Econ 106 Final

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except

a decrease in the number of rival products.

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

a decrease in the price of flour

Positive technological change occurs when

a firm installs faster machinery.

Relative to a perfectly competitive market, a monopoly results in

a gain in producer surplus less than the loss in consumer surplus.

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

If the long-run average cost curve is U-shaped, the optimal scale of production from societyʹs viewpoint is

the minimum efficient scale.

An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above.

Adverse selection

What is the difference between an ʺincrease in demandʺ and an ʺincrease in quantity demandedʺ?

An ʺincrease in demandʺ is represented by a rightward shift of the demand curve while an ʺincrease in quantity demandedʺ is represented by a movement along a given demand curve.

Which of the following is not true for a firm in perfect competition?

Average revenue is greater than marginal revenue.

What is meant by the ʺlaw of one priceʺ?

Identical products should sell for the same price everywhere.

What is the distinction between the economic short run and 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.

The most important equation in ECON 106 Section 001 is

MB=MC

The price elasticity of demand for Old Navy jeans could be more elastic than the price elasticity of demand for all jeans because

Old Navy jeans have more close substitutes.

Which of the following are implicit costs for a typical firm?

Opportunity costs of capital owned and used by the firm.

If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as

a decrease in quantity demanded.

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in 24) the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

Comparative Advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Absolute Advantage

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

The government of a country faces substantial pressure from different sectors to reduce tariffs. Many groups, including the media, were lobbying for an overall reduction in import tariffs imposed by the government. According to them, the country would gain if free trade were encouraged. While certain sectors reported increased exports after a reduction in trade restrictions, many firms went out of business in other sectors as import increased. People who have lost their jobs complained that the reduction in tariffs had done the nation more harm than good. Which of the following, if true, would weaken the claim of the people who lost their jobs.

The demand for the country's goods is higher outside the country than inside the country.

How do externalities affect markets?

The private benefit from consumption will be different than the social benefit from consumption.

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms.

When XYZ firm entered the market for good two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is is planning to increase price of A from the current $6 per unit to $7 per unit, Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share. Which of the following is most strongly supported by the information above?

Timothy thinks the demand curve faced by the firm is flatter than what Jake imagines it to be.

Demand for stables such as dairy products and bread is lily to be both income and price inelastic.

True

Necessities tend to have more inelastic demands than luxuries.

True

The three fundamental questions that any economy must address are:

What goods and services to produce; how will these goods and services be produced; and who receives them?

An externality is

a benefit of cost experienced by someone who is not a producer or consumer of a good or service.

If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is

a normal good

Which of the following would cause a decrease in the supply of milk?

an increase the price of a product that producers sell instead of milk

Economists assume that individuals

are rational and respond to incentives.

Consider a good whose consumption takes place publicly. Your decision to buy that good depends

both on the characteristics of the product and how many other people are buying the good.

Tax incidence is the actual division of the

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

Consumers maximize total utility within their budget constraint by

buying the goods with the largest marginal utility per dollar spent.

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus.

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

decrease

If production displays economies of scale, the long run average cost curve is

downward-sloping.

An oligopolistic industry is characterized by all of the following except

firms pursuing aggressive business strategies, independent of rivalsʹ strategies.

Income elasticity measures

how a good's quantity demanded responds to change in buyers' incomes.

People might not act rationally because they

ignore non monetary opportunity costs.

A tariff is a tax imposed by a government on

imports

A reason why a perfectly competitive firmʹs demand for labor curve slopes downward is that

in the short run, as more labor is hired, laborʹs marginal product falls because of the law of diminishing returns.

An advantage of imposing a tax on the producer that generates pollution is

it forces the polluting producer to internalize the external cost of pollution.

The resource income earned by those who supply ________ is called wages.

labor

If demand is inelastic, the absolute value of the slope of the demand curve is

less than one.

A tariff

makes domestic consumers worse off.

In economics, the term ________ means ʺadditionalʺ or ʺextra.ʺ

marginal

Economists reason that the optimal decision is to continue any activity up to the point where the

marginal benefit equals the marginal cost.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

nothing at all; the firm shuts down.

The "tragedy of the commons" refers to the phenomenon where

people overuse a common resource.

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

positive

Because producers do not bear the external cost of pollution

private production exceeds the economically efficient level.

If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income of $30,000, then over this range of income the tax is

progressive.

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a

quota

Olive oil producers want to sell more olive oil at a higher price. Which of the following events 10) would have this effect?

research finds that consumption of olive oil reduces the risk of heart disease

The consumption of Nike shoes is

rival and excludable.

Which of the following statements about an entrepreneur is false?

sells his entrepreneurial services in the output market

If a positive externality in consumption is present in a market, then

the private benefit from consumption will be different from the social benefit from consumption.

Economists have shown that the burden of a tax is

the same whether the tax is collected from the buyer or the seller.

If in the market for peaches, the supply curve has shifted to the left,

the supply of peaches has decreased.

An example of moral hazard is

those with health insurance over-eating.

Health insurance companies impose deductibles on policies and co-payments on claims

to reduce moral hazard problems.

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

trade-off.