ECON 202 Final Exam (Ch. 9, 10, 12, 13, 16)

Match the scenario to the appropriate insurance term. Each time Carlos visits the doctor, he pays $20 and his insurance company pays the remainder of the cost. co‑payment deductible coinsurance payment

co‑payment

A monopolist makes self‑cleaning jackets. At a price of $100 each, it can sell 20 jackets. At a price of $98 each, it can sell 21 jackets. Assume the monopolist cannot price discriminate. When charging $100 per jacket, total revenue is

$2000

A monopolist makes self‑cleaning jackets. At a price of $100 each, it can sell 20 jackets. At a price of $98 each, it can sell 21 jackets. Assume the monopolist cannot price discriminate. When charging $98 per jacket, total revenue is

2058

Identify the characteristics that describe the good: Pay-Per-View cable television

Excludable, Nonrivalrous

True or False Perfect (pure) competition is characterized by product differentiation

False

True or False Pollution taxes are more effective at reducing pollution than marketable permits.

False

Classify each scenario according to whether or not it is an example of predatory pricing. 1.)Delta Airlines offering discounted fares for a limited time to prevent competitors from entering the market. 2.)Walmart offering lower prices than a local competitor because of economies of scale. 3.)Champ's Sports Goods putting all hunting gear on sale 4.)A firm charging different people different prices for the same good.

Is an example of predatory pricing: 1.) Delta Airlines offering discounted fares for a limited time to prevent competitors from entering the market. Is not an example of predatory pricing: 2.)Walmart offering lower prices than a local competitor because of economies of scale. 3.) Champ's Sports Goods putting all hunting gear on sale 4.) A firm charging different people different prices for the same good.

The statements describe how an insurance company is funded (money in) and how it spends its money (money out). Classify each scenario as either money into the insurance company or money out of the insurance company. Answer Bank: - At the end of the year, Zoom Car Insurance is showing a profit of $2 million. - Zoom Car Insurance cashes in $1 million in government bonds. - Buzz Driver receives the money from the car insurance claim. - Buzz Driver has prepaid his car insurance for six months. - Zoom Car Insurance buys more office space.

Money in: - Buzz Driver has prepaid his car insurance for six months. - Zoom Car Insurance cashes in $1 million in government bonds. Money out: - Buzz Driver receives the money from the car insurance claim. - Zoom Car Insurance buys more office space. - At the end of the year, Zoom Car Insurance is showing a profit of $2 million.

Identify the characteristics that describe the good: National Defense

Nonexcludable, nonrivalrous

Indicate which of the following are treated by intellectual property law. 1.) Patents 2.) Deregulation 3.) Copyrights 4.) Trade Secrets 5.) Trademarks 6.) Control of a physical resource

Treated by intellectual property law: 1.) Patents 3.) Copyrights 4.) Trade Secrets 5.) Trademarks Not treated by intellectual property law: 2.) Deregulation 6.) Control of a physical resource

True or False Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation

True

True or False A command-and-control regulation is subject to political considerations.

True

True or False A limitation of a command-and-control regulation is that firms have no incentive to remove additional pollution once they are within the legal pollution limits.

True

True or False A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location.

True

True or False Market failure is when market provision of a good results in an inefficient quantity.

True

Match the inventor and their listed invention to the reason that they did not receive large profits for their innovations. 1.)No Government wanted to buy it. 2.)Waited too long to patent it because the inventor thought it had to be working first. 3.)Courts in the Southern states would not uphold the patent rights or punish patent infringements. A.) Gordon Gould - laser B.) Thomas Edison - automatic vote counter C.) Eli Whitney - cotton gin

1 - B 2 - A 3- C

Match each scenario with the source of monopoly market power: 1.) Mary McFly invents a time machine and gets legal protection from competition. 2.) Main Line Utilities can operate at a lower cost than multiple electric companies. 3.) The author of Economics for Dumbbells is given exclusive rights to produce this book. 4.) Your city council gives All Talk Communication Services exclusive rights to build high speed internet infrastructure in your town. 5.) DeJeers Jewelers owns 80% of the world's diamond mines. - patent - economies of scale - copyright - government licensing - control over resources

1 - patent 2 - economies of scale 3 - copyright 4 - government licensing 5 - control over resources

A monopolist makes self‑cleaning jackets. At a price of $100 each, it can sell 20 jackets. At a price of $98 each, it can sell 21 jackets. Assume the monopolist cannot price discriminate. So the marginal revenue of selling the 21st jacket is

58

A monopolist has market power because it: A.) Faces a downward-sloping demand curve for its own output. B.) Can raise price as much as it wishes and not lose any customers. C.) Is a price taker. D.) Is regulated by the government.

A.) Faces a downward-sloping demand curve for its own output.

From the examples below, determine which best describes an international externality. A.) Global warming fears rise as a result of increased pollution in Singapore. B.) Japan reaches a new trade agreement between the United States that makes trade even easier between the two countries. C.) Increased traffic in American cities due to the rise of Uber. D.) A small county raises money from local churches to create a scholarship for 1,000 low-income students in the state.

A.) Global warming fears rise as a result of increased pollution in Singapore.

Please determine which action an economist might recommend in response to each externality. MongoCorp, a producer of industrial plastics, textiles, and chemical products, releases harmful levels of nitrogen dioxide into the air, contributing significantly to air pollution in nearby cities. A.) levy a tax B.) issue a patent C.) subsidize

A.) Levy a tax

Which of the following describes rules created by governments that allow for exclusivity in sales, use, and production of an invention for a limited period? A.)patent B.)trademark C.)copyright

A.) Patent

WHEN USING GAME THEORY TO SOLVE FOR EQUILIBRIUM, YOU NEED: A.) Players, strategies, and payoffs. B.) Firms, Consumers, and a product. C.) Prices, markets, and quantities. D.) Firms, Consumers, and Government.

A.) Players, strategies, and payoffs.

The housing market often involves transactions with asymmetric information. Which is a step often taken to minimize the information asymmetry in these types of transactions? A.) Sellers will offer a home warranty. B.) Buyers can deduct mortgage interest on their federal income taxes returns. C.) Real estate agents agree to be paid a commission that is based on the price of the home. D.) Buyers agree to subject themselves to a credit check before applying for a loan.

A.) Sellers will offer a home warranty.

The Environmental Protection Agency is attempting to rule on whether pollution from greenhouse gas emissions endangers public safety. Among the many greenhouse gas polluters are cows emitting methane. Economists have devised a theory to help address this issue. Identify the statement that is true according to economic theory A.) The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal (some pollution could be allowed). B.) If the cost of paying a pollution charge (tax on bovine methane emissions) is less than the cost of reducing pollution, the farmer will have an incentive to reduce pollution. C.) To maximize social welfare, all pollution should be removed. D.) Environmental standards regarding cow-generated methane creates strong incentives for the farmer to reduce as much as possible. E.) The benefit of pollution cleanup to society is always less than the cost of pollution cleanup, especially if all costs are borne by the producer (which means the farmer, but technically, the cows are doing the producing).

A.) The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal (some pollution could be allowed).

Next year, AICUS will charge its clients different premiums based on past accidents and risk groups. Which of these options is the most likely one for the insurance company to select? A.) The high-risk group should pay the highest premium, the moderate-risk group should pay a moderate premium, and the low-risk group should pay the lowest premium. B.) The high-risk and moderate-risk groups should pay the same high premium, whereas the low-risk group should pay no premium. C.) The high-risk group should pay a high premium, whereas the moderate- and low-risk groups should pay no premium. D.) The low-risk group should pay the highest premium, the moderate-risk group should pay a moderate premium, and the high-risk group should pay the lowest premium.

A.) The high-risk group should pay the highest premium, the moderate-risk group should pay a moderate premium, and the low-risk group should pay the lowest premium.

The housing market often involves transactions with asymmetric information. Which accurately characterizes the information asymmetry? A.) The person selling a house has better knowledge about the condition of the house and the need for repairs than the person buying the house. B.) The person selling a house has better knowledge of how the housing market will change in the future because he or she has more experience as a home owner. C.) Buyers and sellers have a stronger incentive to hold out for the best possible price than do real estate agents because of the way in which agents are typically paid. D.) The person buying a house has better knowledge of how much similar houses are selling for because buyers have an incentive to do market research.

A.) The person selling a house has better knowledge about the condition of the house and the need for repairs than the person buying the house.

A chronically ill person opts to purchase health insurance without disclosing his or her illness. Assuming the insurance company either never discovers the deception or that it cannot change the policy after discovering the deception, what is the result? A.) The rest of the insured cover the cost. B.) The company would not accept the application. C.) Insurance premiums become relatively cheaper. D.) The market unravels. E.) no effect

A.) The rest of the insured cover the cost.

Who would have the lowest-risk premium? A.) This person has driven for 30 years and has had no accidents B.) This person has driven for 5 years and has had five accidents

A.) This person has driven for 30 years and has had no accidents

Which of the following is a word, name, symbol or device that shows the creator of the good and can only be used by that firm? A.)trademark B.)copyright C.)patent

A.) Trademark

Suppose that you are in charge of an insurance company. Two kinds of people want insurance, healthy people who probably will not get sick this year and unhealthy people who probably will get sick this year. Healthy people expect to pay, on average, $1,000 on medical bills this year. Unhealthy people expect to pay, on average, $3,000 on medical bills this year. Consider these assumptions and then answer the problem. (i) People will not pay more for insurance than they expect to pay in medical bills; people are risk neutral. As such, healthy people will not pay more than $1,000 for insurance, and sick people will not pay more than $3,000. (ii) You want to insure as many people as possible, but you cannot charge less for insurance than you expect to pay out. If you do, you will go bankrupt, and you will not be able to pay the medical bills of some people who get sick. (iii) People know whether they are healthy or unhealthy, but it is either impossible or illegal for you to know whether a person is healthy or unhealthy. This means that you cannot charge less to healthy people and more to sick people since you do not know which individuals fall into each group. (iv) There are an equal number of healthy and unhealthy people. How much will you charge for insurance in equilibrium, and who will buy insurance? A.) You charge $3,000, and only unhealthy people buy insurance. B.) You charge $3,000, and everyone buys insurance. C.) You charge $2,000, and everyone buys insurance. D.) You charge $1,000, and only healthy people buy insurance. E.) You charge $1,000, and everyone buys insurance.

A.) You charge $3,000, and only unhealthy people buy insurance.

What is the individual mandate component of the Patient Protection and Affordable Care Act? A.) a rule that requires, with limited exceptions, that every resident of the country must enroll in a health insurance plan or pay a fine B.) a declaration that each individual is responsible for his or her own health care needs and should not look to the government for assistance C.) a policy measure that assigns, or mandates, each patient to an approved primary care provider D.) a provision that allows each individual patient to overrule insurance companies when selecting physicians and procedures

A.) a rule that requires, with limited exceptions, that every resident of the country must enroll in a health insurance plan or pay a fine

Apple Macbooks have become increasingly popular among college students. When a college student purchases a Macbook, it comes with a 1 year guarantee that any and all issues will be fixed by Apple free of charge. After that 1 year, though, you are on your own. In addition, the college student can purchase AppleCare, which extends the guarantee to 3 years, at an additional cost. The 3 year extended guarantee is an example of A.) a service contract. B.) a money‑back guarantee. C.) a warranty. D.) collateral. E.) an occupational license.

A.) a service contract.

Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Suppose the government is interested in moving the market closer to the socially optimal quantity. Which policy would likely result in the desired outcome? A.) a subsidy to consumers who choose to purchase solar-powered vehicles B.) a price floor above the observed average price for a solar-powered car C.) granting one firm monopoly rights to produce solar-powered vehicles D.) a new tax levied on the makers of solar-powered cars

A.) a subsidy to consumers who choose to purchase solar-powered vehicles

Apple Macbooks have become increasingly popular among college students. When a college student purchases a Macbook, it comes with a 1 year guarantee that any and all issues will be fixed by Apple free of charge. After that 1 year, though, you are on your own. In addition, the college student can purchase AppleCare, which extends the guarantee to 3 years, at an additional cost. The 1 year guarantee is an example of A.) a warranty. B.) a service contract. C.) a money‑back guarantee. D.) an occupational license. E.) collateral.

A.) a warranty.

A chronically ill person opts to purchase health insurance without disclosing his or her illness. What type of asymmetric information is this? A.) adverse selection B.) screening C.) signaling D.) moral hazard

A.) adverse selection

Why might the state of California require furniture upholsterers to obtain occupational licenses? A.) as a way to provide reassurance about the quality of the furniture upholsterer's work B.) so that sellers have a right to seize and resell the furniture if a loan is not repaid C.) to guarantee that the upholsterer will replace an item of furniture for a certain period of time if there is anything wrong with it D.) so payments can be made to an insurance company

A.) as a way to provide reassurance about the quality of the furniture upholsterer's work

Suppose that in the small town, Prairie, there are only two cable providers. What type of market structure does the local cable market have? A.) duopoly B.) perfect competition C.) monopolistic competition D.) monopoly

A.) duopoly

In comparison to oligopolies, firms in monopolistic competition A.) face competition from many other firms. B.) differentiate their products. C.) participate in markets where barriers to entry are present.

A.) face competition from many other firms.

Please determine which action an economist might recommend in response to each externality. Myploy Fish Sauce produces some of the most in-demand fish sauce in the world, prized for its pungent aroma and lingering taste. However, every year, as part of the production process for its fish sauce, Myploy produces millions of tons of potentially toxic fish sludge, which is drained into local rivers and streams. A.) levy a tax B.) issue a patent C.) subsidize

A.) levy a tax

Bill is currently claiming unemployment. He reads that unemployment benefits are going to be extended and decides that he does not need to put as much effort into looking for a job. Which type of information asymmetry does the scenario best represent? A.) moral hazard B.) adverse selection C.) moral failure D.) screening

A.) moral hazard

Deregulation is characterized as A.) the elimination or reduction of government restrictions on the number of firms, prices the firms charge, and the quantity of products produced. B.) the addition of government restrictions on the number of firms, prices the firms charge, and the quantity of products produced. C.) the addition of tariffs on products imported from developed countries. D.) the reduction of trade partnerships between varying countries.

A.) the elimination or reduction of government restrictions on the number of firms, prices the firms charge, and the quantity of products produced.

Why does the United States government provide tax breaks related to the amount of money companies spend on research and development? (Multiple Answers) A.) to involve less government scrutiny than a government funded project B.) to allow antitrust authorities to challenge joint research efforts C.) to provide incentives for companies to conduct research and development D.) to protect the right of inventors to produce and sell their inventions

A.) to involve less government scrutiny than a government funded project AND C.) to provide incentives for companies to conduct research and development

Most hot dog carts in a city sell hot dogs for $3.00 each. Each stand makes comparable products, but each is independently owned and operated. The marginal cost of selling hot dogs on the street is around $1.00, but owners have maintained the $3.00 price point for several years. The cart owners are not in regular contact. Hot dog vendors in this city A.)are colluding with one another but not as part of a cartel. B.)have formed a cartel. C.)are acting competitively since they cannot change the going price of hot dogs.

A.)are colluding with one another but not as part of a cartel.

A city has two major nut vending companies. I.M. Nutz operates roasted nut carts on the north side of the city, while Go Go Nuts operates carts on the south side of the city. Both companies operate at high margins and have a robust distribution infrastructure that would allow them to operate city-wide, but each company operates exclusively on its end of town. I.M. Nutz and Go Go Nuts A.)collude with one another to maintain market power in their respective areas. B.)are acting competitively; entering the other company's market will likely start an unprofitable price war. C.)have formed a roasted nut cartel.

A.)collude with one another to maintain market power in their respective areas.

Landscaping company owners in a county hold an annual meeting at a hotel. There, owners make contact with industry leaders, share cost-saving ideas, and set minimum prices for services in the coming year. Owners who set prices below these minimums are not invited to next year's meeting. Landscaping company owners who attend the meeting A.)have formed a cartel. B.)are engaged in collusion but are not part of a cartel. C.)are acting competitively.

A.)have formed a cartel.

Classify the scenarios according to whether or not they describe a negative externality. 1.)A factory emits pollution into the atmosphere as a by-product of production. 2.)A neighbor plays loud music that annoys the surrounding community. 3.)A person gets a flu shot and is therefore less likely to spread illness to others. 4.)A person with no allergies gets a mosquito bite from a disease-free mosquito. 5.)A donut shop emits a delicious smell into the air as a by-product of production.

An example of a negative externality: 1.)A factory emits pollution into the atmosphere as a by-product of production. 2.)A neighbor plays loud music that annoys the surrounding community. Not an example of a negative externality: 3.)A person gets a flu shot and is therefore less likely to spread illness to others. 4.)A person with no allergies gets a mosquito bite from a disease-free mosquito. 5.)A donut shop emits a delicious smell into the air as a by-product of production.

Classify each scenario according to whether or not it is an example of imperfect information. Answer Bank - a firm hiring a new employee from a list of candidates who responded to a posting on Monster.com - a firm that is going to promote one of two internal candidates for a management position - a firm selling car insurance - a student choosing between his two favorite pizza spots for lunch - a person buying a new Toyota Camry - a person purchasing a used Hyundai Sonata

An example of imperfect information: - a firm hiring a new employee from a list of candidates who responded to a posting on Monster.com - a person purchasing a used Hyundai Sonata - a firm selling car insurance Not an example of imperfect information: - a person buying a new Toyota Camry - a firm that is going to promote one of two internal candidates for a management position - a student choosing between his two favorite pizza spots for lunch

MARKET FAILURE IMPLIES THAT THE MARKET MECHANISM A.) Leads the economy to a point outside of the production possibilities curve. B.) Leads the economy to the wrong mix of output. C.) Causes shortages or surpluses in the market. D.) Causes government failure.

B.) Leads the economy to the wrong mix of output.

AICUS (Auto Insurance Company of the United States) paid out $62,750,000 in car insurance claims last year. During that year, the company had 100,000 clients and charged each client $600 for insurance. Nine hundred and ninety-nine thousand, five hundred of its clients did not get into any accidents. We will call this the low-risk group. Two-hundred-and-fifty clients had minor accidents that cost $1,000 each. Call this the moderate-risk group. An additional 250 clients had major accidents involving lawsuits that cost $250,000 each. Consider this to be the high-risk group. Did AICUS charge all of its clients an actuarially fair insurance rate last year? A.) There is not enough information to tell. B.) No C.) Yes

B.) No

Ronald Coase's ideas on property rights have helped economists and policymakers better understand environmental problems. Identify the true statement regarding Coase and property rights. A.) Property right allocation is unimportant because the affected parties will contract with one another to find an efficient solution to externality problems regardless of who is assigned the initial property right. B.) The assignment of property rights to someone is essential. C.) Property rights refer exclusively to ownership of land. D.) Environmental harms will be greater when property rights are assigned to firms.

B.) The assignment of property rights to someone is essential.

WHEN FIRMS ARE INTERDEPENDENT, A.) One firm can ignore other companies in the market when making decisions. B.) The profit of one firm depends on how its rivals respond to its strategic decisions. C.) They can act independently of one another. D.) Then the market is perfectly competitive.

B.) The profit of one firm depends on how its rivals respond to its strategic decisions.

Who would have the highest-risk premium? A.) This person has driven for 30 years and has had no accidents B.) This person has driven for 5 years and has had five accidents

B.) This person has driven for 5 years and has had five accidents

Which scenario is an example of an industry in monopolistic competition? A.) Farmers grow navel oranges throughout the United States. B.) Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express, Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers. C.) Sprint, AT&T, Verizon, and T-Mobile own a large portion of the U.S. cellular market share. D.) The local gas company owns all of the gas lines that supply natural gas and heating to the residents in the town of Madison, Wisconsin.

B.) Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express, Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers.

Please determine which action an economist might recommend in response to each externality. Espalda, a manufacturer of ergonomic furniture, has created a new chair with a unique design shown to improve posture and increase productivity while also leading to a better mood for the person using the chair. A.) levy a tax B.) issue a patent C.) subsidize

B.) issue a patent

Please determine which action an economist might recommend in response to each externality. Omnicrom, a pharmaceutical research and development firm, has developed a new treatment for halitosis, the medical term for chronic bad breath, that promises to treat both the bad taste in patients' mouths and the foul odor that bothers those close to them. A.) levy a tax B.) issue a patent C.) subsidize

B.) issue a patent

In the case of any firm facing a downward sloping demand curve, marginal revenue is always A.) equal to price B.) less than price C.) more than price

B.) less than price

Monopolies and monopolistically competitive firms differ in that monopolies A.) differentiate their products. B.) participate in markets where barriers to entry are present. C.) face competition from many other firms.

B.) participate in markets where barriers to entry are present.

In game theory, a dominant strategy is A.) the choice that causes the payoff for the other player to be minimized, regardless of the payoff it earns. B.) the best strategy to pick, no matter which moves are chosen by the other player. C.) to allocate all personnel resources towards defensive talent in order to dominate opposing offenses. D.) the best strategy to pick, assuming the other player makes his or her best possible choice. E.) to make the exact same move that was made by the other player.

B.) the best strategy to pick, no matter which moves are chosen by the other player.

What is the primary reason for the individual mandate component of the Patient Protection and Affordable Care Act? A.) to ensure that all sick people have health care coverage so their medical bills will be paid B.) to make sure healthy people do not opt out and reduce the risk pool for insurance companies C.) to increase the profits of companies offering health insurance D.)to reduce government's role in health care and rely more on markets

B.) to make sure healthy people do not opt out and reduce the risk pool for insurance companies

Which is the best definition for the term moral hazard? A.) when imperfect information implies that people must choose from an undesirable selection of goods B.) when people who are not responsible for the entire costs of their actions take riskier actions than they would otherwise take C.) when one side of an economic transaction has more information about the good being exchanged than the other side has D.) when consumers must decide whether to purchase goods from firms with potentially objectionable business practices E.) when people engage in hazardous activities because of a deficient moral code F.) when people take unwise risks G.) when businesses pursue profit at the expense of employee well-being

B.) when people who are not responsible for the entire costs of their actions take riskier actions than they would otherwise take

Three friends start a bakery in the east side of a city. There is a higher demand for baked goods on the west side of the city, but the bakery's owners refrain from expanding there due the large number of well-established bakeries already there. The east side bakery owners are A.)responding to cartel pressure to stay in their own territory. B.)acting competitively by avoiding a poor business decision. C.)colluding with the well-established bakeries on the west side of the city.

B.)acting competitively by avoiding a poor business decision.

Suppose Turing Inc. creates the first ever solar powered cell phone battery that absorbs ambient light and converts it into electrical power. Furthermore, the battery stores excess absorbed light as an internal battery that lasts up to 10 hours in the dark. At a conference, a Turing Inc. representative presents the battery to representatives from many other companies, proclaiming the invention will revolutionize the cell phone industry. A few months later, Algos creates a solar powered cell phone battery that lasts 12 hours in the dark. This example of the spreading of knowledge is also a A.)negative externality. B.)positive externality. C.)neither.

B.)positive externality.

Suppose Turing Inc. creates the first ever solar powered cell phone battery that absorbs ambient light and converts it into electrical power. Furthermore, the battery stores excess absorbed light as an internal battery that lasts up to 10 hours in the dark. At a conference, a Turing Inc. representative presents the battery to representatives from many other companies, proclaiming the invention will revolutionize the cell phone industry. A few months later, Algos creates a solar powered cell phone battery that lasts 12 hours in the dark. This example of the spreading of knowledge is known as [a(n)] A.)network externality. B.)technology spillover. C.)positive feedback. D.)industrial policy.

B.)technology spillover.

Kentucky Fried Chicken, better known as KFC, holds one of the most desired recipes in the world for their signature, 11‑spice blend used in their fried chicken. In fact, it is so valuable, the recipe is kept in a vault and only two people in the world know the full contents of the recipe. The KFC fried chicken recipe is an example of A.)a copyright B.)a patent C.)a trade secret D.)a trademark

C.) A Trade Secret

WHICH OF THE FOLLOWING IS CONSUMED JOINTLY? A.) A can of soda. B.) A slice of pie. C.) A seat on an airplane. D.) A section of highway.

C.) A seat on an airplane.

Which statement best describes a monopoly? A.) Many firms produce identical products with no control over the market price. B.) Many firms produce differentiated products with control over market price. C.) A single firm produces a product with no close substitutes and control over the market price. D.) A single firm produces a product with many close substitutes and limited control over the market price.

C.) A single firm produces a product with no close substitutes and control over the market price.

Which of the following is a legal rule that prohibits copying of material in order to protect the rights of those responsible for the creation of the good? A.)trademark B.)patent C.)copyright

C.) Copyright

THE COMPETITIVE DIMENSION OF MONOPOLISTIC COMPETITION IS THAT A.) High barriers to entry tend to push economic profits toward zero. B.) Consumers view each firm's products as identical. C.) Low barriers to entry tend to push economic profits toward zero. D.) Each firm in the industry will lose all of its customers if it raises its price.

C.) Low barriers to entry tend to push economic profits toward zero.

THE CORRECT RANKING OF DEGREE OF MARKET POWER (FROM HIGHEST TO LOWEST) IS A.) Monopoly, monopolistic competition, perfect competition, oligopoly. B.) Monopoly, monopolistic competition, oligopoly, perfect competition. C.) Monopoly, oligopoly, monopolistic competition, perfect competition. D.) Oligopoly, monopoly, monopolistic competition, perfect competition.

C.) Monopoly, oligopoly, monopolistic competition, perfect competition.

Which of the following statements describes the occurance of a positive externality resulting from the production of a good by a new technology? A.) When the customer resells the good to his neighbor B.) When income is received by the developer for selling the good made by the new technology C.) When people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement D.) When the company that pays for developing new technology benefits from the advancement in its production of other goods E.) When pollution is produced during the development of the new technology

C.) When people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement

Suppose that in the market for cell phone service the number of competitors has dwindled until Cellaphone and DeLongest Call have become the only providers left in the nation. Seeking to boost their profits, the two companies secretly agree to a coordinated increase in their prices for cell phone minutes. This practice is known as A.) predatory pricing. B.) tying. C.) collusion. D.) a Nash equilibrium. E.) antitrust.

C.) collusion.

Which of the following makes monopolistic competition different than perfect competition? Monopolistically competitive firms A.) participate in markets where barriers to entry are present B.) face competition from many other firms C.) differentiate their products

C.) differentiate their products

Please determine which action an economist might recommend in response to each externality. A new report is released by the American Society for Rural Dwellings, concluding that living in the countryside has positive health benefits. As a result, many homeowners decide to build new homes in the country, which stimulates the local economy of many small towns. A.) levy a tax B.) issue a patent C.) subsidize

C.) subsidize

Match the characteristic to the market structure. many firms produces efficient output level produces inefficient output level single firm price maker no long‑run economic profits

Competitive market: - many firms - produces efficient output level - no long‑run economic profits Monopoly: - single firm - produces inefficient output level - price maker

Acquiring skills is thought of as an investment because it involves __________ today in anticipation of __________ in the future. Firms invest in their workers to increase ______________ in the future.

Costs, Benefits, Productivity

MONOPOLISTICALLY COMPETITIVE FIRMS ARE PRODUCTIVELY INEFFICIENT BECAUSE LONG-RUN EQUILIBRIUM OCCURS AT AN OUTPUT RATE WHERE A.) MC is greater than MR. B.) Price is greater than MC. C.) Diseconomies of scale exist. D.) ATC is greater than minimum ATC.

D.) ATC is greater than minimum ATC.

Why Do Natural monopolies exist and develop? A.) For some industries, it is more efficient for one firm to operate. B.) In a natural monopoly, firms can minimize average costs at a large level of production. C.) A natural monopoly is more likely to be able to achieve economies of scale. D.) All of the above.

D.) All of the above.

MONOPOLISTICALLY COMPETITIVE INDUSTRIES ARE CHARACTERIZED BY ALL OF THE FOLLOWING EXCEPT: A.) Low entry barriers B.) Low concentration ratios C.) Identical products D.) Independent production decisions

D.) Independent production decisions

Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Which type of externality is likely to result from a consumer's decision to purchase a solar-powered vehicle instead of a gas-powered vehicle, and how does it arise? A.) This decision generates a negative externality because including new technology in the cars will drive up the market price. B.) This decision generates a negative externality because companies that do not produce solar-powered cars will be put out of business. C.) This decision generates a positive externality because individuals can use the money they save on gasoline to help the local community. D.) This decision generates a positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution.

D.) This decision generates a positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution.

All are examples of the benefits of clean air and water EXCEPT A.) higher property values. B.) lower infant mortality rates. C.) Fewer instances of lung cancer D.) decreased prices for all goods and services. E.) increased workforce productivity.

D.) decreased prices for all goods and services.

Investment in human capital is best described as A.) investing in companies that promote positive work-life balances for workers. B.) contributing to employee retirement plans to reduce worker turnover. C.) accumulating machinery and equipment to improve returns to scale. D.) investing in education and training to improve a worker's productivity.

D.) investing in education and training to improve a worker's productivity.

Identify the characteristics that describe the good: A unicycle

Excludable, Rivalrous

Identify the characteristics that describe the good: Hot Pocket sandwich

Excludable, Rivalrous

Identify the characteristics that describe the good: Pajamas

Excludable, Rivalrous

Identify the characteristics that describe the good: Private Classroom Education

Excludable, Rivalrous

True or False Command-and-control is more flexible than market-based regulation.

False

True or False Command-and-control situations are always the best option when it comes to reducing the amount of pollution.

False

True or False Command‑and‑control regulation is typically more efficient than emissions taxes.

False

True or False Compared with no regulation, regulation with marketable permits decreases firms' costs.

False

True or False Externalities are the only example of market failure.

False

True or False Firms generate the same level of pollution regardless of any pollution taxes that are imposed.

False

True or False In the long run, each monopolistically competitive firm produces a level of output that results in allocative efficiency.

False

True or False In the long run, each monopolistically competitive firm produces a level of output that results in productive efficiency.

False

True or False Market failure occurs when negative externalities are present but not when positive externalities are present.

False

True or False Market failure occurs when positive externalities are present but not when negative externalities are present.

False

True or False Monopolies produce differentiated products

False

True or False Monopolistic competition is a market structure that consists of a small number of producers

False

True or False Private costs are costs that the firm is not obligated to disclose to the public.

False

True or False The terms "social cost" and "external cost" are synonyms.

False

True or False Wages are an example of an external cost.

False

True or False When the production of a good results in pollution, private and social costs are the same.

False

True or False With a pollution tax, firms must pay a fine if they pollute more than the legally specified amount.

False

-For each of the policy objectives listed, identify each as a product of either financial incentives governments provide or the system of intellectual property that governments uphold. Some objectives may not be supported by governments at all. Answer Bank - Transfer a significant share of new inventions under government control - Make research and development less risky for private firms - Ensure that inventors are rewarded for making useful inventions - Prevent inventors from creating redundant inventions - Fund basic research - Ensure that inventors are the only beneficiaries of their inventions' benefits

Financial Incentives: - Fund basic research - Make research and development less risky for private firms Intellectual Property: - Ensure that inventors are rewarded for making useful inventions

Determine if the following scenario is an example of free riding? Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air.

Free riding

Determine if the following scenario is an example of free riding? Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 64.

Free riding

Determine if the statements are examples of moral hazard or not, then place each statement into the appropriate category. - A woman decides to bungee jump because her life insurance policy will provide for her family in the event of a bungee jumping tragedy. - A bank is less cautious about making loans when the government passes a law that states that they will reimburse the bank if too many loans default. - A family builds a home along a fault line because their homeowner's insurance protects them if an earthquake occurs. - A driver speeds on a particular road after learning that the likelihood of getting a ticket there is relatively low because state troopers rarely venture that far out into their district.

Moral hazard: - A woman decides to bungee jump because her life insurance policy will provide for her family in the event of a bungee jumping tragedy. - A bank is less cautious about making loans when the government passes a law that states that they will reimburse the bank if too many loans default. - A family builds a home along a fault line because their homeowner's insurance protects them if an earthquake occurs. Not moral hazard: - A driver speeds on a particular road after learning that the likelihood of getting a ticket there is relatively low because state troopers rarely venture that far out into their district.

Determine if the following scenario is an example of free riding? Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10 for the same food.

Not free riding

Determine if the following scenario is an example of free riding? Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money.

Not free riding

Please categorize the features according to whether or not they are part of the Patient Protection and Affordable Care Act (PPACA). - makes co‑pays mandatory for procedures - creates state health insurance exchanges - extends coverage to those with pre‑existing conditions - places limits on physician's salaries - mandates that individuals have health insurance - creates government mandated physician‑patient matching

Part of the PPACA: - mandates that individuals have health insurance - creates state health insurance exchanges - extends coverage to those with pre‑existing conditions Not part of the PPACA: - places limits on physician's salaries - makes co‑pays mandatory for procedures - creates government mandated physician‑patient matching

Please categorize the characteristics according to whether they are features of private health insurance or government health insurance programs. - includes the Veterans Health Administration, which runs its own health services system for members of the armed forces and their families - recipients pay into a large pool that covers many of the medical costs for members - helps to cover those who may not receive insurance coverage from employers - often provided to individuals through a plan offered by their employer - funded predominantly through tax revenue

Private health insurance: - often provided to individuals through a plan offered by their employer - recipients pay into a large pool that covers many of the medical costs for members Government health insurance: - helps to cover those who may not receive insurance coverage from employers - includes the Veterans Health Administration, which runs its own health services system for members of the armed forces and their families - funded predominantly through tax revenue

Determine if each example represents a barrier to entry or not. 1.) Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best-selling cholesterol drug. 2.) Tinseltown Theaters shows almost all the most popular newly released movies. 3.) DeBeers owns nearly all of the world's diamond mines. 4.) Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors.

Represents a Barrier to Entry: 1.) Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best-selling cholesterol drug. 3.) DeBeers owns nearly all of the world's diamond mines. 4.) Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors. Does not represent a Barrier to Entry: 2.) Tinseltown Theaters shows almost all the most popular newly released movies.

True or False A pollution charge and a pollution tax are the same thing.

True

True or False Compared with purely competitive markets, under monopolistic competition consumers with a diversity of tastes can benefit from the opportunity to choose from a greater range of products and services.

True

True or False Government sometimes intervenes when market failure occurs.

True

True or False In order to maximize its profits, each monopolistically competitive firm must determine the price of its product, how to differentiate its product, and how much it will spend on advertising.

True

True or False Market failure occurs when either negative or positive externalities are present.

True

True or False Marketable permits provide their owners with the right to pollute a specified amount.

True

True or False Marketable permits typically achieve pollution reduction at a lower cost than command‑and‑control regulation.

True

True or False One option with command-and-control is for the government to decide on a specific amount of pollution that firms can legally emit.

True

True or False Pollution is an example of an external cost.

True

True or False Pollution taxes encourage firms to find innovative ways to remove pollution.

True

True or False Product differentiation enables a monopolistically competitive firm to have some control over the price of its product.

True

True or False Social cost is the sum of private and external costs.

True

True or False The term "cap and trade" describes regulation by marketable permits.

True

True or False To maintain a competitive edge and earn economic profits, a monopolistically competitive firm has an incentive to improve its product.

True

True or False Under command-and-control regulation, the government has the option to specify the technology that firms must use in production.

True

True or False When the production of a good results in pollution, private and social costs are different.

True

Determine whether each activity will increase a worker's human capital. 1.)completing an on‑the‑job training program 2.)earning a college degree 3.)participating in an apprenticeship 4.)learning a new programming language 5.)building a new factory 6.)buying a share of stock 7.)saving money for down payment on a new car

Will increase human capital: 1.)completing an on‑the‑job training program 2.)earning a college degree 3.)participating in an apprenticeship 4.)learning a new programming language Will not increase human capital: 5.)building a new factory 6.)buying a share of stock 7.)saving money for down payment on a new car

Match the scenario to the appropriate insurance term. After his deductible has been paid, Corin pays 20% of the cost of his doctor visits. co‑payment deductible coinsurance payment

coinsurance payment

Match the scenario to the appropriate insurance term. Kevin pays $5 for his prescription and his insurance company pays the remainder of the cost. co‑payment deductible coinsurance payment

co‑payment

Match the scenario to the appropriate insurance term. Each year, the Clarke family pays the first $500 of their medical expenses before their insurance company starts paying. co‑payment deductible coinsurance payment

deductible

Match the scenario to the appropriate insurance term. Sarah is required to pay the full amount of her doctor visits until she has spent $1,200 on health care. After that, her insurance company will pay 100% of the cost of her doctor visits. co‑payment deductible coinsurance payment

deductible

Given the scenario, label them accordingly by how products are differentiated. Jay is a Korean pop star, and as such, he has long, flowing hair. One day, he decides to retire from the singing industry and walks to the local Procuts right outside his apartment, despite it being more expensive than the Supercuts 10 minutes away. differentiated by location differentiated by style/type differentiated by quality

differentiated by location

Given the scenario, label them accordingly by how products are differentiated. Wayne is a beginning photographer. He is in the market to buy a new camera lens and notes that certain lenses take clearer pictures but they become exponentially more expensive to purchase as the sharpness of the image increases. He chooses to start with the lowest grade lens (i.e., the cheapest). differentiated by location differentiated by style/type differentiated by quality

differentiated by quality

Given the scenario, label them accordingly by how products are differentiated. GrrrArg! Productions attempts to carve out a niche in the crowded zombie film industry by specializing in movies featuring only finger-puppet zombies. differentiated by location differentiated by style/type differentiated by quality

differentiated by style/type

Given the scenario, label them accordingly by how products are differentiated. The video game industry caters to a wide array of people, with games like Final Fantasy to appeal to the role playing type, Tekken for those who like fighting games, Halo for the first person shooters, and Super Mario for the adventurous. differentiated by location differentiated by style/type differentiated by quality

differentiated by style/type

A free rider is a person who _________ a public good that others __________.

enjoys; pay for