Microeconomics Final Exam

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Holly spends exactly $50 on coffee each month. The price of tea decreases, while the price of coffee remains the same. Holly's cross price elasticity of demand of coffee with respect to tea is

0

There are two major Internet service providers in Corinthia. One company has a market share of 60 percent, and the other firm has a market share of 40 percent. The Herfindahl - Hirschman Index for the industry is ________

5,200

Suppose the Louis Corporation wouldn't be able to increase its profits if it decided to shift from the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the clothing industry are

Zero

Economists study ______; therefore, the unifying feature of economics is a focus on _________

all human behavior; choice

You observe a market where in the long run firms earn zero economic profit, consumer and producer surplus is not maximized, and when a new firm enters the market, the price of similar products decrease. You are most likely observing

A monopolistically competitive market

What types of nations would be against free trade?

A nation who wants to preserve their cultural uniqueness and a defense-oriented nation

Jeb mentions that the hog farm down the road from his house is creating a very nasty smell

A negative externality

What would not cause a shift in the supply curve for orange juice?

A new medical discovery about the benefits of citrus

Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land. This is an example of

A pecuniary externality

What is not the example of a natural monopoly?

A pizza restaurant and a burger restaurant come together in order to reduce competition and earn higher profits

George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of

A positive externality

What is the difference between accounting profit and economic profit?

Economic profit only subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs

In an oligopoly with differentiated products

Economic profit will exist

Economics is all about making choices. The reason we have to choose one thing over another is

Economic resources are scarce

A natural monopoly may develop because _______ make it efficient to have only one provider of a good or service. It is characterized by fixed costs that are _______

Economies of scale; substantial

What is not one of the three conditions that characterizes a perfectly competitive market?

Firms have pricing power and can set their prices freely

Which of the following is a difference between a monopolistically competitive market and a monopoly in the long run?

Firms in a monopolistically competitive earn zero economic profits in the long run, while a monopolist usually earns positive economic profits in the long run

How does microeconomics differ from macroeconomics?

microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole

$100 is to be divided among two individuals - Mary and Jenna. Which of the following allocations is Pareto efficient?

Mary receives $1, and Jenna receives $99

Nikki decided to jog three miles for exercise by reasoning that a three mile jog was better than a two mile or four mile jog

Optimization using marginal analysis, since she is calculating the difference in net benefits between alternatives

New firms are free to enter the industry in the long run

Perfect competition: True Monopoly: False Monopolistic competition: True

Firms equate price and marginal cost

Perfect competition: True Monopoly: False Monopolistic: False

Firms equate marginal revenue and marginal cost

Perfect competition: True Monopoly: True Monoplistic competition: True

What is not an example of monopolistic competition?

Pharmaceuticals

A project should be undertaken if the net present value is

Positive

When economists value rewards that will be experienced in the future, they multiply the reward by a __________ factor that is __________ one to capture the idea that future rewards are worth less than current rewards

Positive; less than

What is not an example of empiricism?

Predicting human behavior

What is true about economies of scale?

The downward - sloping portion of the long - run average cost curve indicates the presence of economies of scale in production

What statements are true regarding future rewards and risky rewards?

The economic tools used to value them use weights, the value of a future reward is obtained by multiplying the reward by a positive factor that is less than 1, a current reward is worth more than a future reward

Positive externality will occur when

The marginal social benefit is greater than the marginal cost to produce at the market equilibrium

In a perfectly competitive market, what is not true?

The market supply cannot affect the retail price

How is the mean calculated from a series of​ observations?

The mean is the sum values of the observations divided by the number of observations

The concept of diminishing marginal benefits states that

The more you consume of a​ good, your willingness to pay for an additional unit declines

Example of a variable with negative correlation

The number of winter coats sold and the temperature outside

In what situation is optimization a good description of behavior?

Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable

Data helps establish

Whether theories match reality

The tragedy of the commons results when

Common pool resources are overused

If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurred when the eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is

$15

When economists speak of a deadweight loss, they are referring to ________ in __________ caused by a market distortion

A decrease; social surplus

What firm is most likely to have a constant marginal cost?

A firm that has extremely high fixed costs

What statement correctly indicates a property of good economic questions?

A good economic question addresses topics that are important to economic agents and/or society

You should collect _______ amount of data to create ________ to test the _________ indicated by the economic model

A large; empirical evidence; hypotheses

The congestion charge is an example of _________ to the negative externality associated with common pool resources

A market - based government solution

Expected value is

A probability-weighted value that gives the average payoff from an event

The principle of comparative advantage provides

A range of prices within which trade will occur

What best describes equilibrium?

A situation where no economic agent would benefit by changing his or her behavior

A change in the wage rate paid to the variable factor (labor) will shift the

ATC, AVC, and MC curves

For a firm, economies of scale occur when the _____ for a firm ______ as the quantity produced increases

ATC; decreases

The long-run supply curve is the portion of the MC curve

Above the ATC curve

An externality occurs when

An economic activity affects third parties not engaged in the activity

A government is an example of

An economic agent

The economic profits made by a monopolistically competitive firm decreases when there is ________ and is equal to zero _________ when in long-run equilibrium

An entry of a new firm; when in long-run equilibrium

When existing firms leave a perfectly competitive market, it causes

An increase in profitability of existing firms

A negative income elasticity would indicate ________ good. If your income increased 10% and your demand for diamond jewlery increased 15%, diamond jewlery would be considered _______ good

An inferior; a luxury

What principle of economics is false?

An investor selecting and investing in a stock or a combination of stocks that always earns him 15% returns on his investment is an example of optimization

Consider a market structure in which there are only a few firms. These firms face a downward sloping residual demand curve with some entry barriers in the long-run. These conditions are satisfied by ________ market structure. In this market, if there are zero economic profits, then it reflects a situation of ________. If there are more than zero economic profits, then it depicts a case of _________

An oligopolistic; homogeneous products in the long-run; differentiated products in the long-run

What would not cause an increase in producer surplus?

An upward shift in the marginal cost curve

Oligopolistic firms that sell differentiated products determine their prices when prices are

Determined simultaneously by the firms as best responses given other firm prices

In a competitive market, there a ________ number of buyers and a __________ number of sellers

Large; large

Why is the market demand curve for public goods calculated as a vertical summation of individual demand​ curves?

Because the public good is​ non-rival, so you and others can consume every unit of the good at the same time.

What is not a measure of elasticity?

Behavioral elasticity of demand

When the ATC curve is decreasing, we know that the MC curve is ________, and when the ATC curve is increasing, we know that MC is ________

Below the ATC curve; above the ATC Curve

Since the inputs used to produce goods are​ scarce, the total amount produced of most goods is _______ the amount that consumers would like to buy. To allocate the goods produced to the people who value them the​ most, we use ________

Below; the price mechanism

When you take out a loan from a bank, you are ________ the bank. This moves your spending from ______ later to now.

Borrowing from; later to now

Combinations of apples and loaves of bread that a consumer could purchase would represent a _________ while a __________ represents the amount of apples and bread that a consumer could choose using his or her entire budget

Budget Set; Budget Constraint

How is net present value used to decide whether a project should be undertaken or not?

By comparing the upfront cost of a project to the discounted value of the future benefits from the project

All of the following are examples of independent outcomes except

Choosing a card from a deck of cards, not replacing it, and then choosing another card

An example of an industry or service that is a natural monopoly is

City drinking water

A library's collection of e-books is a

Club good

A model is based on an assumption that an additional year of education increases a student's future wage by 20 percent. Refer to the scenario above. The hypothesis of the model is that

College graduates will earn 107 percent more than high school graduates

There are a few firms in the automobile industries in Zadima. To prevent a price war, these firms have secretly agreed to charge a price 20 percent above the marginal cost of production. This is an example of

Collusion

Radio spectrum is a

Common pool resource

In a perfectly competitive market, sellers _________ and buyers _________

Cannot charge more than the market price; cannot pay less than the market price

In a perfectly competitive market, a seller ________ choose to raise the price of its good since all sellers in the market produce ________, so raising the price would result in _________

Cannot; identical goods; losing all its customers

An experiment would be conducted to determine _______ among the chosen variables. Subjects should be assigned ________ to either test or control group in order to get the most unbiased comparison

Causation; randomly

Externalities are called market failures because they

Cause markets to produce suboptimal social outcomes

First degree price discrimination

Charges each consumer the maximum price they're willing to pay

What are necessary ingredients to the buyer's problem?

Consumer's tastes and preferences, prices of goods and services, and amount of money the consumer has to spend

Lily is granted an exclusive right to the poems written by her late father. What is this an example of?

Copyright

Richard carves sculptures, for which he is granted an exclusive right. What is this an example of?

Copyright

You decide to run an experiment. You invite 20 friends to a party. You randomly select 10 friends and tell them that there will be free food: most of them show up to the party. For the other 10 friends you do not mention the free food: none of these friends show up. Based on the correlation in your data and also assuming that the correlation is not spurious, you conclude that free food causes people to come to parties. Given this information, it can be concluded that

Correlation implies causation

The formation of a natural monopoly is practical for both producers and consumers because it offers them

Cost advantages

A monopolist should continue to increase production until marginal

Cost is equal to marginal revenue.

For a market to be characterized as monopolistically competitive, there must be

Differentiated products, zero economic profits in the long run, and many sellers

When a firm exercises its monopoly​ power, the cost to society is the​

Deadweight loss

A deadweight loss is the ________ in social surplus that results from a market ________

Decrease; distortion

Everything else the same, as the price of the good increases, quantity demanded

Decreases

The demand curve shows

How the quantity demanded responds to changes in the price of the good

In a perfect competitive market, a firm with multiple production plants will minimize total costs of production when

Each plant produces where marginal revenue equals marginal cost

What is true about optimization?

Economic agents who optimize attempt to choose the best feasible option, given the INF that they have

What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?

Economic models

Your client becomes critical of your​ "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this​ criticism?

Economic models are meant to be approximations that predict what happens in most circumstances

What is not an item studied under microeconomics?

Economic output

What is not a characteristic of monopolistic competition?

Entry and exit is not easy and products are perfect substitutes

What approach would be the least effective way to deal with free riders?

Exclude citizens from benefitting from the good or service

A utility function exhibits diminishing marginal utility of consumption ______ as the background level of consumption ________

Falls; rises

An example of a monopolistically competitive firm is the

Fast-food industry

Economists estimate that the income elasticity of demand for women's hairstyling services is +3.5, suggesting that

Hairstyling services are a normal good and quantity demanded will increase as income increase

The interest rates on loans tend to be ________ the interest rates on investments

Higher than

In a perfectly competitive market, an individual seller sells only a negligible fraction of the total amount of the good produced. This is why

His individual choices do not affect market price

The long-run supply curve for a firm in a perfectly competitive industry is

Horizontal

The long-run supply curve in a perfectly competitive market is

Horizontal

Given the long-run adjustment process that takes place after a supply or demand shock, we know that the industry supply curve must be

Horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.

Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative?

If you use a diamond mine as a tourist attraction instead of using it for mining

The gambler's fallacy occurs when gamblers

Ignore the independence of outcomes in some games and believe they are on a hot streak

How has the pattern of trade changed in the United States since​ 1960?

Imports have grown faster than​ exports, and the United States has become a net importer

What is a key difference between perfect competition and monopoly?

In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price

The exclusitivity laws in the form of patents and copyrights make _______ better off and ________ worse off

Innovators; consumers

Which of the following economic tools can be used to solve the tragedy of the commons?

Incentives to self-regulate the use of resources, pigouvian tax, and privatization of the resource

Why is national defense better off as a natural monopoly?

Industries like national defense experience economies of scale since they have high fixed costs. Thus, it is cheaper to have a single firm provide a larger quantity

If firms in a perfectly competitive market are earning profits or incurring losses in the short run, then the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the ______ until profits are _______

Industry supply curve; zero

The market demand curve for a public good

Is found by summing all of the individual's marginal benefit at a given quantity

Markets in which the Herfindahl -Hirchman Index _______ are considered not concentrated

Is less than 1,000

What is true about pecuniary externalities?

It affects other people only through market price

If the production of a good gives rise to a negative externality

It can be internalized by taxing the producers of the good

In a perfectly competitive market, when firms enter and exit competitive markets

It is a good sign the market is working.

What is not true regarding producer surplus?

It is the area below the marginal cost curve, it is the difference between total revenue, and it is not possible to calculate the total producer surplus in the market

What is not true about producer surplus?

It is the difference between total and total revenue, it is the area below the marginal cost curve, and it is not possible to calculate the total producer surplus in the market

What statement regarding the principle of optimization is true?

It is the unifying principle that connects various seemingly unrelated decisions, and it takes into account and evaluates multiple trade-offs

For most people, one of the biggest challenges involved in studying economics is

It looks beyond simple cause and effect to many possible long term effects of an action

For an outcome to be risky

It must be random

What is true regarding the profit-maximizing price charged by a monopolist?

It occurs at the quantity where MR=MC, it occurs along the elastic part of the demand curve, it is greater than MR, and it is greater than MC

What is not true about risk

It occurs when all of the costs are predictable

A firm will maximize profits at the level of output where

Its marginal revenue equals its marginal cost

What is an example where precriptive economic analysis is necessary?

Jay chooses to go to Europe rather than China because of the huge discounts

Assume that the market for chocolates is perfectly competitive, which statement would be true?

Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price

Two outcomes are said to be independent when

Knowing about one outcome does not help you predict the other outcome

Maylin goes to her local sporting goods store to buy socks and jogging shorts. Socks cost $10 per pair and jogging shorts costs $15 each. At her current consumption bundle pair of 4 pairs of socks and 2 jogging shorts, her marginal benefit from the last pair of socks is 20 and the marginal benefit of the last jogging short is 30. Maylin should

Leave her consumption bundle unchanged

The process implies that future rewards are worth _________ current rewards

Less than

Natural monopolists worry _______ about potential entrants compared to the monopolies that arise through legal means since economic profits are ________ likely to attract potential market entrants

Less; less

When a monopolist sells positive levels of output, its demand curve

Lies above its marginal revenue curve

In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will

Lose all or almost all of its customers

Suppose a country produces only two goods: good X and good Y. The opportunity cost of producing good Y equals

Loss in good X/gain in good Y

What is considered a scarce resource for producers?

Low-skill labor, equipment and tools, and natural resources for production

When a firm exercises its monopoly​ power, social surplus is _____ when compared to a perfectly competitive market.

Lower

The equilibrium output produced by a monopolistic competitor in the long run after the entry of new firms is

Lower than the equilibrium output produced by the firm before the entry of new firms

Compared to a perfectly competitive market, consumer surplus is _______, producer surplus is ________, and deadweight loss is _________

Lower; higher; higher

What are the types of goods that are causing the shift in the balance of imports and exports in the United States?

Manufactured goods have played an important role in tge shift, even though the number of manufactured goods has increased

Consider four market​ structures: perfect​ competition, monopolistic​ competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where​

Marginal revenue equals marginal cost

What is not true about a firm's elasticity of supply

Market price

Seller A increases the price of its good by 20% and still enjoys a high market demand. Due to the high demand, there is an increase in the number of similar sellers in the long-run. This is an example of

Monopolistic competition

Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami and over 12 separate airlines provide service. This market can best be characterized as

Monopolistic competition

What is not true about market structures?

Monopolistic competitors practice marginal cost pricing

The Department of Justice filed a lawsuit against Microsoft claiming it was engaging in unfair practices by

Monopolizing the market by bundling its operating system secret from users and competitors

A product with no close substitutes. What type of market is it?

Monopoly

Given the same cost curves, would you expect prices to be higher in a monopoly or a monopolistically competitive market?

Monopoly, because its demand is more inelastic

Absolute advantage is the ability of an individual, firm, or country to produce

More of a certain good than other competing producers, given the same number of resources

If two investments have the same expected return, people who are risk seeking will prefer the investment with

More risk

Compared to a monopoly that does not price discriminate, a monopolist who engages in perfect price discrimination will produce _________ output and have ________ deadweight loss

More; no

A competitive market will

Move towards equilibrium quantity because both producers and consumers act in their own best interest

Expected value is calculated by

Multiplying the probability of each possible outcome by the dollars associated with each outcome

To value the delayed benefits, economists weight the reward by

Multiplying the reward by a positive factor that is less than 1

What are subjects to the free-rider program?

National security, public libraries, and a neighborhood watch

Economies of scale in production act as a source of ______ market power

Natural

Suppose Louis Corporation could increase its profits considerably if it decided to shift fro, the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the industry are

Negative

Some economists believe the threat of unfair monopolies is greater today than when the Sherman Act was first enacted. They argue that modern software can gain monopoly status and establish a barrier to entry through

Network externalities

Which of the following factors will not lead to zero economic profit in long-run equilibrium in a monopolistically competitive market?

No factors

Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive market?

No, because firms restrict output to raise price

Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand. As a result, the firm's market share is almost 100 percent. Meanwhile, other firms are trying to regain their market shares through research and development. Is this firm a monopolist?

No, because it faces potential competition from other companies

Some people choose to live close to the city​ center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being​ irrational?

No, because their opportunity cost of commuting must be lower

A monopoly has _______ and _______. Price is set ________ marginal cost

One seller, many buyers, greater than

Total revenue for a monopolist is maximized

Only if marginal revenue is zero

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $120 and his marginal benefit from an additional slice of pizza is $60. If the price of a soft drink is $1 and the price of a slice of pizza is $4, is Charley maximizing his total benefits?

No, he should shift consumption toward soft towards and away from pizza to maximize total benefits

As long as you recieve the same amount, is a sum of money worth the same today and one year later?

No, if there is a positive interest rate the same amount of money is worth more today than receiving it in the future

Can two indifference curves intersect? Explain your answer

No, intersecting indifference curves would imply that a consumer is indifferent between bundles that yield different total benefits

If a good is considered to be a luxury good, does it mean that the Law of Demand does not hold?

No, it only means that its income elasticity of demand is greater than 1.0, so the Law of Demand still holds

Does it make sense to buy extended warranties on televisions and other small home appliances?

No, the cost of the warranty will be too high compared to the cost of the item, the likelihood of a breakage, and your lifetime income

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to this question?

No, the model is a simplified representation of reality

Are all markets perfectly competitive?

No, there are other market types where firms have have considerable power to control the price

Sofia, a political science​ student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The​ government, she​ reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with​ her? Explain your answer

No, these industries are declining not because of coordination problems but, rather, because of falling demand

In the long run, which of the following factors of production is fixed for a firm?

None of the above

John is attempting to decide on a movie. He determines that the new Batman movie is preferred to the new Spider-Man movie and that both the Batman and Spider-Man movies are preferred to the new Superman movie

Optimization using marginal analysis, since he is calculating the change in net benefits between alternatives

Lauren mentions that it is particularly windy today. This is an example of

Not an externality

Suppose the refrigerator industry has an HHI of​ 2,500 while the aluminum​ industry's HHI is​ 6,850. Is this information sufficient to conclude that the aluminum market is less competitive than the market for​ refrigerators?

Not necessarily. Although the HHI indicates a smaller number of​ firms, those firms may compete intensely

A firm's optimal output is 1,000 units per month, with a fixed cost of $300 per month and variable cost of $200 per month. The market price of this good is $0.40. The firm decides to shut down. In such a situation, this firm should

Not shut down production in the short run

What would not be considered one of the possible opportunity costs of a recent high school graduate starting college right away?

Nothing

Firms set market price depending on other firm's market price. What type of market is it?

Oligopoly

A good is non-rival in consumption if

One person's use of the good does not preclude consumption by others

At a yard sale, Reagan calculated that she was willing to pay $200 for a queen bed that was being sold for $100, and that she was willing to pay $220 for a king bed that was being sold for $300

Optimization using total value, since she is comparing total benefits between alternatives

Suppose a total of 2,500 students are allowed in the engineering programs at all of the colleges in a particular city. From the previous three years' record, it shows that the number of students who enroll in the entrance exam for the engineering program increases if there is an increase in the number of IT recruiters the previous year. This year there is a total of 3,200 students who have enrolled to take the entrance exam of which only up to 2,500 of those who passed would get in. Based on either the students' perspective or the college perspective, what combination of economic key concepts does the situation follow?

Optimization, equilibrium, and empiricism

What is an example of the tragedy of the commons?

Overfishing in public waters

What is true about price, P?

P=MR=MC can only be true in perfect competition

Greenaqua Corp. was given the exclusive right to produce and sell its newly introduced water purifier for 20 years. The right granted to Greenaqua is an example of a

Patent

Mr. D'Souza invented product A and is granted an exclusive right to manufacture and sell it. What is this an example of?

Patent

With loss aversion

People weight, say, a $100 loss more heavily than a $100 gain

Advances in wireless communication technology are reducing the non-financial costs of long commutes; for example, people who ride trains can get work done, and people who drive cars have more entertainment options. How will this affect people's willingness to pay for apartments near the city center?

People will be less willing to pay for these apartments since the opportunity cost of the commute time from outside the city is decreasing. This makes the more affordable housing outside the city more attractive to people

Economics can be used to predict

People's actions

Free riding occurs when ________ are out of sync with ________

People's private benefits; the public interest

A market structure in which identical goods are produced by several different firms and sold at the market-determined price is referred to as

Perfect competition

Firms with zero ability to affect price. What type of market is it?

Perfect competition

Homogeneous products are found in

Perfect competition and oligopoly market structures

Which option correctly sorts different market structures in terms of number of firms operating in them, from the most to the least?

Perfect competition, monopolistic competition, oligopoly, monopoly

Firms earn economic profits in the long run

Perfect competition: False Monopoly: True Monopolistic competition: False

Firms produce the quantity that minimizes long-run average cost

Perfect competition: True Monopoly: False Monopolistic competition: False

Mason and Jack are neighbors. Mason wants to buy a new outdoor grill so he can barbecue. Mason has two​ options, a charcoal grill or a gas grill. By using _________​, he chooses to buy a gas grill. Mason knows that Jack would borrow his grill without​ asking; therefore, decides to use __________ in order to prevent his neighbor Jack from becoming a​ free-rider

Prescriptive economic analysis; equilibrium analysis

How to calculate the present value of a future payment?

Present value = (Payment T periods from)/(1 + interest rate)^T

What needs to be considered when lending money?

Prevailing interest rate, opportunity cost of the investment, time value of money

A perfectly competitive firm will choose to shut down when the ________ intersects the marginal cost curve below the ___________

Price (marginal revenue); average variable cost curve

Producer surplus is the difference between the _______ and the ________

Price consumers pay; supply curve

When firms charge different prices to different consumers for the same good or service, it is referred to as

Price discrimination

Price of elasticity equation

Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price

All firms in a perfectly competitive market are said to be

Price takers

The Coase Theorem states that

Private bargaining will result in an efficient allocation of resources

Health insurance is a

Private good

Is producer surplus always equal to​ profit?

Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve

What is not a source of natural market power?

Production of a luxury good

Equation for calculating economic profits for a monopoly

Profits = (P-ATC) x Q

An indifference curve is set of bundles that

Provide an equal level of satisfaction for the consumer

A mosquito control program in a city is a

Public good

A video on YouTube is a

Public good

National defense is a

Public good

To optimize your decision of whether or not to attend college, you should

Put all the up-front costs and future benefits of going to college into comparable units so they can be compared

If a firm is maximizing profits in the short run at a level of output where (average total cost > price > average variable cost, then the firm is

Realizing losses and will minimize losses by continuing to produce

When the price of wine is $10 per bottle, Thomas purchases 30 bottles of wine per month. Suppose the government levies a 50 percent tax on all alcoholic beverages. The burden of this tax is to be completely borne by the consumers. This reduces Thomas's consumption to 20 bottles of wine per month. After the implementation of the tax, Thomas's expenditure on wine will

Remain the same

When one of the four major factors​ changes, causing an increase in​ supply, the supply curve shifts

Rightward

Economists have done numerous studies on how much risk people are willing to take in a variety of situations. They have found that in most situations people overall are

Risk averse

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. In your first presentation to management, how would you describe your planned methodology to preform the analysis?

Scientific method

Given that most people are risk averse and that most extended warranties that are offered on smaller electronic purchases tend to cost more than the benefits they provide it is likely true that firms

Sell many extended warranties since people are willing to pay extra to avoid the risk of a loss

The demand curve will ________ and its slope will be ________ if a firm exits the market

Shift right; steeper

In a monopolistically competitive market, a firm earning negative economic profit in the short run will

Shut down only if price is less than average variable cost

Why does a demand curve with a constant slope not have a constant elasticity?

Slope is based on absolute change and elasticity is based on percentage change

Lily wants to maximize her benefit of consuming apples and bananas, given her fixed budget of $10 for these two fruits. The price of an apple is $1, and the price of a banana is $0.50. In order to derive Lily's demand curve for bananas, we need to

Solve the buyer's problem for her multiple times and find the optimal number of bananas, when price of a bananas is at a different level each time

What is the problem with the argument that infant industries need to be protected from foreign competition?

Starting a company in isolation may deprive it of "technology spillovers" that its competitors, all located near one another, may enjoy

If cross price elasticity is positive, then the two goods are _________. If the price of coffee goes up, and as such, the demand for Coffee Mate decreases, this would indicate a _________ cross-price elasticity and that the two goods are ________

Substitutes; negative; complements

The Law of Diminishing Returns states that

Successive increases in inputs eventually lead to less additional output when one of the inputs is fixed

What are the positives of copyright and patent laws?

Such laws offer incentives to innovators, and such laws do not provide permanent protection to innovators

Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then

Supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease

He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ______ with ____

Testing its predictions; empirical data

If an individual only consumes goods X and Y and is currently maximizing her total benefits, what must be true?

The "equal bang for the buck" rule is adhered to, no other consumption choice can make total benefits greater, MB x/P x = MB y/P y, and the marginal benefits per dollar spent are the same for both goods

What is an example of diminishing marginal return?

The additional output produced by a firm decreasing as more workers are hired

What is not a determining factor of consumers' purchase decisions?

The cost of factor inputs

What happens in a monopolistically competitive market when new firms enter the market?

The existing firm's demand curve shifts in and becomes flatter

Perfect price discrimination implies that

The firm produces a larger output than it would as a single - price monopolist

Firm A uses production technology that affects the environment. What are command and control policies to regulate firm A?

The government makes it compulsory for firm A to use environment friendly technology, and firm A is not allowed by the government to produce more than 100 units if it does not use environment-friendly technology

What theory/model about the returns to education states that an additional year of education raises future earnings, regardless of whether the student completes their degree

The human capital model

What is not a major factor that shifts a supply curve when it changes?

The income of consumers

The long-run supply curve in a perfectly competitive market states that

The long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost

The free-rider dilemma occurs because

The marginal benefit to a group is different than to that of the individual

Which of the following statements explains the concept of the tragedy of the commons?

The open access to common resources results in their depletion through overuse, and it results when the free market equilibrium quantity is higher than the optimal equilibrium quantity

If the production of a good involves negative externalities

The optimal price of the good is higher than the market price of the good

An outcome is described to be risky when

The outcome of either a good or bad event is not known in advance

What is not a problem associated with randomized experiments?

The participants in the treatment group and the control group are not identical in all respects

What will lead to an efficient private solution if negative externalitiesare present in a market?

The parties involved negotiating with each other and reaching an agreement

Suppose Good A belongs to a market where the firms earn zero economic profits in the long-run and entry of new firms will result in price changes that operate through shifts in the market supply curve for Good A. Which market structure does Good A belong to?

The perfectly competitive market

In the long run, the supply curve for a perfectly competitive firm is represented by

The portion of the marginal cost curve above average total cost

The short-run supply curve for a perfectly competitive firm is represented by

The portion of the marginal cost curve above average variable cost

What statements explain positive economics?

The predictions are testable, and it can be rejected or amended depending on the evidence available

What is not a common characteristic between a monopoly and monopolistic competition?

The products sold have close substitutes

What statement regarding economic questions is not correct?

The questions must have implication on individuals' choices and their budget

In equilibrium

The ratio of marginal benefits to price should be identical across all goods

The industry demand curve demonstrates

The realistic assumption that the Law of Demand holds for the good under consideration

A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because

The reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off

In a perfectly competitive market

The sellers produce identical goods

You live in a house with eleven other college students. The kitchen is a mess since no one cleans up and the sink is overflowing with dishes. This is an example of

The tragedy of the commons

The concept of opportunity cost is a measure of

The value of the best alternative use of a resource

What does not support the concept of an economic agent?

Their decisions do not have an effect on the economy of a country, and all economic agents are individuals

Are all efficient outcomes also equitable?

There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative economics, where subjective value judgements are made

Why does a monopolistically competitive industry make zero economic profit in the long-run?

There is the free entry of many firms in the long-run

Which of the following is likely to happen if the government imposes a price control at $60, when the demand curve shifts to D2?

There will be a shortage of 15 units of the good in the market

What best describes network externalities?

They occur when a product's value increases as more consumers begin to use it

What is the intent of the Pigouvian tax?

To induce producers of a negative externality to reduce production to the socially optimal level

The aggregate difference between the average total cost (ATC) and average variable cost (AVC) for all units of production is the

Total fixed cost

What expression describes economic profits?

Total revenues- implicit costs - explicit costs

What would maximize social surplus?

Trade at the competitive market equilibrium

The Coarse Theroem will breakdown when

Transaction costs become high, when property rights are not clearly defined, and there are a large number of agents

The long-run average total cost curve is _______ and is found by using the _________

U-shaped; minimum point across all possible ATC curves for a given quantity

How are the products sold by a monopolistically competitive firm different from the products sold in a competitive market?

Unlike products sold in a competitive market, the products sold in a monoplistically competitive market are differentiated

What can cause a free-rider problem?

Use of public parks by locals, and the street light on the road

Which of the following is more susceptible to the free-rider problem: government-funded symphonies or street lights?

Use of street lights is more susceptible since even those who don't pay taxes still benefits, while government-funded symphonies can charge for admission, so that everyone who goes pays their share

If exit occurs from the U.S. coal industry and entry occurs into the U.S. solar panel industry, we would expect

Wages to fall in the U.S. coal industry and to rise in the solar panel industry

The costs of many food safety regulations can be calculated in dollars, but the benefits often are in terms of lives saved (mortality) or decreases in the incidence of a particular illness (morbidity). What does this imply about the cost-benefit analysis of food safety regulations?

We must first translate the mortality and morbidity data into dollars in order to compare it to the cost of the regulations

What is not an example of an issue a researcher could study to contribute to the welfare of society?

What combination of colors can one use to pain his bedroom wall?

What is not a question or study of economic concern

What is the motivation of the Red Cross?

The problem of superbugs, which are bacteria that resist all available forms of antibiotics, is becoming a serious challenge for doctors. Developing new antibitoics is very costly. Can a monopoly be good for the society in this regard?

Yes, because innovation is more likely in a monopoly

Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run?

Yes, but only if price stayed above average variable cost

Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive equilibrium?

Yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price

Is it possible for accounting profit to be positive and economic profit to be negative?

Yes, this could occur if explicit costs were modest and implicit costs were high

Are there real-world markets that resemble double oral auctions?

Yes, trading on the New York Stock Exchange is very similar to a double oral auction

Suppose there are three activites in which you could participate. The opportunity cost of the first activity is missing three hours of work, the opportunity cost of the second activity is missing a concert that you have tickets to, and the opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs?

You can compare all the activities after you translate all the missed activities into dollar amounts

If you were to purchase a $700 Samsung smart phone from Amazon, we could conclude all of the following except

You would rather have a laptop that costs $700

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ used to solve an externality

command and control approach

Public goods are _______ in rivalry and ________ in excludability

low, low

A supply curve has a ________ slope due to the Law of Supply. The Law of Supply states that supplies ________ as price increases

positive; increase

Both optimization using total value and optimization using marginal analysis

provide identical answers when comparing two alternatives


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