Microeconomics Final
The circular-flow diagram ignores a number of real-world complications in the interest of simplicity. Which of the following factors is ignored?
That many sales that firms make are not to households but to other firms
If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.
decrease; increase
(Figure: The Demand Curve for Lattes) Use Figure: The Demand Curve for Lattes. Between prices of $4 and $5, demand is _____, and total revenue will _____ if price increases.
inelastic; increase
An economic model:
is a simplified version of reality used to understand real-world economic conditions.
Trade can be beneficial to an economy because:
it enables more goods and services to be obtained at a lower opportunity cost.
A good example of monopolistic competition is the market for:
fast food.
If firms are making economic losses in the short run, then in the long run:
firms will leave the industry.
Taxation according to the benefits-received principle is best illustrated by the _____ tax.
gasoline
the long-run price elasticity of supply of automobiles is _____ the short-run price elasticity of supply of automobiles.
greater than
Market equilibrium occurs when:
there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.
(Figure: Monopoly Model in the Market for Electricity) Use Figure: Monopoly Model in the Market for Electricity. When the firm is in equilibrium—maximizing economic profit—its profit is represented by:
SPDB.
Import protections are often imposed because:
groups representing import-competing industries are more cohesive than consumers.
A quota that is set above the equilibrium quantity will:
have no immediate effect.
(Figure: Payoff Matrix for Alex and Sybil) Use Figure: Payoff Matrix for Alex and Sybil. Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides how much frozen yogurt to produce for the week. The figure shows the profit per week earned by their two firms. In the game's Nash equilibrium, Alex produces a _____ level of output, and Sybil produces a _____level of output.
high; high
Costs that do not require a monetary outlay but instead reflect the dollar value of benefits forgone are:
implicit costs.
you decide whether to eat one more slice of cheesecake based on how hungry you feel. Which economic principle does this statement BEST represent?
"How much" is a decision at the margin.
(Table: The Market for Salt and Vinegar Chips) Use Table: The Market for Salt and Vinegar Chips. There is an excess demand of 210 bags of salt and vinegar chips per month if the price is _____ per bag.
$0.30
(Figure: The Market for Swiss Watches) Use Figure: The Market for Swiss Watches. Assume that D and S represent the domestic demand for and supply of Swiss watches. The world price, PW, equals $100. The government imposes a quota restricting imports to 25 watches. The domestic price rises to _____, and the quota rent is equal to area _____.
$120; H + I
Saying that an unemployment rate of 8% is too high is:
a normative statement.
An increase in price and an ambiguous change in quantity are MOST likely caused by:
a shift to the left of the supply curve and a shift to the right of the demand curve.
If an increase in the price of coconut oil brings about an increase in total revenue, then the price effect is _____ the quantity effect.
greater than
Figure: Cell Phones and Automobiles) Use Figure: Cell Phones and Automobiles. Technological improvements will likely:
shift the production possibility frontier outward to PPF2.
If the price elasticity of supply is greater than 1:
supply is elastic.
The belief that trade is bad for exporting countries because foreign workers are paid very low wages by our standards is the _____ fallacy.
sweatshop labor
(Figure: The Alaskan Crab Market) Use Figure: The Alaskan Crab Market. If the government imposes a quota limiting sales of crab to 500 pounds, the quota rent per pound is:
$5.
Governments continue to impose price controls. Which statement is NOT a valid explanation of this?
The model of price floors is not fully understood.
Which statement about monopoly equilibrium and perfectly competitive equilibrium is INCORRECT?
In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market
Which statement is TRUE of firms in both perfect competition and monopolistic competition?
Long-run economic profits are equal to zero.
(Figure: Pollution and Efficiency in the Market for Coal Fired Electricity) Use Figure: Pollution and Efficiency in the Market for Coal Fired Electricity. In this market, in which carbon dioxide emissions result from production, at a price of $25, ______. In this situation, price will ______ the socially optimal amount of pollution is reached.
MSB < MSC; decrease until
(Figure: Possible Long-Run Outcome in the Market for Designer Perfumes) Use Figure: Possible Long-Run Outcome in the Market for Designer Perfumes. In the figure, which price and quantity refer to a potential long-run profit maximizing outcome for a firm producing in a monopolistically competitive market?
P1 and Q1
Governments continue to impose price controls. Which statement is a valid explanation for this?
People fear that prices will change dramatically if price controls are removed.
(Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure: Marginal Private Benefits and Marginal Social Benefits. Without government intervention, this market will produce _____ units at a price of _____.
Q1; P2
(Figure: The Existential Monopolist) Use Figure: The Existential Monopolist. If this monopolist profit-maximizes, it will produce _____ units and sell them at _____
Q2; P2
Figure: The Existential Monopolist) Use Figure: The Existential Monopolist. If this monopolist profit-maximizes, it will produce _____ units and sell them at _____.
Q2; P2
Suppose that, to help peach farmers, Georgia implements a quantity control on the sale of Georgia peaches. Which statement about the undesirable side effects of a quantity control is NOT correct?
Quantity controls do not create deadweight loss.
When perfect competition prevails, which characteristic of firms are we likely to observe?
They are all price takers.
Which of the following illustrates an environmental policy that uses tradable pollution permits?
Which of the following illustrates an environmental policy that uses tradable pollution permits?
Which of the following items would NOT give rise to a monopoly market.
Which of the following items would NOT give rise to a monopoly market.
The structure of the American federal income tax system reflects the _____ principle.
ability-to-pay
You plan to attend a play on Saturday night. You buy a ticket for $47 and then lose it. According to marginal analysis, you should:
buy another ticket and attend the play only if your marginal benefit of seeing the play is more than $47, as the initial ticket purchased is a sunk cost.
The purpose of antitrust policy is to:
prevent the exercise of monopoly power.
In the rental housing market, as a result of a price control, the quantity of rental houses demanded exceeds the quantity of rental housing supplied. The type of price control in place is a:
price ceiling.
When marginal cost is ABOVE average variable cost, average variable cost must be:
rising.
If the several companies in the fashion industry produce similar products but have very different marginal costs:
they are less likely to engage in tacit collusion than firms with similar costs.
During the summer, Adrianna runs a pool cleaning service. Given that pool cleaning is a perfectly competitive industry, in the short run, Adrianna will shut down if:
total revenue does not cover variable costs.
The market for breakfast cereals is dominated by four producers: Kellogg's, General Mills, Post Foods, and Quaker. The market contains hundreds of similar types of cereals, such as Fruit Loops, Cornflakes, and Rice Krispies, that are seen by buyers as different products. This situation violates the perfect competition assumption of:
a standardized product.
The main difference between a tariff and an import quota is that:
a tariff generates tax revenue, whereas an import quota generates rents to license holders.
Which factor is MOST likely to shift the supply curve for milk to the left?
a tax on each gallon of milk produced
If the cost to download a movie from the Internet falls from $7.99 to $5.49 along an upward-sloping supply curve, producer surplus in the market for movie downloads is likely to:
decrease.
Common resource goods are similar to:
goods with negative externalities because not all users take into account the external costs imposed on society.
The income elasticity of demand measures:
how the quantity demanded of a good changes in response to changes in income.
An important determinant of the price elasticity of demand is the:
proportion of the household budget spent on the good.
Excise taxes that raise the MOST revenue and cause the LEAST deadweight loss are likely to be levied on goods for which demand is _____, and supply is _____.
inelastic; inelastic
Figure: The Market for Microeconomics Textbooks) Use Figure: The Market for Microeconomics Textbooks. Suppose the government believes that microeconomics textbooks are too expensive and wants to make them more affordable, ensuring that they are available to students. Given a price ceiling of $80, the market outcome would be a _____ of _____ textbooks.
shortage; 30
A perfectly competitive small organic farm produces 1,000 broccoli heads per week in the short run. At this quantity, ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, the farm should:
shut down in the short run.
Oligopoly is a market structure characterized by a _____ number of _____ firms producing _____ products.
small; interdependent; identical or differentiated
If a California grape wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her grapes and her competitors' grapes to be _____. Therefore, _____ advertising will take place in this market.
small; standardized; little or no
If a market is in equilibrium:
no individual will be better off doing something different.
(Figure: Demand Curve for Pears) Use Figure: Demand Curve for Pears. The figure shows a demand curve that is:
perfectly elastic.
Which pair of goods is MOST likely to have a cross-price elasticity of demand that is greater than zero?
pineapples and honeydew melons
(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's strawberry crop by 20%. Which panel BEST illustrates how this event will affect the market for strawberries?
B
(Figure: The Market for Swiss Watches) Use Figure: The Market for Swiss Watches. Assume that S and D represent the domestic demand for and supply of Swiss watches. The world price, PW, equals $100. When the economy moves from autarky, under which the price is $150, to free trade, consumer surplus rises by area _____, and producer surplus falls by _____.
B + C + G + H + I + J + K + L; B + C
(Figure: Speedboats and Pomegranates I) Use Figure: Speedboats and Pomegranates I. The figure shows the production possibility frontiers for two countries that produce only pomegranates and speedboats. The axes of the two graphs are measured in equivalent units. The United States is operating at point M, and Belarus is operating at point N. The opportunity cost of producing an additional ton of pomegranates would be greater in:
Belarus.
(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel BEST illustrates how this will affect the market for radishes?
C
Figure: Supply of Bananas) Use Figure: Supply of Bananas. A rise in the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport bananas could be represented in the figure as a movement from:
C to A.
The demand curve for meals at a local Chick-fil-A will shift to the left if:
Chick-fil-A offers a free sandwich to people who sign up for their new rewards app.
(Figure: Supply and Demand in the Peach Market) Use Figure: Supply and Demand in the Peach Market. The market is in equilibrium at point C. Suppose most people drink peach juice in the afternoon with champagne. What will be the new equilibrium point in the peach juice market if a law banning alcohol passes?
D
Suppose everyone in a small town decided to save more and spend less. How will this affect an economy? (In macroeconomics, this is called the paradox of thrift.)
It will decrease the overall level of income, since one person's spending is someone else's income.
Which of the following is a common argument for trade protection?
the infant industry argument
(Figure: Apple Cider and Soybeans) Use Figure: Apple Cider and Soybeans. If this economy is producing at point A and wants to produce at point B, it must:
use its existing resources more efficiently, as opportunity costs are zero.
Suppose the government places a tax on business profits, leading businesses to decrease production. Revenues from the tax are used to boost the incomes of the poor. The decision to levy the tax implies that, in this case, the government
values equity more than efficiency.
Potatoes are an inferior good. If there is an increase in income, total surplus in the potato market:
will decrease.
You can spend $300 on either a pair of new Air Jordan sneakers or a new skateboard. If you choose to buy the Air Jordans, the opportunity cost is:
your enjoyment of the new skateboard.
Which statement concerning monopoly is TRUE?
A monopoly has no rivals, as it is the single producer of a good.
With perfectly elastic demand and an upward-sloping supply curve:
consumers will not bear any of the burden of a tax.
Firms in a monopolistically competitive market differentiate themselves from their competition based on all of the following EXCEPT:
price.
if the United States removed all tariffs and quotas on lumber imports into the United States:
producer surplus would decrease.
In general, for price increases or decreases, the price elasticity of demand can be found by:
comparing the percentage change in quantity demanded to the percentage change in price.
A market where no single buyer or seller can influence the price is a:
competitive market.
(Figure: Demand for Bananas) Use Figure: Demand for Bananas. If bananas are a normal good, an increase in the incomes of consumers could be represented as a:
shift from D1 to D2.
Which of the following is a common argument for trade protection?
the job creation argument
Sabrina has gone out to lunch three times this week. She has some extra money, so she decides to go out to lunch a fourth time. Which economic principle does this statement BEST represent?
"How much" is a decision at the margin.
(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. If the economy produces two planes per period, it can also produce, at most, _____ trains per period.
24
(Figure: The Market for Notebooks) Use Figure: The Market for Notebooks. Assume that S and D are the domestic supply and demand curves and that the world price is PW. Identify the area of deadweight loss when a tariff raises the domestic price from the world price to PT.
D + F
(Figure: Equilibrium in the Market for Mechanical Pencils) Consider the figure Equilibrium in the Market for Mechanical Pencils. At the equilibrium price, this market's producer surplus is equal to area:
DIF.
Which of the following is a positive externality?
Edwin buys a run-down house, renovates it, and increases the property values of all the houses in the neighborhood.
The price of good X falls and the demand for good Y decreases. We can conclude that:
X and Y are substitutes.
If an economy is efficient:
all opportunities to make people better off without making other people worse off have been taken.
If there are only two firms in an industry, and they have a collusive agreement to produce the monopoly output, then each firm has:
an incentive to cheat by increasing its output.
(Figure: The Production Possibility Frontiers for Kansas and Wisconsin) Use Figure: The Production Possibility Frontiers for Kansas and Wisconsin. Kansas has an absolute advantage in producing:
corn only
An example of an import quota is a:
limit on the total number of Honda scooters imported from Japan
A normative statement is a statement regarding:
what should be.
In a long-run equilibrium, economic profits in a perfectly competitive industry are:
zero.
Super Snacking Services is a typical monopolistically competitive firm, offering quick and easy snacks in vending machines across university campuses. Initially, the market is in long-run equilibrium, and then there is an increase in demand for super snacks. In the long run, the economic profits of typical firms in the snacking industry will be:
zero.
Which advertising slogan provides information to potential buyers?
"The Westlake Fish House in Montauk is the only restaurant on the beach for 30 miles."
Gino's Pizza has a special offer: one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. The marginal cost of the second slice is:
$1.50.
(Figure: The Market for Exercise Apps) Use Figure: The Market for Exercise Apps. If the government imposes a tax of $3 in this market, consumers will pay _____ more per app and purchase _____ fewer apps.
$1.50; 15
You decide to quit your $70,000-per-year job as a hotel concierge to be an online hotel review blogger. At the end of the first year of blogging, you have earned $90,000. You also spent $10,000 for a high-end computer and wireless network. Your economic profit in the first year as an illustrator is:
$10,000.
Lukas installs custom alarm systems in cars. If he installs seven alarms per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. Lukas will install eight alarm systems per day only if the eighth customer is willing to pay at least:
$100.
(Figure: The Lobster Market) Use Figure: The Lobster Market. If the government wants to limit lobster sales to 250 pounds, it can impose a _____ excise tax on sellers, and the total tax revenue generated will be _____.
$10; $2,500
(Figure: The Demand Curve for Lattes) Use Figure: The Demand Curve for Lattes. If the price is $5, total revenue is:
$25
(Table: Producer Surplus and Opera Tickets) Use Table: Producer Surplus and Opera Tickets. The table shows Columbia University students' opportunity cost of selling a ticket to Verdi's Aida at the Metropolitan Opera House. Assume that each student has one ticket to sell. If the price of a ticket to see Aida is $50, then David's producer surplus is:
$25.
(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. Given the initial equilibrium of S1 and D, any price below _____ will exert pressure for the price to _____.
$25; rise
(Figure: Monthly Demand for Potato Chips) The graph Monthly Demand for Potato Chips shows one individual's linear monthly demand curve for potato chips. At $5 per bag of chips, this individual will consume 10 bags in a month. How much consumer surplus does this consumer receive?
$50
(Figure: Rent Controls in the Market for Apartments in New York City) Use Figure: Rent Controls in the Market for Apartments in New York City. Suppose that rent controls are imposed. If the government wants a rent control ceiling to be effective immediately, what is one possible price it could set?
$900
Suppose your local Home Depot has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, its accounting profit was:
$94,000.
(Figure: The Market for Amazon Echo) Use Figure: The Market for Amazon Echo. The figure shows the pre-tax and post-tax positions—S1 and S2, respectively—of the supply curve for the Amazon Echo. The efficiency loss resulting from this tax is:
0.5(P1 - P3)(Q2 - Q1).
(Figure: Big Tree Organic Farms in the Short Run) Use Figure: Big Tree Organic Farms in the Short Run. Big Tree Organic is a perfectly competitive organic farm in Turlock, California. If the market price is G, the farm's total cost of producing its most profitable level of output is:
0FKD.
(Scenario: The United States and Germany) Use Scenario: Two countries, the United States and Germany, produce two goods, barley (B) and aluminum (A). Each has a linear production possibility frontier in both goods. If the United States spends all of its available resources to produce barley, it can produce 500 tons of barley and no aluminum. If it uses all of its resources to produce aluminum, it can produce 250 tons of aluminum and no barley. If Germany spends all of its available resources producing barley, it can produce 400 tons of barley, and if it spends all of its resources on the production of aluminum, it can produce 400 tons of aluminum. Germany produces 300 tons of aluminum, how many tons of barley can it produce?
100
Table: The Demand for Potato Chips) Use Table: The Demand for Potato Chips. If Blair, Serena, and Dan are the only three buyers in the market, and the price of a bag of potato chips is $0.50, the total market quantity demanded is _____ bags per month.
240
(Figure: The Market for Chai Lattes) Use Figure: The Market for Chai Lattes. What is the price elasticity of demand between the prices of $2 and $2.50 per cup, computed using the midpoint method?
3.00
Suppose the governor of California decides to initiate a state income tax. The first $50,000 of household income is tax-free, while any income above $50,000 is taxed at 10%. The tax rate for a household earning $75,000 is _____%.
3.3
(Figure: The Perfectly Competitive Firm) Use Figure: The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. If the market price is $3, the firm will produce _____ units of output per day.
300
(Figure: The Regional Monopolist) Use Figure: The Regional Monopolist. Assume a regional monopolist has no fixed costs. If the firm profit-maximizes, it will produce _____ units and charge a price of _____. Its profit will be _____, the consumer surplus will be _____, and the deadweight loss is _____.
35; $65; $1,225; $612.50; $612.50
(Table: Pollution and Water Table Damage from Cobalt Mining) Use Table: Pollution and Water Table Damage from Cobalt Mining. The table shows the marginal social benefit and marginal social cost of various amounts of pollution emitted into the air and water from a cobalt mine. The efficient quantity of pollution is _____ tons.
4
(Figure: The Market for Exercise Apps) Use Figure: The Market for Exercise Apps. If the government imposes a tax of $3 in this market, producers will pay _____ of the tax, while consumers will pay _____ of the tax.
50%; 50%
(Table: Production Possibilities Schedule II) Use Table: Production Possibilities Schedule II. If an economy is producing at point C, the opportunity cost to it of producing at D is _____ cell phones per period.
6
(Table: Production of Bagels at The Bagel Factory) Use Table: Production of Bagels at The Bagel Factory. The marginal product of the fifth worker is _____ bagels.
9 dozen
(Figure: Marginal Product of Labor for Quinoa Production) Use Figure: Marginal Product of Labor for Quinoa Production. The total product, given seven workers, is _____ bushels.
91
(Figure: Winners and Losers from Rent Control) Use Figure: Winners and Losers from Rent Control. Consider the market for apartments. Consumer surplus after the imposition of a price ceiling (rent control) is given by area(s):
A and B.
(Figure: Big Tree Organic Farms in the Short Run) Use Figure: Big Tree Organic Farms in the Short Run. Big Tree Organic is a perfectly competitive organic farm in Turlock, California. If the market price is G, the farm's total economic profit at its most profitable level of output is:
FGLK.
(Figure: Perfect Competition and Monopolistic Competition in the Long Run) Use Figure: Perfect Competition and Monopolistic Competition in the Long Run. Which statement is FALSE?
Firms in panel (a) cannot have profits in the long run, but those in panel (b) can.
Which of the following statements describes efficiency? I. A situation in which producers make the highest profits possible. II. A situation in which we cannot produce more of one good without producing less of another good. III. A situation in which we produce the goods and services that people value most highly.
I only
In a situation in which there are technological improvements, we generally see:
In a situation in which there are technological improvements, we generally see:
What is difficult about using cost-benefit analysis to estimate the level of a public good that will maximize social welfare?
It is difficult to estimate the marginal social benefits of supplying a public good.
If Canada can produce 30 tablets for every car it produces, and Malaysia can produce 15 tablets for every car it produces, _____ has the _____ advantage in car production.
Malaysia; comparative
Use Table: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. If Nike and Reebok were to collude to maximize profits, what strategy should each follow?
Nike: no sale; Reebok: no sale.
(Figure: Consumer Surplus in the Market for Garden Gnomes I) Consider the figure Consumer Surplus in the Market for Garden Gnomes I. If the price rises from P1 to P2, consumer surplus decreases by the area:
P1P2BF.
The FIRST law designed to curb monopoly power in the United States was the _____ Act.
Sherman Antitrust
Specialization in production was the starting point for Adam Smith in:
The Wealth of Nations.
Consider the market for raspberries. Which statement MOST likely applies to this market?
The cross-price elasticity of demand between raspberries and strawberries is positive.
(Table: The Production Possibilities for Large Tractors and Petroleum) Use Table: The Production Possibilities for Large Tractors and Petroleum. Which statement is TRUE?
The opportunity cost of petroleum is higher in the United States than in Venezuela.
Suppose Pennsylvania produces only steel and barley, with fixed amounts of land, labor, and capital resources. Which scenario BEST sets the stage for economic growth?
The percentage of Pennsylvania residents with a university degree rises from 15% to 23%.
When the economy experiences shortfalls or excesses of spending, government policies can be used to address the imbalances. Which statement does NOT address such imbalances, realized during the coronavirus pandemic?
There is fear of recession and uncertainty about the future in a post COVID-19 reality.
Which tax BEST illustrates the ability-to-pay principle of tax fairness?
a property tax, proportional to the value of homes, charged to homeowners to fund primary and secondary education
Given that people usually exploit opportunities to make themselves better off, which of the following policies is MOST likely to reduce road congestion in Los Angeles (the worst traffic city in America)?
a toll road that requires each car to pay a congestion fee to enter the city center
A binding price floor will MOST likely result in:
an increase in the price.
(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Canada has an absolute advantage in producing:
apples only.
If the price of mangoes increases by 15% and the quantity demanded of mangoes decreases by 20%, then the price elasticity of demand is equal to:
approximately 1.33.
Network externalities exist when a good's value to the consumer rises:
as the number of people who use the good increases.
The problem of excess capacity in monopolistic competition is seen in the fact that if there were fewer firms in the industry:
average total costs would be lower, and consumer prices would be lower.
The average total cost of producing wireless routers in a factory is $20 at the current output level of 100 routers per week. If the fixed cost is $1,200 per week:
average variable cost is $8.
You must pay a fee every time you use your public library. This is an example of the _____ principle.
benefits
Suppose that the demand for and supply of a good are each neither perfectly inelastic nor perfectly elastic. If a sales tax on sellers of the good is imposed, the tax is paid by:
both the buyers and the sellers.
Advertising is an economically productive activity and NOT a waste of resources because it:
can convey information about a product.
(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Opal Ocean is to:
charge a low price.
(Figure: Dreamliners and Small Jets) Use Figure: Dreamliners and Small Jets. On this figure, points A, B, E, and F indicate:
combinations of dreamliners and small jets that society can produce, using all of its factors efficiently.
Imposing a Pigouvian tax on a good, establishing a system of tradable licenses, and assigning property rights are methods to alleviate the problems associated with:
common resources.
Countries that engage in trade will tend to specialize in goods in which they have a(n) _____ and will _____ those goods.
comparative advantage; export
taken collectively, people in nations that engage in international trade are likely to:
consume more than they could consume in the absence of trade.
With perfectly inelastic demand and an upward-sloping supply curve:
consumers will bear the entire burden of a tax.
A trade-off involves weighing
costs and benefits.
If the government allowed only one airline to serve the entire U.S. market, there would be _____ loss associated with _____ output in the airline industry.
deadweight; reduced
Deadweight loss will _____ when a monopolist goes from single-price monopoly to perfect price discrimination.
decrease
The law of demand states that, other things equal, as the price:
decreases, the quantity demanded will increase.
When an additional unit of a variable input adds less to the total product than the previous unit, the firm has:
diminishing marginal returns.
(Figure: Monopolistic Competition in the Market for Couture Clothing) Use Figure: Monopolistic Competition in the Market for Couture Clothing. If the firm shown in the figure maximizes its returns, it will:
earn a positive economic profit.
It is because of _____ in monopolistic competition that firms earn zero profits in the long run.
easy entry and exit
If the University of Washington experiences lower costs per enrolled student as it builds more buildings and enrolls more students, the university is experiencing:
economies of scale.
if a firm's average total cost falls over the entire range of its output, then the firm possesses:
economies of scale.
An economy has achieved _____ if it has not passed up any opportunities to make some people better off without making others worse off.
efficiency
Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are no external benefits or costs, the output at Q will be:
efficient.
A linear demand curve has:
elastic, inelastic, and unit-elastic segments.
In economics, the short run is:
enough time to vary output but not plant capacity.
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the _____ of firms shifts the firm's demand and marginal revenue curves _____, which _____ the firm's level of output and _____ the price it can charge until price equals average total cost.
entry; leftward; decreases; decreases
Laws that require automobiles and other vehicles to have catalytic converters (that limit the amount of CO2 emissions) or restrict or prohibit leaf burning are:
environmental standards.
There is a trade-off between _____ and efficiency in that policies designed to promote equity often come at the cost of _____ efficiency.
equity; decreased
Microsoft Office, a suite of computer software that you can download from the Internet for a monthly fee, is an artificially scarce good because it is _____ but _____ in consumption.
excludable; nonrival
If an economic agent employs the "good enough" method of decision making, he or she is:
exhibiting bounded rationality.
(Figure: Monopolistic Competition in the Market for Specialty Watches) Use Figure: Monopolistic Competition in the Market for Specialty Watches. The figure represents a monopolistically competitive firm. In the long run firms will:
exit this market until all remaining firms earn a zero economic profit.
Money that is paid for the use of factors of production such as labor and capital is an:
explicit cost.
A factor that is NOT a possible reason for market failure is:
extremely high prices for prescription drugs.
If Isabella drives to a Kansas City, 120 miles from Manhattan, Kansas (home of Kansas State University) to do her back-to-school shopping, this will
hurt Isabella's community because Isabella's spending will be income for people in the large city.
Suppose the Boston Red Sox could rent out Fenway Park (the field they play on) to local youth leagues for $11,000 per month. The $11,000 per month is the _____ cost of capital.
implicit
The price elasticity of supply of foods low in saturated fats is lower in the short run than in the long run because:
in the short run, food producers have a limited time to respond to changes in demand.
For a good to be considered normal, the _____ elasticity of demand must be _____.
income; positive
(Figure: Consumer and Producer Surplus in the Market for Sandals) Consider the figure Consumer and Producer Surplus in the Market for Sandals. An increase in supply will:
increase consumer surplus.
(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external benefits, a subsidy given to consumers will:
increase the equilibrium quantity.
(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if a tax is imposed on sellers, the equilibrium price will _____, and the equilibrium quantity will _____.
increase; decrease
(Figure: The Linear Demand Curve for Golf Balls) Use Figure: The Linear Demand Curve for Golf Balls. If the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity demanded and a(n) _____ in total revenue.
increase; decrease
A binding price floor leads to:
inefficiency, because the number of transactions is below the equilibrium quantity.
According to the Heckscher-Ohlin model, Chile will have a comparative advantage in lemons if lemons are _____ in the factors in which Chile is _____.
intensive; abundant
Spaghetti and lasagna are substitutes. Holding all other things constant, this means that if the price of spaghetti increases, the demand for:
lasagna will increase.
Suppose that education were not financed by the state and that each individual had to pay for his or her own education from kindergarten through high school. One would expect that:
less education would be acquired than at present, since an individual may not consider the positive external benefits of education to society.
Wendy's and A&W have identical cost curves and operate in markets with similar market demand curves. Wendy's is perfectly competitive, and A&W operates is monopolistically competitive. In the long run, Wendy's will charge _____ and produce _____ than will A&W.
less; more
the long run is:
long enough to vary the quantities of all factors of production.
A decrease in efficiency means that an economy has:
made more people worse off without making others better off.
The short-run supply curve for a perfectly competitive firm is its:
marginal cost curve above its average variable cost curve.
Firms in panel (a) cannot have profits in the long run, but those in panel (b) can.
marginal revenue equals marginal cost.
(Table: Matcha Tea and Coho Salmon Production Possibilities II) Use Table: Matcha Tea and Coho Salmon Production Possibilities II. This table shows the maximum amounts of matcha tea and Coho salmon, both measured in pounds, that Colombia and Washington can produce if each produces just one good. Colombia has a comparative advantage in the production of:
matcha tea only.
Assuming an upward sloping supply curve for each of the following goods, a tax on which one would result in the SMALLEST deadweight loss?
medicine
Long-run economic profits are equal to zero.
monopolistic competition; product differentiation
(Figure: Correcting Market Failure with Common Resources) Use Figure: Correcting Market Failure with Common Resources. An external cost is illustrated in the figure, with the two upward-sloping lines reflecting private and social marginal costs. Economists argue that, in an unregulated market, too _____ is produced. In the figure, the supply curve (S1) reflects the _____ marginal cost.
much; private
Connor's Corner Gas and Steven's Super Fuel are the only two providers of gasoline in their small town. Connor and Steven decide to form a cartel to raise the price of gasoline. Total profits of the two firms are highest when _____ cheat(s) on the agreement, and Connor's profits are highest when _____
neither firm; Connor cheats but Steven does not
connor's Corner Gas and Steven's Super Fuel are the only two providers of gasoline in their small town. Connor and Steven decide to form a cartel to raise the price of gasoline. Total profits of the two firms are highest when _____ cheat(s) on the agreement, and Connor's profits are highest when _____.
neither firm; Connor cheats but Steven does not
Google is often cited as an example of a company that grew into a monopolist through:
network externalities.
When Jeremiah watches a movie on Apple TV, his viewing is _____ in consumption because other people _____ able to watch the movie at the same time as Jeremiah does.
nonrival; are
The two most important sources of federal revenue are the _____ taxes.
payroll (FICA) and personal income
Perfect competition is characterized by a ______ demand curve, whereas monopoly is characterized by a _____ demand curve.
perfectly elastic; downward-sloping
Figure: Production Possibilities and Circular-Flow Diagram) Use Figure: Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram, capital that used to flow to firms producing bananas now flows to firms producing pineapple. This adjustment would be BEST represented in the production possibilities diagram by a move from point A toward:
point B (a decrease in banana production and an increase in pineapple production).
Suppose the price of cupcakes decreases by 5%, and the quantity of cupcakes demanded increases by 15% per day. Demand for cupcakes is:
price elastic.
(Figure: Winners and Losers from Rent Control) Use Figure: Winners and Losers from Rent Control. Consider the market for apartments. Before rent control, area B represents:
producer surplus.
(Figure: Producer Surplus and Supply of Water Coolers) Consider the figure Producer Surplus and Supply of Water Coolers. The difference between the total revenue received by sellers and their total cost is called _____, which is depicted by area _____ if the amount sold is E.
producer surplus; ABD
(Table: Production of Zucchini and Eggplant in Nutley Township) Use Table: Production of Zucchini and Eggplant in Nutley Township. This table shows the production possibility frontier for Nutley Township. Suppose Nutley Township produces 15 bushels of zucchini and 45 bushels of eggplant; this combination is:
productively efficient.
A tax of $200 on an income of $2,000, $400 on an income of $3,000, and $800 on an income of $4,000 is:
progressive.
Restrictions on free international trade in lumber, designed to insulate domestic lumber producers from competitive market forces, are _____ policies.
protectionist
A monopolistically competitive firm faces a downward sloping demand curve, while a perfectly competitive firm does not. This is because a monopolistic competitor:
provides a differentiated product
(Figure: The Production Possibilities for Taiwan and Japan) Use Figure: The Production Possibilities for Taiwan and Japan. Taiwan has a comparative advantage in producing _____, while Japan has a comparative advantage in producing _____.
rain boots; microchips
If rival permanent roof manufacturers in Los Angeles limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion
raise; tacit
If rival permanent roof manufacturers in Los Angeles limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion.
raise; tacit
Which of the following is a microeconomic topic?
reasons why a consumer buys more cheese
which of the following topics would be studied in macroeconomics?
recessions
The incidence of a tax:
refers to who really bears the burden of the tax.
The government imposes a tax of $100 per household to fund a new public park. This tax is:
regressive.
(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external costs:
resources will be overallocated to the production of the good.
Consumer groups that oppose excessive advertising argue that it:
results in higher prices to consumers.
A(n) ______ decision maker is willing to sacrifice some economic payoff to avoid a potential loss.
risk averse
Figure: The Supply of Apple TV Rentals) Use Figure: The Supply of Apple TV Rentals. An increase in the price of online movie rentals would result in the change illustrated by the move from:
s to t in panel C.
(Table: Production of Artisanal Cabinets) Use Table: The Production of Artisanal cabinets. After the _____ worker, the firm begins to experience diminishing returns to labor.
second
One of the earliest actions of antitrust policy was the breakup of:
the Standard Oil Company.
Scenario: The United States and Germany) Use Scenario: Two countries, the United States and Germany, produce two goods, barley (B) and aluminum (A). Each has a linear production possibility frontier in both goods. If the United States spends all of its available resources to produce barley, it can produce 500 tons of barley and no aluminum. If it uses all of its resources to produce aluminum, it can produce 250 tons of aluminum and no barley. If Germany spends all of its available resources producing barley, it can produce 400 tons of barley, and if it spends all of its resources on the production of aluminum, it can produce 400 tons of aluminum. this information, the country that has the absolute advantage in barley is _____, and the country that has the absolute advantage in aluminum is _____.
the United States; Germany
The Mile End Deli serves traditional delicatessen food in Brooklyn, New York. Which input is MOST likely fixed at the deli?
the chairs customers sit on
The amount of excess capacity in a monopolistically competitive market may be viewed as:
the cost of product diversity.
An increase in the price of strawberries causes strawberry jam producers and consumers to expect that the price of strawberry jam will rise in the future. In the market for strawberry jam, both the equilibrium price and the equilibrium quantity increase. It must be the case that:
the demand for strawberry jam increased by more than the supply of strawberry jam decreased.
Monopolistically competitive firms often hire celebrity spokespersons to advertise their products. One reason such advertising works is that:
the fact that a firm is willing to pay the large fees associated with celebrity advertising signals to consumers that it is a major company and that it is therefore likely to have a reliable product.
A sushi chef prepares a California roll for a customer. Which of the following factors is physical capital?
the knife use to cut the sushi
The price elasticity of demand for a good will tend to be larger:
the longer the relevant time period for behavioral change
A shift of the demand curve for fried chicken would NOT be caused by a change in:
the price of fried chicken.
The selling of _____ products at different prices to different consumers is the practice of _____.
the same; price discrimination
If the marginal social benefit received from pollution equals its marginal social cost:
the socially optimal level of pollution has been attained.
Aminah has a calculus exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Aminah decides to attend the lecture instead of studying for her exam. Aminah's opportunity cost of attending the lecture is: the transportation and time cost of getting to the lecture itself plus the reduction in her calculus exam grade as a result
the transportation and time cost of getting to the lecture itself plus the reduction in her calculus exam grade as a result of not studying tonight.
When the Chicago city manager receives complaints that the municipal courts are not fully accessible to individuals with disabilities, she responds that the $1 million improvement needed to address the problem will not happen because "that money could be spent building lavatory space for people with disabilities." Which economic principle does this statement BEST represent?
the true cost of something is its opportunity cost.
Suppose one parent picks up their child from day care, while the other parent stays home to make dinner. This is an example of the principle that:
there are gains from trade.
Tacit collusion is relatively easy for oligopolists if:
there are only a few firms in the industry.
The measles vaccine provides both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention:
too few doses of the vaccine would be produced, since its external benefits would not be considered.
Suppose that government officials have set an emissions tax to reduce pollution. Further suppose that, with the emissions tax, the marginal social cost of pollution is less than the marginal social benefit of pollution. The emissions tax is:
too high.
Economists may disagree about policies because they:
use different economic models.