econ

Which of the following Gini coefficients represents the income distribution closest to being equal? 0.02 0.10 0.50 0.98

.02 the lower the Gini Coefficient the closer income distribution is to being equal

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would produce: 0 units of output. 300 units of output. 500 units of output. 900 units of output.

0 units of output it would produce zero units since it cannot cover its average cost

The equilibrium solution for the following payoff matrix is: A A B A:1,B:1 A:2,B:0 B A:0,B:2 A:1,B:1 1, 1. 2, 0. 0, 2. -1, -1.

1,1 The equilibrium solution is where each player maximizes the expected payoff. A is best off choosing column 2. Therefore, knowing that A will choose column 2, B will choose row 2.

Refer to the graph shown. If this monopolist were allowed to choose the profit-maximizing level of output, it would charge a price of: $2. $3. $8. $12.

12 it would set price corresponding to the output level where MR=MC

Refer to the graph shown. If this monopolist were allowed to choose the profit-maximizing level of output, it would produce: 300 units of output. 400 units of output. 500 units of output. 800 units of output.

400 units of output it would produce at an output corresponding to MR=MC

Refer to the graph shown. The top 20 percent of the families earn: 32.6 percent of the income. 45.3 percent of the income. 54.7 percent of the income. 67.4 percent of the income.

45.3 percent of income the richest 20 percent earn 100-54.7 pr 45.3 percent of the income

An industry in which 5 firms each have a 10 percent market share and 50 firms each have a 1 percent market share will have a Herfindahl index equal to: 500. 550. 1,100. 1,500.

550 The Herfindahl index in this case equals (10^2 × 5) + (1^2 × 50) = 550.

When four Infineon Technologies executives participated in an international conspiracy to fix prices for computer memory chips, they were acting with other firms as: if they were in a contestable market. if they faced kinked demand curve. a cartel. an industry with monopolistic competition.

A cartel Price fixing is an attempt by several firms to act as if they were one large monopoly. A cartel describes this behavior.

The Gini coefficient is calculated as area: B divided by area A. A divided by area A + B. A divided by area B. A + area B divided by area B.

A divided by area A+B The Gini coefficient compares the area between the diagonal line and the lorenz curve to the area below the diagonal line

A single union that supplies all the labor in a particular market is an example of: a monopsony. a monopoly. a bilateral monopoly. an oligopoly

A monopoly A monopoly is a single seller, a monopsony is a single buyer, and a bilateral monopoly is a market in which there is both a single seller and a single buyer.

What price represents the shutdown price

At this price, the firm maximizes profits by producing Q2 units since only at Q2 is marginal cost equal to price. At Q2, price equals average variable cost, and so the firm not only suffers a loss but also fails to generate any revenue to cover even a portion of its fixed costs, giving it no incentive to operate.

Refer to the graph shown, which depicts a perfectly competitive firm. If the price of the product is $8 and the firm maximizes profit: the firm will earn economic profits of more than $330 per day. average cost of the product will be at the minimum possible level. output will be 100 units per day. the industry will be in long-run equilibrium.

Average total cost is less than $5 at the profit-maximizing output level of 110 units, and so profits must be greater than $330. the firm will earn economic profits of more than $330 per day.

Price exceeds marginal cost for a monopolistically competitive firm in long-run equilibrium because: economic profits are positive. economic profits are negative. demand is perfectly elastic. demand is not perfectly elastic.

Demand is not perfectly elastic Demand is not perfectly elastic because each firm has some amount of monopoly power. Economic profit is zero in the long run.

Business lobbyists tend to argue against a living wage law by arguing that it is a price: ceiling that will cause a shortage of labor. ceiling that will cause a surplus of labor. floor that will cause a shortage of labor. floor that will cause a surplus of labor.

Floor that will cause a surplus of labor The analysis is the same as for a minimum wage. It is a price floor that can cause a surplus of labor (unemployment).

The demand for clothing increases. As a result, the price of clothing increases above the minimum average cost of producing it. In the long run, if the clothing industry is perfectly competitive and is a constant-cost industry: the supply of clothing and the price of clothing will increase. the supply of clothing will increase but the price will not. the price of clothing will increase but the supply will not. neither the price nor the supply of clothing will increase.

In the short run, the price of clothing will increase, and this increases industry profits. In the long run, new firms will enter to capture these profits, and this will increase supply and reduce price until zero profits exist. Since the industry is a constant-cost industry, price returns to its initial level. the supply of clothing will increase but the price will not.

Refer to the graph shown. The oligopolist shown currently charges a price P1. It believes that rival firms will: gain market share if it lowers its price. lose market share if it lowers price. raise price if it raises price. lower price if it lowers price.

Lower price if it lowers price The oligopolist depicted faces an inelastic demand curve if it lowers price because it believes rival firms also will lower price. It also faces an elastic demand curve if it raises price because it believes rival firms will not follow price increases.

The demand curve for a firm in perfect competition is equal to its: marginal cost curve. marginal revenue curve. average total cost curve. average fixed cost curve.

Marginal revenue curve Because a perfect competitor cannot affect the price in the market, it faces a horizontal demand curve. Because the demand curve is horizontal, the marginal revenue curve is also horizontal at that same price.

If the market price is P4, the maximum profit the firm can earn is

Q4 multiplied by the different between P4 and P3 P4 minus P3 is the same as price minus average total cost, which is just profit per unit. Profit per unit times the number of units sold equals total profit.

Refer to the graph shown. Assuming a $0.10-per-gallon marginal cost external to the trade that is associated with gasoline, the market price of gasoline necessary to induce consumers to purchase the efficient quantity each year is: $1.10. $1.00. $1.05. $0.95.

The externality, $0.10 per gallon, must be internalized by a tax to result in an efficient point, K. Some of the tax burden is borne by producers. 1.05

If the demand curve is curve D for a monopoly, the marginal revenue curve is: A, which intersects the x-axis at 1/4 the quantity where the demand curve intersects the x-axis. B, which intersects the x-axis at 1/2 the quantity where the demand curve intersects the x-axis. C, which intersects the x-axis at 3/4 the quantity where the demand curve intersects the x-axis. D, which intersects the x-axis at the same quantity where the demand curve intersects the x-axis

The marginal revenue curve is a straight line that intersects the quantity axis at a point halfway between where the demand curve intersects the quantity axis and zero. B, which intersects the x-axis at 1/2 the quantity where the demand curve intersects the x-axis

If a system has multiple defects but those defects in effect offset each other, curing one defect may make the system perform more poorly. This possibility is known as: the Hume dictum. the normative criticism of Pareto optimality. the second best criticism of Pareto optimality. the nirvana criticism of Pareto optimality.

The second best criticism of Pareto optimality For example, a firm that is a monopolist and a polluter causes two market failures. Monopoly makes it produce too little; the externalities make it produce too much. Curing one problem could move the system further from efficiency. See Added Dimension: Pareto Optimality and the Perfectly Competitive Benchmark in the text.

If a monopolist increases output from 14 to 15 by lowering its price from $32 to $31, marginal revenue is: $1. $17. $448. $465.

Total revenue increases from $32 × 14 = $448 to $31 × 15 = $465, and so marginal revenue is 17. $1 is the change in average revenue. 17

If a positive externality exists in the provision of education when education is provided in a perfectly competitive market without government intervention, at the market equilibrium level of education: additional net gains to society are possible by reducing the level of education. additional net gains to society are possible by raising the level of education. the marginal social benefit of education equals the marginal social cost. additional net gains to society are not possible by either increasing or decreasing the level of education.

additional net gains to society are possible by raising the level of education Since there is a positive externality, marginal social benefit exceeds marginal private benefit. The market equilibrium occurs where marginal private benefit equals marginal private cost, but the socially optimal level is where marginal social benefit equals marginal private cost.

If an industry has a Herfindahl index of 3,000, the contestable market model probably would predict that the industry would be more likely to have a: monopolistic price. competitive price. monopolistic price if there are no barriers to entry. competitive price if there are no barriers to entry.

competitive price if there are no barriers to entry. The contestable market model argues that industry structure is dominated by barriers to entry, and so that what looks like an oligopoly can actually be quite competitive if there are no barriers to entry.

An example of a negative externality is the: decrease in your real income that results when photographic equipment you purchase increases in price because of increased demand by others for these items. cost you bear when your neighbor has a noisy party and does not compensate you for your discomfort. benefit you receive without paying when your neighbor installs a smoke detector. decrease in income to farmers that results from a drought

cost you bear when your neighbor has a noisy party and does not compensate you for your discomfort. Negative externalities are negative effects of trades not taken into account by the decision makers. The smoke detector has a positive effect on a third party and is an example of a positive externality. The decrease in your real income from higher photographic equipment prices is a monetary externality that does not generate a net cost to society. It is not a negative externality.

A strategy that is preferred by an individual regardless of an opponent's decision is called: a Nash equilibrium. a Vickrey position. a framing strategy. a dominant strategy

dominant strategy

Refer to the graph shown. If the monopolist produces at the output level at which price equals marginal cost, it will: maximize profits. earn zero profits. earn positive profits but not maximum profits. incur a loss.

earn postive profits but not maximum profits Profits are positive since price exceeds average total cost. Profits are not maximized, however, because marginal cost exceeds marginal revenue.

If a market has no externalities, marginal private costs: exceed marginal social costs. equal marginal social costs. are below marginal social costs. intersect marginal social costs.

equal to marginal social costs The difference between marginal social costs and marginal private costs is due to externalities.

In the long-run equilibrium for a monopolistically competitive firm, price: exceeds marginal cost. exceeds average total cost. is equal to marginal revenue. is equal to marginal cost.

exceeds marginal cost Price exceeds marginal cost because price exceeds marginal revenue for a monopolistically competitive firm.

Once vaccinated, a person cannot catch a cold or give a cold to someone else. As a result, the marginal social benefit resulting from consumption of the vaccine: exceeds the marginal benefit received by consumers of the vaccine. equals the marginal social cost of producing the vaccine in a competitive equilibrium. equals the marginal benefit received by consumers of the vaccine in a competitive equilibrium. is less than the marginal benefit received by consumers of the vaccine.

exceeds the marginal benefit received by consumers of the vaccine. There is a positive externality associated with the vaccine. The MSB curve is to the right of the demand curve for the vaccinated person

Long-run competitive equilibrium in an industry implies that no firm: is earning a normal profit. is producing at the output level where price equals long-run average total cost. has an incentive to enter or exit the industry. is earning accounting profits.

has an incentive to enter or exit the industry In a long-run equilibrium, firms earn a normal economic profit, and so there is no incentive to exit or enter the industry.

Which of the following statements contradicts the evidence shown in the graph shown? Income is more equally distributed in Sweden than it is in Brazil. Income is more equally distributed in Taiwan than it is in the United States. Income is more equally distributed in Sweden than it is in Taiwan. Income is more equally distributed in the United States than it is in Brazil.

income is more equally distributed in Taiwan than it is in the US More unequal income distribution is shown as one gets farther away from the diagonal.

If markets are perfectly competitive and production of a good results in water pollution, the imposition of a tax on that good will: increase the price of that good and increase pollution. reduce the price of that good and increase pollution. reduce the price of that good and decrease pollution. increase the price of that good and reduce pollution

increase the price of that good and reduce pollution Market supply shifts to the left, and so equilibrium price rises and equilibrium quantity falls, thereby reducing pollution.

A labor supply elasticity of 0.1 means that a wage increase of 10 percent will: reduce the quantity of labor supplied by 10 percent. increase the quantity of labor supplied by 10 percent. increase the quantity of labor supplied by 1 percent. reduce the quantity of labor supplied by 1 percent.

increase the quantity of labor supplied by 1 percent The labor supply elasticity gives the ratio of the percentage change in labor supplied to the percentage change in wages.

When a tax is progressive, the average tax rate: decreases with income. is constant with income. increases with income. first increases with income, then decreases with income.

increase with income

Refer to the graph shown. The firm in this monopolistically competitive industry will: earn economic profits of $70,000 per year. earn economic profits of $140,000 per year. incur economic losses of $140,000 per year. incur economic losses of $70,000 per year.

incur economic losses of 140,000 per year At the profit-maximizing output level of 7,000, average total cost exceeds price by $20, and so the firm incurs a loss of $140,000.

A higher marginal income tax rate reduces incentives to work because: leisure and other nonmarket activities aren't taxed, and so their relative price goes down. leisure and other nonmarket activities aren't taxed, and so their relative price goes up. the opportunity cost of leisure remains constant while after-tax wages fall. the opportunity cost of leisure increases with the marginal income tax rate.

leisure and other non market activities aren't taxed, and so their relative price goes down. Since higher marginal income tax rates reduce after-tax wages, they also reduce the opportunity cost of nonmarket activities, and so these activities become cheaper in terms of forgone income.

When wages rise, the opportunity cost of: labor falls. labor rises. leisure falls. leisure rises.

leisure rises The opportunity cost of leisure is the wages forgone for that hour. Therefore, when wages rise, the opportunity cost of leisure rises

The marginal factor cost curve for a monopsony: lies above the labor supply curve. lies below the labor supply curve. is the labor supply curve. is unrelated to the labor supply curve.

lies above the labor supply curve. Since a monopsonist who hires another worker must pay higher wages not only to that worker but to all other workers, the cost of hiring another worker exceeds the wage. This means that the marginal factor cost curve lies above the labor supply curve.

Lowest price guarantees: always provide the customer with the lowest possible price. are bad for companies since such guarantees reduce profits. may not lead to the lowest consumer prices. are regarded as false advertising.

may not lead to the lowest consumer prices Lowest price guarantees lead to companies competing on factors other than prices, and hence prices may be higher than otherwise

The basis of judgment for the Standard Oil case was ____________, whereas the basis of judgment for the ALCOA case was _____________: market structure, market performance. unfair business practices, price discrimination. monopolistic abuses, market structure. market concentration, interlocking directorships.

monopolistic abuses, market structure. Although ALCOA did not own a controlling share of the metals market, it was found guilty of controlling a monopoly share of the aluminum market. ALCOA was not found guilty of unfair business practices.

Social Security is: a pension program that returns benefits to participants equal to the amount paid in. not purely a pension program, because some people receive more than they paid in. a means-tested public assistance program designed to reduce income inequality. a means-tested public assistance program designed to assist the poor.

not purely a pension program, because some people receive more than they paid in The amount of an individual's Social Security monthly cash benefits depends on a very complex formula that is skewed in favor of lower-income workers. Social Security is a social insurance program rather than a public assistance program, and eligibility is based on past contributions rather than need (so it is not means-tested).

Suppose there are only four airlines that service the air route between two cities. If there is a barrier to entering the market (such as a limited number of gates), the market is best characterized as: a pure monopoly. monopolistically competitive. oligopolistic. perfectly competitive.

oligopolistic Since there are few sellers and there are barriers to entry, the market structure is oligopolistic.

Which of the following market structures is characterized by interdependent pricing and output decisions? Monopoly. Oligopoly. Monopolistic competition. Perfect competition.

oligopoly Since there are a small number of sellers in an oligopoly, each seller is influenced by the price and quantity decisions of other sellers

Refer to the table shown. Suppose widgets cost $8.50 to produce. If widgets are a public good, how many will be produced by market incentives, and is that the right (efficient) number? Zero will be produced, and this is below the socially optimal amount. One will be produced, and this is the socially optimal amount. One will be produced, and this is below the socially optimal amount. Two will be produced, and this is the socially optimal amount.

one will be produced, and this is below the socially optimal amount Helen will buy one because she gets more value than it costs to produce. However, a second also is worth producing because it provides value of $9, which is more than the cost of production.

A bilateral monopoly is a market in which there are: many sellers but only a single buyer. many buyers but only a single seller. only a single seller and a single buyer. many sellers and many buyers.

only a single seller and single buyer

In a perfectly competitive market, firms set: prices and quantities. prices but not quantities. quantities but not prices. neither prices nor quantities.

quantities not price Since firms are price takers in a perfectly competitive market, their individual output decisions do not affect price and they choose only the quantity of output they wish to supply at the existing market price.

One of the major complaints about state lotteries is that they are played primarily by the poor. Hence, because lotteries do not pay out in prizes as much as they take in as revenue, this way of raising state revenue is: progressive. retroactive. reactionary. regressive.

regressive Lotteries are highly regressive- they are overwhelmingly played by the poor

Refer to the graph shown, which depicts a perfectly competitive firm. If the price of the product is $3: new firms will enter the industry. the firm will just cover its opportunity cost of production. the industry will be in long-run equilibrium. the firm may continue to operate in the short run but will exit the industry in the long run.

the firm may continue to operate in the short run but will exit the industry in the long run. Since price is less than minimum long-run average total cost, the firms will suffer losses and will exit the industry in the long run.

All of the following are possible explanations for the fact that on average women earn lower wages than men in the United States except: Women choose to work in low-wage industries. Women are more productive than men on average. Women enter and leave the labor force more frequently than men, causing them on average to have less experience and a lower productivity than men. Women are discriminated against in labor markets.

women are more productive than men on average if women were more productive and everything else were equal, their wages would be higher because firms would be willing to pay them more