to produce a product at a lower resource cost than another producer (this is covered on pg 48. Its basically just who can produce the most amount of something)

Marginal benefit

The additional benefit resulting from a small increase in some activity.

Marginal cost

The additional cost resulting from a small increase in some activity.

Quantity demanded

The amount of a product that consumers are willing and able to buy.

Quantity supplied

The amount of a product that firms are willing and able to sell.

Additional things to study---

The autarky vs trade vs tariff graph. The canada vs US trade graph involving desks and trucks

The key factor in determining the price elasticity for a particular product is...

The availability of substitute products

How do natural resources allow a business firm to become a monopoly?

The business firm will own all of the natural resources needed to produce a certain product.

Which of the following is the same for a monopolist and a perfectly competitive firm?

The calculation of marginal cost

Marginal Product of labor

The change in output from one additional unit of labor

Marginal utility is...

The change in utility resulting from a 1 unit change in consumption

Budget Constraint is...

The combination of income possessed & the price of 2 goods.

Dead Weight Loss

The decrease in the total surplus of the market that results from a price ceiling or price floor.

Calculating Consumer Surplus

The difference between the maximum amount you are willing to pay minus what you actually pay

The _________ __________ leads to the Nash equilibrium.

The dominant strategy leads to the Nash equilibrium.

Entrepreneurship

The effort used to coordinate the factors of production—natural resources, labor, physical capital, and human capital—to produce and sell products.

Nominal value

The face value of an amount of money

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that:

The four largest firms account for 20 percent of industry sales

How do franchise/ licencing schemes allow for monopolies to exist?

The government decides how many business firms will provide for the market, and it is usually just one.

What is the signaling effect?

The information about a persons work skills conveyed by completing college. (used as an explanation of the college premium)

Human Capital

The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.

The _____________ effect outweighs the ______________ effect.

The labor substitution effect outweighs the income effect.

What is the usual shape of a marginal revenue curve for a monopolist? Why?

The marginal revenue curve for a monopolist is typically downward sloping. This is because even a monopoly can not force consumers to buy its products no matter what the price.

Principle of Opportunity Cost

The opportunity cost of something is what you sacrifice to get it.

The slope of a budget line shows.....

The opportunity cost of x in terms of y.

How can a monopolist identify the profit maximizing level of output if it knows its marginal revenue and marginal costs?

The point where marginal revenue equals marginal cost is the profit maximizing point.

Price discrimination is...

The practice of selling a good at different prices to different consumers

Calculating Producer Surplus

The price a producer receives for a product minus the marginal cost of production.

Shut-down price

The price at which the firm is indifferent between operating and shutting down. It is where price = the minimum average variable cost. (minimum avc is the lowest point where the AVC curve meets with the MC curve).

How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive firm?

The price is usually too high and the amount produced is too low. A perfectly competitive firm has a price set perfectly with the market and is allocatively efficient.

What is product differentiation?

The process used by firms to distinguish their products from the products of competing firms.

Rent seeking is...

The process where business firms spend money to persuade governments to enact barriers to entry and pick them as the monopoly. (simpler version - the process of using public policy to gain economic profit)

How can a monopolist identify the profit maximizing level of output if it knows its total revenue and total cost curves?

The profit maximizing point for a monopolist is where total revenue and total cost meet. The quantity of that product at the given price is the profit maximizing point.

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

The pure monopoly model

The (MRS) marginal rate of substitution is...

The rate at which a consumer is willing to trade or substitute one good for another.

Factors of Production

The resources used to produce goods and services; also known as production inputs or resources.

Scarcity

The resources we use to produce goods and services are limited.

A monopolies demand curve is...

The same as the market demand curve. (it can sell more output if it lowers the price)

Physical Capital

The stock of equipment, machines, structures, and infrastructure that is used to produce goods and services.

Economics

The study of choices when there is scarcity.

Long Run costs are...

The total cost of production when a firm is perfectly flexible in choosing its inputs.

What is the usual shape of a total revenue curve for a monopolist? Why?

The total revenue curve for a monopolist starts off low and gradually rises and then hits a peak and slowly decreases.

Tastes and Preferences is...

The utility you gain from consuming a certain good or service

Real value

The value of an amount of money in terms of what it can buy.

The supply of labor shows the relationship between...

The wage & quantity of labor supplied

The positives of raising the minimum wage ---

The workers who are able to keep their jobs receive higher wages (minimum wage helps the most productive workers who keep their jobs, at the expense of the least productive workers who lose their jobs)

Inefficiency of monopolies ---

There is a loss of market surplus due to the failure of a monopoly to produce at the price equilibrium. In a monopoly market, the price is higher and the quantity demanded is lower than in a perfectly competitive market. (in a perfectly competitive market there is a lot more consumer surplus, and less producer surplus. In a monopoly market, there is more producer surplus but a lot less consumer surplus. You end up with dead weight loss in a monopoly.) **If you are still confused go to page 228 in the text**

Law of demand

There is a negative relationship between price and quantity demanded

Firms in an industry will not earn long-run economic profits if:

There is free entry and exit of firms in the industry

One difference between monopolistic competition and pure competition is that:

There is some control over price in monopolistic competition

What are tariff barriers?

They are direct forms government intervention in the market

What are non-tariff barriers?

They are indirect forms of intervention in the market

How does the demand curve perceived by a monopolist compare with the market demand curve?

They are the same

How does an insecure monopoly make sure another business firm does not enter the market?

They must increase the quantity that they produce, and in turn lower the price of their good/service. (This will prevent an entering business firm to make any profit and will usually cause them to lose money upon entry. )

The World Bank and IMF lose money because...

They usually are not paid back for the loans they give.

Examples of oligopolies

Tobacco, beverages, air travel, automobiles, and mobile phone service

Calculating Average Product of Labor (AP)

Total Product / Labor

Average Total Cost

Total cost / quantity produced

Calculating accounting profit

Total revenue (price x quantity produced) - accounting cost

Total revenue is maximized at the _________ of a linear demand curve, where demand is _________.

Total revenue is maximized at the midpoint of a linear demand curve, where demand is unit elastic.

Average variable cost

Total variable cost / quantity produced

Mergers of firms in an industry tend to:

Transform monopolistic competition into oligopoly

An empty threat is a statement of coercion that is not believed by the threatened firm.

True

True or False? Patents and copyrights are a source of market power.

True

As an indifference curve moves more northeast on the graph...

Utility increases

A Perfectly Inelastic Graph has a ________ demand/supply curve.

Vertical (Ed = 0)

Which of the following is correct?

Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers.

What is mercantilism?

Wealth of nation is based on how much money is in the nation's treasury

Opportunity cost

What is lost by choosing one option instead of another. For example, the opportunity cost of choosing to take an afternoon nap might be a lost trip to the gym.

The real-nominal principle

What matters to people is the real value of money or income—its purchasing power—not its face value.

Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising?

Wheeler-Lea Act of 1938

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:

With a loss in the short run

Supply of labor is a comparison between _________ and _______________.

Work and Leisure time

The government does not generally choose to break up a natural monopoly because:

Wrong: natural monopolies will produce at the allocatively efficient output level.

Law of Variable Proportions

Y will increase at an increasing rate, before it increases at a decreasing rate, before it decreases at an increasing rate. (shows the 3 stages of production)

If peanut butter and grape jelly are complementary products, which diagram above illustrates the effect on the peanut butter market as a result of a decrease in the price of grape jelly?

a

Ceteris Paribus

a Latin phrase that means "all other things held constant"

A merger between a maker of household detergents and a fast food chain would be an example of:

a conglomerate merger.

Inferior good

a good that consumers demand less of when their incomes increase

Normal good

a good that consumers demand more of when their incomes increase

A game tree is...

a graphical representation of the consequences of different actions in a strategic setting

Price fixing is considered to be a per se violation of the antitrust laws because:

a guilty verdict requires proof that the activity was attempted, not that it unreasonably restrained trade.

Which one of the following is most likely to increase the Herfindahl index of a particular industry?

a horizontal merger

Which of the following is most likely to increase the Herfindahl Index of a particular industry?

a horizontal merger between two of the industry's largest firms.

Monopolistic competition is a market structure in which

a large number of firms sells products that are close but not perfect substitutes.

Income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

Price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?

a monopolist faces the market demand curve and a monopolist competitor does not

Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?

a monopolist need not fear entry and also selection b above

Which of the following would a market competition regulator be most likely to assign the maximum HHI valuation to?

a monopoly

consumerism

a social movement that was aimed at promoting the interests of consumers.

Refer to the diagram. A price of $2.00 in this market will result in:

a surplus of 10 million gallons of milk per week.

Demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Smart car?

a. Small automobiles become more fashionable. Increase correct b. The price of large automobiles rises (with the price of small autos remaining the same). Increase correct c. Income declines and small autos are an inferior good. Increase correct d. Consumers anticipate that the price of small autos will greatly come down in the near future. Decrease correct e. The price of gasoline substantially drops. Cannot be determined correct

utility

ability or capacity of a good or service to be useful and give satisfaction to someone

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ . 1. accounting profit, excluding implicit cost 2. accounting profit, including implicit cost 3. economic profit, excluding explicit cost 4. opportunity cost, including economic profit

accounting profit, excluding implicit cost

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the:

active antitrust perspective.

The largest efficiency gains from deregulation have occurred in the:

airlines, trucking, and railroad industries.

Which of the following is characteristic of a regulated natural monopoly?

all of these

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its... 1. allocative efficiency 2. productive efficiency 3. utility-maximizing efficiency 4. minimum price efficiency

allocative efficiency

trade-offs

alternative that must be given up when one choice is made rather than another.

In the U.S. Steel case of 1920 the courts held that:

although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.

The Celler-Kefauver Act of 1950: (1)

amended the Clayton Act.

Distinctions between land, labor and capital-intensive commodities are important because

an abundant supply of one type of resource gives the country a comparative cost advantage in products using that resource

the development of more efficient machinery for producing this commodity.

an increase in incomes if the product is a normal good.

If the top 4 firms control more than 40% of output, then the market is...

an oligopoly

The Nash equilibrium is....

an outcome of a game in which each player is doing the best they can, given the action of the other players.

paradox of value

apparent contradiction between the high value of a nonessential item and the low value of an essential item

Economy of scale

as output increases, long-run average cost falls (on the graph it looks like the 1st half of a U)

diseconomy of scale

as output increases, long-run average cost rises (on the graph it looks like the second half of a U)

specialization

assignment of tasks to the workers, factories, regions or nations that can perform them most efficiently.

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits. 1. marginal 2. variable 3. average 4. fixed

average

need

basic requirement for survival, including food, clothing, and shelter

(Last Word) In 2001, a U.S. court of appeals tossed out an earlier U.S. district court order that Microsoft:

be split into two competing firms.

Firms operating under cost-plus regulation have an incentive to generate high costs by building huge factories or employing lots of staff,

because what they can charge is linked to the costs they incur.

Network economies arise when products

become more valuable as more people use them.

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. The limits of the terms of trade between these two countries will be

between 1 unit of good X for a unit of good Y and 4/3 a unit of X for a unit of good Y.

Antitrust laws are designed to encourage competition by:

breaking up large companies and discouraging mergers between companies in the same industry

A major criticism of industrial regulation is that:

by allowing a fair return price, it gives natural monopolists little incentive to contain costs.

Oligopoly firms acting individually may seek to gain profits_________ .

by expanding levels of output and cutting prices

A conglomerate merger:

can extend the line of products sold, extend the territories in which products are sold, or combine totally unrelated products.

A __________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

cartel

A perfectly discriminating monopolist

charges each buyer exactly his or her reservation price.

Algae

chloroplast-containing protists that conduct photosynthesis

Algae

chloroplast-containing protists that conduct photosynthesis Chlamydomonas

______arises when firms act together to reduce output and keep prices high

collusion

cost-benefit analysis

comparison of the cost of an action to its benefits

The US Federal Trade Commission justifies their record of approval of most mergers by asserting that, even though competition is diminished by consolidating two firms into one, mergers actually benefit

competition and consumers by allowing firms to operate more efficiently.

Which of the following is least likely to violate the Sherman Act or the Clayton Act?

competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.

If a firm doubles all of its inputs and output exactly doubles, then the production process exhibits

constant returns to scale.

opportunity cost

cost of the next best alternative use of money, time, or resources, when one choice is made rather than another.

A method of regulation under which the regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners is known as:

cost-plus regulation

Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as

cost-plus regulation.

Total variable cost

costs that vary as output changes (example: costs of good sold)

Defenders of social regulation point out that:

critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce.

The Sherman Act:

declared monopoly and restraints of trade to be illegal.

A decline in the number of firms in the tire industry

decrease

For products that have extremely high fixed costs relative to their marginal cost, the average total cost of production will typically _____ as output increases.

decrease

If benefit is < cost, we _____________ production.

decrease

The levying of a per-unit tax on each auto tire sold

decrease

The basic issue in the DuPont cellophane case was:

defining the relevant market.

Inelastic demand

demand in which changes in price have little or no effect on the amount demanded

Perfectly elastic demand

demand in which quantity drops to zero at the slightest increase in price

Unit elastic demand

demand is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value

In economics, labor demand is synonymous with... 1. market demand 2. average demand 3. marginal demand 4. derived demand

derived demand

production possibilities curve

diagram representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed.

The export supply curve for a particular country is the

difference between quantity supplied and quantity demanded in the domestic market for a price above the domestic equilibrium price

The import demand curve for a particular country is the

difference between quantity supplied and quantity demanded in the domestic market for a price below the domestic equilibrium price.

If a product is inelastic and is taxed, the consumer pays (directly/indirectly)

directly

If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to

divide up the monopoly level of profit amongst themselves.

division of labor

division of work into a number of separate tasks to be performed by different workers.

If the Marginal production is below the average production, average production will go...

down

If a firm has market power, then it faces a(n) ________.

downward sloping demand curve

The demand curve facing an imperfectly competitive firm is

downward sloping.

Time - the longer the period of time, the more (elastic/inelastic) a product tends to be

elastic

A luxury item tends to be (elastic/inelastic) because_________________________.

elastic because you don't need them

In a monopolistic competitive industry, firms can try to differentiate their products by

enhancing product's physical aspects and all of the above.

In competitive settings, profits will lead firms to _________and losses will lead firms to ___________ , so the incentives for producing at low cost and coming up with new ways of pleasing customers are strong.

enter the market; to exit

The optimal amount of social regulation occurs where the marginal benefit of such regulation:

equals the marginal cost.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output... 1. expanding output levels at any given price will be profitable. 2. producing less at any market price will off-set marginal cost . 3. the firm's marginal cost curve will shift to the left. 4. the firm's demand curve will also shift to the left.

expanding output levels at any given price will be profitable.

Calculating Economic Cost

explicit cost + implicit cost

Economic cost =

explicit costs + implicit costs

A firm that has market power:

faces a downward-sloping demand curve. can raise the price of its good without losing all of its sales.

If the government decides to regulate a natural monopoly by forcing them to produce at the point where the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price will______and the quantity will________.

fall, rise

Refer to the above data. If the price in this market was $14

farmers would not be able to sell all of their wheat.

Fungi and microsporidians

filaments or yeast that usually lack motility; tough cell walls made of polysaccharides; heterotrophs by absorptive nutrition; include decomposers and parasites

Fungi and microsporidians

filaments or yeast that usually lack motility; tough cell walls made of polysaccharides; heterotrophs by absorptive nutrition; include decomposers and parasites Aspergillus

The legal cartel theory of regulation argues that:

firms in certain industries want to be regulated rather than face the rigors of competition.

The demand curve as perceived by a perfectly competitive firm is __________

flat

scarcity

fundamental economic problem facing all societies resulting from a combination of scarce resources and people's virtually unlimited needs and wants

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

game theory.

Chlamydomonas

give an ex of ALGAE

Chaos carolinesis

give an ex of Amebas

Aspergillus

give an ex of Fungi & microsporidians

Taenia solium (scolex)

give an ex of a HELMITH

Body louse

give an ex of an ARTHROPOD

Pfiesteria (dinoflagellate)

given an ex of Alveolates

Trypanosoma cruzi

given an ex of Trypanosomes / metamonads

consumer good

good intended for final use by consumers other than businesses

durable good

good that lasts for at least three years when used regularly

When the government issues a license giving one firm the right to produce and sell a product exclusively, it is ______.

granting the firm market power

At a monopolist's profit-maximizing level of output, the benefit to consumers of the last unit produced is _____ the marginal cost of producing it.

greater than

Overall, economists believe that deregulation of industries formerly subjected to industrial regulation:

has produced large net benefits for consumers and society.

Amebas

heterotrophic protists with amorphous shape; motile with pseudopods

Amebas

heterotrophic protists with amorphous shape; motile with pseudopods Chaos carolinesis

A perfectly competitive markets demand curve is...

horizontal

The antitrust laws are based on the:

idea that competition leads to greater economic efficiency than does monopoly.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely:

ignore this merger because of the relatively small size of, and increase in, the Herfindahl index.

Interlocking directorates are:

illegal under provisions of the Clayton Act of 1914.

Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital? 1. higher retained earnings from past profits 2. cost of financial capital paid by a firm 3. imposition of hurdle rates of interest 4. tax credits for physical capital investments

imposition of hurdle rates of interest

A decline in the price of the large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires)

increase

If benefit is > cost, we ______________ production.

increase

The expectation that the equilibrium price of auto tires will be lower in the future than currently

increase

The granting of a 50-cent-per-unit subsidy for each auto tire produced

increase

economic growth

increase in a nation's total output of goods and services over time

We observe a market in which the price has risen and the quantity sold has risen as well. This could be caused by a(n):

increase in demand

A technological advance in the methods of producing tires

increases

If a product is elastic and is taxed, the consumer pays (directly/indirectly)

indirectly

Where there is natural monopoly, government is most likely to implement:

industrial regulation.

Behavioralists believe that:

industries should be judged on the basis of their price-output behavior and their technological progressiveness.

economic interdependce

interdependence: mutual dependence of the economic activities of one person, company, region, or nation on those of another person, company, region, or nation.

A function of the Federal Trade Commission is to:

investigate instances of faulty and misleading advertising.

monopolistic competition

is a market structure in which a large number of firms sells products that are close but not perfect substitutes.

Price fixing:

is a per se violation of the antitrust laws.

Critics of social regulation argue that it:

is a relatively greater burden for small firms than for large firms.

oligopoly

is an industry structure in which a small number of firms produce products that are either close or perfect substitutes.

The Federal Trade Commission:

is empowered to file antitrust suits.

The law of supply:

is reflected in all of the above.

if the elasticity demand is less than 1

it is considered inelastic

if the elasticity demand = 1

it is considered unit elastic

nondurable good

item that wears out, is used up, or lasts for fewer than three years when used regularly

If the elasticity demand is greater than 1

its considered elastic

A profit-maximizing monopolist will choose the level of output such that _____.

its marginal revenue equals its marginal cost

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should... 1. raise her prices above the perfectly competitive level set by the market. 2. keep the business open in the short-run, but plan to go out of business in the long-run. 3. keep the business open in the short-run, and plan to expand the business in the long-run. 4. lay-off her staff, break her lease, and close the business down immediately.

keep the business open in the short-run, but plan to go out of business in the long-run.

If the CEO of I'Ma Big Bank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

larger than the rewards from pursuing self-interest.

Suppose the transportation industry has been regulated for many years. Government now proposes to deregulate the industry, only to find that firms in the industry oppose this action. This is consistent with the:

legal cartel theory of regulation.

A monopolist's profit-maximizing level of output is inefficient because the marginal cost of the last unit produced is _____ than the marginal benefit to society of the last unit produced.

less than

If a market is inelastic, and the price of a good goes up 8%, the quantity demanded goes down

less than 8% (%change in QD < %change in P)

The additional revenue a monopolist receives from selling an additional unit of output is

less than the price of the product.

Which would be an example of a government price ceiling?

limits on interest rates charged by credit card companies

If an imperfectly competitive firm raises the price of its product by a small amount, then it will ______.

lose some, but not all, of its customers

The main purpose of industrial regulation is to:

lower price to average total cost such that the firm earns a fair return.

If both marginal and average costs in a competitive firm's short-run production process are falling as output is increased, then... 1. marginal cost is above average variable cost 2. marginal cost is below average fixed cost 3. marginal cost is below average variable cost 4. average fixed cost is constant

marginal cost is below average variable cost

To maximize profit, we produce where _____________ = ____________

marginal revenue (or price) = marginal cost

Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its... 1. marginal cost is increasing. 2. total cost is increasing. 3. economic profits are zero. 4. marginal revenue is constant.

marginal revenue is constant

free enterprise economy

market economy in which privately owned businesses have the freedom to operate or a profit with limited government intervention

product markets

market in which goods and services are given to consumers and consumer pay for them.

The Herfindahl-hirschman index is calculated by taking___________, squaring it, and adding them up to get a total.

market share of each firm in the industry

factor markets

markets in which factors of production are given to businesses and businesses pay for them

productivity

measure of the amount of output produced in a specific time period with a given amount of resources; normally refers to labor, but can apply to all factors of production

market

meeting place or mechanism through which buyers and sellers of an economic product come together; may be local, regional, national, or global.

Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?

merged firms can increase price and maintain permanently higher profits

Using antitrust law to split up an unregulated natural monopoly into several competing firms:

might either increase product price or reduce product price.

gross domestic product

monetary value of all final goods, services, and structures produced within a country's national borders during a one-year period

value

monetary worth of a good or service as determined by the market (supply and demand)

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call _______.

monopolistic competition

A market in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another is a(n) _____.

monopolistically competitive market

As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble________ and in other ways resemble_________.

monopoly; perfect competition

All else equal, a monopolist that price discriminates will tend to produce _____ one that does not.

more than

If a market is elastic, and the price of a good goes up 5%, the quantity demanded goes down...

more than 5% (%change in QD > %change in P)

Arthropods

multicellular insects and related microscopic organisms; include parasites and free-living members of soil ecosystems

Arthropods

multicellular insects and related microscopic organisms; include parasites and free-living members of soil ecosystems Body louse

Helminths

multicellular worms, including nematodes (roundworms), cestodes (tapeworms), and trematodes (flukes); include parasites as well as free-living members of soil ecosystems

Helminths

multicellular worms, including nematodes (roundworms), cestodes (tapeworms), and trematodes (flukes); include parasites as well as free-living members of soil ecosystems Taenia solium (scolex)

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

natural monopoly.

land

natural resources or "gifts of nature" not created by human effort; one of the four factors of production

In net, tariffs or quotas are

negative, since the costs to consumers substantially exceed the gains to producers and government.

What happens in a perfectly competitive industry when economic profit is greater than zero? 1. existing firms may expand their operations 2. firms may move along their LRAC curves to new outputs 3. there may be pressure on the market price to fall 4. new firms may enter the industry and all of the above

new firms may enter the industry and all of the above

Calculating %

new value - old value / old value

intangible

not physical; something that cannot be touched

Tying agreements:

obligate a purchaser of product X to also buy product Y from the same seller.

The "rule of reason" indicated that:

only contracts and combinations that unreasonably restrain trade violate the antitrust laws.

In the U.S. Steel case, the court ruled that:

only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.

Once business firms start to enter the market after an increase in demand, we start to:

operate in the long run

A vertical merger involves a combining of one or more firms:

operating at different stages of the production process in a particular industry.

When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital. 1. typical hurdle rate 2. opportunity cost 3. degree of risk 4. hurdle rate premium

opportunity cost

Perfect competition and monopoly stand at_______ of the spectrum of competition.

opposite ends

The Clayton Act of 1914:

outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.

Trypanosomes and metamonads

parasites with complex life cycles

Trypanosomes & metamonads

parasites with complex life cycles Trypanosoma cruzi

Rationality implies that when the ______ to doing something changes, people will change their behavior to make their payoff as large as possible.

payoff or benefit

Conspiracies to fix prices are:

per se violations of the antitrust laws.

Calculating % change in quantity demanded

percentage change in price x Elasticity of Demand or (new value - old value / old value)

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products. 1. a perfect monopoly 2. perfect competition 3. an oligopoly 4. a free market

perfect competition

The essential difference between perfectly competitive firms and imperfectly competitive firms is that perfectly competitive firms face _____ demand curves while imperfectly competitive firms face _____ demand curves.

perfectly elastic; downward-sloping

Critics of industrial regulation say that such regulation:

perpetuates monopoly long after new technology has eroded natural monopoly.

What role does the US government play with respect to market competition?

policing anticompetitive behavior and prohibiting contracts that restrict competition

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely:

prevent the merger, contending that it violates the Clayton Act.

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing

price cap regulation.

Student discounts and mail-in rebates are examples of ______.

price discrimination

The practice of charging different buyers different prices for essentially the same good is known as _____.

price discrimination

Which of the following is directly illegal under the Sherman Act?

price fixing

(Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:

price fixing.

A firm with at least some latitude to set its price is a ______.

price setter

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. 1. price setter 2. business entity 3. price taker 4. trend setter

price taker

Total revenue

price x quantity sold

One potential problem with state ownership of natural monopolies is that:

private natural monopolies are likely to face stronger incentives to cut costs than state-owned natural monopolies

factors of production

productive resources needed to produce goods; the four factors are land, capital, labor and entrepreneurship

The Celler-Kefauver Act of 1950: (2)

prohibited any firm from acquiring the real assets of another firm where the effect was to lessen competition.

Alveolates

protists with flagella or cilia; free-living predators and host-dependent parasites; include ciliates, dinoflagellates, and apicomplexans

Alveolates

protists with flagella or cilia; free-living predators and host-dependent parasites; include ciliates, dinoflagellates, and apicomplexans Pfiesteria (dinoflagellate)

distinctive products...

provide an export niche for a country

standard of living

quality of life based on ownership of necessities and luxuries that make life easier.

The horizontal axis of a graph which shows a market demand curve indicates the:

quantities which consumers will be willing and able to buy at various prices.

At any above-equilibrium price:

quantity supplied exceeds quantity demanded.

Splitting up a the natural monopoly held by a public utility that produces and provides electricity would

raise the average cost of production and force consumers to pay more.

The decision in the U.S. Steel case:

reflected a behavioralist approach to antitrust.

(Last Word) The final settlement of the United States v. Microsoft case:

requires that Microsoft provide technical information to competing companies so they can develop software programs that work as well with Windows as Microsoft's own products.

An effective price floor on wheat will:

result in a surplus of wheat.

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:

rise, the supply of bread to decrease, and the demand for potatoes to increase.

entrepreneurs

risk-taking individuals who introduce new products or services in search of profits; one of the four factors of production

The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to

select the profit maximizing quantity to produce

The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

sell any quantity it wishes at the prevailing market price.

A demand curve:

shows the relationship between price and quantity demanded. indicates the quantity demanded at each price in a series of prices. graphs as a downsloping line. has all of the above characteristics.

economic model

simplified version of a complex concept or behavior expressed in the form of a graph, figure, equation, or diagram.

In percentage terms, our exports of goods and services are

small when compared to other industrialized countries

Social regulation differs from industrial regulation in that:

social regulation applies to virtually all industries, while industrial regulation applies to a restricted number.

Congressional representatives have called for extensive ergonomics regulations to reduce strains and injuries from repetitive activities by workers. Such regulation, if passed, would be a good example of:

social regulation.

economics

social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources

want

something we would like to have but is not necessary for survival

human capital

sum of people's skills, abilities, health, and motivation.

wealth

sum of tangible economic goods that are scarce, useful, and transferable from one person to another; excludes services

Price-takers are individuals in a market who:

take the market price as given

The perceived demand for a monopolistic competitor

takes competitors into account

good

tangible economic product that is useful, transferable to others, and used to satisfy wants and needs

In which of the following pairs of antitrust cases did the firms prevail against the antitrust charges leveled against them?

the DuPont cellophane case and the U.S. Steel Case

All of the following can file antitrust charges under the Sherman Act except:

the Federal Energy Regulatory Commission.

Which one of the following acts declared "Every contract, combination ... or conspiracy, in restraint of trade or commerce among the several states ... to be illegal"?

the Sherman Act

The main anti-trust act in the US is...

the Sherman Anti Trust act (passed in 1890)

What is the comparative advantage?

the ability to produce a good at a lower opportunity cost than another producer (pg 47 in the textbook goes over this)

Perfectly inelastic demand

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero

Long run marginal cost is...

the change in long run cost resulting from a one unit increase in output

Economic Cost is...

the cost of all the inputs used in the production process, it is measured as the opportunity cost of all the inputs.

A firm charged with monopolizing a market is less likely to be convicted if:

the court accepts a broad definition of the market.

The Demand for Labor is derived from...

the demand of a business firms goods/services

Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by:

the development of more efficient machinery for producing this commodity.

A budget line shows...

the different combinations of 2 goods that a consumer can buy

The income and substitution effects account for:

the downward sloping demand curve

A quota that results in the same level of imports as a tariff is more detrimental to an economy because...

the government loses tax revenue

The more consumer surplus...

the higher the standard of living

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

Graphically, the market supply curve is:

the horizontal sum of individual producers' supply curves.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes:

the income effect.

Critics of the regulation of natural monopolies contend that:

the industry may "capture" or control the regulatory commission.

If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?

the new firm will produce more efficiently and all of the above

A pure monopolist is

the only supplier of a unique product with no close substitutes

The point where Marginal Cost and Average Total Cost meet on the graph is...

the point of Maximum production

The hurdle method of price discrimination refers to ______.

the practice by which a seller offers a discount to all buyers who overcome some obstacle

Perfectly inelastic supply

the price elasticity of supply equals zero

Refer to the diagram above. In this instance, point e shown on the graph indicates... 1. the point where profits will increase by increasing output 2. the point where profits will increase by reducing output 3. the profit-maximizing point where MR = MC 4. the profit-maximizing point where MR is less an MC

the profit-maximizing point where MR = MC

Which one of the following is not prohibited by the original Clayton Act?

the purchase of the assets of rival firms that lessens competition

Refer to the above data. If price was initially $14, we would expect:

the quantity of wheat supplied to decline as a result of the subsequent price change.

At the point where the demand and supply curves for a product intersect:

the quantity which consumers want to purchase and the amount producers choose to sell are the same.

Demand for Labor shows...

the relationship between the wage and quantity of labor demanded

The price elasticity of supply measures...

the responsiveness of quantity supplied to a change in price

What does the Elasticity of Demand measure?

the responsiveness of the quantity demanded to changes in price

Total utility is...

the satisfaction you gain in total

A consumers budget set is...

the set of affordable combinations of two goods

When the price of one fruit increases, consumers buy more of another fruit. This situation is an illustration of:

the substitution effect.

With allocative efficiency:

there is production of that particular mix of goods and services most wanted by society.

If oligopolists compete hard against each other

they end up acting very much like imperfect competitors. This file is copyright 2018, Rice University. All Rights Reserved.

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using _________to increase its profits.

tie-in sales

The main purpose of the antitrust laws is:

to prevent the monopolization of industries.

capital good

tool, equipment, or other manufactured good used to produce other goods and services; a factor of production

capital

tools, equipment, and factories used in the production of goods and services; one of the four factors of production

Refer to Exhibit 23-4. The firm sells its product at P 1 and produces Q 1. Given this situation... 1. total variable cost is equal to areas 2 + 3. 2. total revenue is equal to areas 1 + 2. 3. total cost is equal to areas 1 + 2 + 3. 4. profit equals area 1. 5. none of the above

total cost is equal to areas 1 + 2 + 3

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Complements

two goods that are bought and used together

If the marginal production is above the average production, average production will go...

up

(Last Word) In 2001, Microsoft was found guilty of:

using anticompetitive means to maintain and broaden its monopoly in Intel-compatible operating systems for personal computers.

A merger between an automobile manufacturer and a maker of automobile tires is an example of a:

vertical merger.

Economists who adhere to the laissez-faire antitrust perspective:

view competition as a long-run dynamic process in which firms battle for dominance of markets but rarely can sustain such dominance once it is achieved.

In a perfectly competitive market setting, which of the following would be a true statement? 1. market price automatically sets itself exactly at equilibrium 2. market price rarely trends toward equilibrium value 3. wage rates mirror marginal revenue product levels exactly 4. marginal rates trend toward marginal revenue product levels

wage rates trend toward marginal revenue product levels

An increase in demand means that:

we operate in the short run

Excess demand

when quantity demanded is more than quantity supplied

Excess supply

when quantity supplied is more than quantity demanded

Perfectly elastic supply

when the quantity supplied changes by a very large percentage in response to an almost zero percentage change in price

If a monopoly or a monopolistic competitor raises their prices, the quantity demanded____.

will decline

If a single firm controls an input essential to the production of a given product, then that firm

will have market power.

Responsibility for enforcing the antitrust laws rests:

with both the Department of Justice and the Federal Trade Commission.

service

work or labor performed for someone; economic product that includes haircuts, home repairs, and forms of entertainment

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

yes; consumers will buy from competitors offering lower priced substitutes