Economics Final Exam
The above figure shows the situation of a monopolistic competitor in the short run. The maximum economic profits of the firm equal
$30,000
An example of a regressive tax is the
Social Security tax
In the production of goods and services, trade-offs exist because
Society had only a limited amount of productive resources
If two goods are complements, their cross elasticity of demand will normally be
a negative number
Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners are restaurants for this individual are
a normal good
A firms that faces a downward sloping demand curve is
a price searcher
A monopolist is defined as
a single supplier of a good or service for which there is no close substitue
Fred and Ann both decide to see the same movie when they are given free movies tickets. We know that
both bear an opportunity cost since they could have done other things instead of see the movie.
The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means
chicken is an inferior good
All points inside the production possibilities curve indicate
inefficiency in production
A monopolist
is constrained in its pricing decisions by the demand curve it faces.
Scarcity
is not a shortage
If a commodity is inexpensive and its total utility great,
it is plentiful
If a monopolist wishes to increase its output and quantity sold,
it must reduce its price, so its marginal revenue is less than its price.
One reason why critics argue that large firms should not be broken up is that in some cases
large firms have a concentration of economic power
Compared to perfectly competitive firms, the demand curve for a monopolist will be
less elastic
Generally, if a nation produces more consumer goods than capital goods
less of all goods may be produced in the future.
If there are no barriers to entry into an industry,
long-run economic profits must be zero
In the above figure, the profit-maximizing monopolistically competitive firm will
make a profit of $30,000
Scarcity implies that people must
make choices
The value of the best alternative sacrificed to obtain something you want is referred to as
opportunity cost
Along the inelastic portion of a demand curve, the
percentage change in price will be more than the percentage change in quantity demanded
To be able to engage in profit-maximizing price searching, a monopoly firm must be able to
prevent the entry of other firms into the market for its product
Market failures
prevent the price system from attaining economic efficiency
According to the law of demand
price and quantity demanded move in opposite directions
The marginal tax rate and the average tax rate are the same under a
proportional income tax system
The marginal tax rate and the average tax rate are the same under a
proportional income tax system.
The only variable considered when we move along the demand curve is
the price of the good itself
If a demand curve shifts, we know that
the price of the good itself is not a factor.
In table 7-1, the marginal physical product begins to diminish with the addition of the
third worker
When an Australian citizen enjoys military protection in Australia without contributing to the cost of Australia's defense budget, then
this citizen is a free rider
The main objective of advertising for a monopolistically competitive firm is
to differentiation the product and boost demand
Total utility can be thought of as the
total satisfaction derived from a bundle of goods
To avoid an increase in the local property tax, Sullivan County, New York, proposed a 2 percent hotel tax, which presumably would be passed on to tourists. The hotel industry argued that the tax would hurt local hotel business. They are really arguing that
tourist and convention demand is very elastic, so hotel bookings will decline.
In figure 7-7 at 100 units, FC equals
1,000
In the long run, in a monopolistically competitive market, price will be
equal to ATC
In the above figure, total revenue for this profit-maximizing monopolistically competitive firm is
$100,000
In the above figure, total cost for this profit-maximizing monopolistically competitive firm is
$70,000
If a firm sells 10 unites of output at $100 per unit and 11 units of output when price is reduced to to $99, its marginal revenue for the last unit sold is
$89
At $6 per steak, consumers are willing to buy two steaks. At a price of $2, consumers are willing to buy six steaks. The elasticity of the market demand curve between P=$6 and P=$2 (dropping all minus signs is)
1
In figure 7-7 at 100 units, AFC equals
10
The above figure shows the situations of a monopolistic competitor in the short run. To maxamize profits, the firm should produce
10,000 units
In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are
10,000 units at a price of $10 per unit
Between points "b" and "c" in the above figure, the opportunity cost of 250 more bushels of corn is
200 yard of cloth
An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive, and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?
3
The purchase of premium cable channels is an "all or nothing" choice. Which graph in figure 6-6 best illustrates the cable market demand curve?
4
Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are
40 percent on A and 20 percent on B
If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $5.00 to $6.00 would reduce quantities demanded by about
7 percent
In figure 7-7 at 100 units, AVC equals
8
In table 7-1, the marginal physical product of labor after the addition of the fourth worker is
8
In the above figure, which of the following points indicates the efficient use of resources?
A
Which of the following is an example of the law of demand?
An increase in the price of gasoline is followed by a reduction in the amount of gasoline consumed
Which of the following is NOT a characteristic of monopolistic competition?
Barriers to entry into the market
Which one of the following is NOT a determinant of demand?
Cost of inputs in production
In figure 6-1
D2 is less elastic than D1 at all prices
Which of the following conditions is true for a monopolist
MR < P
In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which
MR=MC
Which of the following is a characteristic of oligopoly?
Strategic dependence
Figure 7-11 shows an average cost curve with points on it that correspond to three quantity levels. Which of the following statements must be wrong?
The firm's average fixed cost may rise as production increases from B to C.
The monopolist's marginal revenue is less than price since
additional units can only be sold if the price is lowered on all units sold
Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause
an increase in the demand for coffee.
Market failure occurs when
an unrestrained market economy leads to too few or too many resources going to a specific economic activity.
If both matches and automobile prices increase by 10, consumers will likely buy
approximately the same quantity of matches and fewer automobiles
The law of demand states that
at lower relative prices, a larger quantity of a good will be purchased than at higher relative prices.
A monopolist can earn economic profits in the long run because
barriers to entry prevent new firms from entering the industry
In order for a firm to receive monopoly profits, there must be
barriers to market entry
If all resources were perfectly adaptable for alternative uses, the production possibilities curve would
be a straight line
A bottle of wine costs $8 and a quiche costs $5. At Robert's present levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should
buy more wine and less quiche
Marginal cost is the
change in total cost resulting from the production of one more unit of output
The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that
consumer demand becomes less elastic as departure time approaches
The principle feature of private good is that
consumption by one person reduces the quantity available to others
A 10 percent increase in the cost of restaurant meals, which are a luxury, will most likely
decrease the purchase of meals by more than 10 percent
A schedule of amounts of a good that people will purchase at various prices during a specific time period holding other factors constant is
demand
If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,
demand is inelastic
The demand curve for the product of a monopolistic competitor is
downward sloping
Market failures occur when
externalities exist
In economic terminology, an inferior good is a good
for which demand increases as income decreases.
Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop. He chooses the silver dish because, according to the economic theory
his marginal utility per dollar is greatest
Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?
increase the number of workers on an assembly line and record the change in output
A relatively large increase in the cost of electricity would likely
increase the use of gas and decrease the use of electricity after a time lapse
A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to
increase tuition, which would bring in more revenue
Where marginal cost is less than average cost,
marginal cost may be rising, falling, or constant
When the price of a commodity falls, we can expect
marginal utility of the last unit purchased will fall
A fundamental principle in demand analysis is that a change in price leads to
movement along the demand curve
The concept of opportunity cost exists because
of scarcity
When economies of scale exist,
production costs per unit decline as output expands.
The shape of the production possibilities curve in the above figure indicates that
production of both corn and cloth is characterized by increasing costs
Assume a family that earns $20,000 pays $1500 in income taxes, while a family that earns $40,000 pays $3500 in income taxes. In this situation, the income tax system is
progressive
In general, the demand for the product of a monopolistic competitor is
relatively elastic
Scarcity arises because
resources are finite and are inadequate to meet all human wants and needs
Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that
resources are over-allocated to the industry.
Elasticity provides a guide to both
responsiveness of quantity demanded to a change in price and change in revenue as price changes.
The difference between scarcity and shortage is that
scarcity always is a part of human life while shortages usually are temporary
An increase in demand is shown graphically by
shift of the demand curve to the right
If more buyers came into the market for a good, we would expect to see the market demand curve
shift outward and to the right
A demand curve
slopes down because of the inverse relationship between price and quantity demanded
As we move down a straight-line demand curve, the price elasticity become
smaller.
In figure 6-2 the price elasticity of demand (dropping all minus signs) is ______ between P=4 and P=6 than between P=10 and P=12 because between the lower set of prices the percentage change in price is
smaller;greater
A movement along the production possibilities curve would imply that
society has chosen a different set of outputs
The free rider problem is encountered when
someone benefits from the consumption of a public good without paying his or her full share
The law of diminish returns is also referred to as
the "law" of diminishing returns to scale.
The marginal income tax rate is equal to
the change in the tax payment divided by the change in income.
The marginal tax rate shows
the extra tax due on an extra dollar of income
In economics, "demand" refers to
the quantities of a good that people will buy at various prices.
In an attempt to raise sales, Hannah cut prices in her bookstore by 20 percent. If the dollar value of her sales remained constant, that indicates
the quantity of books sold increased 20 percent
Market demand is
the total quantities demanded of all consumers of a particular item at various prices
A natural monopoly usually arises when
there are large economies of scale relative to the industry's demand
A firm can be the sole supplier of a good and is still not a monopolist if
there are very close substitutes for the good
A country operates inside its production possibilities curve; this may be caused by
unemployment
A merger between firms that are in the same industry is called a
vertical merger
The "law" of diminishing returns
was constructed as the basis of observation during experiments on the impact of fertilizer on output in the 1930s
In the short run, a monopolistically competitive firm can earn
zero, positive or negative profits
Within a game theory model, if a change in decision-making rises corporation A's profits by $50 and lowers corporation B's profits by $50, the game is a
zero-sum game