ECON 202 Exam 3: Chapter 9, 10, 11, 12 Wiggins Meer
Information asymmetry in a market can lead to________.
a market failure
Sunk costs
are costs that have already been paid and cannot be recaptured in any significant way.
Which of the following statements is true?
as output increases, average fixed cost becomes smaller and smaller
At low wages, the labor supply curve for most people slopes upward because
as wages increase the opportunity cost of leisure increases
Signaling takes place in markets with _____.
asymmetric information
The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is
asymmetric information
In the long run, the entry of firms in an industry
benefits by forcing prices down to the level f average cost
Economic costs of production differ from accounting costs in that
economic costs add the opportunity costs of a firm using its own resources while accounting costs do not
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory
A ______ is an extensive-form representation of a game.
game tree
A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns
A public franchise
is a government designation that a private firm is the only legal producer of a good or service.
If a firm shuts down in the short run,
its loss equals its fixed cost
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit?
(P x Q) - TC
Which of the following is likely to cause a decrease in the wage rate and an increase in the employment level of a country?
A right shift in the supply curve for labor, without any change in the demand curve for labor
Scenario: Two firms in a market must choose between two alternative strategies—X and Y. The figure below shows the game tree that these firms can use to make their decisions. Refer to the figure above. In equilibrium, ________.
Firm 1 will follow Strategy Y, and Firm 2 will follow Strategy X
Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market?
Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences
The substitution effect of a wage increase is observed when
leisure's higher opportunity cost causes workers to take less leisure and work more
If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the
marginal revenue of the sixth performance is $38,000
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of
moral hazard
If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
new firms are attracted to the industry
If a typical firm in a perfectly competitive industry is earning profits, then
new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games
A player has a dominant strategy when:
she has only one best response to every possible strategy of the other player
Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should
offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon
A best responce is ______.
one player's optimal action choice taking the other player's action is given
One reason why adverse selection problems arise in health insurance markets is that
sick people are more likely to want health insurance than healthy people
In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are
sunk costs
The firm's gain in profit from hiring another worker is
the difference between marginal revenue product and the wage of the worker
Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are
the differentiation of its products and the production of products at a lower average cost than competing firms
A teenaged babysitting is similar to a firm in a perfectly competitive industry in that, for both
there are many other suppliers of similar goods or services
Moral hazard refers to the actions people take after they have entering into a transaction that make the other party to the transaction worse off.
true
One reason college student do not study enough to get high grades is that hey are unrealistic about their future behavior
true
The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers
true
When firms exit a perfectly competitive industry, the market supply curve shifts to the left
true
Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. This is an example of a(n) ________.
ultimatum game
In an oligopoly, firms can increase their market power by
colluding to set prices
If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?
$15
If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
$25
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
$700
If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?
$80
Other things remaining the same, which of the following is likely to cause a left shift in the supply curve for labor?
A decrease in population
Which of the following is a problem that arises in a health insurance market?
A disproportionate number of high-risk individuals are attracted to buy insurance
A firm can use anchoring to influence consumer choices so as to increase sales by making
A high "regular price" on a product, which makes the discounted "sale price" appear to be a bargain
Which of the following is likely to cause an increase in the wage rate and a fall in the employment level in a country?
A left shift in the supply curve for labor, without any change in the demand curve for labor
Which of the following about a monopoly is false?
A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.
Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Which of the following problems is likely to arise in the market for used cell phones in Barylia?
Adverse selection
______ occurs when one agent in a transaction knows about a hidden characteristic of a good
Adverse selection
Which of the following is not part of an oligopolist's business strategy?
Automobile producers
which of the following is not true for a firm in perfect competition?
Average revenue is greater than marginal revenue
A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called
Behavioral economics
Which branch of economics considers that economic agents do not always act rationally?
Behavioral economics
Which of the following is an example of signaling in a market with asymmetric information?
Certification of used cars by third parties
In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome?
Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost
What is the dominant strategy in the prisoner's dilemma?
Each prisoner confesses because this is the rational action to pursue
Which of the following statements is true?
Employers are willing to forego profits when engaging in taste-based discrimination
Which of the following correctly identifies a difference between taste-based discrimination and statistical discrimination?
Employers engaging in taste-based discrimination are willing to forego profits, whereas employers engaging in statistical discrimination are trying to enhance profits.
______ discourage low-risk individuals from seeking health insurance.
High premiums
Which of the following helps in reducing the problem of adverse selection in health insurance markets?
Insurance mandates
Which of the following is true of an extensive-form game?
It involves sequential decision making by the players
What is the principal-agent problem?
It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them
What is moral hazard?
It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
What is adverse selection?
It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
Which of the following is true of a payoff matrix?
It takes into account all relevant costs and benefits associated with each action of the players.
A firm could continue to operate for years without ever earning a profit as long as it is producing an output where
MR > AVC
Which of the following statements is false?
Marginal cost will equal average total cost when marginal cost is at its lowest point
Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?
Marginal revenue is less than price
For a perfectly competitive firm, which of the following is not true at profit maximization?
Market price is greater than marginal cost
A situation in which each firm chooses the best strategy given the strategies chosen by the other firms is called
Nash equilibrium
Which of the following is true of a Nash equilibrium?
No player can improve his payoff by changing his strategy once in Nash equilibrium
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes
Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand. As a result, the firm's market share is almost 100 percent. Meanwhile, other firms are trying to regain their market shares through research and development. Is this firm a monopolist?
No, because it faces potential competition from other companies
Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
Restaurants do not sell identical products
Which of the following is a market-based solution to the problem of adverse selection?
Signaling
Suppose you pre-ordered a non-refundable movie ticket to X-Men: Apocalypse. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?
Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not.
The difference between the salaries paid to movie stars and to actors who play supporting roles is much greater today than it was in the 1930s and 1940s. What factor explains this increase in relative salaries over time?
Technological advances in the entertainment industry increase the revenue that successful movies can earn. This has increased the movie studios' willingness to pay high salaries to movie stars.
Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?
Technological advances such as cable television has increased the demand for sports entertainment
Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?
The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.
Which of the following is likely to be used as a signal in the job market?
The degree obtained by the applicant
Which of the following would cause an increase in the equilibrium wage?
The demand for labor increases faster than the supply of labor
What is likely to happen in a used-car market if the buyers feel that the best they can do is to buy a lemon?
The entire market shuts down
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?
The equilibrium wage falls and the equilibrium quantity of labor rises
Which of the following is likely to lead to a left shift in the supply curve for labor to a firm?
The establishment of a new firm nearby that offers higher wages
What is always true at the quantity where a firm's average total cost equals average revenue?
The firm breaks even
Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?
The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation
Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?
The firm will not sell any output
Which of the following statements is true?
The income effect and the substitution effect of a wage rate change work in opposite directions
Other things remaining the same, which of the following is likely to cause a decrease in both the wage rate and the number of workers hired in a glass factory?
The introduction of labor-saving technology in the factory
What is the difference between labor's marginal product and marginal revenue product?
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
In which of the following markets are buyers likely to have private information?
The market for health insurance
Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?
The prisoner's dilemma does not apply to most business situations that are repeated over and over.
The typical labor supply curve is upward sloping but it is possible for the curve to be backward bending — negatively sloped — at very high wage levels. Which of the following would cause a backward-bending supply curve?
This would occur when the income effect from an increase in the wage becomes larger than the substitution effect
Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?
Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.
The total value to society of having garbage removed is greater than the value of baseball games. Why, then, are baseball players paid more than garbage collectors?
Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors.
Which of the following is an example of a long-run adjustment?
Walmart builds another Supercenter
Which of the following statements is false?
When marginal cost equals average total cost, average total cost is at its highest value
Women typically earn less than men, even in the same occupation. Which of the following is an explanation for this discrepancy?
Women have, on average, less workforce experience than men of the same age
Which of the following is a likely reason for wage inequality between men and women?
Women tend to spend more time out of the labor force as compared to men
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?
Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000
Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you. Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness?
You will trust the mechanic and he will cooperate
Which of the following is the best example of a short-run adjustment?
Your local Walmart hires two more associates
A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?
a decision tree
A price maker is
a firm that has some control over the price of the product it sells
Relative to a perfectly competitive market, a monopoly results in
a gain in producer surplus less than the loss in consumer surplus
What is the prisoner's dilemma?
a game in which players act in rational, self-interested ways that leave everyone worse off
Consider a used car market in which half the cars are good and half are bad (lemons). If buyers are rational, the prices being offered for used cars will result in
a larger proportion of lemons being sold and consequently, producer surplus is increased
Which of the following would be categorized as an opportunity cost? a. not being able to spend your $10,000 savings if you sink the money in your business b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business
a only
A dominant strategy is
a strategy that is best for a firm no matter what strategies other firms use
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
Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly lemons at this price. What is the term used to describe this situation?
adverse selection
Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma?
advertising that is will match its rival's price
A characteristic of the long run is
all inputs can be varied
Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?
allocative efficiency
A natural monopoly is most likely to occur in which of the following industries?
an industry where fixed costs are very large relative to variable costs
Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. A player should use ________ to play this game.
backward induction
Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction. Refer to the scenario above. You should use ________ to arrive at a decision.
backward induction
The first mover in an extensive-form game should use _______ to win the game.
backward induction
The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?
because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power
Which of the following explains why talented major league baseball players command much higher salaries than neurosurgeons?
because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon.
The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) each sell an identical washer-dryer pair. The owner of each store considered offering the washer-dryer pair for $700, but decided on a price of $500. If this is a Nash equilibrium we can conclude that
charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store.
As word processing on personal computers expanded, sales of typewriters began to disappear. Which of Porter's competitive forces does this event demonstrate?
competition from substitute goods or services
Customer discrimination occurs when
customers refuse to buy products produced by a racially diverse workforce
Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?
decision nodes
In situations where new technologies are considered substitutes for workers, demand for these workers will ______, resulting in ______ in the equilibrium wage.
decrease; a decrease
In order to be useful as a signal in a market with information asymmetry, the signal must be _____.
difficult to obtain
Marginal cost is calculated for the particular increase in output by
dividing the change in total cost by the change in output
Both buyers and sellers are price takers in a perfectly competitive market because
each buyer and seller is too small relative to others to independently affect the market price
A Nash equilibrium occurs if ______.
each player chooses strategies that are mutual best responses
In a simultaneous move game, _______.
each player has to make his choice without knowing his rival's choice
If two duopolist can collude successfully, then both will
earn greater profits than if they did not collude
Marginal revenue product of labor for a competitive seller is
equal to the marginal product of labor multiplied by the output price
Anchoring is relating a value to some other known value
even if the second value is irrelevant
Scenario: Two firms in a market must choose between two alternative strategies—X and Y. The figure below shows the game tree that these firms can use to make their decisions. Refer to the figure above. This is an example of a(n) ________.
extensive-form game
Due to adverse selection, very few lemons will be sold in the market for used cars.
false
If marginal cost is above the average variable cost, them average variable cost is decreasing
false
If price is equal to average variable cost, then a perfectly competitive firm breaks even
false
The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services.
false
The perfectly competitive market structure benefits consumers because
firms are forced by competitive pressure to be as efficient as possible
A patent of copyright is a barrier to entry based on
government action to protect a producer
A profit-maximizing monopoly's price is
greater than the price that would prevail if the industry was perfectly competitive.
Adverse selection occurs in the market for used cars because used car buyers
have less information than used car sellers
Compensating differentials are associated most closely with which of the following?
hazardous jobs
In an extensive-form game, payoff to a player is usually higher if _______.
he is the first mover
Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers fairness to money, ________.
he will accept the offer if offered an equal share of the money
Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers money to fairness, ________.
he will always accept any offer made to him
Firms use information on labor's marginal revenue product to determine
how many workers to hire at each wage rate
A person's stock of skills to produce economic value is referred to as:
human capital
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should
increase its output
In situations where new technologies are considered complementary to workers, demand for these worker will _____, resulting in _______ in the equilibrium wage.
increase; an increase
If a perfectly competitive firm's price is above its average total cost, the firm
is earning a profit
A perfectly competitive firm's marginal revenue
is equal to its price
If a perfectly competitive firm's price is less than average total cost but greater than its average variable cost, the firm
is incurring a loss
Compared to perfect competition, the consumer surplus in a monopoly
is lower because price is higher and output is lower
A _______ is a complete plan describing how a player will act.
strategy
Diet Coke ____ considered a product in a monopoly market, because _____
is not; it has many substitutes
A monopoly firm's demand curve
is the same as the market demand curve
The combined effect (both income and substitution) of a wage increase is that
is the substitution effect outweighs the income effect, the labor supply curve slopes upward, but income effect outweighs the substitution effect, the labor supply curve is backward bending
Which of the following statements best describes the economic short run?
it is a period during which at least one of the firm's inputs is fixed
The long run refers to a time period
long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.
A supplier of an input is unlikely to have bargaining power if
many firms can supply the input
A firm's demand for labor curve is also called its
marginal revenue product of labor curve
Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured. In other words, the automobile insurance market is subject to
moral hazard
Christine works as a receptionist in an office. She is not supposed to use the Wi-Fi connection provided by the company to access social-networking Web sites. However, she often uses the Wi-Fi to access these Web sites because her browsing activities are not monitored by her employer. This is an example of ________.
moral hazard
Joseph starts driving with much less care after buying car insurance. His behavior is an example of ________.
moral hazard
Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________.
moral hazard
A Nash equilibrium occurs when ________.
none of the players can increase their payoffs by choosing a different strategy
When a perfectly competitive firm fins that its market price is below its minimum average variable cost, it will sell
nothing at all; the firm shuts down
Painters who paint water towers earn higher wages relative to painters who paint houses because
painting water towers is more risky than painting houses
A game is called a simultaneous move game if _______.
players choose their actions at the same time
Sequential games are used to analyze
situations in which one firm acts and other firms respond
Sequential games are used to analyze
situations in which one firm acts and other firms respond.
If a typical firm in a perfectly competitive industry is incurring losses, then
some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms
Employers engaging in _____ try to enhance their profits
statistical discrimination
When expectations cause people to discriminate against a certain group, it is referred to as:
statistical discrimination
Economically rational means that consumers and firms
take actions that are appropriate to reach goals given available information
Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as:
taste-based discrimination
The processes a firm uses to turn inputs into outputs of goods and services is called
technology
In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is
the ETS faces competition in the market for the SAT but no competition for the GRE
The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and
the additional revenue received from selling the output produced as a result of hiring an additional worker
Marginal revenue product for a perfectly competitive seller is equal to
the change in total revenue that results from hiring another worker
A firm's primary interest when it hires an additional worker is
the extra revenue the firm realizes from hiring that worker
The income effect of a wage increase is observed when
the higher wage income causes workers to take more leisure and work less
One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is
the marginal revenue product of baseball players is greater than the marginal revenue product of college professors
In perfect competition,
the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.
If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce
the moral hazard problem
Implicit costs can be defined as
the non-monetary opportunity cost of using the firm's own resources.
The labor supply for an industry would decrease if
the percentage of the population from ages 16 to 65 decreases
If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of
the principal-agent problem
The government of Eduland provided generous unemployment benefits to all the unemployed workers. However, the new government that came into power reduced the amount of unemployment insurance paid to each worker. This increased the average number of hours spent daily by unemployed workers in looking for jobs. This suggests that ________ exists in the labor market in Eduland.
the problem of moral hazard
An individual's labor supply curve shows
the relationship between wages and the quantity of labor that she is willing to supply
A payoff matrix shows _______.
the return from each action the players can take in a game
What is behavioral economics?
the study of situations in which people act in ways that are not economically rational
in the long run which of the following is true?
there are no fixed costs
A monopoly is characterized by all the following except
there are only a few sellers, each selling a unique product
All of the following are ways by which existing firms can deter the entry of new firms into an industry except
threatening to raise prices
The function of the agent in the principal-agent relationship is
to perform tasks for the principal
Health insurance companies impose deductibles on policies and co-payments on claims
to reduce moral hazard problems
Average total cost is equal to
total cost divided by the level of output
Which of the following costs will not change as output changes?
total fixed cost
A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem
true
Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction
true
An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run
true
An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied
true
For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.
true
High wages that compensate workers for unpleasant aspects of a job are called compensating differentials
true
If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost
true
Scenario: Robert and Alice are participating in a reality show on television. Robert is offered an amount of $500 and told that he can keep the money provided he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money. Refer to the scenario above. This is an example of a(n) ________.
ultimatum game
Game theory is applicable to oligopoly behavior because oligopolists
use strategic behavior
Because warranties are potentially _____, low-quality goods are _____ to have warranties.
very expensive; less likely
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
The prisoner's dilemma illustrates
why firms won't cooperate if they don't behave strategically
A monopoly is the only seller of a product
without a close substitute
Worker discrimination occurs when
workers refuse to work with persons of a different race.