principles of microeconomics final exam- horton

economic philosophy of John Maynard Keynes

"in the long-run we are all dead"

Say's law

"supply creates its own demand"

which of the following competitive situations is best modeled as a Prisoners' Dilemma?

?

who advocated trying to measure the marginal social benefit and subsidizing the producers of the primary good by the amount of the marginal social benefit of a positive extenality?

A.C. Pigou

in the case of equilibrium quantity, at point C, which of the following is the area of consumer surplus in the graph (number 27 test 2)

AFH

in the case of a quantity restriction, or quota, at point I, which is the area of consumer surplus (number 26 test 2)

AGE

which of the following methods of internalizing an externality requires an initial allocation of property rights (or pollution permits) but then allows a secondary market in those rights (or pollution permits) to establish the least cost solution?

Coasian "emissions trading"

in the case of a quantity restriction, or quota, at point I, which of the following is the area of dead weight loss in the graph shown above (number 25 on test 2)

EKH

which of the following auctions is subject to "the winner's cursw"

English auction

which of the following is (are) characteristic of monopolistic competition? I) a few firms II) free flow of information III) identical products IV) no barriers to entry and exit

I, II and IV only

For which of the following types of inputs does the principle of diminishing returns hold? I) land II) labor III) capital IV) entrepreneurship

I, II, III, and IV

which of the following is an example of a cartel? I) Walmart II) DeBeers diamond syndicate III) Home Depot IV) Organization of Petroleum Exporting Countries

II and IV only

which two of the following assumptions are most important in explaining how economic profit disappears in perfect competition in the long-run? I) many, small firms II) free flow of information III) no barriers to entry or exit IV) identical (homogeneous) products

II and IV only

which of the following would call for more government planning in the economy?

Keynesian economics

Billy Ray Zeckhauser accidentally let his boat insurance lapse. His agent has told him that he will not be able to get his policy reinstated until until the weekend. Billy Ray decided not to take his usual six-pack of Budweiser when he goes boating this weekend. Which of the following describes his action?

Moral hazard

which of the following methods of internalizing an externaility requires an army of economists to try to estimate the values of positive externailities for determining subsidies and the values of negative externailities for assessing taxes?

Pigouvian "command-and-control"

freedom of the press

Prof. A. Sen said that this is all that is necessary for political freedom

which of the following mechanisms can be thought of as individuals maximizing their utility by comparing the marginal benefits of local public goods to the marginal costs of local taxes and choosing the community that most closely matches their preferences best?

Tiebout's "voting with feet"

T or F: how much output a firm must produce in order to maximize its profit is a microeconomic questions

True

which of the following does the Dominant Firm/Competitive Fringe Model describe best?

Walmart and dollar stores

which of the following implies that if all but one of the markets in a system is in equilibrium, then that last one is, too?

Walras' Law of markets

this always results in a surplus

a binding price floor forces the going price to be above the equilibrium price

if guns are outlawed after mass shootings in Orlando and Las Vegas, then what mechanism will emerge so that only the rich will have access to guns, albeit illegally?

a black market

which of the following does the Kinked Demand Curve model describe most accurately?

a cartel like OPEC

price and quantity demanded

a change in either or both of these will change total revenue

assuming that gasoline is at most a very minor input in automobile manufacturing, an increase in the price of gasoline, ceteris paribus, will result in

a decrease in both equilibrium price and quantity of automobiles

an increase in the price of Florsheim wingtip dress shoes, ceteris paribus, results in _____ of high-quality Gold Tip dress socks

a decrease in demand

which of the following types of businesses is likeliest to operate as monopolistically competitive

a fast-food restaurant in a city (not a town like Arkadelphia)

which of the following best illustrates Economies of Scale?

a public utility like Entergy

Jim has been an art history major and has fifteen hours credit in art. he doesnt like art, but doesnt want the hours he has taken to be wasted. why might you tell Jim to drop his art history major?

abandon sunk cost

the tendency for good students to avoid blow-off classes and bad students to avoid difficult classes is an example of

adverse selection

in the bridal suite at hogwaller state park cabins facility, newlywed emmy sue decides to test bobby rays love by opening her mouth for exception, throwing her wig on the floor, and propping her knobby feet up on the table while she whips out photos of her three fatherless kids that are waiting at home. bobby ray finds himself thinking wistfully:" i could have gone to OBU on the promise scholarship and married a tri chi. at least they have good teeth, real hair, and strong enough feet so they can go out and slop the hogs!" which of the following is the existence of social clubs likeliest to prevent

adverse selection in marriage markets

in real-life, opportunity costs are likelier to be increasing instead of constant since

all of the above

which of the following can give risk to "First-Mover Advantage"

all of the above

which of the following can shift a firm's demand labor for labor curve?

all of the above (changes in technology, increases in human capital, changes in product price)

which of the following can shift labor supply?

all of the above (increases in population, changing demographics, changing alternative to labor)

which of these is a dimension along which a firm may differentiate its product/service?

all of these (service before the sale, demographcally, geographically)

in which of the following situations is specialization impossible?

an economy of one person

cable TV package deals for costumers

anti-competitive tactic: product tying and bundling

principle of parsimony

assumptions are necessary, because simpler models are better than complex models

Bobby Ray thinks Emmy Sue is the greatest girl on earth. she has all of her teeth, sports big hair, and wears shoes. he took her to the Arkadoo High School prom in a chauffeur-driven four-wheeler, bought her a while gold engagement ring fitted with a rock he found himself at Crater of Diamonds State Park, and spent half his bonus to propose to her over a candlelit dinner with a half-sober fiddle player at the Pig Pit cafe. If Emmy Sue knows that she has about 10 cavities that will require root canals in the next two years, wears a deluxe blonde wig over her shining bald head, and suffers from unsightly corns, and bunions, what best describes the situation?

asymmetric information

marginal revenue cuts ____ at its _____

average revenue, maximum

the market structure in which there is only one buyer of labor services and one seller of products in a particular location is

bilateral monopoly

the long run equilibrium position of a perfectly competitive firm is that of economic

break even

which of the following is non-excludable and rival in demand

common property resource

which of the following indicates why some people get paid more for doing really crummy jobs, like shoveling animal excrement or being university administrators, than for doing really fun and pleasant jobs, like making daisy chains or teaching OBU students?

compensating wage differentials

which of the following is assumed by a linear production possibilities frontier?

constant opportunity costs

which of the following is measured by the area below the demand curve but above prevailing price?

consumer surplus

which of the following is likeliest to happen to the market for Ouachita classes when there is a large increase in the price of textbooks, ceteris paribus?

decrease in demand for OBU classes

an increase in the cost of corn syrup is likely to bring which of the following for Dr. Pepper

decrease in supply and decrease in the quantity supplied

an increase in consumer incomes, ceteris paribus, will shift the

demand curve for an inferior good to the left

consider the market for a name brand replacement radial tires, such as Michelin or Cooper. What will be the likeliest effect, ceteris paribus, of an increase in consumer income?

demand will increase, since name brands are typically considered normal goods

in which model of oligopoly does a near-monopoly set a low price and maximize profit so that smaller firms cannot compete and eventually die off unless they can practice sufficient product differentiation?

dominant firm/ competitive fringe model

which of the following is the best response for a player to make, given any strategy that other players might choose?

dominant strategy

which of the following is a nash equilibrium

each player is playing the best strategy, given that the other players are playing their best strategy

which of the following is the reason why most economists oppose monopoly?

economic profit

which of the following properties characterizes a natural monoply?

economies of scale

which of the following properties characterizes a natural monopoly?

economies of scale

under which condition is the owner of a good able to keep people from using it?

excludable in demand

under which of the following would we classify a paper (or electronic) invoice (bill) for a good or service that a company buys from a vendor?

explicit cost

the division of labor is limited only by the

extent of the market

"command-and-control"

externalizes are internalized by government systems of taxes and subsidies

T or F: "fairness" is not only the goal of Social Justice (politics), but it also the primary consideration for Economics (the study of optimal choices under scarcity)

false

T or F: a good can never change categories between public goods, private goods, mixed goods, and common property resources over time. The categories are fixed.

false

T or F: a monopolistic competitive firm has some market power in the short-run, but can never extend this power in the long-run by continuing to differentiate its product

false

T or F: a profit-maximizing firm in a competitive marketplace should always try to pay its workers as little as possible and expect them to work as much and as hard as possible

false

T or F: bad advertising increasing demand faster/further than it increases average cost

false

T or F: cartels that engage in price-fixing are never illegal under US anti-trust laws

false

T or F: ceteris paribus, a lower minimum wage causes more unemployment

false

T or F: competition to lower prices is typically illegal in the United States

false

T or F: even if a private market does not take an externality into account, then the optimal amount of the primary good or service will always be provided bu the private market

false

T or F: in all four market structures we studied, product differentiation was allowed only in monopolistic competition and not in any other market structure

false

T or F: monopoly is the only market structure with a perfectly elastic demand curve

false

T or F: other things the same, a risk-averse investor tends to have flatter indifference curves between risk and return than does a relatively risk-tolerant investor

false

T or F: since there are few real-world approximations of perfect competition, it is useless as an economic model

false

T or F: the Battle of the Sexes, like most games, has a dominant strategy but no Nash equilibrium

false

T or F: the law of demand says that, ceteris paribus, there is an inverse or negative relationship between a good's price and quantity supplied.

false

T or F: there is only one way to look at any externality. any other way is always wrong

false

which of the following does perfect competition best describe

farming

transactions cost theory of the firm

firms exist to save on transactions costs

this good has a highly inelastic demand

gasoline in the short run

complements

goods used along with the primary good, like socks are used with shoes

physical capital

goods used to make other goods, like tools, machines, and infrastructure

what is always the source of "true, or pure, monopolies," in which the seller enjoys perfectly inelastic (vertical) demand?

government franchise or agency

perfectly competitive firm

has absolutely NO market power

if a McDonald's franchise holder buys a Whataburger franchise, what kind of merger is it?

horizontal merger

which of the following consists of skills and abilities that a person possesses?

human capital

the supply of water is fixed. Why isn't its price today extremely high?

in the long-run there are always substitutes

long run average cost curves

in theory, these are U-shaped. in practice they may be L-shaped or flat

average cost pricing

in this type of public utility regulation, the utility has no incentive to be efficient

which of the following will increase supply of a good or service?

increase in the number of sellers

for which of the following are sales likely to rise during recessions and fall during expansions?

inferior goods

dutch auction

initial price requested starts off high and descends. the first to bid wins

what do regulators who use the output regulation method hope will bring down costs (and prices) of utilities in the long-term?

investment in technology

which of the following would be considered an "injection" in a Keynesian Circular Flow model?

investment spending

emissions trading

issue each polluter a permit and let a secondary market develop for permits

Tiebout's mechanism for optimal distribution of population and preferences when cities within a region offer varying baskets of government services at a variety of tax rates is to____

let people "vote with their feet" and self-select according to their own preferences

if a government wants to increase tax revenue from increasing a sales tax on a particular good, then which of the following goods is likeliest to yield the least additional tax revenue?

luxury automobiles

which of the following tends to be more dynamic rather than static?

marginal cost

which of the following methods of utility regulation has traditionally been used for mass transit, such as Amtrak, the Massachusetts Transit Authority, and South Central Arkansas Transit?

marginal cost pricing

which of the following methods of utility regulation results in economic loss for the firm?

marginal cost pricing

profit maximization condition for inputs

marginal revenue product equals marginal factor cost

under which of the following conditions will a firm be maximizing profit?

marginal revenue= marginal cost

monopoly

market structure in which a single firm is the entire industry

what is the goal of a firm in the Neoclassical theory of the firm?

maximum total profit

which of the following involves a player's randomly selecting from several possible actions using the assignment of probabilities

mixed strategy

which of the following model is very much like monopoly in the short-run and perfect competition in the long-run?

monopolistic competition

which of the following is known as "the rule of reason"

monopoly per se (or in and of itself) is not illegal

marginal cost pricing

necessary condition for Tibout's "voting with feet" equilibrium to occur

free-rider problem

no one has the incentive to tell the truth about preferences for a public good

if a government decides to impose a sales tax on the sales of textbooks, who bears the burden of the tax when the price elasticity of supply for textbooks equals the absolute value of the price elasticity of demand for textbooks?

none of the above

which of the following attempts to measure the responsiveness of quantity demanded to a change in the price of gasoline?

none of the above

which of the following market structures consists of a few sellers, i.e., few enough that at least one firm can influence price?

oligopoly

which of the following market structures is the most complex?

oligopoly

which of the following market structures is usually claimed to be the most common in the U.S., measured by dollars of sales revenue?

oligopoly

which of the following is a market structure in which there are a few demanders?

oligopsony

a break through in technology is likeliest to affect

only supply curves

which of the following is an example of an implicit cost?

opportunity cost of owner's salary

in this free-market method of utility regulation, the regulator requires a minimum amount of service but asks no questions about the utility's cost, etc., relying on consumer demand to regulate to utility's price and profit.

output regulation

which of the following attempts to measure the responsiveness of production (quantity supplied) to a change in the price of the product being sold?

own price elasticity of supply

which of the following sources of market power is NOT considered a marketing tactic?

patent, trademark, or copyright

financial markets

perfect competition is a good approximation for how this situation works

in which of the following kinds of games may one player's success not be offset by another player's failure so that all the payoffs between all players may add up to greater than zero?

positive-sum games

which of the following is the practice of charging less than average cost in a competitive environment while charging more than average cost in a non-competitive environment?

predatory pricing

if the price of personal computer software increases, ceteris paribus, what will happen to the equilibrium price and quantity of personal computers (if the software is installed by the seller)?

price will increase and quantity will decrease

according to the circular flow model, which of the following is likeliest when the government taxes in more in taxes than it spends?

prices and income both fall

what is the idea that economic models should tend toward simplicity rather than complexity?

principle of parsimony

in which of the following is the "free-rider problem" inevitable?

public good

which of the following is probably an inferior good (in the economic sense) for most people?

ramen noodles

In the Prisoner's dilemma, which of the following allows for the players to learn from their mistakes and eventually cooperate, making both better off?

repeated game

which of the following implies that there is not enough of a good to go around (no excess capacity)

rival in demand

inferior goods

sales for this kind of product rise during recessions and fall during expansions

production possibilities frontier

set of all potential combinations of two goods that an individual or country can produce

consider Slobovia, a country that makes only two types of goods: bread (measured along the y-axis), and guns (measures along the x-axis). If Slobovia is able to discover a cheap, reliable source of good quality steel, ceteris paribus, then the production possibilities frontier will likley

shift outward along the x-axis

in economics, which of the following is the period when at least one input is fixed?

short-run

consumer equilibrium

situation at which MUx/Px=MUy/Py for all X and Y; highest total utiloty subject to budget

in the agency theory of the firm, which stakeholder group most closely aligns to the role of "principal" in a modern corporation?

stockholders

consider the market for Jim Beam bourbon whiskey. An increase in the price of oak barrels, a key part of producing Jim Beam, ceteris paribus, shifts which curve?

supply for Jim Beam to the left

which of the following anti-competitive tactics is when conspirators do not actually physically meet or explicitly communicate, but instead communicate their willingness to keep prices high through their publicly-stated prices?

tacit collusion

own price elasticity of demand

tends to be greater than one in absolute value for luxury goods

average measures

tends to be historical (long memory) rather than recent (short memory)

the winner's curse

the good news is: you won the auction. the bad news is: you paid too much

adverse selection

the insurers' nightmare: where good risks exit the pool and bad risks stay

Bobby Ray thinks Emmy Sue is the greatest girl on earth. she has all of her teeth, sports big hair, and wears shoes. he took her to the Arkadoo High School prom in a chauffeur-driven four-wheeler, bought her a while gold engagement ring fitted with a rock he found himself at Crater of Diamonds State Park, and spent half his bonus to propose to her over a candlelit dinner with a half-sober fiddle player at the Pig Pit cafe. which of the following best describes what is likely to happen to Bobby Ray is Emmy Sue accepts his marriage proposal?

the winners curse

mercantilists

these thought that gold, obtained through trade, was what made a nation wealthy

dead-weight loss

this area describes inefficiency from a government distortion of a market

transitive preference

this assumption is responsible for the result that indifference curves cannot cross

diminishing marginal utility

this assumption results in convex (bowed-inward) indifference curves

diminishing marginal productivity

this concept applies only to producers, not to consumers

production function

this concept relates labor or some other input to output

neoclassical theory of the firm

this concept treats firms like black boxes who buy inputs and sell outputs

employee stock ownership plans

this is one way to lower agency costs for a firm

dead-weight loss

this is the worse aspect of a market distortion, according to economists

natural monopoly

this kind of firm has economies of scale (LRAC never rises)

predatory pricing

this marketing tactic has been used by Walmart to eliminate competitors

marginal cost pricing

this method results in producing a lot of a good at a very low price

seller bears full burden of a sales tax

this occurs when supply is perfectly inelastic or demand is perfectly elastic

diseconomies of scale

this occurs with scales of production that are in the rising part of LRAC

positive externality

too little of this will be provided by the market for a private good

the law of diminishing marginal utility states that as quantity consumed increases,

total utility rises at a decreasing rate

T or F: Changes in variables like consumer income, prices of related goods, and tastes have the effect of shifting the demand curve for the primary good (change in demand) while changed in the primary good's price or quantity demanded are reflected as movement along the demand curve for the primary good (change in quantity demanded)

true

T or F: a firm might rationally want to operate at higher than the optimal scale of production since its goal is profit maximization rather than simple cost minimization

true

T or F: according to Adam Smith, a nation's wealth is determined by how much gold it possesses. That is why Smith advocated high protective tariffs on imported goods.

true

T or F: after the government imposes a non-binding price ceiling on a market, demand or supp;y may change so the ceiling may eventually become binding

true

T or F: because of the ceteris paribus assumption, only two variables are allowed to change at one time in our comparative statics methodology

true

T or F: biased economic growth occurs when the PPF sifts outwards along only one axis

true

T or F: defining a market as narrowly as possible tends to result in more antitrust prosecution, ceteris paribus

true

T or F: equilibrium price is always optimal in the sense that we cannot move away from it without making someone (either the consumer, the producer, or both) worse off

true

T or F: if an expert at a game is playing a beginner, it is possible for the Nash equilibrium not to occur, since one of the sufficient conditions for a Nash equilibrium to occur is that all the players know the planned equilibrium strategy of all the other players

true

T or F: if transactions costs are zero or small, then the initial assignment of property rights does not affect the ultimate allocation of resources

true

T or F: it is possible for the burden of a sales tax to fall entirely on the consumer

true

T or F: it is possible for the same event to cause both positive and negative externalities at the same time

true

T or F: it is possible to use indifference curve analysis to determine the best allocation between consumption of a good (such as return) versus a bad (such as risk)

true

T or F: most circular flow models are biased in favor of demand, not supply

true

T or F: opportunity cost is highly subjective and differs dramatically between people

true

T or F: the consumer equilibrium condition that the marginal utility divided by price had to be equalized between all goods tends to be self-enforcing because of the law of diminishing marginal utility

true

T or F: there are many cases on record of how a company's advertising actually helped the competition more than the company itself

true

T or F: to increase total revenue, a seller of an inelastic good should increase price

true

T or F: utility comparisons between people are meaningless because utility is a subjective concept that is not directly comparable between individuals

true

T or F: when playing a game against someone who does not know how to play very well, sometimes the best solution (Nash equilibrium) is to make moves randomly (mixed strategy)

true

T or F: whenever a government imposes a non-binding price ceiling on a market, the ceiling may eventually become binding if supply falls or demand rises through time.

true

T or F: whether or not there is monopoly power always depends upon how narrowly or broadly one defines the market

true

complements

two goods for which cross price elasticity of demand is negative

substitutes

two goods for which cross price elasticity of demand is positive

opportunity cost

value of the highest valued forsaken alternative

Luxottica, an Italian eyewear company, sought to increase its US market share by buying Pearle Optical, which optometrist service and eyeglass lenses. which kind of merger best describes the situation?

vertical merger

which of the following types of mergers involves merging between components of either the supply chain or marketing channel and is hard to detect by regulators

vertical merger

total utility

very subjective concept that represents satisfaction or happiness for an individual

mechanism to avoid asymmetric information

warrantees for used products in order to protect buyers

tragedy of the commons

when common property resources are not rationed through licenses, this occur