Clarke Micro Economics

We can say that the allocation of resources is efficient if

total surplus is maximized

PRODUCER SURPLUS IS

ALWAYS A NEGATIVE NUMBER FOR SELLERS IN A COMPETITVE MARKET

In practice, monopolistically competitive markets are

very common

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

they are unable to maintain the same degree of monopoly power enjoyed by a monopolist

According to Hazlitt in "minimum wage laws" the best way to raise wages is

to allow companies to set fair minimum wages

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Barb's Bakery earned $200 in total revenue last moth when it sold 100 loaves of bread. This month it earned $300 in total revenue when it sold 60 l0aves of bread. The price elasticity of demand for Barb's bread is

0.27

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

0.75

Which of the following is not a characteristic of a monopoly? a. Barriers to entry b. One seller c. One buyer d. A product without close substitutes

C. One buyer

A monopoly:

Can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

The social cost of a monopoly is equal to its:

Dead weight loss

In the long run Firm A incurs total costs of $1,050 when output is 30 units and $1,200 when output is 4o units. Firm A exhibits:

Economies of scale because average total cost is falling as output rises.

WELFARE ECONOMICS IS THE STUDY OF

HOW THE ALLOCATION OF RESOURCES AFFECTS ECONOMIC WELL BEING

CONSUMER SURPLUS

IS THE AMO9UNT A CONSUMER IS WILLING TO PAY MINUS THE AMOUNT THAT THE CONSUMER ACTUALLY PAYS

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is the _______.

Implicit Cost

THE BURDEN OF A LUXURY TAX FALLS

MORE ON THE MIDDLE CLASS THAN ON THE RICH

The amount by which total cost rises when the firm produces one additional unit of output is called _______.

Marginal Cost

THE MAXIMUM PRICE THAT A BUYER WILL PAY FOR A GOOD IS CALLED THE

WILLINGNESS TO PAY

THE MARGINAL SELLER IS THE SELLER WHO

WOULD LEAVD THE MARKET FIRST IF THE PRICE WERE ANY LOWER

For Susie, a 7% increase in income results in a 12 % increase in the quantity demanded for pizza. For susie, the income elasticity of demand for pizza is

Positive, pizza is a normal good

When a local grocery story offers discount coupons in the Sunday paper it is most likely trying to:

Price discriminate

When a monopolist is able to sell its product at different prices, it is engaging in _______.

Price discrimination

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as:

Price is above or below marginal cost.

Economists assume that the goal of the firm is to maximize total _____.

Profits

According to Hazlitt in Who's Protected by Tariffs, who actually benefits from tariffs?

Protected producers at the expense of all other American producers

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term ______.

Sunk Cost

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs in the United States,

Supply decreases, demand is unaffected, and price increases

IN HAZLITT'S CHAPTER MINIMUM WAGE LAWS, ALL THE GROUPS OF PEOPLE LISTED BELOW WOJULD BE HARMED BY RAISING THE MINIMUM WAGE EXCEPT FOR

TEENAGERS

ACCORDING TO HAZLITT THE MAIN REASON THAT POLITICIANS ENFORCE RENT CONTROL IS THAT

THERE ARE MORE RENTERS THAN LANDLORDS

One a 100 acre farm a farmer is able to produce 3,000 bushels of wheat when he hires two workers. He is able to produce 4,400 bushels of wheat when he hires three workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

Which is the most accurate statement about trade?

Trade can make every nation better off

In he long run, each firm in a competitive industry earns:

Zero economic profits.

A market is defined as

a place where buyers and sellers meet and exchange property rights

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding

a technological advance makes cellular phone production less expensive

Which of the following statements is correct? a. Assuming that explicit costs are positive, economic profit is greater than accounting profit. b. Assuming that implicit costs are positive, accounting profit is greater than economic profit. c. Assuming that explicit costs are positive, accounting profit is equal to economic profit. d. Assuming that implicit costs are positive, economic profit is positive.

b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Which of the following statements is not correct? a. The government may use antitrust laws to break up an existing company to improve competition. b. The government may break up a natural monopoly to lower the price charged to customers. c. Private ownership is typically preferred to public ownership. d. Sometimes the best strategy is for the government to do nothing about monopoly inefficiency because the "fix" may be worse than the problem.

b. The government may break up a natural monopoly to lower the price charged to customers.

Which of the following is correct? a. the word economy comes from the Greek word for "rational thinker" b. economists study the management of scarce resources c. because economists believe that people pursue their best interests, they are not interested in how people interact. d. all of the above are correct

b. economists study the management of scarce resources

A price ceiling is binding when it is set

below the equilibrium price, causing a surplus

The price elasticity of demand measures

buyers responsiveness to a change in the price of a good

Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are priced takers. b. Each firm sells a virtually identical product. c. Free entry is limited. d. Each firm chooses an output level that maximizes profits.

c. Free entry is limited.

A legal maximum on the price at which a good can be sold is called a price

ceiling

Making rational decisions "at the margin" means that people

compare the marginal costs and marginal benefits of each decision

Perfect price discrimination a. increases profits to the firm b. increases total surplus c. decreases consumer surplus d. all of the above are correct

d. all of the above are correct

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

decrease total revenue of textbook sellers

Demand is said to have unit elasticity if elasticity is

equal to 1

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

The prisoners' dilemma game

has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an incentive to switch to another strategy

Which two groups of decision makers are included in the simple circular-flow diagram?

households and firms

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers

A person who takes a prescription drug to control high cholesterol most likely has a demand for the drug that is

inelastic

Economists like mathematicians, physicists, and biologists,

make use of the scientific method, try to address their subject with scientist's objectivity, devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories

The two types of market structures that are imperfectly competitive are:

monopolistic competition and oligopoly

A legal minimum on price at which a good can be sold is called a

price floor

Total surplus in a market will increase when the govrnment

removes a binding price ceiling from that market

For a good that is a luxury, demand

tends to be elastic

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,

the country will be an exporter of the good

the term tax incidence refers to

the distribution of the tax burden between buyers and sellers

If a price floor is not binding, then

the equilibrium price is above the price floor and it has no legal enforcement mechanism

The two loops in the circular flow diagram represent

the flow of goods and the flow of services

Oligopolists may well be able to reach their preferred, cooperative outcome if

the game they play is repeated a sufficient number of times

An example of a price floor is

the minimum wage

From society's standpoint, cooperation amount oligopolists is

undesirable because it leads to output levels that are too low and prices that are too high.

When demand is perfectly inelastic, the demand curve will be

vertical because buyers purchase the same amount as before whenever the price rises or falls

The price o a good that prevails in a world market is called the

world price