ECON 202

37. What is one major hurdle monopolies face to engage in first-degree price discrimination?

a. Finding everyone's willingness to pay is costly and difficult.

The marginal product of labor can be defined as a.

change in output/change in labor.

The theory of consumer behavior assumes that:

consumers behave rationally, maximizing their satisfactions.

Average total cost tells us the

cost of a typical unit of output.

Marginal utility is:

positive, negative, or zero.

____ 4. 57. In Exhibit 2-6, the opportunity cost of moving from point b to d is

100 socks

17. A firm should shut down when its total revenue is less than:

B. total variable cost.

19. A market with few barriers to entry where firms offer products that are similar but not identical is:

C. monopolistically competitive.

9. The marginal benefit to a consumer is which of the following?

D. The added benefit of consuming an additional unit of a good or service.

Which of the following statements is correct when the price elasticity of demand is inelastic?

D. The elasticity coefficient is less than one.

6. The principle stating that, with all else equal, the quantity demanded of a product will increase as the price falls and decrease as it rises is called:

D. The law of demand

Refer to Table Above. If a minimum wage of $11.50 is mandated there will be a

D. surplus of 40,000 units of labor.

Which of the following statements explains a similarity between perfect competition and monopolistic competition?

66- Firms in these models find it easy to enter a market.

Explain what it means to have a trade deficit and a trade surplus

96. Answer: A trade deficit occurs when a country's exports are less than their imports—that is the value of the goods that are exported from the country are less than the value of the imports into the country. Thinking about it mathematically using the net exports equation, NX= E - M, a trade deficit occurs when NX is negative or M > E. A trade surplus occurs when a country's exports are greater than their imports—that is the value of the goods that are exported from the country are greater than the value of the imports into the country. Thinking about it mathematically using the net exports equation, NX= E - M, a trade surplus occurs when NX is positive or E > M.

. Suppose the current equilibrium price of pizza is $5. If the government decides the price of pizza cannot rise above $4, the result of this policy would be

A shortage

33. Refer to the above diagram. At output level Q total variable cost is:

A. 0BEQ

8. When a variable other than price changes and consumers become more willing to buy a product, which of the following has happened?

A. A change in demand

4. Any measurable element within an economic model that may change is called a(n):

A. Economic variable

Which of the following statements is true?

A. If productivity increases, then MRP, demand, the wage rate, and the quantity of labor hired all increase.

37. How does market supply differ from individual supply?

A. Market supply is the sum of all individual suppliers.

15. Which of the following best defines the law of diminishing returns?

A. The benefit of increasing one variable input of production will begin to decrease after a certain level.

2. The term that describes a limited availability of resources to fulfill our wants is:

A. The law of supply B. Scarcity C. Shortage D. None of these

21. Economic growth occurs when an economy is able to increase its production of goods and services.

A. True

34. Which of the following industries most closely approximates pure COMPETITION implements?

A. agriculture

All else held constant, an increase in the price of beachfront condos:

A. decreases the quantity of beach front condos supplied.

31. To the economist total cost includes:

A. explicit and implicit costs, including a normal profit.

74. Private markets sometimes result in market failure when:

A. external costs and benefits exist.

30. Which of the following is most likely to be an implicit cost for Company X?

A. forgone rent from the building owned and used by Company X

Smaller, more fuel efficient SUVs have become very popular. Many customers are trading in existing cars and buying new SUVs. As a result, the supply of used cars _________ and the price of used cars _________. In addition, the demand for new SUVs _________ and the price of new SUVs _________.

A. increases, decreases; increases, increases

37. A monopolist's demand curve:

A. is the same as the market demand curve.

The government may intervene in the market when market failures occur and:

A. move the market towards an efficient outcome. B. tax or legislate when negative externalities exist. C. subsidize positive externalities. ****D. do all of the above.****

Incorporating the external and private benefits and costs:

A. results in achieving socially optimal production and consumption.

36. The MR = MC rule APPLIES:

A. to firms in all types of industries.

74. The ability of a product to provide satisfaction is known as:

A. utility.

16. A hula hoop factory that produces 300 hula hoops with 5 workers could produce 360 with 6 workers, without increasing fixed costs. Should the firm hire another worker?

A. yes

96. Describe the impact on the euro and the dollar when exchange rates are flexible and the interest rate in the U.S. rises.

Answer: A change in interest rates in the U.S. causes demand and supply to change. With higher interest rates in the U.S., individuals in euro zone countries will want to invest in U.S. assets. This increases the supply of euros to buy more dollars, and the supply curve for euros shifts right. Higher interest rates in the U.S. also decrease the demand for euros, as U.S. citizens would rather hold higher-returning U.S. assets than euro zone assets, so the demand curve for euros shifts left. The exchange rate will fall; the dollar appreciates and the euro depreciates. The quantity of euros traded can stay the same, increase, or decrease depending on the size of the shifts of demand and supply.

Define exchange rates and explain their role in international trade.

Answer: Exchange rates are the price at which one currency can be exchanged for another currency. Prices are always denominated in the currency of a country. In the U.S., we use dollars. Exchange rates translate the prices of one currency into another currency. For example, individuals who travel to Germany will need to pay for goods and services in euros, not dollars. Americans will demand euros and will supply dollars in the exchange market. How many euros can be received for a dollar will vary based on the demand of and supply for euros in the exchange market. Euro owners will supply more euros when the euro buys many dollars and less when the euro buys dollars. This will impact the price, or exchange rate. Exchange markets are highly efficient.

96. Discuss the payments made to owners of the four categories of resources, and describe the marginal resource cost.

Answer: Firms must hire resources to produce more output. Land owners receive rent, labor owners receive wages/salaries, capital owners receive interest, and entrepreneurs receive profits or losses. Marginal resource cost is the additional cost firms incur when they hire additional units of a resource. It is the change in total resource cost as the firm changes output. Firms make decisions about when to hire additional units of a resource on the margin. A firm will hire an additional unit of resource if the marginal revenue from the additional output is greater than the marginal cost of the additional resource hired.

96. Discuss the process through which firms determine the optimal level of resource employment.

Answer: Firms use marginal analysis to determine the optimal level of resources to hire. If MRP > MRC, firms will hire an additional unit of the resource. The firm will continue to hire additional units of the resource up to the point where the MRP = MRC (optimal level). At this point, the firm has received the maximum additional revenue it can receive relative to the additional cost incurred. Firms do not hire an additional unit if MRP < MRC. This is similar to the MR = MC rule of profit maximization

Compare and contrast fixed and flexible exchange rates

Answer: Flexible exchange rates are difficult for emerging countries, because prices are determined by changes in the exchange rate. As a result, fixed exchange rates are an enticing tool utilized by developing countries to stabilize prices. This involves pegging the developing country's currency to another country's currency. Although prices may be stabilized, fixed exchange rates are hard to maintain. If demand changes for the developing country's currency, the government has to either increase or decrease the supply of its currency in the exchange market to accommodate the change in demand and maintain the fixed exchange rate. To change the supply of currency, the government has two options: it can change the supply of money in the country (by enacting monetary policy), or it can buy or sell its currency in the exchange rate market.

96. Describe what happens to flexible exchange rates when expectations exist that the dollar will appreciate.

Answer: Flexible exchange rates occur when the exchange rate is altered in response to changes in demand and supply. If the expectation is that the U.S. dollar will appreciate, people who hold dollars will want to hold more. Demand for dollars increases, and the demand curve shifts right. The impact on flexible exchange rates is an increase in both the exchange rate (price of a dollar) and the quantity of dollars traded.

Discuss the differences between supply, the supply curve, and the supply schedule

Answer: Supply refers to the definition of the law of supply, which states the quantities of a good or service sellers are willing and able to offer for sale at a variety of different prices over a fixed time period, all else held constant. The supply curve demonstrates the various prices and quantities that are offered for sale in a graphical format. The supply schedule demonstrates the various prices and quantities that are offered for sale in a table format. The supply curve and supply schedule represent the same information, just in different formats.

Explain how the current account, financial account, and capital account track trends between trading partners.

Answer: The current account tracks the value of goods and services, interest, and wages earned by labor that a country imports and exports. The financial account tracks various assets like bank deposits, stocks, and bonds. Last, the capital account tracks non-produced assets including patents, copyrights, trademarks, and debt forgiveness. In all accounts, imports are debits and exports are credits to create two entries on the balance sheet, which balance to equal zero. Overtime, these accounts can be used to watch trading trends to see potential problems and identify solutions.

Compare and contrast the determinants of resource demand

Answer: The demand for resources depends on the demand for goods or services the resource helps produce. If the demand for the good increases, then the demand for resources to produce it increases. The opposite is also true. Productivity is another determinant of resource demand. If the productivity of the resource increases, so does the demand for a resource. The opposite is also true. The third determinant of resource demand is a change in the price of other resources, such as substitutes and complements. If the price of a substitute decreases, the demand for the resource decreases. If the price of a substitute increases, the demand for the resource increases. If the price of a complement decreases, the demand for the resource increases. If the price of a complement increases, the demand for the resource decreases. For all three determinants of resource demand, changes in these determinants cause the demand curve for a resource to shift either to the right or to the left. If the demand increases, the curve shifts to the right; if the demand decreases, the curve shifts to the left

Discuss the relationship between marginal revenue product and the demand for labor

Answer: The demand for resources is a derived demand. What that means is the demand for a resource is derived from, or depends on, the demand for the good or service the resource helps to product. Firms make decisions to hire additional resources on the margin. Marginal revenue product (MRP) is the extra revenue a firm receives when it sells an additional unit of output. Marginal resource cost (MRC) illustrates the additional cost of hiring an additional unit of a resource. The demand for a resource is determined by comparing the MRP to the MRC. Firms will demand an additional unit of a resource if the MRP is greater than or equal to the MRC. For example, suppose labor is the resource and the wage rate (MRC) is $10. If the MRP of the first worker is $15, then the firm will hire the first worker, because $15 is greater than $10. If the MRP of the second worker is $12, the second worker is also hired for the same reason. If the third worker has a MRP of $9, the third worker will not be hired, because $9 is less than $10. So the firm's demand curve for labor is 2 units when the wage rate is $10. Thus, the demand curve for labor is the MRP curve for labor. This can be graphed with quantity of labor on the horizontal axis and price/wage on the vertical axis. MRP is graphed as a downward-sloping curve. Firms compare the MRC curve (or wage rate) to the MRP curve to determine the amount of labor they should hire

96. Compare and contrast total product, marginal product, and marginal revenue product.

Answer: Total product is the total output produced by a given number of workers in a given time span. It is the sum of the marginal product of a resource. Marginal product and total product are the same for the first worker. Marginal product is the change in total product when another resource is added to the production mix. Marginal revenue product (MRP) is the marginal product of an additional resource employed multiplied by the price of the additional unit of output. It can also be calculated as the change in total revenue as an additional resource is employed, which generates additional revenue. It is the extra revenue a firm receives as a benefit from the additional cost of hiring an additional unit of resource.

List the nonprice determinants of supply, provide an example of each, and discuss their impact on the supply curve (in which direction it will shift

Answer: When the nonprice determinants of supply change, the entire supply curve shifts either to the right, to show an increase in supply, or to the left, to show a decrease in supply. The nonprice determinants of supply are: - Changes in taxes and subsidies. Although taxes are not a production cost, they are considered a cost of doing business. If the tax on beer increases, then the supply of beer at each set of prices decreases. The producer will only supply more beer if the price increases, due to the increased tax. The supply curve would shift left. Subsidies are the exact opposite of taxes. Consider that the government offers a subsidy to a producer of cotton, which decreases the cost of producing cotton. The supply of cotton will increase, and the supply curve shifts right. - Changes in resource prices and technology. A change in technology often assists in decreasing costs. Suppose a new technique for producing car tires is developed that enables firms to produce more tires with the same amount of resources. This new technological change will result in an increase in tire production, and the supply curve shifts right. - Changes in the number of sellers in the market. Consider the market for jump ropes, which starts out with just two suppliers. If the number of sellers in this market increases, then the amount of jump rope being produced increases. The supply curve will shift to the right to reflect an increase in supply. - Changes in seller expectations. Sellers have expectations just like buyers do, but they respond to their future expectations differently. If the price of disposable diapers is expected to increase in the future, then suppliers will offer fewer units for sale now, and wait for the price increase to occur. The supply curve shifts left to reflect a decrease in the supply of diapers.

If the MC of polluting increased, then what would happen to the optimal level of pollution

B. Decrease

12. What is likely to happen to a good if a good that is a complement decreases in price?

B. Demand for the good will increase.

37. Which of the following statements correctly identifies the relationship between price and quantity supplied?

B. Direct relationship

If the change in price is 20% and the change in quantity demanded is 10%, what type of elasticity is present?

B. Inelastic

5. Marginal analysis examines:

B. The additional costs and benefits of an economic decision.

19. Collusion between two firms occurs when

B. firms explicitly or implicitly agree to adopt a uniform business strategy.

If the price elasticity of demand for a product is _____________, it is considered elastic.

B. greater than one

56. Any movement along the production possibilities frontier involves the production of

B. more of one good and less of the other

Assuming the same costs, a monopoly will:

B. produce less and charge a higher price than a perfectly competitive firm.

How is the slope of a linear demand curve different from its elasticity?

C. Along a linear demand curve, elasticity changes.

11. Which of the following is NOT a factor that influences the elasticity of demand?

C. Cost of the good

13. In a construction company, which of the following would be a variable cost?

C. Lumber

9. Which of the following is NOT one of the variables that shift market demand?

C. Prices of inferior goods

18. Which of the following describes the difference (if any) between the demand curve in a perfectly competitive market and a monopolistic market?

C. The demand curve in a perfectly competitive market is horizontal, and in a monopolistic market slopes down.

Which of the following scenarios will not cause an increase in supply?

C. The price of the good or service decreases

3 Opportunity cost is:

C. The value of opportunities given up in order to pursue a chosen opportunity.

35. A purely competitive seller is:

C. a "price taker."

The MR = MC rule is used to analyze:

C. both monopoly and perfect competition profit maximization

The price of a camera decreases from $200 to $180, and in response to the price change the quantity demanded increases from 60 to 65 units. Therefore, demand for cameras in this price range:

C. is inelastic.

37. A monopolist's marginal revenue curve:

C. lies below the demand curve.

Positive externalities exist when:

C. too little is produced.

32. In the above diagram curves 1, 2, and 3 represent the:

C. total, average, and marginal product curves respectively.

Jen is an hourly employee who makes $8 an hour. On Wednesday, she takes an hour off work to shop for new shoes and spends $75 on two pairs. The drive home from work is 10 miles; gas is $2 and her car gets 20 mpg. The shoe store she visits is on her route home. What is the opportunity cost of her shopping trip?

D. $83

14. Tanya opens a lemonade stand and produces one pitcher of lemonade made from $2 worth of lemons and $1 worth of sugar. Each pitcher yields 20 cups. Twenty plastic cups cost Tanya $1. Assuming no cost for her own labor and no cost for pitcher, spoon and table lent by her mother, what is her average total cost of production?

D. 20 cents

7. Which of the following groups of goods and services are NOT complements?

D. Corn flakes, granola bars, frozen waffles

20. Costs that are not monetary but cost other opportunities are called:

D. Implicit cost

37. Which of the following is not a characteristic of monopoly?

D. Its demand curve is perfectly elastic.

Which of the following is most likely to be overconsumed due to unclear or unenforceable property rights

Donuts sitting in the common study area in the dorm

Compare and contrast what happens to the demand for a currency when the exchange rate falls and when the exchange rate rises

Exchange markets are very efficient and highly liquid. Suppose the exchange is between the dollar and the euro. The demand for euros is derived demand; it is derived from the demand for goods and services in a euro zone country. If the exchange rate falls, the dollar will purchase more euros. Goods and services priced in the euro are now cheaper to Americans, who increase the quantity of euros demanded. Americans will choose to travel to countries that use the euro to take advantage of cheaper hotels, restaurant meals, car rentals, etc. If the exchange rate rises, the dollar will purchase fewer euros. Goods and services priced in the euro are now more expensive to Americans, who decrease the quantity of euros demanded. Americans will travel less to countries that use the euro. But Europeans will choose to travel more to the U.S. to take advantage of cheaper U.S. prices.

22. Macroeconomics includes the examination of how choices are made by consumers and firms.

False

23. Frank won free tickets to a music concert. There is no cost to Frank attending this concert.

False

24. If a firm can produce more of a good or service than competitors using equal resources, it has a comparative advantage.

False

25. When the quantity supplied of a good increases as the price increases, supply is said to be inelastic.

False

26. Profit is the same as marginal revenue.

False

Which of the following statements explains why a pure monopolist's marginal revenue is less than price?

It must lower price to sell more output, and the lower price applies to all units of output sold.

In which of the following markets are demand and marginal revenue equal?

Perfect competition only

Susan spends all her income buying tortilla chips and guacamole. The last bag of tortilla chips purchased results in a marginal utility of 3 utils. The last tub of guacamole purchased results in a marginal utility of 4 utils. The price of each bag of tortilla chips is $1.50 and the price of each tub of guacamole is $2. In this situation:

Susan is buying tortilla chips and guacamole in the equal marginal principle amounts.

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs, but not the size of its factory.

Which of the following is a consequence of free riders

The good or service is never produced because not enough people paid to use it

27. Profit is maximized when marginal revenue is the same as marginal cost.

True

28. The short run is a time period in which at least one production input is fixed.

True

Which of the following is not an effect of an inclusive union wage rate set higher than the market equilibrium

Union employees are worse off

The governor has proposed to clean up all trash on the side of the highway. The project is estimated to cost the tax payers an additional $10,000. The city will benefit by having a clean highway which will entice tourists to stop along their routes. The project is estimated to bring in $15,000 of revenue from the highway being cleaned. Should the governor continue with the project?

Yes, the project will bring in $5,000 more in MB than MC

In monopolistically competitive markets, entry barriers:

are more prevalent than in perfectly competitive firms but less than in monopoly markets.

Price elasticity of demand is typically negative because

as price decreases, quantity demanded increases

Price elasticity of demand is useful because it measures __________ responsiveness to changes in __________.

consumers'; price

. Exhibit 4-7 shows a demand curve for dog ownership. If your local government passes an anti-dog-litter law that raises the personal cost of owning a dog from C to C', the quantity of dogs demanded will

decrease

74. If total utility is decreasing, marginal utility:

is negative.

The demand curve is downward sloping because:

marginal utility decreases as more of a product is consumed.

Purchasing power is equal to

nominal wages divided by price

Public goods are

non-rivalrous and non-excludable

In moving from point f to point g in Exhibit 2-5, the

production of B increases and production of A decreases

It is more difficult to analyze a monopolistically competitive market than a perfectly competitive market because in a monopolistically competitive market:

products are differentiated, which results in non-price competition.

Michael chooses to purchase a $125 ticket to a New York Knicks basketball game rather than a $150 ticket for The Lion King, a Broadway musical. Michael:

receives more marginal utility from the basketball game than from the musical.

You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your marginal decision, if you are rational?

the cost of the third magazine compared to the additional enjoyment you would get from it

In a competitive labor market, the equilibrium wage and quantity of labor are determined by

the intersection of supply and demand

willingness to pay

the maximum amount that a buyer will pay for a good

58. To say that people make marginal decisions means that

they weigh the additional costs and additional benefits of various activities before they make a decision

Negative externalities exist when

too much is produced