Comprehensive Quiz (ECON 102)

Every society faces trade-off because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $400,000 next year playing for a minor league baseball team, $900,000 next year playing for a European professional football team, or $0 returning to college for another year. What is the opportunity cost of the student-athlete returning to college next year?

$900,000

What is the definition of a monopoly?

A monopoly is a firm that is the only seller of a product in a given industry

Describe a monopoly's demand curve.

A monopoly's demand curve is the same as the demand curve for product

Profitability is partially determined by the firm's ability to create value for its customers. How can a firm create this type of value?

Firms can create value for their customers by differentiating their product from competing products

How do firms differentiate their products?

Firms use trademarks to defend a brand s name with legal protection and they use advertising to make products seem more desirable than competing products

Which of the government's taxes is the largest source of funding for public schools?

Property taxes

What do barriers to entry have to do with the extent of competition, or lack thereof, in an industry?

Without barriers to entry, new firms will enter industries where firms are earning economic profits

Is it possible to price discriminate across time? Briefly explain.

Yes, Firms can charge higher prices at times when consumer demand is less elastic and lower prices at times when consumer demand is more elastic

Are perfectly competitive markets allocative efficient in the long run?

Yes, because firms produce where the marginal benefit to consumers equals the marginal cost of production

One reason some oppose free trade and the reduction of trade barriers is protectionism. What does old-fashioned protectionism seek to protect?

domestic jobs

Suppose bee-keeping generates a positive externality in production. If so, then...

the marginal social cost of bee-keeping is less than the marginal private cost

How is the price elasticity of demand measured?

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

Suppose cigarettes generate a negative externality in consumption. If so, then...

the private market equilibrium results in a quantity that is greater than the efficient quantity

What is the production function?

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

What would macroeconomics most likely include?

the study of inflation

The demand for plums is highest during the summer and lowest during winter. Yet plum prices are normally lower in summer than in winter. What must be happening to the supply of plums, from winter to summer, for the equilibrium price to fall?

the supply increases more than the demand increases

Which of the following is a threat o a trademarked company name?

their names becoming so widely used for a type of product that they no longer are associated with a specific company

If patents reduce competition, why does the federal government grant them?

to encourage firms to spend money on research to create new products

How do firms use marketing?

to monitor how changes in consumer tastes are affecting the market for their product

You observe that when the price of iPads decreases the demand for Android smartphones remains the same. iPads and Android smartphones are considered to be __________ goods

unrelated

For marginal cost of production (MC), when do firms achieve allocative efficiency?

when MC=D

What are diseconomies of scale?

when a firm's long-run average costs increase with output

What is meant by productive efficiency?

when a good or service is produced at lowest possible cost

The demand for a product is likely to be more elastic...

when a product has more substitutes available

What is meant by allocative efficiency?

when every good or service is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it

When are firms likely to be price takers?

when it represents a small fraction of the total market

What is odd pricing?

when prices end in "5"

When does the law of one price not hold?

when products cannot be resold

Suppose that last semester your semester GPA was 3.70 and your resulting cumulative GPA was 2.58. Next suppose that this semester your semester GPA will be 3.30. If so, then your cumulative GPA...

will increase because your "marginal" GPA will be above your cumulative GPA

How can we show economic inefficiency?

with points inside the production possibilities frontier

How can we show economic efficiency?

with points on the production possibilities frontier

The difference between a change in supply and a change in the quantity supplied is that the latter is...

produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price

Arbitrage would be prevented from ensuring that identical products sell for the same price everywhere if...

products cannot be resold

What is required for a firm to successfully engage in price discrimination?

requires the firm to know what prices customers are willing to pay

Give an example of a firm using a two-part tariff as part of its pricing strategy.

-a golf club requiring the purchase of an annual membership in addition to a fee each time members use the golf course -Sam's club requiring consumers to pay a membership fee before shopping at its stores

What would cause the supply curve for HP printers to shift to the right?

-a positive technological change -a decrease in the price of a substitute in production

Give an example of a government-imposed barrier to entry

-a quota on imports -a patent

example of trademarked names that are used for products

-aspirin -advil -bandaid

Why would the government be willing to erect barriers to entering an industry?

-encourage firms to carry out research and development of new and better products -protect the public from incompetent practitioners -protect U.S. firms from international competition

The guidelines used by the Department of Justice and the Federal Trade Commission when evaluating proposed mergers include three main parts. What are they?

-market definition -measure of concentration -merger standards

examples of externalities

-producing college educations -conducting medical research -generating electricity -producing honey with bees

When economists speak of a shortage, they mean a situation in which...

-some consumers are unable to make a purchase a the current price -the market price is below the equilibrium price -the quantity demanded exceeds quantity supplied

When economists speak of a surplus, they mean a situation in which:

-the market price is above the equilibrium price -the quantity supplied exceeds quantity demanded -firms have unsold goods piling up

What is the relationship between a monopolist's demand curve and its marginal revenue curve?

A monopolist's marginal curve has twice the slope of its demand curve, because to sell more output, a monopoly must lower price

How are decision trees used to analyze sequential games?

A decision tree contains decision nodes where firms must make decisions, arrows illustrating the decisions, and terminal nodes showing the resulting rates of return

A form of market structure studied by economists is monopoly. When is a firm a monopoly, or are monopolies only theoretical concepts that do not exist?

A firm is a monopoly if its economic profits are not competed away in the long run

Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly?

A firm is likely to be a monopoly if there are important network externalities in supplying the good or service

Firms experience economies of scale for several reasons. What is one such reason?

A firm might experience economies of scale because as a firm expands, it may be able to borrow money more inexpensively

Why would a firm produce in the short run while experiencing losses?

A firm would not shut down if by producing it would lose an amount less than its total fixed costs

What is the relationship between a monopolist's demand curve and the market demand curve?

A monopolist's demand curve is the same as the market demand curve

Why would a monopolistically competitive firm advertise?

A monopolistically competitive firm would advertise to make its demand curve more inelastic

Suppose two jobs require the same degree of training and education, yet one of the two jobs pays a higher wage. How can compensating differentials explain this wage difference?

According to compensating differentials, wages will be higher if the corresponding job is MORE DISHONORABLE

Do airlines practice price discrimination? Explain.

Airlines engage in price discrimination by reducing the price on seats that they expect will not be sold

Give an example of a public franchise and an example of a public enterprise

An example of a public franchise is a firm that is the sole, government-designated provider of electricity and an example of a public enterprise is the government directly providing water

What is cost-plus pricing?

An example of cost-plus pricing is charging a price 20 percent higher than average cost

How are implicit costs different from explicit costs?

An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost

What are implicit costs?

An implicit cost is a nonmonetary opportunity cost

Suppose that a monopoly becomes a perfectly competitive industry

As a result, consumer surplus will INCREASE, producer surplus will DECREASE, and deadweight loss will DECREASE

Why might black markets arise?

Black markets may arise in reaction to binding price ceilings

Which are more economically efficient, perfectly competitive markets or monopolies?

Compared to monopolies, perfectly competitive markets are more economically efficient because they result in more economic surplus

Economic theory suggests perfectly competitive markets are efficient. How should competition affect economic discrimination?

Competition among firms may reduce but not completely eliminate discrimination due to worker discrimination, where white workers refuse to work alongside black workers

In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing a brand of toothpaste to buy?

Consumer decision making is likely to be more affected by social influences when choosing a restaurant for dinner because this takes place publicly

Are consumers only interested in making themselves as well off as possible in a material sense?

Consumers are also concerned with fairness as exemplified by donations to charity

Are consumers only interested in making themselves as well off as possible in a material sense?

Consumers are also concerned with fairness as exemplified by tipping in restaurants that will never be visited again

How do market economies ultimately determine what goods and services are produced, how the goods and services will be produced, and who will receive the goods and services?

Consumers determine what goods and services are produced, firms determine how to produce them, and markets determine who will receive them

Suppose Farmer Lane grows and sells cotton in a perfectly competitive industry. The market price of cotton is $1.70 per kilogram and his marginal cost of production is $1.44 per kilogram, which increases with output. Assume Farmer Lane is currently earning a profit. Can Farmer Lane do anything to increase his profit in the short run?

Farmer Lane can increase his profit by producing more output

Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Why or why not?

Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is"

Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $81.80 and the marginal benefit is $80.80. If one more barrel of oil is produced and consumed, how will economic surplus change?

Economic surplus will decrease by $1.00

Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $79.60 and the marginal benefit is $80.60. If one more barrel of oil is produced and consumed, how will economic surplus change?

Economic surplus will increase by $1.00

What do economics assume about people and firms?

Economics assumes people and firms use all available information to achieve their goals, respond to incentives, and make decisions by comparing marginal benefits with marginal costs

Monopolies are recognized to create deadweight loss. How large are the efficiency losses due to monopoly?

Economists generally agree that efficiency losses due to monopolies in the economy are small because true monopolies are very rare

Economic theory suggests countries benefit from international trade by producing more of those goods and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However countries rarely specialize complete. Why?

Even with international trade, countries rarely specialize completely because production of most goods involve increasing opportunity costs -some goods and services cannot be traded internationally

Consider firms that introduce new products, such as DVDs in 2001. When firms introduce new products, how do they typically determine the price elasticity of demand for those products?

Firms with new products often estimate price elasticity of demand by experimenting with different prices

What are the three conditions for a market to be perfectly competitive?

For a market to be perfectly competitive, there must be many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market

What must be true for the Coase Theorem to hold?

For the Coase Theorem to hold, all parties to an agreement must have full information about the costs and benefits of the externality

In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally?

Grazing created a negative externality, resulting in the commons being overused

Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 20 and his marginal utility from an additional unit of housing is 180. Furthermore, suppose the price of a unit of food is $1 and the price of a unity of housing is $5. Can Bob increase his utility without changing his total expenditures on food and housing?

Holding expenditures constant, Bob can increase utility by spending less on food and more on housing

How do externalities affect markets?

If a negative externality in production is present in a market, then the private cost of production will be different than the social cost of production

What effect does a network externality have on the market for a product?

If a network externality is present for a product, then consumers may be more likely to buy the product because it is more useful

How might society solve problems associated with externalities and market failure?

If an externality is present, resulting in market failure, then private solutions may reduce or correct market failure

Assume national defense is a public good

If so, then national defense is NONRIVAL and NONEXCLUDABLE

If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.

If the additional output from each new worker is rising, the marginal cost of that output is falling because the only additional cost to producing more output is the additional wages paid to hire more workers

A hospital provides emergency-room medical care for local residents. Suppose the hospital currently provides this care for 15,000 patients per year at a total cost of $15,000,000. If the hospital expands, it can provide emergency-room medical care for 20,000 patients per year at a total cost of $90,000,000. If the hospital expands, will it be experiencing economies of scale, diseconomies of scale, or constant returns to scale?

If the hospital expands, it will be experiencing diseconomies of scale

What effect will changes in labor supply have on the equilibrium wage and employment?

If the labor supply curve shifts to the left, then the equilibrium wage will RISE and employment will FALL

Which of the following correctly explains the effect of a variable on the labor demand curve?

If the price of the product increases, then the labor demand curve will shift to the right If human capital increases, then the labor demand curve will shift to the right

What is the government's policy on collusion in the United States? Explain the rationale for this policy.

In the US, the government makes collusion illegal with antitrust laws because monopolies create deadweight loss

Is zero economic profit inevitable in the long run for monopolistically competitive firms?

In the long run, monopolistically competitive firms may continue to earn profit by improving their product

What is the distinction between the economic short run the economic long run?

In the short run, at least one input is fixed, but in the long run, the firm can vary all inputs

What is the difference between the short run and the long run?

In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology

The government primarily relies on taxes to raise the revenue it needs. Which of the government's taxes is the largest source of revenue for the federal government?

Individual income taxes provide the largest source of revenue for the federal government

Suppose Sony makes PlayStation 3 using labor. In what way is labor a derived demand?

Labor for Sony to make PlayStation 3 is a derived demand because it depends on consumer demand for Play Station 3

Why are major league baseball players on average paid substantially more than college professors? Explain.

Major league baseball players are paid more than college professors because the marginal revenue product of major league baseball players is high relative to college professors

Is the amount of time that separates the short run from the long run the same for every firm?

NO

For what types of products are network externalities likely to be important?

Network externalities are likely to be important for products that: -have become established -use inferior technology

Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination?

No, differences in earnings between groups could be due to worker productivity and worker preferences

Many firms advertise. What effect does advertising have on firm profits?

One possible effect of advertising is to decrease profits by increasing the cost of production -increase profits by making the demand curve for the product more inelastic

How does the long-run equilibrium for a monopolistically competitive market differ from the long-run equilibrium for a perfectly competitive market?

One way in which monopolistically competitive markets and perfectly competitive markets differ is that in long-run equilibrium, monopolistically competitive firms do not produce at minimum average total cost

According to behavioral economists, why might consumers or businesses not act rationally?

People might not act rationally because they fail to ignore sunk costs

What characterizes perfectly competitive markets?

Perfectly competitive markets have identical products sold by all firms

Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals?

Post Raisin Bran cereal has most substitutes available

How else can you calculate the price elasticity of demand?

Price elasticity of demand can be calculated using both initial and final values for price and quantity

Do producers tend to favor price floors or price ceilings? Why?

Producers favor price floors because, when binding, price floors INCREASE price above the equilibrium and may increase producer surplus

Discuss the difference between productive and allocative efficiency

Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries

In particular, the supply curve for a particular product will be increasingly more inelastic over a.....period of time

SHORTER

Firms use various pricing strategies to increase profits. Which of the following is an example of one of these pricing strategies?

Some firms use two-part tariffs, where consumers pay one price to buy as much of a good as they want at a second price

TRUE or FALSE: governments tend to favor taxes that promote social objectives

TRUE

What is the difference between technology and technological change?

Technology is the process of using inputs to make output, while technological change is when a firm is able to produce the same output using fewer inputs.

For many years, the Aluminum Company of America (Alcoa) essentially operated as a monopoly. What made this company a monopoly?

The Aluminum Company of America was essentially a monopoly because it had almost exclusive control of the world's supply of bauxite, used to make aluminum

An accountant increases the price he charges for his services by 2 percent. In response, the demand for his services decreases by 16 percent. How does this affect his revenue>

The accountant's revenue will decrease

What is the circular-flow diagram and what does it illustrate?

The circular-flow diagram shows how households and firms are linked through product and factor markets

Consider a Lacoste shirt. Is the consumption of Lacoste shirts rival and excludable?

The consumption of Lacoste shirts is rival and excludable

Suppose the market for cotton is perfectly competitive and that input prices decrease as the industry expands. Characterize the industry's long-run supply curve.

The cotton industry's long-run supply curve will be downward sloping because the long-run average cost of production will be decreasing

What demographic change would likely result in the demand curve for condominiums shifting to the right?

The demand curve for condominiums would likely shift to the right if the portion of the population that is elderly increases

What are the five most important variables that cause the market demand curve for labor to shift?

The demand curve for labor shifts with changes in human capital, technology, the price of the product, the quantity of other inputs, and the number of firms in the markett

MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be -2.5 and the price elasticity of demand for all types of breakfast cereals to be -0.9. Which is demand is elastic/inelastic?

The demand for Post Raisin Bran cereal is elastic and the demand for all types of breakfast cereals is inelastic

Compare the demand for sugar with demand for gasoline

The demand for sugar is likely more inelastic because sugar tends to represent a smaller fraction of a consumer's budget

Suppose a consumer is trying to decide how much to spend on transportation and how much to spend on all other (non-transportation) consumption.

The economic model of consumer behavior predicts that the consumer will choose the combination of transportation and non-transportation consumption that makes her well off as possible from among the combinations of transportation and non-transportation items she can afford

Suppose the price of a complement to LCD televisions rises. What effect will this have on the market equilibrium for LCD TVs?

The equilibrium price of LCD TVs will decrease and the equilibrium quantity will decrease

Suppose the demand for wheat increased dramatically between 1950 and 2000 but the equilibrium quantity increased only slightly. Absent any other changes what could explain the small increase in the equilibrium quantity?

The equilibrium quantity of wheat could have increased only slightly given a dramatic increase in demand because supply is relatively inelastic

The government indirectly influences the level of industry competition with its own barriers to entry. How?

The government can restrict entry by granting patents to firms with new inventions

Suppose the equilibrium price and equilibrium quantity of gold both decrease. What would produce such a change?

The market demand curve for gold could have decreased

Suppose the equilibrium price and equilibrium quantity of gold both increase. Which of the following would produce such a change?

The market demand curve for gold could have increased

What is the advantage of the midpoint method?

The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price

What is the midpoint method for calculation price elasticity of demand?

The midpoint method for calculating price elasticity of demand is the change in quantity divided by the average of the initial and final quantities divided by the average of the initial and final prices

What are the most important barriers to entry?

The most important barriers to entry are economies of scale, ownership of a key input, and government imposed barriers

The Department of Justice and the Federal Trade Commission must define the relevant market when determining whether to allow a merger. How do economists identify the relevant market?

The relevant market has been identified if a price increase results in higher profits; otherwise, the market is too narrow.

Briefly explain whether you agree with the following statement: "If consumer surplus in a market increase, producer surplus must decrease."

The statement is incorrect. Consumer surplus (and producer surplus) could increase by decreasing deadweight loss

What is the supply curve for a perfectly competitive firm in the short run?

The supply curve for a firm in a perfectly competitive market in the short run is that firm's marginal cost curve for prices at or above average variable cost

Consider the supply of zinc. What would make the supply of zinc more elastic?

The supply of zinc would become more elastic if the time horizon becomes longer

Does it matter if a firm is a monopoly or not for total cost of production?

The total cost of production increases with output regardless of whether a firm is a natural monopoly

White males earn on average over $10,000 more annually than Hispanic males. Is this due to economic discrimination?

The wage gap between white males and Hispanic males is partly due to economic discrimination and partly due to differences in education/experience

Is Jill Johnson correct when she says the following: "I am currently producing 20,000 pizzas per month at a total of $60,000. If I produce 20,001 pizzas my total cost will rise to $60,002. Therefore, my marginal cost of producing pizzas must be increasing."

Though Jill's average total cost of production is decreasing, her marginal cost of producing pizzas could be increasing or decreasing

What information must economists have to estimate the price elasticity of demand?

To estimate the price elasticity of demand, economists need to know the demand curve for a product

Suppose a common resource-wood in a public forest-is being overused because residents consider the benefits of gaining firewood or wood for building but do not account for the cost of deforestation when chopping down trees. What could be done to prevent wood in the forest from being overused?

To prevent overuse of the common resource, the government could impose restrictions on access to wood in the forest -the community could establish norms where social pressure limits deforestation

What are the differences between the long-run equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm?

Unlike perfectly competitive firms, in the long run monopolistically competitive firms charge a price greater than marginal cost and do not produce at minimum average total cost

In 2010, Domino's launched a new advertising campaign admitting that its pizzas had not tasted very good, but claiming that they had developed a new recipe greatly improved the taste. If Domino's succeeded in convincing consumers that its pizza was significantly better than competing pizzas, would its demand curve become flatter or steeper?

When a product becomes less differentiated from other products, its demand curve becomes FLATTER. This happens because the slope of the demand curve reflects buyer responsiveness to a price change, which is determined in part by the availability of substitutes. Thus, when a product becomes less differentiated from other products, buyers perceive it as having MORE good substitutes, and this altered perception induces buyers to be MORE responsive to price

What role does utility play in the economic model of consumer behavior?

When modeling consumer behavior, utility reflects the satisfaction a consumer receives from consuming a particular set of goods and services

A fast-food restaurant decides to raise the price of its hamburgers. Assume the firm is in a monopolistically competitive industry. What will happen to the demand for its hamburgers?

When the fast-food restaurant raises the price of hamburgers, some of its customers will be willing to pay a higher price because they prefer this brand of hamburgers

Explain how a downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.

When the price of a good rises, the ratio of the marginal utility to price falls, leading consumers to buy less of that good

Suppose First City Bank determines that it must lower its average cost of providing banking services in the long run to become profitable. If the bank experiences diseconomies of scale, what could it do?

With diseconomies of scale, First City Bank could lower its long-run average costs by providing fewer services

Why do single firms in perfectly competitive markets face horizontal demand curves?

With many firms selling an identical product, single firms have no effect on market price

Consider a pair of Gap Jeans. Is the consumption of Gap Jeans rival and excludable?

Yes, rival and excludable

What is the shape of the marginal cost curve?

a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling

What is positive technological change?

a firm is able to produce the same output with fewer inputs

What is a price taker?

a firm that is unable to affect the market price

What is a black market?

a market in which buying and selling occur at prices that violate government price regulations

What is "natural" about a natural monopoly?

a natural monopoly develops automatically due to economies of scale

Further, governments favor taxes that place a greater share of the tax burden on those who have a greater ability to pay, according to the...

ability-to-pay principle

However, private bargaining will tend to be limited when...

all parties to the agreement do not have full information

The law of diminishing marginal utility suggests that...

consumers experience diminishing additional satisfaction as they consume more of a good or service

According to the goal of economic efficiency, governments tend to favor taxes that...

create a small excess burden relative to revenue raised

Determine whether the demand for cola is likely to be elastic or inelastic

elastic

In economic terminology, the inputs used to make goods and services are referred to as...

factors of production

What effect will changes in supply have on the equilibrium wage and employment? If the supply curve shifts to the right, then the equilibrium wage will_______ and employment will _________

fall; rise

Assume the price of CDs is $18 and the price of DVDs is $22. At those prices, Isabel consumes 13 CDs and 14 DVDs. Her marginal utility from the last CD consumed is 141 and her marginal utility from the last DVD consumed is 250. Without changing the combined amount spent on CDs and DVDs, Isabel can increase her utility by consuming _______ CDs and _______ DVDs.

fewer; more

What are the two main categories of participants in markets?

firms and households

Explain why it is true that for a firm in a perfectly competitive market that P=MR=AR. In a perfectly competitive market, P=MR=AR because

firms can sell as much output as they want at the market price

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?

firms have difficulty coordinating production

sequential game

game where one firm acts and then the other firms respond

In addition governments favor taxes that treat people in the same economic situation equally, according to the...

horizontal-equity principle

Which participants are of greatest importance in determining what goods and services are produced?

households

What is the law of one price?

identical products should sell for the same price everywhere, assuming no transaction costs

How can the production possibilities frontier shift outward?

if resources are used to produce capital goods

What does the Coase Theorem suggest?

if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities

According to economists, an efficient tax is one that...

imposes a small deadweight loss relative to the tax revenue it raises

Network externalities are present when the usefulness of a product...

increases with the number of consumers who use it

Business travelers have a more ________ demand than leisure travelers, so airlines charge business travelers _________ price

inelastic; a higher

Using the same amount of resources, suppose that Nicaragua can produce twice as much wheat as Colombia. Nevertheless, Colombia could still have the comparative advantage in producing wheat if...

it is even less efficient than Nicaragua in the production of goods other than wheat

When a product becomes MORE differentiated from other products...

its demand curve becomes STEEPER

Which is tax rate is more important in determining the impact of the tax system on economic behavior?

marginal

Why do monopolistically competitive firms have downward-sloping demand curves?

monopolistically competitive firms must lower their price to sell more output

If the price of french fries falls while the demand for ketchup rises, is the cross-price elasticity of demand between the pair of products likely to be positive or negative?

negative

If the price of hot dogs falls while the demand for hot dog buns rises, is the cross-price elasticity of demand between the pair of products likely to be positive or negative?

negative

cross-price elasticity of demand between "complements"

negative

Assume national defense is a public good. If so then national defense is _______ and ___________

nonrival; nonexcludable

Marginal utility is more useful than total utility in consumer decision making because...

optimal decisions are made at the margin

What is path dependence?

path dependence is where the technology that was first available has advantages over better technologies that were developed later

economic discrimination

paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race

According to the benefits-received principle, governments favor taxes that...

place a greater share of the tax burden on those who receive greater benefits

cross-price elasticity of demand between "substitutes"

positive

Therefore, the cross-price elasticity of demand between "substitutes" most likely ______ and the cross-price elasticities of demand between "complements" is most likely ________.

positive, negative

Which of the following is a primary determinant of the price elasticity of supply?

price elasticity of supply is affected by the passage of time

What is a production possibilities frontier?

shows the maximum attainable combinations of two goods that may be produced with available resources

excise taxes

taxes on gasoline, cigarettes and beer

What is the definition of marginal utility?

the change in utility from consuming an additional unit of a good or service

tax incidence

the division of the tax burden between buyers and sellers in a market

What is a marginal tax rate?

the fraction of each additional dollar of income that must be paid in taxes, while the average tax rate is the total tax paid divided by total income