Econ 1201

In a monopolistically competitive industry: -output could be increased without an increase in total cost. -people would be better off if output were reduced. -to maximize profits, firms set MR = MC, and people would be better off if output were reduced. -a firm maximizes profits when MR = MC yet P > MC

a firm maximizes profits when MR = MC yet P > MC

(Figure: The Market for Gas Stations) Use Figure: The Market for Gas Stations. The figure shows curves facing a typical gas station in a large town. The market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station shown here were to raise its price above the profit-maximizing price, the outcome would be _____ in total revenue. -Not enough information is given to answer the question -a reduction -an increase -no change

a reduction

To be called an oligopoly, an industry must have: -relatively easy entry and exit. -independence in decision making. -a small number of interdependent firms. -a horizontal demand curve.

a small number of interdependent firms.

A firm that is in an oligopoly knows that its _____ affect its _____ and that the _____ of its rivals will affect it. -price increases; total revenue in the long run only; large but not small price changes -actions; rivals; reactions -actions rarely; rivals; actions -price changes; total revenue in a positive way; reactions

actions; rivals; reactions

If all firms in an industry are price takers: -each firm takes the market price as given for its output level, recognizing that the price will change if it alters its output significantly. -an individual firm cannot alter the market price even if it doubles its output. -each firm can sell at the price it wants to charge, provided it is not too different from the prices other firms are charging. -the market sets the price, and each firm can take it or leave it by setting a different price.

an individual firm cannot alter the market price even if it doubles its output.

(Figure: The Market for Blue Jeans) Use Figure: The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify the loss of consumer surplus due to the tax? -a + b + c -b + c -b -c

b+c

(Figure: Price Controls) Use Figure: Price Controls. The consumer surplus lost to a price floor at point b is equal to the area: -bcke. -bcge. -egh. -abe.

bcge

An external benefit is a: -benefit that accrues to domestic firms as a result of the actions of foreign (external) firms -.negative externality. -benefit that individuals or firms confer on others without receiving compensation. -benefit that accrues to foreign (external) firms as a result of the actions of domestic firms.

benefit that individuals or firms confer on others without receiving compensation

The proposition that, if bargaining is costless and property rights are well-defined, the market can achieve an efficient outcome is the: -property rights paradigm. -efficient environment paradigm. -Coase theorem. -market rights theorem.

coarse theorem

When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve: -consumer surplus falls. -a deadweight loss occurs. -producer surplus falls. -consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

Suppose price elasticity of demand is relatively inelastic for good X. If the price elasticity of supply for good X is elastic and an excise tax is imposed on good X, who will bear the greater burden of the tax? -government -both consumers and producers equally -consumers -producers

consumers

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the _____ of firms shifts the firm's demand and marginal revenue curves _____, which _____ the firm's level of output and _____ the price it can charge until price equals average total cost. -entry; leftward, decreases; decreases -entry; downward, decreases; decreases -exit; rightward, increases; increases -entry; leftward, decreases; increases

entry; leftward, decreases; decreases

Use the Figure below. Figglenuts-R-Us is a monopolist in the figglenut market. If the government regulated the figglenut market by setting a price ceiling of $40, Figglenuts-R-Us might: -increase the price to $60. -produce 120 figglenuts in the long run to maximize profits. -produce 60 figglenuts to maximize profits. -exit in the long run.

exit in the long run.

A binding price ceiling is an effective public policy tool because it lessens or reduces the impact of scarcity. -False -True

false

Price leadership is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry. -True -False

false

The Coase theorem states that because information and transaction costs are zero, government regulation and (other) policies (such as taxes) are not necessary to solve the economic problem or issue created by externalities. -true -false

false

The economic effect of the earned income tax credit and the minimum wage on employment is the same because, in both instances, the incentives for hiring workers have been reduced. -False -True

false

The economic impact of a binding rent control is less in the long run than in the short run. -True -False

false

The primary economic cause of the tragedy of the commons or overuse of common property resources is the existence and enforcement of private property rights. -True -False

false

The total income paid to labor/workers will increase as a binding minimum wage is increased so long as the price (wage) elasticity of demand for labor is greater than one (in absolute value). -True -False

false

The natural monopoly: -generates more consumer surplus than would an unregulated monopolist if regulated to produce where price equals average total cost. -generates more consumer surplus than would an unregulated monopolist if regulated to produce where marginal cost equals marginal revenue. -would incur an economic profit if regulated to produce where price is less than marginal cost. -would incur an economic profit if regulated to charge a price equal to average total cost.

generates more consumer surplus than would an unregulated monopolist if regulated to produce where price equals average total cost

If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from: -location. -economies of scale. -government restrictions to entry. -sunk costs.

government restrictions to entry

A natural monopoly exists whenever a single firm: -has economies of scale over the entire range of production that is relevant to its market. -is investor owned but has been granted the exclusive right by the government to operate in a market. -is owned and operated by the government. -has gained control over a strategic input of an important production process.

has economies of scale over the entire range of production that is relevant to its market.

In monopolistic competition, each firm: -has some ability to set the price of its differentiated good -will set price equal to marginal cost -is a price taker -has marginal revenue that is greater than price.

has some ability to set the price of its differentiated good

An oligopoly may result from: -low or no barriers to entry. -standardization of a product. -increasing returns to scale. -price-taking conditions for both buyers and sellers.

increasing returns to scale

A negative externality: -equals the opportunity cost minus the social costs. -is any cost above the economic cost. -is an uncompensated cost imposed by an individual or firm on others. -equals the social cost plus the firm's private cost.

is an uncompensated cost imposed by an individual or firm on others.

Suppose that each person in a community had to pay for his or her own education from kindergarten through high school. One would expect that: -more education would be acquired than at present since an individual may not consider the positive external benefits of education to society. -a Pigouvian tax would ensure the optimal amount of education. -the optimal amount of education would be acquired by community members since they each paid for the amount of education they wanted. -less education would be acquired than at present since an individual may not consider the positive external benefits of education to society.

less education would be acquired than at present since an individual may not consider the positive external benefits of education to society.

Oligopolies are industries: -composed of many buyers and sellers, all of whom are price takers. -made up of few firms, each with some market power and therefore aware of their interdependence with the other firms. -that are the same as monopolistically competitive industries, except that they sell a standardized product. -dominated by one seller who shares market power equally with all other sellers.

made up of few firms, each with some market power and therefore aware of their interdependence with the other firms.

Which example is considered a public good? -cigarettes -national defense -school attendance -a flu shot

national defense

The model of monopolistic competition characterizes the market for plumbing services in a city. This market is initially in long-run equilibrium, but then there is an increase in market demand for plumbing services. We expect that in the long run: -new firms will enter the plumbing market. -firms will shut down, but they will not leave the industry -firms will leave the plumbing market. -there will be a short-run increase in the number of firms, but then the number will return to the original level.

new firms will enter the plumbing market.

A public good is _____ and _____ in consumption. -nonexcludable; rival -excludable; rival -nonexcludable; nonrival -excludable; nonrival

non excludable; nonrival

Suppose that a monopoly firm is required to pay a new annual license fee to do business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will: -not change its price. -raise its price by the amount of the license fee. -raise its price by less than the amount of the license fee. -raise its price by somewhat more than amount of the license fee.

not change its price

Public goods are NOT sold in efficient quantities in the private marketplace because: -the more one person has, the less another person has. -once supplied to a buyer, they can be made available at no cost to someone else. -they are usually so costly that only the wealthy can afford them. -they are usually very poor-quality goods.

once supplied to a buyer, they can be made available at no cost to someone else.

Two players in a game both have an incentive to cheat no matter what the other player does. Furthermore, if both players cheat in this manner, both players will be worse off. This is a: -prisoners' dilemma. -tit-for-tat strategy. -kinked demand curve model. -price leadership model.

prisoners' dilemma

Firms in monopolistic competition can acquire some market power by: -product differentiation. -increasing their output to the perfectly competitive level. -engaging in tacit collusion. -producing where MR > MC.

product differentiation

To encourage consumption of a good that generates positive externalities, the BEST option for policymakers would be to: -impose a tax on the amount consumed to achieve the socially optimal level. -mandate consumption of the good at the socially optimal level. -provide a subsidy per unit of the good consumed to achieve the socially optimal level. -do nothing since the market will achieve the socially optimal level without government intervention.

provide a subsidy per unit of the good consumed to achieve the socially optimal level.

In the United Kingdom, most public television programming is paid for by a yearly license fee assessed on every household. Television detection vans go through neighborhoods to detect unlicensed households and keep them from viewing without paying. This is a good example of the _____ provision of _____. -public; club goods or goods that are made artificially excludable in consumption -public; common resources -public; private goods -private; private goods

public; club goods or goods that are made artificially excludable in consumption

(Figure: Monopolistic Competition V) Use Figure: Monopolistic Competition V. The figure illustrates a firm in the _____; in the _____, the demand and marginal revenue curves will shift to the _____. -short run; long run; left -long run; short run; left -long run; short run; right -short run; long run; right

short run; long run; left

(Figure: Monopolistic Competition VI) Use Figure: Monopolistic Competition VI. The figure illustrates a firm in the _____; in the _____, the demand and marginal revenue curves will shift to the _____. -long run; short run; left -short run; long run; left -long run; short run; right -short run; long run; right

short run; long run; right

The likely result of a binding price ceiling is a _____ of the good at a price _____ the equilibrium price. -shortage; below -surplus; below -shortage; above -surplus; above

shortage; below

Since the terrorist attacks of September 11, 2001, the Federal Aviation Agency has added a small security fee to every airplane ticket purchased. This is an example of: -a lump-sum tax. -the benefits principle of tax fairness. -the ability-to-pay principle of tax fairness. -a profits tax.

the benefits principle of tax fairness

Assume that the (U.S.) Environmental Protection Agency determines that that hydraulic fracking adversely impacts drinking water resources under certain circumstances. If so and if uncorrected by public policies or otherwise, then -the market output of natural gas reflected in the competitive markets is too low -the market price of natural gas reflected in the competitive markets is socially optimal -the market price of natural gas reflected in the competitive markets is too low -the market price of natural gas reflected in the competitive markets is too high

the market price of natural gas reflected in the competitive markets is too low

Assume that a monopoly is currently earning economic profits. If a permanent change in fixed cost raises average total cost above the demand curve: -the monopoly will go out of business. -price and output will increase. -marginal cost will be greater than marginal revenue. -more monopolies will enter.

the monopoly will go out of business

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound: -there will be a shortage of apples. -the price floor will not affect the market price or output. -quantity demanded will decrease. -quantity supplied will increase.

the price floor will not affect the market price or output.

When perfect competition prevails, which characteristic of firms are we likely to observe? -They all try to operate where price equals total cost. -They are all price takers. -None of them ever has diminishing marginal returns. -They all try to operate where price equals average variable cost.

they are all price takers

If the several companies in the tobacco industry produce similar products but have very different marginal costs: -they are more likely to engage in tacit collusion than firms with similar costs. -output of tobacco products is more likely to be near the monopoly level than in an industry whose firms have similar costs. -prices for tobacco products are more likely to be near the monopoly level than in an industry whose firms have similar costs. -they are less likely to engage in tacit collusion than firms with similar costs.

they are less likely to engage in tacit collusion than firms with similar costs

The ability-to-pay principle regarding taxes suggests that: -those who can afford it should bear the greater burden of the tax. -the efficiency of a tax is the key feature in designing it. -higher-income individuals should pay the same amount as lower-income individuals. -those who benefit most from the tax should bear the greater burden of the tax.

those who can afford it should bear the greater burden of the tax.

Figure: Pricing Strategy in Cable TV Market II) Use Figure: Pricing Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one period but found that CableSouth followed a noncooperative low-price strategy, and CableNorth decided to lower prices for the next month, we would say that CableNorth is following a: -collusive strategy. -kinked demand model. -tit-for-tat strategy. -dominant strategy.

tit-for-tat strategy

For a nonexcludable good like national defense, the private market will lead to _____ of the good. -the efficient level of consumption -too little production -too much consumption -too much production

too little production

The pattern of behavior in which one company tacitly sets prices for the industry as a whole is known as price leadership. -False -True

true

The benefits principle of taxation means individuals pay according to: -ability to pay. -benefits to government from having taxpayers. -benefits gained by society as a whole. -whether and how much they use a good or service.

whether and how much they use a good or service.

(Table: Total Cost and Output) Use Table: Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $35, how much is Sergei's profit at the optimal short-run output? - -$5 -$180 -$110 -$330

-$5

Use the Figure below: Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total cost is the area of rectangle _____ and its total revenue is the area of rectangle _____. -0IHJ; IPDH -0PDJ; SPDB -0SBJ; 0PDJ -IPDH; 0SBJ

0SBJ; 0PDJ

An attorney supplies 40 hours of work per week when her fee is $100 per hour but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula, her elasticity of supply is equal to: -2.2. -0.8. -0.4 -5.1.

2.2

(Table: Total Cost and Output) Use Table: Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $35, how many tubs of ice cream will Sergei produce in the short run? -4 -3 -2 -1

3

Use Figure/Graph below: Pollution and Efficiency. In this market, in which sulfur emissions arise as a result of production, if _____ units of emissions are produced, then _____. -30; MSC < MSB -40; MSB = MSC -40; MSB < MSC -30; MSB < MSC

40; MSB < MSC

Use Figure Below: Efficiency and Pollution. Assume high transaction costs and that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society. In the absence of government intervention, the amount of pollution will be _____ tons. -20 -45 -40 -30

45

(Figure: Payoff Matrix for Gehrig and Gabriel) Use Figure: Payoff Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. The combined profits of the two are maximized if Gehrig produces _____ figurines and Gabriel produces _____ figurines. -7,000; 5,000 -5,000; 7,000 -5,000; 5,000 -7,000; 7,000

5,000; 5,000

Table: Spring Water. The table shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. If the industry were in perfect competition, the profit-maximizing output would be _____ cases. -6 -7 -8 -5

7

(Figure: A Market with a Tax) Use Figure: A Market with a Tax. The transfer of consumer surplus to the government is equal to the area: -B. -C. -D. -F.

B

(Figure: Tax Incidence) Use Figure: Tax Incidence. Based on the figure, the deadweight loss of an excise tax is likely to be greater in panel _____ than in panel _____. -D; A -B; A -C; D -C; A

C; D

If a perfectly competitive firm reduces its output, the market price will increase. -True -False

False

Large barriers to entry are one reason that a monopoly: -produces at the minimum average total cost in the long run. -earns an economic profit in the long run. -maximizes its profits by producing where P = MC. -produces with no fixed costs in the long run.

earns an economic profit in the long run.

The process observed when an economy's production possibility frontier shifts outward is: -comparative advantage. -economic growth. -specialization. -full employment.

economic growth

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases. -elastic; decrease -elastic; increase -inelastic; decrease -inelastic; increase

elastic; decrease

(Figure: Environmental Standards versus Emissions Taxes) Use Figure: Environmental Standards versus Emissions Taxes. In the figure, if the goal is to limit the total emissions of the two firms, A and B, to 600 tons, the MOST efficient solution is an _____, and total pollution would be _____ tons. -emissions tax; 600 -environmental standard; 300 -emissions tax; 200 -environmental standard; 600

emissions tax; 600

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil. -not comparable to -greater than -less than -equal to

greater than

The Economist article entitled "A Reckless Wager" best reflects that successive increases in a binding minimum wage will result -may result in decreasing job losses and rising total wage income paid if the binding minimum wage establishes a wage rate above the mid-point of a linear demand for labor -constant dead-weight losses -an unchanging level or amount of job losses -may result in increasing job losses and declines in total wage income paid if the binding minimum wage establishes a wage rate above the mid-point of a linear demand for labor

may result in increasing job losses and declines in total wage income paid if the binding minimum wage establishes a wage rate above the mid-point of a linear demand for labor

Whenever a choice is made: -the cost of that choice is the opportunity cost. -efficiency is improved. -the cost is easy to measure in dollar terms. -scarcity is not a problem.

the cost of that choice is the opportunity cost.

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is: -$210. - -$20. -$200. -$20.

$200

Given the Demand for Shirts below, if the price is below _____, demand is inelastic. -$30 -$40 -$20 -$10

$30

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____. -0.2; inelastic -5; elastic -5; inelastic -0.2; elastic

0.2; inelastic

In connection with the demand curve below, calculate the price elasticity of demand between $3 and $4 (that is, when the price rises from $3 to $4) using the mid-point method. It is approximately: -0.54. -1.00 -0.19. -1.86.

0.54

The accompanying table below shows Tanisha's and Ari's individual marginal benefit of different amounts of street cleanings per month. Suppose that the marginal cost of street cleanings is constant at $9 each. Calculate the marginal social benefit of street cleaning. What is the optimal number of street cleanings? -2 -0 -3 -1

2

In the figure below, assume that the economy is operating at point A. The opportunity cost of expanding submarine production and moving to point C is equal to _____ million tons of strawberries: -2 -50 -800 -200

200

Using the table below, if the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is _____ units of consumer goods per period. -0 -8 -6 -14

6

Using the figure below, suppose the economy is operating at point C. The opportunity cost of producing the fourth freight train would be: -80 tons of sugar. -45 tons of sugar. -19 tons of sugar. -3 freight trains.

80 tons of sugar

In graph below, between the two prices, P1 and P2, which demand curve has the HIGHEST price elasticity? -D1 -D2 -D4 -D3

D3

In the market for candy graphically reflected below, a surplus of the good will exist at a price of: -P2. -P1. -P3. -There are no surpluses in this market.

P1

Using the figure below, suppose the economy produced 8 guns and 12 pounds of butter per period. Given that, which statement is TRUE? 0This combination invalidates the notion of increasing opportunity cost. -The economy is still efficient but does not buy as much as it could. -Something must be done to reduce the amount of employment. -This is a possible choice, but it is inefficient.

This is a possible choice, but it is inefficient.

The market for salmon is in equilibrium. A binding price ceiling, a binding price floor, and a quota limit below the market equilibrium in this market would all cause: -a supply price that exceeds a demand price. -revenue collected by the government on each unit of salmon harvested. -deadweight loss arising from a quantity exchanged that is less than the equilibrium quantity. -deadweight loss arising from a transfer of surplus from consumers to producers.

deadweight loss arising from a quantity exchanged that is less than the equilibrium quantity.

An increase in the consumer surplus in the market for milkshakes may result from a(n) _____ in the _____ of milkshakes. -decrease; supply -decrease; demand -increase; price -increase; supply

increase; supply

An increase in demand and an increase in supply unambiguously (that is, without a doubt) -decreases the equilibrium quantity but increases the equilibrium price -increases the equilibrium price and quantity -decreases the equilibrium price but increases the equilibrium quantity -increases the equilibrium quantity but the impact on the equilibrium price is uncertain or unknown

increases the equilibrium quantity but the impact on the equilibrium price is uncertain or unknown

Given the Demand for e-Books below, if the price of e-Books increases from $4 to $6, total revenue _____, which means that demand is _____. -increases; elastic -decreases; inelastic -increases; inelastic -remains constant; unitary elastic

increases; inelastic

As explained in the article entitled "America Is on a Lumber Binge" the demand for lumber -is increasing but not as fast as the supply of lumber is increasing causing a "glut" of lumber (which in turn is) in causing lumber prices to fall and American's to "binge" on lumber. -is falling causing a "glut" of lumber (which in turn is) causing lumber prices to fall and American's to "binge" on lumber. -is increasing causing lumber prices to rise. -has not changed but the quantity demanded of lumber has increased (caused by falling lumber prices.)

is increasing causing lumber prices to rise.

If a good has a price-inelastic demand, then which statement is NOT likely to be characteristic of this good? -It is a necessity and is relatively small proportion of the household budget. -It has many substitutes. -Consumers do not have much time to adjust to market changes. -Consumers spend a small percentage of their income on it.

it has many substitutes

Common resources tend to be _____ in private markets. -efficiently priced -underconsumed -priced too high -overconsumed

overconsumed

The Demand and Supply of Wheat are graphically reflected below. A temporary price of $4 in this market would result in a _____ of _____ bushels per period. -shortage; 2,000 -surplus; 2,000 -surplus; 4,000 -shortage; 4,000

shortage; 4,000

Using the figure below, suppose the economy is operating at point G. This implies that: -people in this economy don't really like strawberries or submarines. -the economy can move to a point such as C only if it improves its technology. -the economy has unemployment and/or inefficiently allocates resources. -the economy lacks the resources to achieve a combination such as C.

the economy has unemployment and/or inefficiently allocates resources.

Suppose there is an excess supply of chemical engineers in India. Over time, the salaries for chemical engineers will fall in India. -True -False

true

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand (using the midpoint formula) between $10 and $8 is approximately: -0.85. -1.17. -1.00. -1.50.

1.17

A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____. -10%; increase -10%; fall -5%; stay constant -2.5%; fall

10%; fall

(Table: Demand for Crude Oil) Use Table: Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equal zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, industry output will be _____ barrels. -110 -120 -160 -100

100

Which statement is TRUE? -A monopoly firm is a price searcher. -MR = MC is a profit-maximizing rule for firms in perfect competition only. -Monopolies tend to charge lower prices than do perfectly competitive firms. -MR = P if the demand curve is downward sloping.

A monopoly firm is a price searcher.

In orange juice market graphically reflected below, the market is in equilibrium at point C. A reputable scientist asserts in a major scientific publication that drinking orange juice will increase your life span. What will be the MOST likely new equilibrium point in the orange juice market? -D -B -E -A

B

In which situation does overt collusion take place? -Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm. -Competition among a large number of small firms generates similar but slightly different prices. -Competition among a large number of small firms generates a stable market price. -Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.

Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.

(Figure: Supply and Demand in Agriculture) Use Figure: Supply and Demand in Agriculture. If a price floor at P4 is set to help improve farm incomes and the government wants to assure farmers that their output will be purchased, the government must purchase an amount of output equal to: -Q3 - Q0. -Q2 - Q1. -Q3 - Q1. -Q1 - Q3.

Q3 - Q0

Use the Figure below: Monopoly. The profit-maximizing quantity of output is quantity: -Q -R -S -T

R

Monopolistic competition describes an industry characterized by: -a horizontal demand curve. -barriers to entry and exit. -a product with many close substitutes. -a small number of firms.

a product with many close substitutes.

The profit-maximizing rule MR = MC is: -followed by a perfectly competitive firm but not by a monopoly. -followed by a monopoly but not by a perfectly competitive firm. -followed by all types of firms. -not followed by a monopoly because it would reduce economic profit to zero.

followed by all types of firms

When the economy suffers a downturn and the incomes of many people decrease, vacationers are more likely to take car trips than to fly. Which statement provides one possible explanation for this phenomenon? -Air travel and travel by car are complementary goods. -Air travel and travel by car are both normal goods. -Air travel is a normal good and travel by car is an inferior good. -Air travel is an inferior good and travel by car is a normal good.

Air travel is a normal good and travel by car is an inferior good.

Find the flaw(s) in reasoning in the following statement, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. "A technological innovation that lowers the cost of producing a good might seem at first to result in a reduction in the price of the good to consumers. But a fall in price will increase demand for the good, and higher demand will send the price up again. It is not certain, therefore, that an innovation will really reduce price in the end." Select the part of the statement that is incorrect. -Both parts of the statement are incorrect. -"But a fall in price will increase demand for the good, and higher demand will send the price up again. It is not certain, therefore, that an innovation will really reduce price in the end." -"A technological innovation that lowers the cost of producing a good might seem at first to result in a reduction in the price of the good to consumers." -Neither part of the statement is incorrect.

But a fall in price will increase demand for the good, and higher demand will send the price up again. It is not certain, therefore, that an innovation will really reduce price in the end.

Which statement is one of the four principles of individual choice? -The true cost of something is impossible to measure. -Choices are necessary because resources are scarce. -Resources are usually renewable. -People take advantage of opportunities to make themselves better off only if there is no risk involved.

Choices are necessary because resources are scarce.

Which statement about monopoly equilibrium and perfectly competitive equilibrium is INCORRECT? -Monopoly output will be less than will the output of a comparable perfectly competitive industry. -In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market. -Price is greater than marginal cost in monopoly, and price equals marginal cost in perfect competition. -When a monopoly exists, the consumer surplus from the market is less than it would be if the same market were perfectly competitive.

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market.

The profit-maximizing rule, expressed as _____, is adhered to by firms operating in _____ markets. -MC = MR; both monopolistically competitive and perfectly competitive -MC > MR; monopolistically competitive but not perfectly competitive -MC = MR; perfectly competitive but not monopolistically competitive -MC > MR; perfectly competitive but not monopolistically competitive

MC = MR; both monopolistically competitive and perfectly competitive

Based on the article entitled "Remote Work is Shaping San Francisco, as Tech Workers Flee and Rents Fall" which panel below best describes what was occurring in the market for residential rental properties and single family homes in locations and citiesoutside of the San Francisco area (where the subscripts "1" and "2" refer to the initial demand or supply and then subsequent demand or supply, respectively)? -Panel A -Panel B -Panel C -Panel D

Panel A

Below represents the graphical presentation of the market for apples and where the subscripts "1" and "2" refer to the initial demand or supply and then subsequent demand or supply, respectively. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which panel BEST describes how this will affect the market for apples, which are a substitute in consumption for grapefruit? -Panel B -Panel D -Panel A -Panel C

Panel A

Use Figure Below: Marginal Private Benefits and Marginal Social Benefits. Without government intervention (and assuming high transaction costs), this market will produce _____ units at a price of _____. -Q1; P2 -Q2; P1 -Q1; P0 -Q0; P0

Q1; P2

Deadweight losses arising from an excise tax are greatest when demand: -and supply are relatively elastic. -is relatively elastic and supply is relatively inelastic. -is relatively inelastic and supply is relatively elastic -and supply are relatively inelastic.

and supply are relatively elastic.

Overall, trade between China and the United States will: -benefit China more than the United States. -benefit both countries. -hurt both countries. -benefit the United States more than China.

benefit both countries

(Figure: Guns and Butter) Use Figure: Guns and Butter. The combination of guns and butter at point H: -has no meaning since it does not relate to the preferences of consumers. -is attainable but would increase unemployment. -can be attained but would cost too much. -cannot be attained, given the level of technology and the factors of production available.

cannot be attained, given the level of technology and the factors of production available.

When someone says resources are scarce, this suggests that: -we have enough resources to meet all of our needs and wants. -lower-income individuals must be especially careful about the choices they make. -choices must be made to utilize resources in the best manner possible. -additional resources could be found if there were additional funds allocated to the effort.

choices must be made to utilize resources in the best manner possible

If Brazil gives up three automobiles for each ton of coffee it produces, while Peru gives up seven automobiles for each ton of coffee it produces, then Brazil has a comparative advantage in _____ production and should specialize in _____. -coffee; coffee -automobile; automobiles -automobile; coffee -coffee; automobiles

coffee; coffee

In the article entitled "Car Sales are Down Almost 20%, but Prices are Setting Records," the rising price of U.S. automobiles is best explained by an -increase in the supply of U.S. automobiles. -increase in the supply of U.S. automobiles greater than the increase in demand for U.S. automobiles. -decrease in the supply of U.S. automobiles greater than the increase in demand for U.S. automobiles. -decrease in the supply of U.S. automobiles less than the increase in demand for U.S. automobiles.

decrease in the supply of U.S. automobiles greater than the increase in demand for U.S. automobiles.

A strategy that is the same, regardless of the action of the other player in a game, is a _____ strategy. -tit-for-tat -trigger -competitive -dominant

dominant

Perfect competition is a model of the market that does NOT assume: -a large number of firms. -firms facing downward-sloping demand curves. -firms producing identical goods. -many buyers.

firms facing downward-sloping demand curves

The marginal social benefit received from pollution is equal to its marginal social cost in the market for highly polished glass. In this situation: -firms in the market produce too much pollution. -society's well-being can be improved if the quantity of pollution decreases. -firms in the market produce the socially optimal level of pollution. -firms in the market produce too little pollution.

firms in the market produce the socially optimal level of pollution.

(Figure: Monopolistic Competition) Use Figure: Monopolistic Competition. The firm in the figure is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the level of: -fixed cost -variable cost -loss -profit

fixed cost

Monopolistic competition is characterized by: -free entry and exit in the long run. -few producers. -barriers to entry. -each firm producing a standardized product.

free entry and exit in the long run

If a product's usefulness increases with the number of users, it: -is a monopoly. -has an exclusive franchise. -has network externalities. -is a conglomerate.

has network externalities

If government decides to control the amount of a good allowed to be transacted in a market, this will: -always result in an increase in efficiency in the market. -increase incentives for market participants to engage in black market activities. -result in the equilibrium quantity being produced if the quota is binding. lead to more of the good being produced.

increase incentives for market participants to engage in black market activities.

Which method of discouraging speeding is likely to be MOST effective given that people usually exploit opportunities to make themselves better off? -asking drivers to reduce speed -increasing the number of signs stating the speed limit -increasing the fine associated with speeding tickets -public service announcements reminding drivers of the dangers of speeding

increasing the fine associated with speeding tickets

Game theory is commonly used to explain behavior in oligopolies because oligopolies are characterized by: -either homogeneous or heterogeneous products -.large profits in the long run. -interdependence. -imperfect competition.

interdependence

Marginal revenue for a monopolist is: -equal to price. -less than price. -the change in total revenue plus the change in output. -greater than price.

less than price

A monopolist is likely to produce _____ and charge _____ than is a comparable perfectly competitive firm. -less; less -more; less -more; more -less; more

less; more

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: -Japan has a comparative advantage in the production of both goods. -the United States has a comparative advantage in the production of automobiles. -the United States has an absolute advantage in the production of steel. -Japan has a comparative advantage in the production of automobiles.

the United States has a comparative advantage in the production of automobiles.

Based on the Production Possibilities for Indonesia and Malaysia set forth below, Indonesia has a comparative advantage in producing _____, while Malaysia has a comparative advantage in producing _____. -tires; microchips -both microchips and tires; neither good -neither good; both microchips and tires -microchips; tires

tires; microchips

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention, one would find: -the optimal amount of doses of flu vaccines being produced since external benefits would not be considered. -too many doses of flu vaccine being produced since external benefits would not be considered. -too few doses of flu vaccine being produced since external benefits would not be considered. -a shortage of doses of flu vaccine because their marginal social benefit is overestimated

too few doses of flu vaccine being produced since external benefits would not be considered.

(Figure: Profit Maximization for a Firm in Monopolistic Competition) Use Figure: Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC′.After the innovation reduces the average cost (but not marginal cost), the firm's economic profit at the new profit-maximizing quantity is: -$3,000. -$1,500. -$30. -$0.

$1,500

Use Figure Below: Efficiency and Pollution. Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society. An optimal Pigouvian tax of _____ per ton of pollution can move this market to the socially optimal quantity of pollution. -$5 -$45 -$25 -$15

$15

(Figure: The Market for SUVs) Use Figure: The Market for SUVs. If the government imposes a $30,000 tax on SUVs (collected from the producers), consumers will pay _____ of the tax and producers will pay _____. -$10,000; $20,000 -$5,000; $25,000 -$20,000; $10,000 -$15,000; $15,000

$20,000; $10,000

Use Table Below: Coal Mine Pollution. The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine. If 5 tons of pollution is produced, the marginal social benefit is _____, and the marginal social cost is _____. -$0; $800 -$300; $500 -$400; $400 -$800; $0

$300; $500

(Table: The Market for Taxi Rides) Use Table: The Market for Taxi Rides. If a government quota limit at 7 million rides is imposed on this market, the quota rent that will accrue to the owner of a taxi medallion will be _____ per ride, but there will be a total missed opportunity (inefficiency) to consumers and producers of _____ million rides. -$1; 1 -$2; 2 -$4; 4 -$3; 3

$3; 3

(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be: -$5 -$4 -$7 -$6

$4

Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associated with each level of output is given in the accompanying table. Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down? -Kate will make a profit and should produce in the short run. -Kate will incur a loss but should produce in the short run. -Kate will break even and should shut down in the short run. -Kate will incur a loss and should shut down in the short run.

Kate will incur a loss and should shut down in the short run.

Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associated with each level of output is given in the accompanying table.Suppose that the price at which Kate can sell catered meals is $17 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down? -Kate will break even and should continue to produce in the short run. -Kate will incur a loss but should produce in the short run. -Kate will make a profit and should produce in the short run. -Kate will incur a loss and should shut down in the short run.

Kate will incur a loss but should produce in the short run

Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associated with each level of output is given in the accompanying table. Suppose that the price at which Kate can sell catered meals is $21 per meal. In the short run, will Kate earn a profit? If not, in the short run, should she produce or shut down? -Kate will incur a loss but should produce in the short run. -Kate will make a profit and should produce in the short run. -Kate will break even and should shut down in the short run. Kate will incur a loss and should shut down in the short run.

Kate will make a profit and should produce in the short run.

The government is involved in providing many goods and services. For the good or service listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? Street signs: -Nonrival; excludable; this is an artificially scarce good and without government intervention the quantity produced would be inefficiently low. -Rival; excludable; this is a private good. Without government intervention the quantity produced would be efficient. -Rival; nonexcludable; this is a common resource and without government intervention the privately provided quantity would be inefficiently low. -Nonrival; nonexcludable; this is a public good and without government intervention the quantity produced would be inefficiently low.

Nonrival; nonexcludable; this is a public good and without government intervention the quantity produced would be inefficiently low.

(Figure: Possible Long-Run Outcome) Use Figure: Possible Long-Run Outcome. In the figure, which price and quantity refer to a potential long-run profit maximizing outcome for a firm producing in a monopolistically competitive market? -P1 and Q4 -P2 and Q2 -P1 and Q1 -P1 and Q3

P1 and Q1

An economist gives the following advice to a museum director: "You should introduce 'peak pricing': at times when the museum has few visitors, you should admit visitors for free. And at times when the museum has many visitors, you should charge a higher admission fee." When the museum is quiet, is it rival or nonrival in consumption? Is it excludable or nonexcludable? Use the answers to those questions to determine what type of good is the museum at those times, and what the efficient price to charge would be. -When the museum is quiet, it is a private good and the efficient admission fee would be zero. -When the museum is quiet, it is a public good and the efficient admission fee would be zero. -When the museum is quiet, it is a common resource and the efficient admission fee would be zero. -When the museum is quiet, it is a club good or artificially scarce good and the efficient admission fee would be zero.

When the museum is quiet, it is a club good or artificially scarce good and the efficient admission fee would be zero.