ECON FINAL

Suppose demand for gasoline is highly inelastic while supply is elastic. If the government imposes $0.50 tax (per gallon) on suppliers, how much is paid by buyers and suppliers?

$0.45 paid by buyers, $0.05 paid by suppliers

The University of Hawaii Chess Club is hosting a tournament of Friday night. The entry fee for the tournament is $15. Instead of playing in the tournament, Nate could either work at his student job and earn $40 or tutor economics students and earn $30, but he cannot both tutor and work at his job. What is Nate's opportunity cost of playing in the tournament?

$55

A firm, in a perfectly competitive market, produces and sells child car seats. The sales price is $600, the fixe cost are $3,000 and the variable cost are $300 per unit. What is the marginal revenue for the 10th seat sold?

$600

In order for a firm to price discriminate, what two conditions must be met?

(1) identify consumers with different elasticities of demand, (2) good cannot be resold

Consider two substitute goods: coffee and tea. As a result of a change in the price of coffee from $2 to $3, the quantity demand for tea increased from 1,200 to 1,400 cups. Calculate cross-elasticity of demand for tea using the midpoint formula.

0.38

Consider the market for milk. If the price elasticity of supply is equal to 0.5, this implies that a 1% increase in the price of milk leads to a...

0.5% increase in the quantity of milk supplied

What are the two reasons why cares frequently break down?

1) entry of new firms 2) cheating

Cartel

Group of producers who jointly maximize profits by restricting output

What is TRUE about a competitive market?

Has so many buyers and sellers that no one can influence the price

In an oligopoly, coordination leads to...

Higher profits

Example of Natural Resources

Farmland

Which is TRUE about perfect competition?

Firms are price takers

What is NOT a characteristic of competitive markets?

Firms determine market price

Which of the following is an assumption regarding costs in perfect competition?

Firms exhaust economies of scale at a low level of output

Which of the following is true of long-run cost curves?

Firms experience economies of scale, constant returns to scale and diseconomies of scale, in that order, based on increasing levels of ouput

If a perfectly competitive market experiences an increase in demand, what is expected?

Firms will enter the market

In the competitive market, a shift of the demand curve to the left means that in the long run...

Firms will leave the market

Which is a property of Natural Monopoly?

Fixed costs are very large relative to variable cost

What is TRUE about Barter Economics?

Individuals require a double coincidence of wants in order to exchange goods and services

Tax burden generally falls on the group that is more...

Inelastic

A change in quantity supplied...

Is a movement along the supply curve

Which of the following correctly describes the monopolist's profit maximizing problem?

It chooses a quantity that equates marginal cost equal to marginal revenue and charges a price based on the demand curve

Simultaneous Game

It is a game when players make their respective decisions at the same time

A price ceiling is non-binding when...

It is set above the equilibrium price

To compute elasticity...

It is the percentage change in quantity divided by the change in price

What is NOT a characteristic of money?

It requires a double coincidence of wants

The firm will shut down whenever...

Its average variable cost exceeds the price

For a given supply curve, the more elastic the demand curve is, the _____ after a tax is imposed.

Larger the deadweight loss

Suppose the government imposes and "alcohol tax" on the sellers. The more elastic the demand curve is, the...

Less tax revenue will be generated

Which of the following best characterizes a competitive market?

No dominant producer or consumer

What is the main disadvantage of regulating a natural monopoly with price ceilings?

No incentive for minimizing costs

Public Goods are classified as...

Non-excudlable and non-rivalrous

The statement "Unemployment should be kept at or below a level of 6 percent" is...

Normative statement

Which market structures have easy entry and exit conditions?

Perfect & Monopolistic competition

Price Discrimination

Practice of selling the same good at different prices to different buyers

A model should be judged based on its...

Predictions

For a monopolist...

Price always exceeds marginal revenue

Suppose demand and supply shift simultaneously. If demand decreases and supply increases which of the following is true?

Price decreases; Change in quantity is ambiguous

Which of the following is not true of long-run equilibrium?

Price equals the minimum of AVC

Example of Capital

Sewing Machines

What is the government's role in a market economy (i.e. United States)?

To establish laws and regulations within markets to protect individuals

People come to expect that the price of a gallon of gasoline will rise next week. As a result...

Today's demand for gasoline increases

A natural monopoly is a market in which...

Total costs are kept to a minimum when one producer serves the market

(true or false) A binding price ceiling imposed on a good leads to excess demand for this good

True

(true or false) Consider two complements: coffee and sugar. If the price of sugar increases, the demand for coffee will decrease

True

(true or false) If income elasticity of demand is a positive number, this indicates the good is a normal good

True

(true or false) If the cross price elasticity of demand for two goods is negative number, this indicates the two goods are complements

True

(true or false) If the government imposes a binding price floor for cheese, this will lead to a surplus of cheese

True

(true or false) Normative economics judges the merits of economic policy

True

A shortage results in...

Upward price pressure towards an equilibrium price

Which of the following helps to improve the efficiency of monopolistic competition?

Variety and convenience are attractive to consumers even if they come in return for slightly higher prices

When is the firm operating at a loss?

When AVC < MR < ATC

Wich is TRUE for Monopolist?

When MC < MR the monopolist will increase output to increase profits

At what point will the firm in a perfectly competitive market make the decision to shut-down?

When MR < AVC

When is the firm making positive profits?

When MR > ATC

Consider the total revenue and total cost curves. When will the firm be making positive profit?

When the total revenue curve is above the total cost curve

The profit maximizing point for a closed monopoly is...

Where MR=MC

A rival good is a good...

Where the use by one person limits the use of the good by other people

Assume the market for laptops is monopolistic competitive. In the short-run, Apple makes a large economic profit of $100 million. If Apple only produces laptops, what will be the expected long-run economic profit of this firm?

$0

Assume the market for televisions is perfectly competitive. In the short-run, Samsung makes a large economic profit of $100 million. If Samsung only produces televisions, what will be the long-run economic profit of this firm?

$0

If a firm hires 5 workers at $50 a day and producers 10 units of output, its total labor cost is...

$250

If bananas have an equilibrium price of $2.25 per pound, which of the following price floors would be binding?

$3.50

Consider the perfectly competitive market for apples. A firm is producing 15 tons of apples and accepts a market price of $4 per ton. Given that the firm incurs an ATC of $3 per ton when producing 15 tons of apples, what is the firm's profit when it produced 15 tons?

$30

Which of the following can be used to calculate the monopolist's profit?

(P * Q) - (ATC * Q)

Suppose that when your income is $1,000 a month, you consume 20 packages of noodle soup. When your income is $2,000, you consume 10 packages of noodle soup. Using the midpoint formula, the income elasticity of demand is...

-1.0

Market

-Any arrangement people have for trading with each other -Provides information for people to coordinate their decisions -Provides incentives for people to participate in trading

Which of the following is true about Public Goods?

-Consumption by one person does not diminish the amount that others can consume -Governments generally need to provide public goods or they will be undersupplied

In perfect competition...

-Firms earn no profit in the long-run because price is equal to average cost -The market equilibrium is efficient -There are no surpluses or shortages

Which of the following contributes to the stability problem of cartels?

-Members individually have an incentive to cheat -An individual cartel member can earn higher profits if it produces more at the high cartel price -there is a reward for the individual firm who produces more than the quota set by the cartel

Economic Model

-Provides a theory for describing the relationships between different facts -Often involves the use of a graph or mathematical expression -Used to explain economic facts

A monopoly results in market failure because...

-Social/Pareto optimum is not reached -The monopolist produces less than the socially optimal quantity -There is deadweight loss if the monopoly is allowed to produce at profit-maximizing quantity

Suppose the market price of apples is $0.80 per pound. An apple farmer decides to produce 500 pounds at an average total cost of $0.75 per pound. Which of the following is true?

-The farmer earns $0.05 of profit per unit -The farmer earns $25 of total profit -The farmer earns $400 in total revenue

Monopoly...

-The monopolist seeks to maximize profits -The monopolist faces downward sloping demand curve -The monopolist maximizes profits where MR=MC

1st Degree Price Discrimination...

-When the monopolist charges each consumer a price that is equal to their willingness to pay -When consumer surplus is zero -When there is no deadweight loss

You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. As you increased the number of employees hired per hour from three to five, your total output increased by 5 cars to 15 cars per hour. What is the average product of labor at the new levels of labor?

3 cars per worker

Example of Microeconomics

A business firm decides to purchase new computers for its employees

Consider a monopoly where the monopolist sells a product to two types of consumers (3rd Degree Price Discrimination). The first type of consumer has an inelastic demand and the second type of consumer has an elastic demand. The monopolist will charge the first type of consumer...

A higher price than the second type of consumer

A rise in the price of a substitute in production for a good leads to...

A decrease in the supply of that good

Inferior Good

A good for which demand increases as consumer income decreases

Consider the demand curve for apples. Suppose that the price of a pound of apples increases from $2.00 to $4.00. This will result in...

A movement along the demand curve

A change in supply is...

A movement or shift of the supply curve

If the social cost of producing chickens is greater than the private cost, then...

A negative externality exists

If the price of a good is lower than the equilibrium price, this leads to...

A shortage

Scarcity

A situation where people have unlimited wants but face limited resources

Pareto Efficiency

A state of affairs in which it is impossible to make one person better off without making another person worse off

Short Run

A time period in which at lease one input is fixed

The short run is...

A time period where at least one input is fixed

Which is NOT a reason why economists like perfectly competitive markets?

ATC=AVC

Efficiency in distribution means that good and services are...

Allocated such that it is not possible to make someone happier without causing someone else's wants to be less satisfied

Law of supply reflects the fact that...

An increase in price leads to an increase in the quantity supplied

Suppose that wages paid to automobile workers increases. This leads to...

An increase in the equilibrium price of automobiles

Suppose workers go on strike at an automobile plant, leads to...

An increase in the opportunity cost of producing the good

Which of the following results in a movement upwards along the supply curve for movies in theaters?

An increase in the price of movie tickets

What lowers the equilibrium price of a canoe?

An increase in the supply of canoes

Complementary Goods

Are a pair of goods for which an increase in the price of one results in a decrease in the demand for the both goods

Substitute Goods

Are a pair of goods where an increase in the price one good increases the demand for the other good

What costs always declines as output increases?

Average Fixed Cost

Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen, then...

Average product is rising

A Closed Monopoly is an industry in which the Monopoly is established...

Because of legal restrictions on competition

Suppose that an increase in income leads to an increase in the demand for beef. This means...

Beef is a normal good

In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, marginal cost is...

Below average total cost

If income increases and the demand for bus rides decreases...

Bus rides are an inferior good

Jane has more elastic demand for shave ice than Toby. The seller of shave ice would like to increase profits by using price discrimination. How will the seller set prices?

Charge a higher price to Toby

What does it mean to price discriminate?

Charge different prices not justified by changes in cost

What is an example of 3rd Degree Price Discrimination?

Children are Senior Citizen discounts for movie tickets

A monopoly that is protected by legal restrictions on competition is known as a...

Closed Monopoly

Collusion is a situation in which firms...

Collaborate to increase prices

In what type of market are both consumers and producers "price-takers" and "quantity-adjusters"?

Competitive

If the cross-price elasticity of demand for two goods is negative, then the two goods are...

Complements

What happens to consumer surplus and profit when a firm price discriminates?

Consumer surplus decreases and profit increases

In order for someone to be a free rider, an activity must be undertaken that...

Creates benefits for people who can't be forced to pay for them

To determine whether two goods are substitutes or complements, one would look at the...

Cross-Price Elasticity of demand

What country would be classified as a Hierarchical system?

Cuba

Soda and peanuts are complements. Ceteris paribus, a rise in the price of soda...

Decreases the demand for peanuts

Suppose the price of leather used to produce shoes increases. The higher price of leather ______ the supply of shoes, and the supply curve of shoes ______.

Decreases; Shifts leftward

If a firm generates profit in the short-run in monopolistic competition, more firms will join the market. How will this affect the long-run graph?

Demand shifts down and ATC shifts up

Consumer Surplus

Difference between what a consumer is willing to pay and the amount actually paid

What is NOT a determinant of Demand?

Pareto Efficiency

One of the problems with rate of return regulation is that it...

Discourages the firm from minimizing its costs

One of the problems with regulating the natural monopolist through the rate of return regulation (i.e. P=ATC) is that it...

Discourages the firm from minimizing its costs

A surplus rent results in...

Downward price pressure toward an equilibrium price

The long-run equilibrium for a perfectly competitive firm is the point where...

Economic Profit is zero

If a 5% rise in price results in an 8% change in quantity demanded, the product is...

Elastic

A government can regulate natural monopolies by using "rate of return" regulation, or by setting a price ceiling. What is the goal of these regulations?

Eliminate deadweight-loss

The supply curve for a product is perfectly inelastic, while the demand curve is a normal downward sloping curve. If the government puts a tax on consumers in this market, then the economic incidence of the tax will fall...

Entirely on suppliers

Perfect Competition has...

Equal access to all information

Suppose we have simultaneous shifts of the demand and supply curves. If the demand curve shifts to the right and the supply curve shifts to the left, what will happened to the equilibrium price?

Equilibrium price will increase

When the demand for a good decreases, its equilibrium price _____ and equilibrium quantity _____.

Falls; Decreases

(true or false) A barter economy is an economy where money is the primary medium of exchange

False

(true or false) AFC is increasing whenever MC is above AFC

False

(true or false) Fairness in distribution insure that goods and services are allocated efficiently

False

(true or false) If the government imposes a rent control on apartments, this will lead to an excess supply of apartments

False

(true or false) The invisible hand refers to the government's role in the economy

False

(true or false) When the price elasticity of demand is equal to one, this indicates demand is perfectly elastic

False

Inelastic

If a good does not have many substitutes

Perfectly Inelastic

If an increase in the price of a good leads to no change in the quantity demanded

An increase in the number of producers of bird seed _____ the supply of bird seed shifts the supply curve of bird seed _____

Increases; Rightward

Spontaneous Order

Individuals adjusting actions in response to cues from the environment

If the price elasticity of a certain good is elastic, what would happen to the revenue earned from that good if its price goes down?

Increase

Law of demand states that as the price _____, the quantity demanded tends to _____.

Increases; Decrease

The law of supply states that as the price ______, the quantity supplied tends to _____.

Increases; Increase

The point where a firm will maximize profits is...

MC=MR

The long-run equilibrium for a perfectly competitive firm is at the point where...

MC=MR=LRAVC=SRATC

Perfect competition leads to an efficient level of production because...

MC=Price

In the short run, the perfectly competitive firm maximizes profits by producing the quantity for which...

MR=MC

The Long-Run ATC curve is...

Made from the minimum values of the Short-Run ATC curves

Example of a monopolist competition...

Many fast food restaurants in a large city that offer hamburgers of different quality and taste

Perfectly competitive firms are price takers because...

Many small firms offer a homogeneous product

In Perfect Competition, there are...

Many small firms selling a homogeneous product

Which is true about a firm's AVC and ATC curves?

Marginal Cost interests AVC and ATC at their minimum points

The slope of the Total Revenue curve is always equal to...

Marginal Revenue

The slope of the Total Revenue curve is equal to...

Marginal Revenue

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus...

Marginal cost is below average variable cost

A perfectly competitive firm will remain open while sustaining losses if...

Marginal revenue exceeds average variable cost

When the market structure is one of perfect competition...

Marginal revenue is equal to the price of the product

Four social institutions required for economic coordination

Markets, Money, Firms and Property Rights

Example of a price floor

Minimum wages & Agricultural Price Supports

Which is NOT a factor of production?

Money

A market which only has differentiated product is...

Monopolistic Competition

The social cost curve lies above the supply (private cost) curve for the producer in cases of...

Negative Externalities

Positive Economics focuses on...

Observing the facts and relationships between economic policies or conditions

A market in which there is more than one firm, but not very many, is known as...

Oligopoly

Some markets sell homogenous products and some markets sell differentiated products, which market sells both?

Oligopoly

Comparative Advantage

One person can produce a good at a lower opportunity cost than another person

Absolute Advantage

One person can produce more than another person with the same resources

A natural monopoly is an industry in which the monopoly is established...

Only because long-run cost is minimized when there is a single producer

In the long-run, which of the following is true of a perfectly competitive market?

Price=AC

In general, price floors increase the surplus of...

Producers

Economic theory assumes that it is the goal of all firms to achieve the highest possible...

Profit

Which of the following equations corresponds to profit?

Profit=(P * Q) - (ATC * Q)

In the long-run, Monopolist Competitors will set price equal to average cost because...

Profits attract new firms to enter, driving down the price

If rent control was imposed in Honolulu, what would NOT result?

Rent would go up

Which is NOT one of the characteristics of Money?

Requires double coincidence of wants

Price Elasticity of Demand

Responsiveness of the quantity demanded to a change in price

Suppose McDonalds sells 500 burgers at the price of $3 per burger. If it increases its price to $7, the sales drop to 300. Calculate the new revenue and determine price elasticity of demand.

Revenue=$2,100 Inelastic

Suppose the equilibrium price of lollipops is $1.50. If the actual price is below the equilibrium price a...

Shortage exists and the price rises to restore equilibrium

Economies of Scale

Situation where an increase in production leads to a decrease in average costs

Diseconomies of Scale

Situation where an increase in production leads to an increase in average costs

When there is a permanent decrease in the demand in a perfectly competitive market, starting from a point of long-run equilibrium, which of the following occurs?

Some firms, but not all, will leave the market

The ability of markets to move toward a new equilibrium following a disturbance is an example of economic coordination through...

Spontaneous Order

If the price of a good rises, people are likely to...

Substitute to a less expensive good

If a per unit tax is imposed on a producer of a good with a negative externality, then the tax shifts the market's...

Supply curve to the left

If the number of companies producing memory chips increase, then the...

Supply of memory chips increases

As the technology used to produce sweaters improves, the...

Supply of sweaters increases

When a firm breaks even (MR=ATC)...

TR-TC=0

Several cases of mad-cow disease have been reported across England. In response, consumers buy less beef and the demand curve in the market for beef shifts left. Which determinant of demand does this situation illustrate?

Tastes

If you want to generate the most government revenue, with the least deadweight loss, you should...

Tax goods with inelastic demand

According to Adam Smith, the wealth of a nation depended on...

The activities of individuals interacting in free markets

Marginal Product of an Input

The addition to total output due to the addition of the last unit of an input, holding all other inputs constant

Which is NOT on the determinants of price elasticity of demand?

The amount that costs rise as output rises

Producer surplus is represented as...

The area above the supply curve and under the price line

Consumer Surplus is represented as...

The area underneath the demand curve but above the price line

When labor usage is at 12 units, output is 36 units. From this we infer that...

The average product of labor is 3

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor which implies that...

The average product of labor is always equal to the marginal product of labor

In a certain textile firm, labor is the only short-term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that...

The average product of labor is always equal to the marginal product of labor

Macroeconomics

The branch of economics that focuses on the study of output, inflation, and unemployment

Suppose that we have simultaneous shifts of the demand and supply curves. If the demand curve shifts to the right and supply curve shifts to the left, what will happen to the equilibrium quantity?

The change in the equilibrium quantity is ambiguous

Marginal Revenue

The change in total revenue for one additional unit sold

Opportunity Cost

The cost of a good or service measured in terms of what it would cost to pursue the next best alternative using these resources

Which of the following is an example of a short-run fixed cost in the manufacture of automobiles?

The cost of constructing the factory building.

Which of the following is not characteristic of the socially efficient outcome?

The cost to society of producing the good is different from the value of the good perceived by the consumers

If consumers and producers both bear some economic incidence of a tax, then...

There must be some deadweight loss from the tax

Diminishing Marginal Utility

The decrease in satisfaction gained from consuming additional units of a good

Consider two substitutes: hot dogs and hamburgers. Suppose the price of hot dogs increases, the result is...

The demand curve for hamburgers shifts to the right

Suppose a monopolistic competitive firm is making a positive economic profit in the short-run. In the long-run, what will happen to its demand curve?

The demand curve will shift to the left

When the government levies a tax, the buyers pay more of the tax revenue (compared to the sellers) when...

The demand for the good is inelastic

Pollution is an example of market failure because...

The equilibrium price is less than the efficient price

Suppose that initially all firms in a perfectly competitive market are earning a profit. Which of the following would be expected as the market adjusts to long-run equilibrium?

The equilibrium price of the good will decrease

Suppose that we have simultaneous shifts of the demand and supply curves. If the demand curves both shift to the left, what will happen to the equilibrium quantity?

The equilibrium will decrease

In a Natural Monopoly...

The firm experiences economies of scale even at the point where the market demand is met

In a natural monopoly...

The firm experiences economies of scale up until the point that market demand is met

Consider a perfectly competitive market. If an individual firm lowered their price below the market price...

The firm would earn less profit/revenue

Consider a perfectly competitive market. If a firm raises their individual price above the market price...

The firm would sell zero output

Suppose a friend is considering attending college, or going to work full time. The opportunity cost of a college education would not include the cost of renting an apartment because...

The friend will have to pay rent whether he/she is working or attending college

Marginal Cost

The increase in cost for producing one more unit of output

Which is TRUE about Monopoly?

The long-run equilibrium is the same as short-run equilibrium

According to the Law of Diminishing Marginal Returns...

The marginal product of an input will eventually decline

Law of Diminishing Returns

The marginal product of an input will eventually decline

3rd Degree Price Discrimination...

The monopolist charges consumers different prices based on consumers' attributes (consumers' attributes are defined by the demand elasticities of different consumer types)

Failure to minimize average total cost is a problem only when...

The monopolist experiences diseconomies of scale at equilibrium

2nd Degree Price Discrimination...

The monopolist offers several pricing tiers to discriminate against consumers based on the quantity they buy

What is the representative of 1st Degree Price Discrimination?

The monopolist produces the Pareto optimal level of output

It is generally true that the more substitutes a good has...

The more elastic is the demand curve of that good

Suppose the government imposes and "alcohol tax" on the sellers. Relative to the supply curve, the more inelastic the demand curve is...

The more the tax revenue will be generated

Steve has two possible options for Saturday night. He can either pay $5 to go to a movie alone or he can join some friends for pizza and a card game. What is the opportunity cost of going to a movie for Steve?

The opportunity cost of going to the movie for Steve is equal to $5 plus the pizza and card game he must give up if he goes to the movie.

The supply curve shows that as the quantity of a good supplied increases...

The opportunity cost of producing more of this good increases

The excess burden of a tax refers to...

The portion of consumer and producer surplus lost because of the reduction in the quantity sold

Which of the following corresponds to the full short-run supply curve for a firm in a perfectly competitive market?

The portion of the MC curve above AVC

Which of the following corresponds to the full short-run supply curve?

The portion of the MC curve above AVC

Entrepreneurship

The process of seeking new technology and new forms of organization

Deadweight loss of a price ceiling represents...

The producer and consumer surplus that is lost because of the price ceiling

Deadweight loss of a tax represents...

The producer and consumer surplus that is lost because of the tax

Pizza and tacos are substitutes, and the price of a pizza increases. Which of the following correctly indicates what happens?

The quantity of pizza demanded decreases and the demand for tacos increases

What does Monopoly share in common with the Perfectly-Competitive firm?

They both maximize profits by producing a quantity for which MR=MC

Which of the following does the monopoly share in common with the perfectly-competitive firm?

They both maximize profits by producing a quantity for which marginal revenue equals marginal cost

Law of Diminishing Returns applies to...

The short run only

Marginal Product

The slope of the total product curve

What is NOT true about utility?

The sole measure of utility is the price a consumer pays for a good

Suppose a seller finds a new technology that increases the speed with which he can produce the good, leads to...

The supply curve for this good shifts to the right

Marginal Utility of Consumption

The utility gained from a one unit increase in the consumption of a good