Econ Micro Final ALL CHAPTERS

The rule of thumb that estimates the frequency of an event by the ease with which it is possible to summon examples from memory is the:

availability heuristic

Game theory provides tools that are used to model:

strategic interdependencies.

According to the Weber-Fechner law, when the change in a stimulus is large in proportion to the original stimulus, the perceived size of the change will be:

large.

Positive economic principles are those that

predict how people will behave.

Which of the following is NOT an example of a good with network economies?

A computer printer

The optimal amount of information to acquire before making a purchase is:

the amount such that the marginal cost of acquiring information equals the marginal benefit.

A risk-averse individual will:

accept only better-than-fair gambles.

From the perspective of an externality, most communities have zoning laws to:

control external costs.

Patents, which confer market power, are intended to:

encourage innovation by helping firms recoup the costs of research and development

If Jane can produce 3 pairs of shoes per hour, while Bob can produce 2, then ______ has a(n) ______ advantage in producing shoes.

Jane; absolute

A purely self-interested diner is more likely to tip:

only when dining in a restaurant at which he often eats.

According to the textbook, the owners of restaurants encourage tipping in order to:

solve a commitment problem with their wait staff.

A monopolistically competitive firm:

sometimes distinguishes its output from that of its competitors by locating in a more convenient place.

In sequential games, the player who moves first:

sometimes has an advantage and sometimes has a disadvantage.

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

Suppose Ginger is going to buy a house and a dishwasher. Assuming the marginal cost of searching for both is the same, one can predict that Ginger will

spend more time searching for the house than the dishwasher.

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

start-up costs; variable costs

Which of the following is an example of an activity with an external cost?

Speeding on the interstate.

The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as:

the tragedy of the commons.

In the Nash equilibrium of a prisoner's dilemma:

there is unrealized opportunity for both to gain.

Shelly purchases a leather purse for $400. One can infer that

her reservation price was at least $400.

Natural monopolies are most likely to arise when firms have:

high start-up costs and low marginal costs.

A credible threat is:

in the threatener's interest to carry out.

The tendency for consumers to purchase more of a good or service as its price falls is captured by the:

law of demand.

Suppose Big Dairy Inc. has a monopoly in the market for milk and currently sells 1,000 gallons of milk a day at a price of $6 per gallon. Big Dairy Inc.'s marginal revenue from producing its 1,000th gallon of milk is:

less than $6.

A rational person:

makes choices based on added benefits and added costs.

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

marginal revenue.

The primary objective of an imperfectly competitive firm is to:

maximize profit.

In many cities in the United States, a single firm provides electricity. Those firms are:

monopolists.

Most cartels cease to be effective because:

of the incentive to cheat on the cartel agreement.

Suppose a monopolist faces the market demand curve shown below. What's the vertical intercept of this monopolist's marginal revenue curve

$10

The accompanying figure shows the production possibilities curve for the island of Genovia: The opportunity cost of producing a car in Genovia is:

50 tons of agricultural products.

Shelter for homeless people is an example of:

a need.

A dominant strategy exists if:

a player has a strategy that yields the highest payoff regardless of the other player's choice.

Refer to the accompanying figure. For Pat, the opportunity cost of removing one bag of trash is planting:

5 bulbs.

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes.

Typically, when people use anchoring and adjustment to estimate something, the importance of _______ in influencing their assessment is too large.

the anchor

The sum of the possible outcomes of a gamble multiplied by their respective probabilities is known as:

the expected value of the gamble.

Taking a limousine to a five-star restaurant in New York is a:

want to both Joe Average and Richie Rich.

The entire group of buyers and sellers of a particular good or service makes up

a market.

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:

an application of the Cost-Benefit Principle.

In general, individuals and nations should specialize in producing those goods for which they have a(n)

comparative advantage.

If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are:

complementary goods.

According to the law of demand, when the price of shoes ______, people will consume ______ shoes.

falls; more

According to the theory of disappearing political discourse, politicians remain silent about issues because politicians:

fear that if they speak out they will be misunderstood.

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is:

following the Cost-Benefit Principle.

The phenomenon that unusual events are likely to be followed by more nearly normal is known as:

regression to the mean.

The three elements of a game are:

the players, the strategies, and the payoffs.

When the expected value of search increases:

more searches occur.

The Scarcity Principle applies to

everyone.

A price setter is a firm that

has some degree of control over its price.

When marginal revenue is zero:

total revenue is maximized

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. The marginal revenue of the fifth unit of output is: (info on 132)

$2.

Refer to the accompanying table below. The average cost of 4 units of this activity is: Units of Activity. Total Cost. Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$25

Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $250,000. Assume that the realtor's opportunity cost of negotiating the sale is $5,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house?

$25,000.

Suppose a monopolist faces the market demand curve shown below. What's the horizontal intercept of this monopolist's marginal revenue curve?

$5

State whether the following pairs of goods are complements, substitutes, or both. a. Washing machines and dryers b. Tennis rackets and tennis balls c. Birthday cake and birthday candles d. Cloth diapers and disposable diapers

A. Complement B. Complement C. Complement D. Substitute

A single-priced, profit-maximizing monopolist

Always charges a price above the marginal cost of production

What might cause a demand curve to shift to the right

An increase in the price of a substitute

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct?

Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge.

Ann and Barbara are computer programmers in Nashville who are planning to move to Seattle. Each owns a house that has just been appraised for $100,000. But whereas Ann's house is one of hundreds of highly similar houses in a large, well-known suburban development, Barbara's is the only one that was built from her architect's design. Who will benefit more by hiring a realtor to assist in selling her house, Ann or Barbara?

Barbara

Why do moderately priced refrigerators have a light in the refrigerator compartment but not in the freezer compartment

Because the refrigerator door is opened more frequently than the freezer door

Why do many premium-priced refrigerators have lights not only in the refrigerator compartments but also in the freezer compartments?

Because willingness-to-pay for additional convenience is higher for high-income consumers than for low-income consumers.

The insight that people can always arrive at efficient solutions to the problems caused by externalities if they can negotiate the purchase and sale of the right to perform activities that cause externalities is called the _______.

Coase Theorem

Which of the following statements is true?

Comparative advantage does not require absolute advantage.

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

Dan has the comparative and absolute advantage in sandwiches.

Which of the following is NOT an example of an activity with external benefits?

Eating a sandwich in the dining hall

Statistical discrimination occurs when:

Statistical discrimination occurs when:

Which one of the following government actions is intended to generate positive externalities?

Subsidies for planting trees on hillsides

Which of the following factors would impact a buyer's reservation price for a given good or service

The cost of producing the item; Peer influence

The supply curve illustrates that firms

increase the quantity supplied of a good when its price rises.

According to the representative heuristic, people's belief about the likelihood that something belongs to a given category _______ the extent to which it shares characteristics with the stereotypical members of that category.

increases with

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

inefficient

An implication of scarcity is that:

people must make trade-offs.

Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Total economic surplus will be maximized if Sydney:

sells only in the upscale mall and charges $10.

The general resistance to change, often stemming from loss aversion, is known as:

status quo bias.

The economic surplus of an action is

the difference between the benefit and the cost of taking an action.

Excess demand occurs

when price is below the equilibrium price.

In situations where people make decisions with perfectly predictable consequences, traditional economic models cannot explain:

why people experience regret.

A price ceiling that is set above the equilibrium price

will have no effect on the market.

The Scarcity Principle states that

with limited resources, having more of one thing means having less of another.

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has

a higher opportunity cost of taking the day off work.

Which of the following firms is most likely to be a pure monopolist?

The only gas station in a small, isolated town

Refer to the accompanying table below. The marginal benefit of the 5th unit of activity is (same chart as 23)

$10

Suppose a monopolist faces the market demand curve shown below. What is this monopolist's marginal revenue as it expands output from 3 to 4 units per week?

$3

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35.

Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______ ( Y axis 60, X axis 40)

$35; 20

For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat all of the meals, your average cost for a meal is:

$4.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of buying his books at the university bookstore instead of online is:

$5

Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man's opportunity cost of washing a car?

1. Ted's opportunity cost = 3 2. Tom's opportunity cost = 2 3. Tom

State whether the following statements are true or false. a. In a perfectly competitive industry, the industry demand curve is horizontal, whereas for a monopoly it is downward-sloping. b. Perfectly competitive firms have no control over the price they charge for their product. c. For a natural monopoly, average cost declines as the number of units produced increases over the relevant output range.

A. False B. True C. True

Indicate how you think each of the following would shift demand in the indicated market a. The income of buyers in the market for Adirondack vacations increase. b. Buyers in the market for pizza read a study linking pepperoni consumption to heart disease. c. Buyers in the market for gas-powered cars learn of an increase in the price of electric cars (a substitute for gas-powered cars). d. Buyers in the market for electric cars learn of an increase in the price of electric cars.

A. Shift to right B. Shift to left C. Shift to right D. Remain unchanged

How would each of the following affect the U.S. market supply curve for corn? a. Over-grazing occurs. b. The price of tractors falls. c. The government increases taxes on fertilizer. d. A tornado sweeps through Iowa

A. Shift to the left B. Shift to the right C. Shift to the left D. Shift to the left

Whose income do you predict will be more affected by the expansion of Internet access: a. Stockbrokers or lawyers? b. Doctors or pharmacists? c. Bookstore owners or the owners of galleries that sell original oil paintings?

A. Stockbrokers B. Pharmacists C. Bookstore Oweners

The existence of a negative externality will result in:

a greater than optimal level of production.

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade-offs.

_______ is the property of an entity whose individual units are interchangeable.

Fungibility

Which of the following is NOT a commitment device?

High fines for illegal parking on campus.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, ______ has an absolute advantage in selling cars and ______ has an absolute advantage in selling trucks.

Larry; Ralph

Suppose Evan and Robert are each filling out a separate survey about parking on campus. On Evan's survey, the first question asks about whether he thinks the fine for parking illegally on campus should be $50, and on Robert's survey the first question asks about whether he thinks the fine should be $100. For both Evan and Robert, the second question asks how much each thinks the fine currently is. If Evan and Robert know nothing about the parking fines on campus, but each uses anchoring and adjustment to form his assessment, then, all else equal, you would expect:

Robert's estimate of the current fine to be higher than Evan's.

If a monopolist could perfectly price-discriminate:

The marginal revenue curve and the demand curve would coincide.

Refer to the accompanying figure. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

They would lower their prices because at $45 there would be excess supply.

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. The maximum number of dresses that Becky can make in a day is represented by point:

W

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. Of the labeled points, only ______ are attainable.

W, X, Y, Z, V, and T

According to the textbook, expensive advertising campaigns are:

a credible signal of product quality.

A strategy that limits defection in a repeated prisoner's dilemma game is

a tit-for-tat strategy.

If a nation can produce a more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers

absolute

Traditional economic models assume that people care about:

absolute consumption.

A risk-neutral individual will:

accept only gambles with an expected value of zero or greater.

Better information about consumers' reservation prices generally leads to:

acquisition of goods by consumers who are willing to pay the highest price.

The pattern in which insurance is purchased more frequently by those who are the most costly for companies to insure is referred to as:

adverse selection.

In traditional economic models, homo economicus is assumed to be all of the following EXCEPT:

altruistic.

According to the textbook, social norms:

can help curtail positional arms races.

An individual has an absolute advantage in producing pizzas if that individual

can produce more pizzas in a given amount of time than anyone else.

Psychological incentives:

can serve as commitment devices.

Emotions like guilt and sympathy:

can solve commitment problems.

A ______ describes the possible moves in a game in sequence and lists the payoffs to each possible combination of moves.

decision tree

In tit-for-tat, if your partner ______ in your first interaction, then you will ______ in your next interaction.

defects; defect

In traditional economic models, people:

do not care about how their consumption compares to the consumption of others.

Economics is best defined as the study of

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

In traditional economic models, which of the following does NOT describe homo economicus

impulsive.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n)

inferior good.

If the demand curve for bologna shifts to the right as income falls then bologna is a(n)

inferior good.

If an entity is fungible, then its individual units are:

interchangeable.

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as

loss aversion.

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

low

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a:

production possibilities curve.

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales.

The marginal cost of collecting information:

rises as more information is collected

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

According to the availability heuristic, the more easily we can recall examples of an event:

the more likely we judge the event to be.

A payoff matrix shows:

the payoffs for each possible combination of strategies.

When a market is in equilibrium

there is neither excess demand nor excess supply.

When people use anchoring and adjustment to estimate something, the adjustment they make when they receive new information is typically:

too small.

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

total revenue always rises; total revenue could rise, fall, or remain unchanged Correct

The _______ is a game in which the first player has the power to confront the second player with a take-it-or-leave-it offer.

ultimatum bargaining game

Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______

unattainable; attainable

According to economists, the satisfaction people get from their consumption activities is called:

utility.

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below When Erie Textiles operates with a filter, the total gain (in thousands of dollars) by all three parties is ______.

$510

Suppose a monopolist faces the market demand curve shown below. What's the highest price this monopolist can charge if wants to sell 4 units per week?

$6

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity Price 1 $10 2 $9 3 $8 4 $7 5 $6 6 $5 7 $4 8 $3 The marginal revenue of the third unit of output is:

$6.

Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______

$6; 4

Refer to the accompanying table below. The marginal cost of the 4th unit of activity is Units of Activity Total Cost Total Benefit 0 $0 $0 1 $2 $12 2 $6 $22 3 $12 $30 4 $20 $36 5 $30 $40 6 $42 $42 7 $56 $43

$8

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to NOT operate a drive-through window.

$9,000

Suppose Chris is offered the following gamble: with probability 0.1 he will win $90, with probability 0.4 he will win $50, and with probability 0.5 he will lose $60. The expected value of this gamble is ______.

-$1

Toby's current marginal utility from consuming peanuts is 100 utils per ounce and his marginal utility from consuming cashews is 200 utils per ounce. If peanuts cost 10 cents per ounce and cashews cost 25 cents per ounce, is Toby maximizing his total utility from the kinds of nuts?

1. 1000, peanuts 2. 800, cashews 3. is not; not equal to

Martha's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Martha maximizing her total utility from the two beverages?

1. 300 utils spent on orange juice 2. 250 utils spent on coffee 3. is not; not equal to

Susan can pick 4 pounds of coffee in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee in an hour or gather 4 pounds of nuts. Each works 6 hours per day.

1. 36 pounds 2. 36 pounds 3. tom 4. 34 pounds 5. Susan 6. 32 pounds 7. Yes 8.Coffee Nuts Tom 0 pounds 24 poundsSusan 20 pounds 2 pounds 9. attainable and efficient 10. attainable and efficient

Susan can pick 4 pounds of coffee in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee in an hour or gather 4 pounds of nuts. Each works 6 hours per day. Assume that Tom and Susan specialize according to their comparative advantage to produce coffee and nuts.a. Suppose that Susan and Tom could buy or sell coffee and nuts in the world market at a price of $2 per pound for coffee and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all they produce (Tom's earnings plus Susan's earnings)?$ __ per day? (1)b. At the prices just described, what is the maximum amount of coffee Susan and Tom could buy in the world market with the income they earned? The maximum amount of nuts?Maximum amount of coffee that could be bought:__ pounds. (2)Maximum amount of nuts that could be bought: __ pounds. (3)Using the world market and the prices described above, would it be possible for Susan and Tom to consume 40 pounds of nuts and 8 pounds of coffee each day? (4)

1. 96 2. 48 pounds 3. 48 pounds 4. Yes

1. Why do blackberries in public parks get picked before they're completely ripe? 2. In which case will the age of harvested trees be greater: Trees grown on private land controlled by a lumber company, or trees grown on easily accessible public land?

1. Because all berries will be picked and eaten as soon as they are ripe enough so those that wait wind up with no berries at all. 2. Trees grown on private land, because the tree owners know they will benefit by allowing to the trees to mature more fully

1. Why might an appliance retailer hammer dents into the sides of its stoves and refrigerators? 2. What pricing practice is explained by the same logic as the appliance seller's scratch-n-dent sale?

1. Because doing so is an effective way of offering discounts to only the most highly price-sensitive customers. 2. Discounts for product buyers who mail in rebate coupons

For the demand curve shown, find the total amount of consumer surplus that results in the gasoline market if gasoline sells for $2 per gallon.

320,000

Carlos is risk-neutral and has an ancient farmhouse with great character for sale in Slaterville Springs. His reservation price for the house is $130,000. The only possible local buyer is Whitney, whose reservation price for the house is $150,000. The only other houses on the market are modern ranch houses that sell for $125,000, which is exactly equal to each potential buyer's reservation price for such a house. Suppose that if Carlos does not hire a realtor, Whitney will learn from her neighbor that Carlos's house is for sale and will buy it for $140,000. However, if Carlos hires a realtor, he knows that the realtor will put him in touch with an enthusiast for old farmhouses who is willing to pay up to $300,000 for the house. Carlos also knows that if he and this person negotiate, they will agree on a price of $250,000. If realtors charge a commission of 5 percent of the selling price and all realtors have opportunity costs of $2,000 for negotiating a sale, will Carlos hire a realtor?

1. Yes 2. 20,000 3. 168,000

For the demand curve shown, find the total amount of consumer surplus that results in the gasoline market if gasoline sells for $8 per gallon.

15,000

Refer to the accompanying table. Corey's opportunity cost of delivering of a pizza is making. (chart on 38)

2 pizzas.

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

2.50

For the demand curve shown, find the total amount of consumer surplus that results in the gasoline market if gasoline sells for $12 per gallon.

20,000

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pies.

Refer to the accompanying table. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. (chart number 34)

Martha; Julia

You and your friend Joe have identical tastes. At 2 p.m., you go to the Ticketmaster outlet and buy a $30 nonrefundable ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game cost only $25 because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4 p.m., an unexpected snowstorm begins, making the prospect of the drive to Syracuse much less attractive than before (but ensuring the availability of good seats.) If both you and Joe are rational, is one of you more likely to attend the game than the other?

You are more likely to go to the game.

An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:

anchoring and adjustment.

Start-up costs:

are the one-time costs incurred when beginning the production of a new product.

A positional externality:

arises in situations in which rewards depend on relative performance.

Any combination of goods that can be produced with currently available resources is an

attainable point.

Information about the quality of a product is

both beneficial to have and costly to obtain, and therefore subject to economic principles.

According to the accompanying table, Julia has the absolute advantage in making: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia. 50 minutes 60 minutes

both pies and cakes.

The present aim standard of rationality accommodates a much _______ range of observed behavior than traditional economic models, but has been criticized because the model is too _______.

broader; flexible

To understand how the price of a good is determined in a free market, one must account for the desires of

buyers and sellers.

Suppose Paul just saw a car accident while driving home from work. According to the availability heuristic, this is likely to make Paul think that:

car accidents are more common than they really are.

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n):

cartel.

OPEC is an example of a:

cartel.

If a country's economic decisions are made by an individual or small number of individuals, then it has a

centralized economy.

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

Homo economicus is all of the following EXCEPT:

cognitively naive

When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a:

commitment problem.

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase. Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports. If the subscription price of Consumer Reports increases, then the impact of this could be portrayed by the marginal:

cost curve shifting from MC1 to MC0.

A demand curve is ______ sloping because ______

downward; fewer people are willing to buy an item at higher prices

According to the textbook, the most important and enduring source of market power is:

economies of scale.

Suppose the market for milk is perfectly competitive, and the equilibrium price of milk is $6 per gallon. If a firm that produces milk increases its output by 1 gallon, then its marginal revenue will be:

equal to $6.

The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is

establishing the optimal size of the tax.

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity.

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve.

The marginal benefit of additional information:

falls as more information is collected.

In traditional economic models, homo economicus refers to a decision maker who:

is narrowly self-interested, well-informed, highly disciplined, and cognitively capable enough to solve optimization problems.

Both a perfectly competitive firm and a monopolist find that:

it is best to expand production until the benefit and the cost of the last unit produced are equal.

Rules of thumb that reduce computation costs are known as:

judgmental and decision heuristics.

The buyer's reservation price for a particular good or service is the

largest price the buyer would be willing to pay for it.

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price.

Refer to the accompanying table. According to the table, Corey has the absolute advantage in Pizzas Made Per Hr. Pizzas Delivered Per Hr Corey 12 6 Pat 10 15

making pizza.

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

The most efficient distribution of pollution abatement is such that the:

marginal cost of abatement is the same across all polluters.

A monopoly that results from economies of scale is called a(n):

natural monopoly.

On a graph of a production possibilities curve, an inefficient point is

necessarily an attainable point.

If the demand for a good decreases as income decreases, then the good is a(n

normal good.

If the demand for steak increases as income increases, then steak is a(n)

normal good.

The essential cause of the tragedy of the commons is the fact that:

one person's use of a commonly held resource imposes an external cost on others.

When the government imposes a tax on a good, total economic surplus will

only increase if the good entails a negative externality.

Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town. The most likely reason for this is that:

people who buy gas at freeway exit stations tend to have higher search costs.

The free-rider problem occurs when:

people who do not pay for a good or service cannot be excluded from enjoying it.

A benefit of an activity received by people not participating in the activity is called a(n):

positive externality.

The rule of thumb according to which people are more likely to assume something belongs to a given category if it shares many characteristics with the stereotypical members of that category is the:

representative heuristic.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:

reservation price.

The decision-making strategy that aims for adequate results because optimal results may necessitate excessive expenditure of resources is known as:

satisficing.

In the market for used cars, the lemons model predicts that

sellers are more likely to sell low-quality cars than high-quality cars.

If sellers have more information about the quality of goods than do buyers, then:

sellers of better-than-average goods will have difficulty getting their asking price.

Why do price discrimination and the existence of slightly different variants of the same product tend to go hand in hand? By introducing slightly different variants of the product, firms that price discriminate are able to

separate buyers based on their willingness to pay.

In order to achieve the socially optimal level of output, goods that entail negative externalities should be:

taxed.

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______

that choices must be made; how to make good choices

The relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus is known as:

the Weber-Fechner law.

When a market is not in equilibrium:

the economic motives of sellers and buyers will move the market to its equilibrium.

Dean should play golf instead of preparing for tomorrow's exam in economics if:

the economic surplus from playing golf is greater than the economic surplus from studying.

The ultimatum bargaining game is a game in which:

the first player confronts the second player with a take-it-or-leave-it offer.

The Weber-Fechner law is the relationship according to which the perceived change in any stimulus:

varies according to the size of the change measured as a proportion of the original stimulus.

Growing rice requires extensive irrigation in California. Economists consider water to be a ______ for rice farmers in California

want

Higher education is a ______ and assigned textbooks are ______

want; wants

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

Loss aversion is the tendency to:

weigh losses more heavily than gains.