Micro exam 3
midpoint method
(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]
binding price ceiling
A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.
binding price floor
A minimum legal price that is set above the existing equilibrium price. Since the market equilibrium price is lower than the price floor, the floor restricts trade and is said to be binding.
perfectly elastic demand curve
a horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price, selling nearly identical products at nearly identical prices
perfectly inelastic demand curve
a vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value equals zero
assume that Zimbabwe and Portugal can switch between producing toothbrushes and hairbrushes at a constant rate. which of the following combinations of toothbrushes and hairbrushes could Zimbabwe not produce in 120 hours a) 5 toothbrushes and 11 hairbrushes b) 10 toothbrushes and 9 hairbrushes c) 20 toothbrushes and 6 hairbrushes d) 30 toothbrushes and 3 hairbrushes
a) 5 toothbrushes and 11 hairbrushes
an economic model is a) a simplified representation of some aspect of the economy b) a computer program that predicts the future of the economy c) a mechanical machine that replicates the functioning of the economy d) a fully detailed realistic representation of the economy
a) a simplified representation of some aspect of the economy
the fundamental source of monopoly power is a) barriers to entry b) profit c) increasing average total cost d) a product without close substitutes
a) barrier to entry
the circular flow diagram illustrates that, in markets for the factors of production a) households are sellers and firms are buyers b) households are buyers and firms are sellers c) both sellers d) both buyers
a) households are sellers and firms are buyers
assume that Celia and John can switch between producing bread and wine at a constant rate. assume that Celia and John each work 24 hours what happens to total production if instead of each person spending 12 hours producing each good, Celia spends 18 hours producing wine and 6 producing bread and John spends 6 hours producing wine and 18 producing bread a) the total production of bread and wine each rise b) the total production of bread rises and wine falls c) the total production of bread falls and wine rises d) the total production of bread and wine each fall
a) the total production of bread and wine each rise
a monopolist can sell 300 units of output for $50 per unit. Alternatively it can sell 301 units of output for 49.60 per unit marginal revenue of 301 is a) -99.60 b) -70.40 c) -.40 d) 70.40
b) -70.40
consider morays decision to go to college if she goes to college she will spend 24,000 on tuition 12,000 room and board, and 1,900 on books. if she does not go she will earn 16,000 working and spend 8,000. morays cost of college is a) 37,900 b) 45,900 c) 53,900 d) 61,900
b) 45,900
Monopoly firms face a) downward-sloping demand curves so they can sell as much output as they desire at the market price b) downward-sloping demand curves so they can sell only the specific price-quantity combinations that lie on the demand curve c) horizontal demand curves so they sell as much output as they desire at the market price d) horizontal demand curves so they can sell only a limited quantity of output at each price
b) downward-sloping demand curves so they can sell only the specific price-quantity combinations that lie on the demand curve
a point inside the production possibilities frontier is a) efficient but not feasible b) feasible but not efficient c) both d) neither
b) feasible but not efficient
the deadweight loss associated with a monopoly occurs because the monopolist a) maximizes profits b) produces an output level less than the socially optimal level c) produces an output level greater than the socially optimal level d) equates marginal revenue with marginal cost
b) produces an output level less than the socially optimal level
Look at the figure below what is the area of deadweight loss a) the rectangle (X-Z) x J b) the triangle 1/2(X-Z) x (K-J) c) the triangle 1/2(X-Y) x (K-J) d) the rectangle (X-Z) x J plus the triangle 1/2(X-Z) x (K-J)
b) the triangle 1/2(X-Z) x (K-J)
assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. which of the following represents Arubas ppt when 100 labor hours are available a) 5 radios 2 coolers b) 2 radios 5 coolers c) 20 radios 50 coolers d) 500 radios 200 coolers
c) 20 radios 50 coolers
a government created monopoly arises when a) government spending in a certain industry gives rise to monopoly power b) the government exercises its market control by encouraging competition among sellers c) government gives a firm an exclusive right to sell some good or service d) the government collects taxes in a particular industry
c) government gives a firm an exclusive right to sell some good or service
a monopolists profits with price discrimination will be a) lower than if the firm charged a single profit maximizing price b) the same as if the firm charged a single profit maximizing price c) higher than if the firm changed just one price because the firm will capture more consumer surplus d) higher than if the firm charged a single price because the costs of selling the good will be lower
c) higher than if the firm changed just one price because the firm will capture more consumer surplus
Look at the figure below if the monopoly firm is currently producing Q4 units of output then a decrease in output will necessarily cause profit to a) remain unchanged b) decrease c) increase if the output is between Q3 and Q4 d) increase regardless of the level of output
c) increase if the output is between Q3 and Q4
if a profit maximizing monopolist faces a downward-sloping market demand curve its a) average revenue is less than the price of the product b) average revenue is less than the marginal revenue c) marginal revenue is less than the price of the product d) marginal revenue is greater than the price of the product
c) marginal revenue is less than the price of the product
If the distributions of water is a natural monopoly then, a) a single firm cannot serve the market at the lowest possible average total cost b) allowing for competition among different firms in the water distribution industry is efficient c) multiple firms would likely each have to pay large fixed costs to develop their own network of pipes d) average cost increases as the quantity of water produced increases
c) multiple firms would likely each have to pay large fixed costs to develop their own network of pipes
which of the following is an example of a positive, as opposed to normative statement a) if welfare payments increase, the world will be a better place b) the income tax should be increased to offset the budget deficit c) prices rise when the government prints too much money d) antitrust laws should be used to prevent further concentration in the wireless telephone service market
c) prices rise when the government prints too much money
a professor spends 8 hours a day giving lectures and writing papers. for the professor a graph that shows his various possible mixes of output is called his a) productivity line b) indifference curve c) productions possibilities frontier d) consumptions possibilites frontier
c) productions possibilities frontier
all of the following topics fall within the study of microeconomics except a) the role of Microsofts market power in the pricing of software b) the effectiveness of antipoverty programs introducing homelessness c) the influence of the government budget deficit on economic growth d) the impact of cig taxes on the smoking behavior of teens
c) the influence of the government budget deficit on economic growth
a firm in long run
can avoid paying fixed and variable costs
a firm in short run
cannot avoid paying fixed costs if the firm shuts down.
which of the following statements best represents the principle represented by aint no such thing as free lunch a) bo can go swimming only if he takes his brother b) jada is starving and homeless c) alive must put gas in her truck before she can drive to school d) Benjamin must decide between going to Florida or Brazil for summer vacation
d) Benjamin must decide between going to Florida or Brazil for summer vacation
consider two individuals tank and kalene each of whom knit sweaters and make hotdogs. The gains from trade between tank and kalene are most obvious in which of the following cases a) tank is very good at knitting sweaters and at making hotdogs but kalends skills in both of these are poor b) tank and kalene are both very good at making hotdogs but neither has the necessary skills to knit sweaters c) tank and kalene hotdog making and knitting skills are poor d) tanks skills are such that he can only knit sweaters and kalends skills are that she can only make hotdogs
d) tanks skills are such that he can only knit sweaters and kalends skills are that she can only make hotdogs
suppose there are only two people in the world each persons ppt also represents his consumption possibilities when a) neither person faces trade off b) the frontiers are straight line c) the frontiers are bowed out d) they choose not to trade with each other
d) they choose not to trade with each other
progressive horizontal equity
everyone pays the same no matter earnings
economies of scale
factors that cause a producer's average cost per unit to fall as output rises, allows for specialization
wages are not
fixed costs
increasing the money supply
increases inflation and decreases unemployment
negative externality
internalize the externality
anti-trust laws
laws to control monopoly power and to preserve and promote competition
decreasing the money supply
lowers inflation and increase unemployment
social cost > private cost social cost < private cost
negative externality positive externality
club good private good common resource public good
non-rival but excludable rival and excludable rival but non excludable non rival and non excludable
regressive vertical equity
pay in relation to how much you earn
tragedy of commons
situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community
why does the government get involved in markets
sometimes market fail to produce a efficient/fair distribution of economic resources and property rights need to be enforced for innovation
arbitrage
stops price discriminating
positive externality
subsidy
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
absolute advantage
the ability to produce a good using fewer inputs than another producer
diseconomies of scale
the situation in which a firm's long-run average costs rise as the firm increases output
in the long run all costs are
variable
unit elastic
when the percentage change in price and quantity demanded are the same
