E/M Final Study Guide

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Which of the following best explains why cartel agreements are hard to maintain?

Each firm in the cartel has the incentive to increase production and earn higher profits

Private goods can be provided by competitive markets because they are:

Excludable, providing an incentive to pay for and thus produce these goods

the marginal value of resources is high, and more resources need to flow into the industry

If an industry is highly profitable, it is an indication that:

the invisible hand does not work perfectly

If markets are not competitive:

regulation

If the government were to limit the release of air pollution produced by a steel mill to 50 ppm, the policy would be considered a:

zero

In a competitive equilibrium, firms earn _______ economic profits.

ensure that labor and capital move across industries to optimally balance production

In a competitive industry, entry and exit decisions:

the lure of above normal profits may give a firm an incentive to develop new products and technologies

In a monopoly market:

perfectly elastic

In competitive markets, the demand curve faced by the individual firm is:

A competitive automobile company buys its steel from a competitive steel producer

In which of the following scenarios will automobile prices be the lowest?

Loyalty programs, such as frequent flyer plans, tend to:

Increase prices

Workers in many foreign countries such as India are paid much less for work that is very similar to the work done by workers in the US. One reason for this is that:

India is a less productive economy

Marginal costs

Invisible hand property 1 says that without any single person in charge, free markets will result in equal _____ and price will be set to it

Club goods are likely to have _____ fixed costs and ______ marginal costs

Large; Small

Government policy toward cartels and oligopolies typically leads to:

Lower quality, lower output, higher prices

a speculative market designed so that prices can be interpreted as probabilities and used to make predictions

Prediction market

A free rider is a person who:

Recieves the benefits of a good but avoids paying for it.

The firm is not making a profit--it is making a loss of $220

Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?

8

Refer to the table. How many barrels of oil should the company produce to maximize profit?

$224

Refer to the table. The maximum profit available to the company is:

36

Refer to the table. What is the marginal cost of producing the seventh barrel of oil?

50

Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?

raise the price of both foreign and domestic automobiles

Restricting the importation of foreign automobiles will:

A tragedy of the commons often results from _____ and _____.

Rivalry; nonexcludability

The US uses ______ to prevent businesses from engaging in anticompetitive practices

antitrust laws

how to arrange our scarce resources to satisfy as many of our wants as possible

The great economic problem is:

the right mix of resources will be found in each industry, maximizing the total value of production

The invisible hand property 2 maintains that:

consumers benefit while some suppliers are harmed

Which of the following statements is TRUE about the removal of trade barriers?

Monopolies create incentives for additional research and development

Which of the following statements is true?

Trade makes people better off when preferences differ

Which of the following statements regarding trade is true?

international producers and domestic consumers

Who does protectionism hurt?

A forced rider is someone who:

pays a share of the costs of a public good but does not enjoy the benefits

creative destruction

"[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization . . . competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called:

Refer to the table. What is the marginal product of labor for the fifth worker?

$180

Refer to the table. If the market wage for each worker is $100 per day, how many workers will the company hire?

6

Refer to the table. If the market wage for each worker rose from $100 to $125 per day, how many workers would the firm hire?

6

Fishermen who go deep sea crab fishing (e.g., The Deadliest Catch) earn:

A compensating wage differential

Tying

A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good. (Printer and Ink)

the invisible hand

A free market can naturally allocate production across firms in an industry to minimize total costs due to:

a cost paid by the consumer or the producer trading in the market

A private cost is:

Which of the following is a list of common resources only?

A public beach, soup kitchen meals, public roads.

tax on imports

A tariff is a:

Which of the following solutions allows for an efficient allocation of a public good?

Advertising

is a cost paid by people other than the producer or consumer trading in the market.

An external cost:

innovation

Apple's iPod provides an example that market power may arise from:

private markets will undersupply college classes

Because there are external benefits from higher education:

A trade quota on imports:

Benefits domestic producers and hurts domestic consumers

the requirement that products be bought together in a bundle or package

Bundled

How might unions benefit workers?

By demanding improved labor management relations and improving worker safety and work conditions

they lack the flexibility to allow buyers and sellers to choose the least costly methods to alter their behavior

Command and control methods do not always produce the most efficient outcomes because:

P>AC

Competitive firms want to enter industries in which:

Refer to the figure. A cartel facing the market in this diagram would try to cayse industry output to:

Decrease from 6 to 3

If people with unusual first names are more likely to commit a crome than people with more popular names and employers use this information to avoid hiring people with unusual first names, they are practicing:

Discrimination

The tragedy of the commons is more likely to apply to:

Forests, fish, and elephants

A firm is willing to hire a worker when the marginal product of labor is:

Greater than the wage

$1,000

If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit?

$0

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is:

I and II only

Market solutions to eternality problems work when: I. Property rights are easily identifiable. II. Transaction costs are relatively low. III. The market quantity is above the efficient quantity.

Both public goods and common resources are:

Nonexcludable

People have little incentive to produce a public good because:

Of the free rider problem

The tragedy of the commons refers to the:

Overuse of a rival but nonexcludable good

Refer to the table. Which of the following statements is true?

Section 3 includes cable TV

increases; decreases

Studies show that more openness to trade ______ income and _______ child labor.

less than the marginal cost of production on farm 2

Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is:

both destroy jobs in the short run but increase the standard of living in the long run

Technology and trade:

trade quota

The US government restricting the quantity of sugar imports into the country is an example of a(n):

above normal profits will be eliminated by the entry of new firms into the industry

The elimination principle illustrates the idea that:

above normal profits are temporary

The elimination principle, a general feature of competitive markets, tells us that:

An example of a common resource is:

The environment

higher is the monopolist's price markup

The more inelastic the demand curve for a product is, the:

expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

The oil industry is an increasing cost industry because:

market power

The power to raise price above marginal cost without fear that other firms will enter the market is:

Aside from your skills and how hard you work, what does your marginal product of labor reflect?

The productivity of everyone else in your economy

Coase theorem

The proposition that private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the:

Which of the following statements is true?

The rising returns to human capital labor market issues may be attributable to the growing importance of advanced technology

perfect price discrimination

The situation that exists when each customer is charged his maximum willingness to pay

Select the true statement regarding profits for monopolistically competitive firms

They can make short run profits, and zero economic profits in the long run

at the market price

To maximize profits, a firm in a highly competitive industry should set its price:

Compared to private goods, the free market would _______ public goods.

Underproduce

$384

Use the figure. At a price of $46, the firm earns profit of:

In which case below is there the potential for the free rider problem?

Voluntary payments for a smog reduction program

Prices of the industry's units do not change as the industry expands.

What condition is necessary in a constant cost industry?

supply increases and the price declines, which in tirn lowers profits

What happens in a competitive industry when more firms enter?

In a free market, the total costs of producing output are minimized because each firm produces up to the point where P=MC

What is the invisible hand property 1?

MR=MC

What is the profit maximization condition for a monopolist?

A natural monopoly

When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is:

Will be lower, and monopoly price will be higher

When comparing a monopoly with a competitive industry, monopoly quantity:

secondhand smoke

Which is an example of an external cost?

trade can result in a net job gain in the whole country

Which of the following arguments is valid in the economics of international trade?

P>MR

Which of the following is always true for monopolies?

some consumers are willing to pay more than the monopolist's marginal cost of production, but the monopolist does not produce these units

Which of the following represents the nature of a monopolists deadweight loss?

In general, wages are determined:

by the skills of the worker and the productivity of the entire economy

A person ______ be cheaply prevented from using national defense, a(n) ______ good.

cannot; nonexcludable

Which of the following makes a cartel short lived?

cheating

the reduction in economic surplus resulting from a market not being in competitive equilibrium

deadweight loss

Customer based discrimination is weakened by:

economic growth

contracts to buy or sell at a specific date in the future at a price specified today

futures

A cartel is a:

group of suppliers that tries to act as if they were a monopoly

A dominant strategy is a strategy that:

has a higher payoff than any other strategy, no matter what the other player does.

some industries deserve protection because they provide spillover effects to the rest of the economy

industries argument

Oligopolies tend to set prices:

lower than monopolies but higher than competitive markets.

Firms operating in a cartel have a large incentive to cheat on the agreement by:

lowering the prices and increasing production

Cartels for natural resources tend to be ______ than cartels for manufactured goods.

more successful

Suppose that being an accountant and being a musician require similar amounts of skills, education, training, and so on. If accountants are paid higher wages than musicians, the supply of:

musicians would decrease and the supply of accountants would increase

a maximum price allowed by law

price ceiling

a minimum price for a good or service

price floor

a price ceiling on rental housing

rent control

The market supply curve for labor:

slopes up

An involvement in risky business transactions in an effort to make a quick or large profit.

speculation

The individual supply curve for labor:

starts sloping up and then bends back as wages rise

Game theory is the study of:

strategic decision making

price discrimination

the business practice of selling the same good at different prices to different customers

Arbitrage

the purchase of securities in one market for immediate resale in another to profit from a price discrepancy

The pridoner's dilemma refers to a situation in which:

the pursuit of individual interests leads to an outcome that is in the best interest of no one

Discrimination is:

using information about group averages to make conclusions about individuals

Statistical discrimination is:

using information about group averages to make conclusions about individuals


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