Econ 1 Questions

(T/F) Normative statements can be refuted with evidence.

True

(T/F) Reverse causality means that while we think A causes B, B may actually cause A.

True

(T/F) The demand for tires should be more inelastic than the demand for Goodyear brand tires.

True

(T/F) The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

True

(T/F) The slope of a line is equal to the change in y divided by the change in x along the line.

True

(T/F) The demand for a necessity such as insulin tends to be elastic.

False

(T/F) The demand for aspirin this month should be more elastic than the demand did aspirin this year.

False

(T/F) When the government redistributes income with taxes and welfare, the economy becomes more efficient.

False

(T/F) The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers.

False

A competitive firm's long-run supply curve is the portion of its marginal-cost curve that lies above its average-variable-cost curve.

False

As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like

A competitive market

The market for hand tools is dominated by Black & Decker, Stanley, and Craftsman. This market is best described as

An oligopoly

(T/F) The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good.

False

(T/F) When a line has negative slope, the two variables measured on each axis are positively correlated.

False

If consumers think that there are very few substitutes for a good, then

Demand would tend to be price inelastic

(T/F) Because people carry umbrellas to work in the morning and it rains later in the afternoon, carrying umbrellas must cause rain.

False

A competitive firm's short-run supply curve is the portion of its marginal-cost curve that lies above its average-total-cost curve.

False

A factor exhibits diminishing marginal productivity if employing additional units of the factor reduces output

False

A monopolist produces an efficient quantity of output, but it is still inefficient because it charges a price that exceeds marginal cost and the resulting profit is a social cost.

False

Advertising must be socially wasteful because advertising simply adds to the cost of producing a product.

False

An oligopoly is a market structure in which many firms sell products that are similar but not identical.

False

In the long run, as a firm expands its production facilities, it generally first experiences diseconomies of scale, then constant returns to scale, and finally economies of scale.

False

In the short run, if the price a firm receives for a good is above its average variable costs but below its average total costs of production, the firm will temporarily shut down.

False

Monopolistic competition is a market structure in which few firms sell similar products.

False

Monopolists are price takers.

False

The greater the number of firms in the oligopoly, the more the outcome of the market looks like that generated by a monopoly.

False

When oligopolists collude and form a cartel, the outcome in the market is similar to that generated by a perfectly competitive market.

False

Collusion is difficult for an oligopoly to maintain

For all of the above reasons

(T/F) If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.

False.

Which of the following is not a characteristic of a competitive market?

Firms generate small but economic profits in the long run.

Compared to a perfectly competitive market, a monopoly market will usually generate

Higher prices and lower output

Which of the following statements about price and marginal cost in competitive and monopolized markets is true?

In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost.

If marginal revenue exceeds marginal cost, a monopolist should

Increase output

The most important factors of production are

Labor, land, and capital

A market structure in which many firms sell products that are similar but not identical is known as

Monopolistic competition

Which of the following statements about price discrimination is not true?

Perfect price discrimination generates a deadweight loss

In the long run, the competitive firm's supply curve is the

Portion of the marginal-cost curve that lies above the average-total-cost curve.

In the short run, the competitive firm's supply curve is the

Portion of the marginal-cost curve that lies above the average-variable-cost curve.

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Price elastic

In general, a flatter demand curve is more likely to be

Price elastic

In general, a steeper supply curve is more likely to be

Price inelastic

If oligopolists engage in collusion and successfully form a cartel, the market outcome is

The same as if it were served by a monopoly

(T/F) There is a positive correlation between lying down and death. If we conclude from this evidence that it is unsafe to lie down, we have an omitted variable problem because critically ill people tend to lie down.

True

(T/F) When a line slopes upward in the x-, y-coordinate system, the two variables measured on each axis are positively correlated.

True

(T/F) When economists make positive statements, they are more likely to be acting as scientists.

True

Cengage Learning is a monopolist in the production of your textbook because

The government has granted Cengage Learning exclusive rights to produce this textbook

The price elasticity of demand is defined as

The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

The value of the marginal product of labor is

The price of the output times the marginal product of labor

(T/F) A firm maximizes profit when it produces output up to the point where marginal cost equals marginal revenue.

True

(T/F) If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.

True

(T/F) If three variables are related, one of them must be held constant when graphing the other two in the x-, y-coordinate system.

True

(T/F) In a competitive market, both buyers and sellers are price takers.

True

(T/F) When graphing in the coordinate system, the x-coordinate tells us the horizontal location while the y-coordinate tells us the vertical location of the point.

True

A monopoly is the sole seller of a product with no close substitutes

True

Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.

True

Fixed costs plus variable costs equal total costs.

True

If a firm continues to employ more workers within the same size factory, it will eventually experience diminishing marginal product.

True

If the price of a good rises above the minimum average total cost of production, positive economic profits will cause new firms to enter the market, which drives the price back down to the minimum average total cost of production.

True

In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

True

Policymakers are starting to view restrictions on advertising by professionals such as doctors, lawyers, and pharmacists as anticompetitive.

True

Predatory pricing occurs when a firm cuts prices with the intention of driving competitors out of the market so that the firm can become a monopolist and later raise prices.

True

Price discrimination can raise economic welfare because output increases beyond that which would,d result under monopoly pricing

True

Price discrimination is only possible if there is no arbitrage.

True

The monopolist chooses the quantity of output at which marginal revenue equals marginal cost and then uses the demand curve to find the price that will induce customers to buy that quantity.

True

The unique feature of an oligopoly market is that the actions of one seller have a significant impact on the profits of all of the other sellers in the market.

True

The value of the marginal product of land is the marginal product of land multiplied by the price of the output produced on the land.

True

There is constant tension in an oligopoly between cooperation and self-interest because, after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.

True

Universities are engaging in price discrimination when they charge different levels of tuition to poor and wealthy students.

True

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

Unit price elastic

Which of the following statements about microeconomics and macroeconomics is not true? a. The study of very large industries is a topic within macroeconomics. b. Macroeconomics is concerned with economy-wide phenomena. c. Microeconomics is a building block for macroeconomics. d. Microeconomics and macroeconomics cannot be entirely separated.

a. The study of very large industries is a topic within macroeconomics.

Suppose two economics are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "Hogwash. If the government spent an additional 50 billon dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

a. disagree because they have different scientific judgments.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent, a. students will shift majors from education to accounting b. students will shift majors from accounting to education c. fewer students will attend college d. None of the above is true.

a. students will shift majors from education to accounting

Economic models are a. created to duplicate reality. b. built with assumptions. c. usually made of wood and plastic. d. useless if they are simple.

b. built with assumptions.

Suppose two economics are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "Hogwash. Inflation is the greatest social evil." These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

b. disagree because they have different values.

Economics is the study of how a. to fully satisfy our unlimited wants b. society manages its scarce resources c. to reduce our wants until we are satisfied d. to avoid having to make trade-offs e. society manages its unlimited resources

b. society manages its scarce resources

The demand for which of the following is likely to be most price inelastic? a. airline tickets b. bus tickets c. taxi rides d. transportation

d. transportation

Which of the following statements is normative? a. Printing too much money causes inflation. b. People work harder if the wage is higher. c. The unemployment rate should be lower. d. Large government deficits cause an economy to grow more slowly.

c. The unemployment rate should be lower.

Trade-offs are required because wants are unlimited and resources are a. efficient b. economical c. scarce d. unlimited e. marginal

c. scarce

Which of the following products is least likely to be sold in a monopolistic ally competitive market?

d. cotton

Positive statements are a. microeconomic b. macroeconomic c. statements of prescription that involve value judgments d. statements of description that can be tested.

d. statements of description that can be tested.

Which of the following involves a trade-off? a. buying a new car b. going to college c. watching a football game on a Saturday afternoon d. taking a nap e. All of the above involve trade-offs

e. All of the above involve trade-offs