ECN 250

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

0.6

An inferior good is a good for which the quantity demanded increases as the price decreases, holding everything else constant.

False

Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.

False

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss.

False

During the 1990s positive technological change in the production of chicken caused the price of chicken to fall. Holding everything else constant, how would this affect the market for pork (a substitute for chicken)?

The demand for pork would decrease and the equilibrium price of pork would decrease

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and the equilibrium quantity of labor rise

Suppose the government grants child care subsidies to mothers entering the labor force. What is likely to happen to the equilibrium wage and quantity of labor? A) The equilibrium wage and the equilibrium quantity of labor rise. B) The equilibrium wage and the equilibrium quantity of labor fall. C) The equilibrium wage falls and the equilibrium quantity of labor rises. D) The equilibrium wage rises and the equilibrium quantity of labor falls.

The equilibrium wage falls and the equilibrium quantity of labor rises

Assume there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation.

The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.

If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

True

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it can still benefit by trading with the other country.

True

In the long-run equilibrium, both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production .

True

Necessities tend to have more inelastic demands than luxuries.

True

There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

True

Compared to a monopolistic competitor, a monopolist faces

a more inelastic demand curve

Until the early 1980s, The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides. This pricing strategy is an example of

a two-part tariff

In cities with rent control, people have an incentive to list their apartments on sites such as Airbnb at rents ________ the controlled rates, because rent control causes a ________ of apartments.

above; shortage

For decades, the NCAA restricted the number of college football and basketball games that could be televised, and in 1982 the University of Georgia and the University of Oklahoma sued the NCAA under the federal antitrust laws. In 1984, the Supreme Court decided the case

against the NCAA, citing anticompetitive practice

If society decides it wants more of one good and ________, then it has to give up some of another good and incur some opportunity costs.

all resources are fully utilized

When the marginal benefit equals the marginal cost of the last unit sold in a competitive market

an economically efficient level of output is produced.

All of the following will shift the labor supply curve except

an increase in the wage rate

To maintain a monopoly, a firm must have

an insurmountable barrier to entry

At a product's equilibrium price:

any buyer who is willing and able to pay the price will find a seller for the product

If a typical monopolistically competitive firm is making short-run losses, then

as some firms leave, the remaining firms will experience an increase in the demand for their products.

Which of the following is not an example of a monopolistically competitive market?

automobile producers

One reason why the "fast-casual" restaurant market is competitive is that

barriers to entry are low

Why is price discrimination legal but not discrimination based on race or gender?

because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics

Tax incidence is the actual division of the

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

Which of the following are necessary conditions for successful price discrimination? a. zero transactions costs b. a perfectly competitive market structure c. an imperfectly competitive market structure d. at least two different markets with different price elasticities of demand e. at least two different markets with different price elasticities of supply

c and d only

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.

elasticity

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price

A monopolistically competitive industry that earns economic profits in the short run will

experience the entry of new rival firms into the industry in the long run.

A patent or copyright is a barrier to entry based on

government action to protect a producer

A monopolistically competitive firm will

have some control over its price because its product is differentiated

Price elasticity of demand measures

how responsive quantity demanded is to a change in price

A monopoly differs from monopolistic competition in that

in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure

A firm that has the ability to control to some degree the price of the product it sells

is a price maker

Arbitrage

is the act of buying an item at a low price and reselling the item at a higher price

Price discrimination

is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost.

The demand for labor is described as a derived demand because

it is derived from the demand for products that use labor in the production process.

The substitution effect of a wage increase is observed when

leisure's higher opportunity cost causes workers to take less leisure and work more

The demand for all carbonated beverages as a whole is likely to be ________ the demand for Dr. Pepper.

less elastic than

In the real world

many firms charge different prices based on consumers' willingness to pay

The key characteristics of a monopolistically competitive market structure include

many small (relative to the total market) sellers acting independently.

To affect the market outcome, a price floor

must be set above the equilibrium price.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

no competitors apparently found the profit level attractive enough to enter the market

Which of the following is not a way by which price-discriminating firms can segment a market? A) on the basis of time of purchase, for example long-distance calling B) by requiring an advance purchase, for example airline tickets C) on basis of the buyer's location, for example requiring out-of-state students to pay higher tuition D) on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

The principle of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.

opportunity cost

Economists assume that

optimal decisions are made at the margin.

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the

output effect

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the

price effect

Total revenue equals

price per unit times quantity sold

When goods and services are produced at the lowest possible cost, ________ occurs.

productive efficiency

Economic growth is represented on a production possibilities frontier model by the production possibilities frontier

shifting outward

Rio Tinto's incentive to adopt new robotic technology was increased by the high wages it was having to pay to attract miners and truck drivers. In this instance, Rio Tinto began using new robotic technology to

substitute capital for labor in production

If we use a narrow definition of monopoly, then a monopoly is defined as a firm

that can ignore the actions of all other firms because it produces a product for which there are no close substitutes

A major difference between monopolistic competition and perfect competition is

that products are not standardized in monopolistic competition unlike in perfect competition.

If a firm has excess capacity, it means

that the firm is not producing its minimum efficient scale of output.

Rio Tinto was able to introduce robotic machines into its mining operations because of developments in computer technology, the Global Positioning System (GPS), and robotics. The company's mining operations are an example of ________, in which devices directly communicate data to a computer without a person having to enter the data

the Internet of Things

The equilibrium wage and quantity of labor in the market for skilled workers is determined by

the demand and supply of labor.

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

the demand for aspirin is inelastic

An individual's labor supply curve shows

the relationship between wages and the quantity of labor that she is willing to supply

Which of the following is not a determinant of a good's price elasticity of demand? the slope of the demand curve the share of the good in the consumer's total budget whether the good is a luxury or a necessity the passage of time

the slope of the demand curve

If in the market for bananas the supply curve has shifted to the right, then:

the supply of bananas increased

A monopoly is characterized by all of the following except

there are only a few sellers, each selling a unique product

Some firms practice odd pricing because

they believe that customers will buy a larger quantity with an odd price.

Firms price discriminate

to increase profits

What is the profit-maximizing rule for a monopolistically competitive firm?

to produce a quantity such that marginal revenue equals marginal cost

The expenses you encounter when you buy in one market and sell in a distant market are known as

transactions costs

Scarcity refers to the situation in which

unlimited wants exceed limited resources

Yield management is the practice of

using buyer data to rapidly adjust prices

A monopolist's profit-maximizing price and output correspond to the point on a graph

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output

A monopoly is a seller of a product

without a close substitute

Monique buys a new television for $795. She receives consumer surplus of $355 from the purchase. How much does Monique value her television?

$1150

Two economists from Northwestern University estimated the benefit households received from subscribing to broadband Internet service. They found that in the year they analyzed, 47 million consumers paid an average of $36 per month to subscribe to a broadband Internet service, and estimated the value of total consumer surplus for these subscribers was equal to $890.4 million. Based on these numbers, what was the average monthly consumer surplus per subscriber for broadband Internet service?

$18.94

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

Which one of the following about a monopoly is false? A) A monopoly could make profits in the long run. B) A monopoly could break even in the long run. C) A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly. D) A monopoly status could be temporary.

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run than it is in the short run

All else equal, a decrease in the supply of labor will shift the labor supply curve to the left and decrease the equilibrium wage.

False

Which of the following is not an advantage cost-plus pricing? A) It leads to profit maximization. B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. D) It is easy to justify price increases when total costs of production increase.

It leads to profit maximization.

Which of the following statements is NOT true?

Producer surplus measures the total benefit received by producers from participating in a market.

"The price of digital cameras fell because of improvements in production technology. As a result, the demand for non-digital cameras decreased. This caused the price of non-digital cameras to fall; as the price of non-digital cameras fell the demand for non-digital cameras decreased even further." Evaluate this statement.

The statement is false. A decrease in the price of digital cameras would decrease the demand for non-digital cameras, but a decrease in the price of non-digital cameras would not cause the demand for non-digital cameras to decrease.

If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?

The supply of Booth letters would have to be less than the supply of Lincoln letters

Which of the following statements about price elasticity of demand is false? The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. The value of the price elasticity of demand along a downward-sloping demand curve is always negative. A linear downward-sloping demand curve has a varying price elasticity coefficient.

The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.

George Gnat subscribes to a monthly pest control service for his home. Last week the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips. How is the market for pest control services affected by this?

There is a decrease in the supply of pest control services

Which of the following is a result of imposing a rent ceiling?

There is an increase in the quantity of apartments demanded.

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive

True

Which of the following statements is true? Whenever a firm raises its price its total revenue will increase. When a firm lowers its price its total revenue may either increase or decrease. Whenever a firm increases its quantity sold its revenue will increase. Total revenue will equal zero when the demand for a product is unit elastic.

When a firm lowers its price its total revenue may either increase or decrease.

If you can produce more of something than others with the same resources, you have

a comparative advantage

Income elasticity measures how a good's quantity demanded responds to

change in buyers' incomes

The market for smartwatches is becoming very competitive. The increase in competition in this market is an example of how the market responds to:

changes in consumer tastes

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?

consume a combination of goods that lies outside its own production possibilities frontier

The income effect of a wage increase is observed when

the higher wage income causes workers to take more leisure and work less

The production possibilities frontier shows

the maximum attainable combinations of two products that may be produced in a particular time period with available resources

Increasing marginal opportunity cost implies that

the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts

The labor supply for an industry would decrease if

the percentage of the population from age 16 to 65 decreases

Suppliers will be willing to supply a product in all of the following situations except when

the price received is less than the additional cost of producing the product