final principle of mic. 3
5) Resources are allocated efficiently when
A) the market produces what people want.
27) In a monopoly, the market demand curve is
A) the same as the demand curve facing the firm.
39) Refer to Figure 14.7. Firms form a cartel that maximizes profits. The profits are
B) $1,080.
37) Refer to Figure 14.7. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________.
B) 12,000; $.40
11) In perfect competition, the condition that ensures that the right things are produced is
B) P = MC.
15) If society will gain by producing more X, then it must be the case that currently
B) PX > MCX
21) Refer to Figure 13.1. The demand curve facing an individual producer of wheat is most likely represented by
B) Panel B.
61) Air pollution generated by a steel mill is an example of
B) a negative production externality.
65) A tax whose burden, expressed as a percentage of income, increases as income increases is
B) a progressive tax.
18) In an imperfectly competitive industry
B) a single firm has some control over the price of its output.
58) Second hand cigarette smoke is an example of a(n) ________.
B) externality
20) Monopolies, oligopolies, and monopolistic competitive industries all
B) have market power.
54) Product differentiation that makes the product better for some consumers and worse for others is
C) horizontal differentiation.
44) Tacit collusion
C) is more likely to be successful in increasing industry profits when there are a few, similar firms in the industry.
51) The case for advertising includes the fact that
C) it provides consumers with valuable information about product availability, quality, and price.
46) The restaurant industry is an example of a(n) ________ industry.
C) monopolistically competitive
26) An important distinction between perfect competition and monopoly is that in
C) monopoly the firm faces the market demand curve.
56) The demand facing a monopolistically competitive firm is ________ a monopolistic firm and ________ a perfectly competitive firm.
C) more elastic than; less elastic than
33) In general, oligopolists compete
C) on price, R&D, and marketing and advertising.
6) Suppose a policy change will generate $180,000 of benefits for low-income families and $150,000 of costs for high-income and middle-class families. This change can best be described as
C) potentially efficient.
69) Refer to Table 19.2. The tax rate structure in this example is
C) regressive.
52) In order to achieve market power, monopolistically competitive firms use ________.
C) strategic behavior
9) A voluntary exchange between Mike (the purchaser) and Wayne (the seller) occurs because
C) they both gain from the transaction.
2) Which of the following questions is NOT answered by general equilibrium analysis?
D) What outcome is most desirable for the whole society?
36) The oligopolistic model in which firms produce exactly the same results as would exist if a monopolist controlled the entire industry is called the ________ model.
D) collusion
45) A weakness of the Cournot model is that
D) it assumes that firms do not anticipate the moves of their rivals.
17) A firm must be able to ________ competition if it is to exercise control over the price of its product.
D) limit
31) The airline industry is an example of a(n) ________ industry.
D) oligopolistic
35) A(n) ________ industry is characterized by strategic behavior.
D) oligopolistic
41) In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry was a monopoly if
D) the oligopolists collude.
7) An activity that makes some people better off and nobody worse off is a
D) voluntary exchange.
60) An externality is
A) a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.
70) Refer to Table 19.3. The tax rate structure in this example is
A) proportional.
63) A tax whose burden, expressed as a percentage of income, falls as income increases is a
A) regressive tax.
4) Efficiency occurs when
A) the economy is producing what people want at least possible cost.
68) The largest portion of federal government revenues comes from ________.
A) the individual income tax
30) When a monopolist sells two units of output its total revenue is $600. When a monopolist sells three units of output its total revenue is $630. When the monopolist sells three units of output, the price per unit is
A) $210.
38) Refer to Figure 14.7. Six chewing gum producing firms form a cartel. The firms have identical cost structures. If the cartel produces the profit maximizing output level, each firm should produce
A) 2,000 packs of chewing gum.
22) Refer to Figure 13.1. The demand curve facing an electric company is most likely represented by
A) Panel A.
23) Refer to Figure 13.1. The demand curve facing Microsoft is most likely represented by
A) Panel A.
43) ________ occurs when price- and quantity-fixing agreements among producers are implicit.
A) Tacit collusion
62) A well-maintained house and yard is an example of
A) a positive externality.
3) It is essential to establish specific criteria to judge the performance of any economic system. Two such criteria are
A) efficiency and equity.
57) The field of environmental economics is concerned with ________.
A) externalities
50) Monopolistic competition differs from perfect competition primarily because in
A) monopolistic competition, firms can differentiate their products.
42) You read that 25 firms that grow and export peanuts to the United States decide to form a cartel. The cartel aims to raise the price of peanuts and reduce output to increase profits for the peanut growers. You predict that this cartel will probably
A) not be successful because the number of firms is unmanageable and there are a number of good substitutes for peanuts.
28) For a monopoly, the marginal revenue curve has ________ point(s) in common with the firm's linear demand curve.
A) one
1) Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as
A) partial equilibrium analysis.
49) There is easy entry into the ________ and ________ industries.
A) perfectly competitive; monopolistically competitive
48) A(n) ________ industry does NOT have price as a decision variable.
A) perfectly competitively B) monopolistic C) monopolistically competitive D) oligopolistic
59) Vaccinations convey ________ to third parties.
A) positive externalities
8) If some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be
A) potentially efficient.
13) If at the current output of X the PX > MCX, then society gains by
A) producing more X.
67) The U.S. individual income tax is designed to be ________.
A) progressive
55) Product differentiation that makes the product better than a rival's product from everyone's perspective
B) is known as vertical differentiation.
10) A household will buy a good as long as the
B) marginal utility from its consumption is greater than or equal to its market price.
14) If at the current output of X the PX < MCX, then society gains by
B) producing less X.
66) The excise tax is ________.
B) regressive
19) Imperfect competition
B) results in less efficient market outcomes.
16) In imperfectly competitive markets,
B) some competition may exist in the markets.
47) A monopolistically competitive industry has all of the following characteristics EXCEPT:
B) strategic behavior.
25) For a monopolist to sell more units of output,
B) the price must be reduced.
40) ________ is a group of firms colluding to make price and output decisions.
C) A cartel
24) Refer to Figure 13.1. The demand curve for insulin is most likely represented by
C) Panel C
64) A tax whose burden is the same proportion of income for all households is
C) a proportional tax.
32) In which of the four oligopolistic markets below is there considerable price competition?
C) airline industry
29) For a perfectly competitive firm, the marginal revenue curve has ________ point(s) in common with the firm's demand curve.
C) all
34) Oligopolists must ________ to their strategy in order to determine their optimal strategy.
C) both A and B are correct.
12) Under perfect competition the person that ends up with the marginal unit is the person that values it
C) exactly at its price.
53) In well-functioning markets, all of the following reflect the degree of product variety EXCEPT:
C) gains from network externalities.
