Economics Final Exam

What would cause union workers to have higher productivity than non-union workers?

- Union workers tend to stay longer at a given job, reducing the employer's costs for training and hiring. - Many unions also offer job training and apprenticeship programs that increase worker productivity. - Higher wages may elicit higher productivity May be more willing to accept new tech because: * The union workers believe that the union will negotiate to protect their jobs and wages, whereas non-union workers may be more concerned that the new technology will replace their jobs.

Which of the following contributes to the wage gap between African Americans and whites?

- discrimination in job opportunities - discrimination in the housing market - differences in educational attainment Discriminatory impulses can exist at: between workers, managerial level and at the customer level

In what ways does racial discrimination result in lower levels of education for African American workers?

- in the past, when African Americans were effectively barred from many high-paying jobs, obtaining additional education could have seemed somewhat pointless, because the educational degrees would not pay off - discrimination in housing markets causes African American families to live clustered together in certain poorer neighborhoods with lower quality schools - a legacy of past discrimination may contribute to an attitude that African Americans will have a difficult time succeeding in academic subjects

The information below sets out the estimated market shares for the cellular phone manufacturing market are given in the table below. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 15% Samsung 6% Sanyo 4% Siemens 8% Sony Ericsson 11% &8 more firms With 1% each

1,868 [Samsung + Sanyo = 10%) Nokia(36^2) + Fujitsu&Kyocera 2(3^2) + LG (6^2) + Motorola (15^2) + Siemens (8^2) + Sony Ericsson (11^2) + Samsung/Sanyo (10^2) + Other firms 8(1^2)

Using the Herfindahl-Hirschman Index, what is the maximum value that can be reached?

10,000

If Samsung were to acquire Sanyo, the four-firm concentration ratio would be Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 14% &8 more firms With 1% each

76 [Samsung + Sanyo = 10%] (36 + 16 + 14 + 10)

In a market with the below noted market segmentation, what would the four firm market concentration ratio be? Distribution of sales: 30%, 3%, 10%, 5%, 15%, 2%, 35%

90 (30+35+15+10)

Which of the following is not an example of a worker who receives a positive outcome because of labor unionization?

A construction worker receives severance pay for being laid off. True: - A high school graduate whose workplace is not unionized but whose industry is 25% unionized is paid 5% more than similar workers in less unionized industries. - A railroad union worker receives 2 extra vacation days per year compared to non-union workers at the same railroad company. - A teacher who has joined the teacher's union in her district is given a 3% pay increase over other non-union teachers in the school district

Which of the following statements is true with regards to the labor market?

All of the other three answers True: - The labor market has demand and supply curves like other markets. - The demand for labor curve is a downward sloping function of the wage rate. - The market demand for labor is the horizontal sum of all firms' demands for labor.

In 1970, 41% of married women were in the labor force, but by 2015, according to the Bureau of Labor Statistics, 56.7% of married women were in the labor force. How has this effected family composition? Choose the answer below which best answers this question.

All the other three True: - Single parent house holds have increased. - Two earner house holds have increased. - High income dual earner incomes have increased. How have the changes in family structure contributed to the rise in income inequality across households in recent decades? - More high-earners are marrying other high-earners in recent decades and that tends to increase the proportion of high-earning households. - The percentage of single-parent families has increased over time and these households tend to be at the lower end of the income distribution. - There has been an increase in high-earning two-career households near the top end of the income distribution.

If a society decides to reduce the level of economic inequality, which of the following sets of tools can it use?

All the tools in the other three answers True: - a tax imposed on the value of inheritances - trying to assure that a ladder of opportunity is widely available - redistribution from those with high incomes to those with low incomes

Estate tax

Americans are comfortable with inequality resulting from hard work, but less comfortable when it derives from inherited wealth. Estate tax: only impacts those who leave inheritances of > $5.43mil

Which of the following gives the government power to break up large firms into smaller ones, in certain cases?

Antitrust laws

What is the meaning of the phrase tragedy of the commons?

Because no one owns common resources, there is no incentive for individuals to protect or harvest them responsibly, leading to overharvesting. Examples to stop tragedy of commons in a lake: - harvest limits - shorter fishing seasons - fishing licenses

All of the following statements are true about the positive externalities of education, except:

Education has an excellent private rate of return for the individual but there are only two or three positive externalities of education. True: -The positive externalities that education produces can be difficult to measure. -Many nations have chosen to use taxpayer dollars to subsidize primary, secondary, and higher education. -Free public education is considered a situation where the estimated rates of return to society are worth the costs. Private rate of return on education: wages

pollution charge marginal cost

Firm can either pollute & pay or reduce the amount of pollution and paying the cost of abatement (upgrades) 1. The first 10 pounds would cost the firm $300 to abate (less than $1000) so the firm will choose to abate 2. The fourth 10 pounds would cost $1500 to abate, which is more costly than paying the tax. As a result, the firm decides to reduce pollutants by 30 pounds because the marginal cost of reducing pollution by this amount is less than the pollution tax ($1000 tax = firm has no incentive to reduce pollution by > 30 pounds)

According to the FTC's historical guidelines for mergers, would the FTC approve a merger between two firms that would result in an HHI of 2,625 after the merger?

No, the FTC would probably challenge the merger. <1,000; probably fine 1000-1800 case-by-case decision >1800 FTC would probably challenge it

Government passed the __________ to limit the power of large, consolidated firms that were run by trustees as if they were a single firm.

Sherman Act in 1890

______________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.

Social costs

The government in the USA has numerous programs to assist the poor. A goal of all of them is to provide assistance, but to also discourage the poor from remaining on the assistance programs indefinitely. An antipoverty program which requires welfare recipients to work, which limits the time they can receive benefits is called what?

Temporary Assistance for Needy Families (TANF) How does the Earned Income Tax Credit (EITC) minimize the poverty trap? By phasing out the EITC slowly Of those enrolled in Medicaid in the United States, almost half are children.

All of the following statements about the research and experimentation (R&E) tax credit are true, except:

The R&E tax credit allows the government to have close scrutiny of specific research and development projects. True: - The R&E tax credit gives firms a reduction in taxes depending on how much research and development they do. - The R&E tax credit is thought to be a cost-effective policy for stimulating additional private sector investment. - Studies have found that each dollar of foregone tax revenue through the R&E tax credit causes firms to invest at least a dollar in R&D. * Cooperation between government-funded universities, academies, and the private sector can both spur product innovation and create whole new industries.

In the situation of a firm releasing pollutants during the production process, which negatively impacts the surrounding community, the firm is considered to be contributing to market failure. Why?

The costs associated with the pollution are not taken into account. Therefore, the market fails to achieve efficient output.

The effective tax rate an individual pays is a way the government (and the individual) understand the taxes paid. How is the effective tax rate calculated?

The effective income tax is total taxes paid divided by total income.

Price cap regulations are a market regulatory device governments utilize, where the top price a firm can charge is locked in for a defined period of time. All of the following is true except:

The government sets a price by looking at the firm's average costs and then adding a normal rate of profit. True: -The firm can make high profits by producing a higher quantity than expected at a lower costs. -The firm can make high profits by producing at lower costs. -The government sets a price level for a few years

Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. The government in an effort to create income fairness uses a device called a progressive tax system. Choose the answer below which best defines a progressive tax system.

The larger ones income the greater the tax rate. * high distribution can discourage work and entrepreneurship

In recent immigration movements, there has been a surge in immigrants over age 25 without a high school diploma. Given that most of these workers are drawn to restaurant, lawn care, and janitorial jobs, what is the impact to the labor supply curve for these industries in a perfectly competitive market?

The supply curve shifts to the right, increasing labor supply and decreasing wages (all else constant).

Wealth vs. income

Wealth - the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, the value of a home Income - flow of money received, often measured in a monthly or annual basis

All of the following statements are true about cost-plus regulation except:

With cost-plus regulation, the government sets the price level several years in advance. True: With cost-plus regulation, the government sets a price that can change over a period of time, like a year. With cost-plus regulation, the government determines a normal rate of profit for the firm's industry. With cost-plus regulation, the government takes into consideration the firm's average costs.

Which of the following situations is an example of a negative externality?

a neighbor playing loud music when you're trying to sleep Negative: a situation where a third party suffers from a market transaction by others Positive: a situation where a third-party benefits from a market transaction by others. additional external costs - additional costs incurred by third parties outside the production process when a unit of output is produced

Antipoverty programs that are set up so that the amount of government benefits will decline substantially as poor people earn more income typically create ________________.

a poverty trap; as a result, working provides little financial gain The poverty trap may be even stronger than what would be directly anticipated because _____. - single mothers in poverty would likely have to pay for childcare if they were to work full-time - some jobs may require professional attire or other dress codes that would increase a worker's expenses - transportation to and from a job creates an additional expense in time and money

Union members earn ________________ than non-union members, even after adjusting for factors such as ________________.

about 20% more; years of work experience and education level. Labor unions help unite workers into a group to negotiate with firms: collective bargaining If a firm doesn't agree to wage demands of a union: Union workers can go on strike demanding higher wages.

When one firm purchases another, it is called ________________.

an acquisition

When people are provided with public assistance with food, shelter, healthcare, income, and other necessities, such assistance may reduce their incentive to work whenever __________________.

assistance is reduced by a dollar for every dollar the person earns working

All of the following are factors that can cause the demand for high-skilled labor in the U.S. to rise relative to the demand for lower-skilled labor in the U.S., except:

benefits from increased productivity from new information and communications technologies have been especially great for lower-skilled workers * tech is replacing low-skilled workers True: - lower-skilled workers have to compete with a larger supply of similarly skilled workers around the globe - new technologies that have helped to encourage globalization - the rising impact of foreign trade in the U.S. economy

When a hypothetical company's R&D project is successful, then

competitors may find a way to adapt and copy the underlying idea without incurring R&D costs.

Government policy-makers often must decide how to balance the potential benefits of __________ against the potential benefits of __________.

corporate size; competition

Market-oriented environmental tools ______________ for firms to take the social costs of pollution into account and ______________ in reacting to these incentives.

create incentives; allow firms some flexibility

Economic inequality is perhaps most troubling when it is not the result of effort or talent but instead is determined by the circumstances under which a child grows up. Public policy may attempt to solve this issue by ___________________.

creating a "ladder of opportunity"

Currently, the approach to antitrust regulation involves

detailed analysis of specific markets and companies.

Ideally, a patent should cover a long enough period of time for the inventor to ____________, but that period should not be so long that it allows the inventor to ____________.

earn a hearty return; charge a high monopoly price permanently Downsides of patents: -Not every new idea can be protected with a patent or a copyright. -In fast-moving, high-technology industries, patents may be irrelevant by the time they're approved due to changing technology. -Patents may sometimes cover too much or be granted too easily.

In competitive settings, profits will lead firms to __________ and losses will lead firms __________, so the incentives for producing at low cost and coming up with new ways of pleasing customers are strong.

enter the market, to exit

Today, a common starting point is for US antitrust regulators to use statistical tools and real- world evidence to __________ faced by firms proposing a merger of their respective businesses.

estimate the demand and supply curves

In general economists refer to externalities as a case of market failure, because

externalities present a case where markets only consider some social costs

If a firm's efforts to be technologically innovative will create a positive externality, then that firm will likely

have less incentive to innovate to the extent that the whole of society desires.

If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and child care that a nonworking mother will not face, then

her economic gains from working will be even smaller.

A narrowly defined market will tend to make concentration appear __________, while a broadly defined market will tend to make it appear __________.

higher, smaller

When measuring _______________________, all households are ranked by income, from lowest to highest, and then divided into five groups with equal numbers of people.

income distribution by quintiles

Over the past few decades, the high-skilled earner's wage has __________________ relative to the low-skilled earner's wage.

increased

In the United States, women's earnings have generally _________________ since 1980, causing the gender wage gap to _________________.

increased; decrease

The marginal costs of reducing pollution are generally _____________. The marginal benefits of reducing pollution are generally ____________.

increasing; decreasing

Instead of defining a market and counting up total sales, what are antitrust regulators looking at today when determining whether to allow a merger or not?

industry competition

If a steel manufacturer considers the costs of labor and materials, as well as the broader costs of environmental injuries resulting from its manufacturing processes,

it is factoring in the social costs of the pollution it generates.

Why would a typical U.S. business fail to take the social costs of pollution into consideration during the development of their operating strategies?

it isn't required to pay any of the cost of cleaning up its pollution

The straight diagonal line in a Lorenz curve that reflects equal distribution of income among all members of a population is called the __________ .

line of perfect equality * Farther from the line = more inequality

Which of the following have historically been more willing to sacrifice their environmental quality for some additional economic output?

low incomes and command economies

One challenge that a firm is faced with when unionization occurs is labor productivity. If worker unionization does not increase productivity, then the higher union wage will cause ____________ profits for the firm.

lower

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the ______________ of reducing the emissions is ______________.

marginal cost; less than the tax

The main categories of market-oriented approaches to pollution control are

marketable permits; better-defined property rights; pollution charges. marketable permits - allow firms to emit a certain amount of pollution; can be sold if a firm produces less pollution than allowed property rights - the legal rights of ownership on which others are not allowed to infringe without paying compensation pollution charges - pollution tax

A requirement for dealers to sell for at least a certain minimum price is called a ______________.

min. resale price maintenance agreement Other restrictive practices: exclusive dealing - a dealer only sells one company's products predatory pricing - an existing firm reduces prices very low to drive out competition and then increases prices once competition is eliminated. tying sales - When a customer is required to buy one product only if they also purchase a second product bundling - a firm sells two+ products as one, attracting customers

Some studies done by economists have found that the original inventor receives ________________________ from innovations, while other businesses and new product users receive the rest of the benefit.

one-third to one-half of the total economic benefits When a firm invests in new technology, the private benefits that the firm receives are only a portion of the overall social benefits.

Regulatory capture occurs when firms being regulated end up _______________ setting the regulations they will follow.

playing a large role in - sending lobbyists - sending appointees to regulatory board - providing info on which the board makes decisions - offering well-paid jobs to people leaving the board

For a positive externality, ____________ than the social benefits.

private benefits of an action are less But when a company allocates funds in new technology and innovations, then: positive externalities arise

Most immigrants pay all of the following taxes except:

property taxes New trends in immigration to the United States show that most immigration is coming from: the Americas

Which of the following is an example of economic output that can injure the environment?

radio-active waste leaking into a river, and all of the above Other: paper mill discharging raw chemical waste into a river gold mine discharging arsenic into a natural lake it's using for a tailings pond excessive clear cutting of wood resources by logging companies

Splitting up a the natural monopoly held by a public utility that produces and provides electricity would

raise the average cost of production and force consumers to pay more.

The group of government programs that provide assistance to the poor and the near-poor is synonymous with which of the following?

safety net

Conventional rules for environmental protection in the United States have focused on ______________ pollutant could be discharged.

setting limits for how much of each

In the U.S., employee affiliation in organized labor unions has been

steadily declining for 50 years - Workplace protection laws have given workers more power * Union membership in gov. jobs have increased modestly during the last few decades, on the contrary The share of the working population belonging to unions in other countries is very high compared with the share in the United States.

The table below shows the quantity demanded and supplied in the labor market for economics professors at the M University, where all the professors belong to a union. If the union has enough negotiating power to raise the annual salary by $20,000 more than a non- unionized university would be willing to pay, then there will be excess ________________ of labor of ________________ economics professors. Annual Salary Q(workers) demanded Q (workers) supplied $50000 95 20 $60000 80 30 $70000 65 40 $80000 50 50 $90000 35 60 $100000 20 70

supply, 50

Which of the following is not an example of a public policy goal or initiative that helps to build a ladder of opportunity in the U.S.?

tax benefits for charitable donations True: - widespread college loans and grants for those in financial need - improved public schools - opportunities for job training and acquiring new skills

There have been two especially important shifts in how markets are defined in recent decades: one involves __________ and the other involves __________.

technology, globailization

What is intellectual property?

the body of law that includes patents, trademarks, copyrights, and trade secret law

A manufacturing firm has a marketable permit that currently allows for 600 tons of emissions. However, the marketable permit is shrinkable and the firm will only be allowed 300 tons of emissions next year. The manufacturing firm projects that it's actual emissions next year will be 200 tons.

the firm can sell a marketable permit allowing for 100 tons

According to research published by the US Census Bureau,

the income distribution between poor and rich has widened over time (Top 20% of Americans own 50% of wealth)

If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?

the new firm will produce more efficiently and all of the above: - the newly created firm is able to take advantage of economies of scale - the newly created firm could eliminate duplicate investments - consumers can purchase better quality goods or services at a lower price

The income threshold that determines whether someone is in poverty or not is best known as:

the poverty line * World Bank has two poverty lines $1.25/day & $2/day Poverty rates for females, Hispanics, and African Americans are much higher than for white males.

When many people decide to act as free riders, then:

the public good may never be provided. public good - a good that is nonexcludable (costly or impossible to exclude someone from using a good) and non-rival (consumption does not decrease the amount of the good left for others), and is difficult for market producers to sell to individual consumers.

A pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits.

Command-and-control regulations can be very effective in specific, targeted situations, but they have three shortcomings. Which of the following is not a shortcoming of command-and-control regulations?

they offer great flexibility on how to reduce pollution True: they offer limited flexibility on where and how to reduce pollution they often have politically-motivated loopholes they provide no incentive for going beyond the limits they set command-and-control regulation - an approach to environmental regulation which specifies allowable quantities of pollution and/or details which pollution-control technologies must be used is called a

In the United States poverty rates among African-Americans are high and most people living below the poverty line are __________.

white * although white poverty is less common, there are more whites in America so the # of poor whites is more than the # of poor African Americans

Which of the following is not a likely reason for the decline in union membership in the U.S.?

workplace protection laws now in place are not effective at protecting worker's rights True: - the force of globalization and increased competition from foreign producers - U.S. laws are less friendly to the formation of unions than such laws in other countries - a shift from manufacturing to service industries