ECON 202

Answer the question on the basis of the following information: Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Refer to the given information. The MRP of the second barber is:

$108.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

8 units of utility.

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices?

Firms like iTunes that distribute their products over the internet.

In which of the following U.S. industries is the rate of unionization the highest?

Government.

The economist who advocated a single tax on land was:

Henry George.

Supporters of social regulation contend that:

Higher costs are the price that must be paid for a better society

A merger between McDonald's and Burger King would be an example of a:

Horizontal merger

Which of the following is not a component of the demand for loanable funds?

Household saving.

With non-rivalrous consumption such as in the case of online music and movies, as more consumers buy the product:

The average cost of the output declines because the marginal cost is very small

If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?

The benefit surpluses shared between consumers and producers will be maximized.

In which of the following statements are the terms "demand" and "quantity demanded" used correctly?

When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.

Economic systems differ according to which two main characteristics?

Who owns the factors of production and the methods used to coordinate economic activity.

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

Microeconomics is concerned with:

a detailed examination of specific economic units that make up the economic system.

Oligopolistic industries are characterized by:

a few dominant firms and substantial entry barriers.

One of the potential negative side-effects of pay in the form of sales commissions is:

a greater incentive for salespeople to engage in unethical or fraudulent sales practices that may eventually cause legal problems for the firm.

Henry George's single-tax movement was based on the argument that:

a high tax on land rent is justified because land rent performs no incentive function.

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75:

a larger quantity of C will be demanded.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

Effective usury laws cause:

a shortage of money in money markets.

Graphically, producer surplus is measured as the area:

above the supply curve and below the actual price.

Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an unsuspecting buyer. This circumstance illustrates the:

adverse selection problem.

A normal good is one:

for which the consumption varies directly with income.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

relatively price elastic.

Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will:

increase solely because of the output effect.

The total supply of land is:

perfectly inelastic.

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for:

pharmaceuticals.

For economists, the word "utility" means:

pleasure or satisfaction.

Other things equal, if the prices of a firm's variable inputs were to fall:

marginal cost, average variable cost, and average total cost would all fall.

If a purely competitive firm is producing at some level less than the profit-maximizing output, then:

marginal revenue exceeds marginal cost.

(Consider This) Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:

marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

If consumer incomes increase, the demand for product X:

may shift either to the right or left.

Government changes in interest rates to regulate the economy are part of:

monetary policy.

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of:

monopolistic competition.

Economic profit is most closely associated with:

monopoly, innovation, and uninsurable risks.

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the:

moral hazard problem.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's accounting profit is:

$230,000.

Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the given information. The marginal revenue product of the second worker is:

$24.

(Advanced analysis) Answer the question on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. Refer to the given information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium price is:

$4.

The Herfindahl index for a pure monopolist is:

10,000.

In 2011, about ____ percent of employed wage and salary workers belonged to unions.

11.8

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan. The interest rates on the two loans are:

14 percent on both loans.

(Advanced analysis) Answer the question on the basis of the following information. The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. Refer to the given information. The equilibrium quantity is:

15.

In 2012, the U.S. federal government legislation authorized:

152 earmarks totaling $3.3 billion.

Who is the most likely to be a union member in the United States?

A male transportation worker.

Which of the following would not shift the demand curve for beef?

A reduction in the price of cattle feed.

Refer to the diagrams. The case of a normal good is represented by figure:

A.

Which of the following industries most closely approximates pure competition?

Agriculture.

Per se violations in antitrust law refer to:

Activities that are illegal in and of themselves

Which would definitely not be an example of price discrimination?

An electric power company charges less for electricity used during off-peak hours when production costs are lower

(Consider This) Which of the following is an example of a sunk cost, as it relates to a firm?

An expenditure on a nonrefundable, nontransferable airline ticket.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Average fixed costs and average total costs would rise.

To practice long-run price discrimination, a monopolist must:

Be able to separate buyers into different markets with different price elasticities

Which of the following is correct?

Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.

Which of the following is not a basic characteristic of pure competition?

Considerable nonprice competition.

Possible reasons for X-inefficiency include the following, except:

Costs of materials may be rising due to tight supply conditions

Which of the following statements is correct?

Economic rent is a price paid for productive land resources whose supply is perfectly inelastic.

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for:

Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.

Suppose that a monopolist calculates that at its present output level, marginal cost is $4.00 and marginal revenue is $5.00. The firm could increase profits by:

Decreasing price and increasing output

Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?

Discrimination.

Which of the following is not a source of economies of scale?

Inelastic resource supply curves.

Assume that a monopolist faces a linear demand curve. If the firm is operating at an output level where marginal revenue is positive, the firm:

Is operating on the elastic portion of its demand curve

The theory of creative destruction was advanced many years ago by:

Joseph Schumpeter.

(Last Word) Which of the following is a predicted result of the increased use of additive manufacturing (using 3-D printers)?

Lower prices of manufactured goods through the elimination of large fixed costs and transportation costs.

If a firm faces an upsloping labor supply curve (and there is no union or minimum wage), its:

MRC curve is also upsloping.

A consumer is maximizing her utility with a particular money income when:

MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

Network effects and simultaneous consumption tend to foster the development of:

Monopoly power

(Last Word) Which of the following is predicted to deliver a Third Industrial Revolution characterized by low production and transportation costs?

New technology in additive manufacturing.

Which of the following nations is not a member of the OPEC oil cartel?

Norway.

(Consider This) Which of the following statements is true about U.S. firms?

Over half are bankrupt within the first five years after starting up.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC.

In the short run, a purely competitive firm will always make an economic profit if:

P > ATC.

Which of the following statements is not true?

Public goods are only provided by government.

Which is the most valid criticism of the regulation of natural monopolies and other firms subject to regulation by regulatory commissions?

Regulated firms may have little incentive to contain costs since they are assured a "fair" return above costs

The U.S. Steel case of 1920 and the Alcoa case of 1945 dealt with which antitrust issue?

Should an industry be judged by its behavior or by its structure?

The U.S. federal government's largest unfunded liability is:

Social Security.

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

Supply-side market failure.

Which of the following best describes the invisible-hand concept?

The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heating result primarily from:

The existence of good heating substitutes

If a rational consumer is in equilibrium, which of the following conditions will hold true?

The marginal utility of the last dollar spent on each good purchased will be the same.

Which of the following is correct? The nominal wage may fall, but the real wage can never decline. The real wage may fall, but the nominal wage can never decline. The nominal and the real wage may both fall. Both the nominal and the real wage must always rise.

The nominal and the real wage may both fall.

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

They all help explain the downsloping demand curve.

(Consider This) Which of the following is an example of voter failure?

Voters support adding stop lights that would increase congestion and travel costs without increasing safety or convenience.

If a single large employer bargains with an inclusive union, the resulting labor market model can best be described as:

a bilateral monopoly.

Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes:

a cartel.

A supply curve that is a vertical straight line indicates that:

a change in price will have no effect on the quantity supplied.

When the percentage change in price is greater than the resulting percentage change in quantity demanded:

an increase in price will increase total revenue.

Markets, viewed from the perspective of the supply and demand model:

assume many buyers and many sellers of a standardized product.

The basic difference between the short run and the long run is that:

at least one resource is fixed in the short run, while all resources are variable in the long run.

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

The law of diminishing marginal utility states that:

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:

bicycles are normal goods.

(Last Word) "Patent trolls:"

buy up patents in order to collect royalties and sue other companies.

(Last Word) Theft and burglary:

can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

Game theory can be used to demonstrate that oligopolists:

can increase their profits through collusion.

An indifference curve shows all:

combinations of two products yielding the same total utility to a consumer.

Command systems are also known as:

communism.

If competitive industry Y is incurring substantial losses, output will:

contract as resources move away from industry Y.

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

costs more to produce than it provides in benefits.

(Consider This) Ticket scalping:

creates economic gains for both buyers and sellers.

The process by which new firms and new products replace existing dominant firms and products is called:

creative destruction.

An indifference map implies that:

curves farther from the origin yield higher levels of total utility.

Other things equal, we would expect the labor demand curve of a monopolistic seller to:

decline more rapidly than that of a purely competitive seller.

Diminishing marginal utility explains why:

demand curves are downsloping.

Public choice theorists point out that the political process:

differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:

diminishing returns.

The price elasticity of a monopolistically competitive firm's demand curve varies:

directly with the number of competitors but inversely with the degree of product differentiation.

The market system:

effectively harnesses the incentives of workers and entrepreneurs.

When the elasticity coefficient for resource demand is greater than one, resource demand is:

elastic.

The market supply curve for labor is upsloping because:

employers as a group must pay higher wage rates to obtain more workers.

A producer's minimum acceptable price for a particular unit of a good:

equals the marginal cost of producing that particular unit.

In long-run equilibrium, both purely competitive and monopolistically competitive firms will:

equate marginal cost and marginal revenue.

(Last Word) In a cap-and-trade program:

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.

A price ceiling means that:

government is imposing a legal price that is typically below the equilibrium price.

The MR = MC rule applies:

in both the short run and the long run.

In the United States cartels are:

in violation of the antitrust laws.

(Last Word) A market-based system of buying and selling human organs for transplant would:

increase the quantity of organs available for transplant.

Refer to the tables. Opportunity costs are:

increasing in both Duckistan and Herbania.

Sellers will opt out of markets in which:

information about buyers is inadequate, and some buyers can impose high costs on the sellers.

Aluminum competes with copper in the market for power transmission lines. This illustrates:

interindustry competition.

According to age-earnings data,

investments in education result in higher earnings.

The political technique called logrolling:

involves trading votes to secure favorable outcomes that otherwise could be rejected.

A market:

is an institution that brings together buyers and sellers.

Refer to the diagram. The combination of computers and bicycles shown by point F:

is attainable but implies that the economy is not using all its resources.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range:

is elastic.

An efficiency loss (or deadweight loss):

is measured as the combined loss of consumer surplus and producer surplus.

(Consider This) North Korea's command economy:

is one of the few remaining command economies.

Game theory:

is the analysis of how people (or firms) behave in strategic situations.

The utility of a good or service:

is the satisfaction or pleasure one gets from consuming it.

The minimum efficient scale of a firm:

is the smallest level of output at which long-run average total cost is minimized.

Any combination of goods lying outside of the budget line:

is unattainable, given the consumer's income.

If a purely competitive firm is maximizing economic profit:

it may or may not be maximizing per-unit profit.

(Consider This) Brinley is the hottest new pop singer, but his agent discovers that Internet sales of Brinley's music have been poor due to Internet piracy, but concerts are regularly sold out and merchandise (such as T-shirts) sells well. If Brinley wants to enhance profits, economists would most likely recommend that he:

keep prices of downloads low and raise prices for concerts and merchandise.

Henry George advocated a single tax on:

land.

Advertising can impede economic efficiency when it:

leads to greater monopoly power.

If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:

less labor as a consequence of the output effect.

A monopsonistic employer's marginal resource (labor) cost curve:

lies above the labor supply curve because the higher wage paid to an additional worker must also be paid to all other employed workers.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the:

long run, short run, and immediate market period respectively.

The substitution effect indicates that a profit-seeking firm will use:

more of an input whose price has fallen and less of other inputs in producing a given output.

For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by:

multiplying marginal product by marginal revenue.

Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by:

multiplying marginal product by product price.

The price elasticity of demand is generally:

negative, but the minus sign is ignored.

On the basis of the information, it can be said that:

no coincidence of wants exists between any two states.

If one person's consumption of a good does not preclude another's consumption, the good is said to be:

nonrival in consumption.

The two main characteristics of a public good are:

nonrivalry and nonexcludability.

The demand for most products varies directly with changes in consumer incomes. Such products are known as:

normal goods.

Innovations that lower production costs or create new products:

often generate short-run economic profits that do not last into the long run.

Elasticity of resource demand is measured by the:

percentage change in resource quantity demanded divided by the percentage change in resource price.

The demand schedule or curve confronted by the individual, purely competitive firm is:

perfectly elastic.

The demand curve shows the relationship between:

price and quantity demanded.

QD P QS ------------------------ 52 50 73 62 45 62 72 40 51 82 35 42 92 30 33 In this market, economists would call a government-set maximum price of $40 a:

price ceiling.

In this market, economists would call a government-set minimum price of $50 a:

price floor.

Studies show that the demand for gasoline is:

price inelastic in both the short and long run.

Interest is the:

price paid for the use of money.

(Last Word) Oil wells and seasonal resorts will often shut down temporarily because:

prices for their output temporarily fall below their average variable costs of production.

Differentiated oligopoly exists where a small number of firms are:

producing goods that differ in terms of quality and design.

Allocative efficiency is concerned with:

producing the combination of goods most desired by society.

In an oligopolistic market:

products may be standardized or differentiated.

An economic analysis of the relationship between proposed legislation affecting major employers in each state and the voting patterns of senators and representatives in Congress on that legislation would fit within the subcategory of economics called:

public choice theory.

(Consider This) Elasticity can be thought of as degree of relative:

quantity stretch.

Refer to the data. Assuming that the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will:

realize an economic profit of $10.

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to:

reduce the demand for soda and increase the demand for tacos.

When economists say that the demand for labor is a derived demand, they mean that it is:

related to the demand for the product or service labor is producing.

An effective price ceiling will:

result in a product shortage.

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:

should continue producing in the short run but leave the industry in the long run if the situation persists.

The real interest rate can be estimated by:

subtracting the rate of inflation from the nominal interest rate.

Individual accountability within the government bureaucracy:

tends to be lacking because of civil service protections and the complexity of government.

(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes:

the Coase theorem.

A competitive employer should hire additional labor as long as:

the MRP exceeds the wage rate.

The long run is characterized by:

the ability of the firm to change its plant size.

Marginal product is:

the amount an additional worker adds to the firm's total output.

A positive externality or spillover benefit occurs when:

the benefits associated with a product exceed those accruing to people who consume it.

Demand-side market failures occur when:

the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then:

the demand for the product is elastic in the $6-$5 price range.

As it relates to corporations, the principal-agent problem is that:

the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

The elasticity of demand for a product is likely to be greater:

the greater the amount of time over which buyers adjust to a price change.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

the law of diminishing returns.

When diseconomies of scale occur:

the long-run average total cost curve rises.

The change in a firm's total revenue that results from hiring an additional worker is measured by:

the marginal revenue product.

At the output where the combined amounts of consumer and producer surplus are largest:

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

Allocative efficiency involves determining:

the mix of output that will maximize society's satisfaction.

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

the price of some other product.

Economic or pure rent is:

the price paid for the use of land and other nonreproducible resources.

In constructing a demand curve for product X:

the prices of other goods are assumed constant.

According to some economists, the private sector is more efficient than the public sector mainly because:

the private sector has a clear test of performance: profit and loss.

Allocative efficiency refers to:

the production of the product mix most wanted by society.

The concept of price elasticity of demand measures:

the sensitivity of consumer purchases to price changes.

A negative externality or spillover cost occurs when:

the total cost of producing a good exceeds the costs borne by the producer.

Average fixed costs for a given level of output can be determined graphically by:

the vertical distance between ATC and AVC.

In a purely competitive industry:

there may be economic profits in the short run but not in the long run.

Economists use the term imperfect competition to describe:

those markets that are not purely competitive.

The negative slope of the production possibilities curve is a graphical way of indicating that:

to produce more of one product we must do with less of another.

Firms seek to maximize:

total profit.

The theory of consumer behavior assumes that consumers attempt to maximize:

total utility.

A natural monopoly exists when:

unit costs are minimized by having one firm produce an industry's entire output.

A purely competitive firm's short-run supply curve is:

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

A positive statement is concerned primarily with:

what is.

A monopsonist's wage cost in hiring an additional worker is the:

worker's wage rate plus the wage increases paid to all workers already employed.

Where total utility is at a maximum, marginal utility is:

zero.