Microeconomics
An elasticity that would be considered only slightly inelastic would be
0.9
Theoretically, the highest possible Herfindahl Index is
10,000
A firm's demand of labor is its
MRP schedule
The "rule of reason" originated in the
Standard Oil case of 1911
When oil was deregulated in the late 1970's, the number of wells pumping oil more than doubled
This reflect an increase in supply
In 1991, the base year, you were earning $350/week. Your wages rose to $450 in 2000, the current year, when the Consumer Price Index stood at 135
Your real wages fell over this period
A union composed of members with the same trade or occupation is called
a craft union
In the long run the monopolistic competitor always charges
a price that is above the minimum point of its ATC curve
If Germany can make compact cars more efficiently than Russia, it enjoys an
absolute advantage
Poverty is both an
absolute and relative concept
Monopolies are usually viewed with concern from an economic standpoint since resources may be
allocated in an inefficient manner
If a tariff is imposed, domestic producers of the good win, domestic workers in the protected industry win, domestic suppliers in the protected industry win
and domestic consumers of the good lose
The firm will rent more and more land until the rent and marginal revenue product of the last unit of land hired
are equal
We say that a business is operating at peak efficiency when its
average cost is held to a minimum
As output rises
average fixed cost falls
Inclusive union strategy involves organizing all workers in a particular craft or industry and
bargaining for a wage
According to official statistics in the United States, a person is classified as poor if a person's money income is
below the poverty income threshold
The law of demand holds for
both individuals and for markets
Charles Murray believed that the antipoverty programs of the 1960s and 1970s
caused more poverty
Changes in demand are caused by
changes in income, changes in the prices of related goods and services, and changes in tastes and preferences
A cartel is a group of firms acting under
collusion to control output and maximize group profits
If nation A can produce at a lower opportunity cost per unit than nation B, nation A has a
comparative advantage
Corporate concentration can be measured by both the
concentration ratio and the Herfindahl-Hirschman Index
Fixed costs are best defined as
costs that will not vary with the firm's output level over some period of time
Union membership has been hurt in recent decades by the
decline in manufacturing
When MC > MR, the profit maximizing firm should
decrease production
Price is determined equally by
demand and supply
Advertising is likely to shift the firm's average total cost curve upward and make
demand more inelastic
The demand for goods and services is called final demand, while the demand for resources is called
derived demand
A monopolistically competitive industry has many firms producing a
differentiated product
The Clayton Act of 1914 outlawed specific business practices that
discouraged competition
As a firm grows larger economies of scale set in, then
diseconomies of scale
Marginal utility and consumer surplus are
distinctly different concepts
The Lorenz curve shows the
distribution of income
Prices are rigid at the kink of an oligoplist's demand curve because changes in marginal cost in the discontinuous section of the marginal revenue curve
do not alter the profit-maximizing price and output
An increase in supply means a shift in the supply curve
downward and to the right
Firms taking advantage of economics of scale accounts for the
downward slope in the long-run average cost curve
Unlike a perfectly competitive firm, a profit-maximizing monopolist can choose a price and output combination from a
downward-sloping demand curve
Exit from a competitive industry will occur until economic losses are
driven to zero
Adam Smith's pin factory illustrated the advantages of
economics of scale
In general, the more the substitutes available for a good the more
elastic the demand for the good
The law of diminishing returns states that as output rises
eventually marginal output will decline
A balance-of-trade surplus exists is the dollar value of exports
exceeds the dollar value of imports
The Sherman Act of 1890 outlawed unfair business practices to
exclude rivals from selling in markets
A fall in demand for the final product brings about a
fall in derived demand
We will keep buying digital music downloads from the internet until the marginal utility of the music downloads
falls to the price of the download
When a monopolistically competitive industry is in long-run equilibrium
firms earn zero economic profit
Increases in the productivity of labor tend to increase the marginal revenue product of labor and the wages employers are willing to pay
for any given amount of labor
One company has 90% of the market for cola soft drinks. An antitrust action against this company is likely to be defended (by the company) by the argument that the relevant market is not that
for cola soft drinks but for all soft drinks
Legal barriers to entry into an industry include
government licensing, patents and government franchising
An auto service station has four mechanics. If the marginal revenue product of the fourth worker is $375 per day and the mechanics are paid $150 per day, the firm can make a higher profit by
hiring more mechanics
An import quota is a limit on the quantity of foreign goods that can be sold
in a nations's domestic market
All workers must join the union within 30 days after employment
in a union shop
The substitution effect and the output effect work
in opposite directions
A technological advance that increases the marginal product of labor will
increase the demand for labor
If a monopolistic competitor is producing an output for which marginal revenue is $40 and marginal cost is $32 to maximize profits the firm should
increase the level output
An elasticity of .1 would be
inelastic
As income rises the demand for
inferior goods falls
Frank Knight's theory of profit focuses on risk bearing and Joseph Schumpeter's theory of profit focuses on
innovation
Usury laws, minimum wages laws and farm price supports or price floors
interfere with the price mechanism
A monopolistic competitor will not make an economic profit unless its price is greater than
its average total cost
Cut throat competition is
legal in the United states
As foreign imports become a greater percentage of sales in oligoplized industries, the concentration ratio becomes
less accurate a measure of concentration
Since 1960 the distribution of income in the United States has become
less equal
In general we could say that the decade of the 1980's was a time of
less regualtion
The Great Society program was designed in the 1960s to
lift people out of poverty
The most important factor affecting rent is
location
Deregulation of the airlines, trucking, and long-distance phone calling industries has led to
lower prices for consumers
"Right-to-work" laws
make it harder for unions to organize
Advertisers try to raise the demand for their product and
make it less elastic
One reason unions have declined as a percent of the workforce is that workers have shifted from
manufacturing to service industries, which are harder to organize
The definition of monopolistic competition includes
many firms and ease of entry and exit
Perfectly competitive markets are characterized by
many small potential buyers, many small potential sellers, identical products and the absence of non-price competition
A profit maximizing firm will always produce at that output at which
marginal cost = marginal revenue
If the average variable cost of production falls as output grows
marginal cost must be below average variable cost
The extra revenue that results from hiring another worker is the
marginal revenue product of labor
When you are maximizing your utility for product A
marginal utility of A = price of A
An oligopolist must be very sensitive to its rivals because there are so few that their behavior
may well have consequences for their firm
A rightward shift of the entire supply curve is an increase in supply
might be due to a positive change in technology, might be due to a decrease in the cost of labor, and might be due to an increase in the number of sellers
The dual labor market theory supports the contention that there are
non-competing groups in the labor market
If the legal minimum wage is set below the equilibrium wage rate the level of employment will
not be affected
It is true that protection makes a nation worse off because it induces the firms in that nation to product more of the goods that are costly to make and; it is false that one nation can gain from international trade
only at the expense of other nations
Productivity is
output per unit of input
Our oil imports and our trade defect with Japan and China together account for the majority of our
overall trade deficit
Demand is inelastic when the
percentage change in price is greater than percentage change in quantity
A demand curve that is perfectly horizontal is
perfectly elastic
The perfect competitor's demand curve is
perfectly elastic
The supply of land is
perfectly elastic
The airlines often engage in
price discrimination
Usury laws prevent banks from charging higher credit card interest rates than the
price mechanism would allow
Rents are high because
prices are high
In order for real wages to grow
productivity must grow
If a monopolist's marginal cost equals its marginal revenue
profits are maximized or losses are minimized
The Wagner Act supported union organizing while the Taft-Hartley Act
protected "employers' rights"
A car dealership estimates that the elasticity of demand for its top model is 0.5. If it raises its prices by 10%
quantity demanded will decrease by 5% and total revenue will increase
As price falls
quantity supplied falls
When marginal cost is greater than marginal revenue, the monopolist can increase its profit or minimize its loss by
reducing ouput
Lorenz curves tell us about the
relative distribution of income
One thing we can do to reduce trade imbalance in the United States would be to push down the value of the dollar
relative to other currencies
Although the Chinese market is open to American producers, the Chinese people have very little income to purchase
relatively expensive imported goods
Under perfect competition there must be perfect mobility of
resources and perfect knowledge
Examples of a monopolistically competitive industry include
restaurants and fast food chains, grocery stores, gas stations and hardware stores
There is a strong relationship between the
rise in real wages and the rise in productivity
If variable cost is $15 million, fixed cost is $14 million, and total revenues are $13 million, in the short run the firm will
shut down and in the long run will go out of business
Suppose that land and labor are substitute resources. If the wage rate rose, the employment of land would rise only if the
substitution effect outweighed the output effect
Wage rates, interest rates, and rent are all determined by
supply and demand
The wage rate is determined by the interaction of
supply and demand in the market
Patents function to
temporarily protect monopoly power
In the short run
the ATC curve is always above the AVC curve
The decision to bring suit in an antitrust case is usually made by
the Department of Justice
The establishment of "right-to-work" laws came about with the passage of
the Taft-Hartley Act
The lowest point on the firm's long-run supply curve is
the break-even point
Marginal cost may be defined as
the change in total cost that results from producing one more unit of output
As the price of a good falls
the consumer surplus rises
The principle of comparative advantage states that total output is greatest when each product is made by
the country that has the lowest opportunity cost
Unions try to raise wages mainly by
the decline in manufacturing
The phrase "spreading the overhead" refers to
the decrease in average fixed cost that occurs as a firm increases its output
A change in rent will be brought about by a change in
the demand for land
In the long run if the price is below average total cost
the firm will go out of business
The concentration ratio is the percentage of sales earned by
the four largest firms in the industry
Even with the big three textbook publishers (McGraw-Hill, Pearson, and Sage-Reuters) having a large market share, the textbook industry is still considered a cut throat competitor model because of
the high level of competition that exists
A normal good is defined as a good for which demand increases as
the income of consumers increases
If total utility is decreasing
the marginal utility is less than zero
If water became very scare and diamonds become very plentiful
the marginal utility of water would rise and the marginal utility of diamonds would fall
International trade will occur if a nation has a comparative advantage in
the production of a good
The market supply consists of
the quantities supplied at all prices
Price discrimination occurs when a seller charges two or more prices for
the same good or service
As a person buys increasing amounts of a good
their marginal utility decreases and their consumer surplus increases
If your marginal utility from your last session with your personal trainer is equal to the price they charged you
then you have had exactly the right number of sessions
Oligopolists have more control over prices than monopolistic competitors because with fewer competitors
they are able to monitor and determine their own prices much easier
The monopolist and the perfect competitor differ in that
they face different demand curves
The job of an arbitrator is
to impose a settlement
Medicaid goes exclusively
to the poor
If demand is inelastic and price is lowered
total revenue will fall
When marginal utility is zero
total utility is maximized
The substitution effect means that you
trade away leisure time for more money
The income effect means that you
trade away some money for more leisure time
A natural monopoly occurs when a single firm can supply the entire market demand for a product at a lower average cost than would be possible if
two or more firms supplied the market
A minimum wage rate increase will increase the number of
unemployed people
An elasticity of 1 would be considered
unit elastic
A conglomerate merger takes place when a firm buys another firm
unrelated to the original firm's business
A perfectly inelastic demand curve is a
vertical line
A merger of a firm and its supplier is called a
vertical merger
Monopolistic competitors have
very elastic demand curves
A family of four with one wage earner who earns the minimum hourly wage would be
well below the poverty line
The Sherman Antitrust Act stated that attempts to monopolize, conspiracies in restraint of trade, and conspiracies to monopolize
were illegal
Utility is simply a measure of
what they buyer is willing to pay for a good or service
A monopoly firm is different from a perfectly competitive firm in that the monopolist can influence price in the market
whereas the perfectly competitive firm is the price taker
The minimum wage is a price floor
which tends to decrease the employment of unskilled workers
Henry George advocated that the government
will raise all its tax revenue from a single tax on land, all rents should be taxed away, and, since land did not really belong to the landlords, rent was an unearned surplus
If firms are making profits under perfect competition, in the long run the industry supply
will rise and price will fall
If the value of non-cash assistance to the poor were included in their income, the official number of persons classified as poor
would be lower
If the marginal utility you derived from the first "steak burger" you ate was $4.00 and yet the cost of the "steak burger" was $2.00
your marginal utility was definitely positive
