economics test 2-- online questions

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In a monopolistically competitive​ market, a firm earning negative economic profit in the short run will​ ____________.

shut down only if price is less than AVC

The government runs a budget surplus when​ ____________.

tax revenue exceeds its spending

answer: greater than​; produce more to enhance profits.

The graph on the right illustrates a marginal cost ​(MC​) curve and marginal revenue ​(MR​) curve for a monopolist. If the firm produces at a quantity of 4040 ​units, then marginal revenue would be​ ____________ marginal​ cost, and this firm would​ ____________.

How does a​ command-and-control policy differ from a​ market-based policy?

With a​ command-and-control policy, the government directly regulates the allocation of resources ​, while with a​ market- based​ policy, the government provides incentives for private organizations to internalize the externality

Consumer sovereignty suggests that​ ____________.

government should not interfere with consumer choices

the slope of the industry demand curve demonstrates​

the realistic assumption that the Law of Demand holds for the good under consideration.

Canada recently discovered large reserves of shale gas left parenthesis shale gas is natural gas that is trapped in fine minus grainedCanada recently discovered large reserves of shale gas (shale gas is natural gas that is trapped in fine−grained sedimentary rock right parenthesis .sedimentary rock). As a result comma Canada's production possibilities curve wouldAs a result, Canada's production possibilities curve would ​____________.

shift outward

A production possibilities curve​ (PPC) ___________.

shows the relationship between the maximum production of one good for a given level of production of another good.

Why is the equilibrium price in this market ​$50​,000?

At this​ price, three consumers are willing to buy an electric car and three firms are willing to sell an electric car. At this​ price, the quantity demanded​ (three cars) equals the quantity supplied​ (three cars). At ​$50​,000, three consumers have reservation values equal to or above ​$50​,000 and three firms have reservation values equal to or below ​$50​,000.

Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that​ good?

Countries that do not have an absolute advantage in the production of a good can benefit from trade.

Which of the following common features do monopolistically competitive markets and monopolies​ share?

Firms face​ downward-sloping demand curves.

Crabby​ Bob's is a seafood restaurant in a beach resort in Delaware. Crabby​ Bob's earns a profit each month from May through​ September, suffers losses in​ October, November, and April but remains​ open, and remains closed from December through March. Given that the restaurant market in this town is perfectly​ competitive, which of the following must be​ true? ​(Check all that apply.​)

From May through​ September, Crabby​ Bob's average revenue is above average total cost. In​ April, October, and​ November, Crabby​ Bob's average revenue is below ATC but is greater than AVC. From December through​ March, Crabby​ Bob's average revenue is below average variable cost.

How has the pattern of trade changed in the United States since​ 1960?

Imports have grown faster than​ exports, and the United States has become a net importer.

if your goal is to minimize the deadweight loss from a​ tax, would you tax goods for which demand is elastic or goods for which demand is​ inelastic, everything else being​ equal?

Inelastic, since the change in quantity is smaller.

What are the types of goods that are causing the shift in the balance of imports and exports in the United​ States?

Manufactured goods have played an important role in the​ shift, even though the number of manufactured goods has increased.

Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost​ curves, would you expect prices to be higher in a monopoly or a monopolistically competitive​ market?

Monopoly, because its demand is more inelastic.

Suppose the refrigerator industry has an HHI of​ 2,500 while the aluminum​ industry's HHI is​ 6,850. Is this information sufficient to conclude that the aluminum market is less competitive than the market for​ refrigerato

Not necessarily. Although the HHI indicates a smaller number of​ firms, those firms may compete intensely.

Is the entire burden of the tax always borne by those on whom it is​ imposed?

Not​ necessarily, since the burden of the tax depends on price elasticity.

While at a​ Subway® in your​ neighborhood, you notice that a single employee completes an​ order, right from helping you choose your​ bread, veggies, and meat to making your sub the way you want it.​ However, over at Pizza​ Hut®, each task in a pizza order is completed by a different worker. Why do you think Subway and Pizza Hut have chosen these different ways to produce​ meals?

Pizza production is mostly​ standardized, so Pizza Hut can take advantage of specialization and the division of​ labor, while sandwich production is more customized so Subway cannot take advantage of specialization and the division of labor.

How do public goods differ from common pool​ resources? Explain.

Public goods are non-rival goods, while common pool resource goods are rival goods.

Which of the following is an​ externality?

Rochelle has asthma caused by the pollution of a local factory near her home. ​Jose, who is allergic to​ pollen, is sick from the flowers that grow in his​ neighbor's garden. Alisha did not sleep well because her neighbor was playing loud music.

Are all efficient outcomes also​ equitable? Explain.

There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative​ economics, where subjective value judgments are made.

Given that there are costs involved with government intervention in an​ economy, governments still choose to intervene in markets to​ ____________.

address externalities

Why is the market demand curve for public goods calculated as a vertical summation of individual demand​ curves?

because the public good is​ non-rival, so you and others can consume every unit of the good at the same time.

When a firm exercises its monopoly​ power, the cost to society is the​ ____________.

dead weight loss

if your professor decided to give all students the highest grade in the​ class, your​ classmates' incentives to study would

decrease

How would the following factors affect equilibrium in the market for​ labor? an increase in the demand for the product that the firm is producing

demand increase supply no change wage increase employment increase

How would the following factors affect equilibrium in the market for​ labor? the use of new technology that halves the time that workers will take to produce a good

demand increase supply no change wage increase employment increase

In the model of an oligopoly with identical​ (homogeneous) products, the price is likely to be​ ___________.

equal to marginal cost

Once planners have successfully brought economic agents​ together, a second problem of aligning the interests of the economic agents must be solved. This is known as the​ ___________ problem.

incentive

To restrict a​ firm's monopoly​ power, why​ can't antitrust authorities just set a floor or a ceiling in the​ market?

it is difficult to set a fair price and even if regulators did, the firm would then have to incentive to innovate

Which of the following is a problem that black markets pose in an​ economy?

participants use resources to evade the law

an individual or a firm can internalize an externality by​ ___________.

paying the cost of the externality

You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following​ conversations: Ludwig mentions that​ Frank, the local​ rancher, is inflating land prices by buying too much land.

pecuniary externality

Paternalism is the view that​ ___________.

people do not always know what is best for them, and the government should encourage them to make the right choices

Market power relates to the ability of sellers to affect​ __________, and arises because of​ ____________.

prices; barriers to entry

Which method is a recommended approach supported by externality theory to deal with this​ problem?

private bargaining government regulations governments imposed tax

health insurance is a___

private good

consumer surplus is the top triangle

producer surplus is the bottom triangle

a mosqito control program in the city is a ____

public good

With the growth of the​ Internet, there are a large number of online retailers as well as buyers in the online retail market. One might think that different firms would charge very similar prices for the same good because​ ____________.

the cost of searching online is low

Some people think​ it's unfair that athletes like LeBron James earn a lot more than people who add so much more value to​ society, like firefighters. What do you think explains this wage​ differential?

the economic output of athletes like lebron james adds more economic value to firms than those services provided by firefighters

profits=

total revenues- total cost

Assume that some of the buyers in this market are now willing to pay more for a drill than they did earlier. Does this mean that the market for drills is Pareto​ efficient? Explain your answer.

yes, as long as the market equilibrium still​ holds, the outcome is still Pareto efficient.

Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive​ equilibrium?

yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price

The last firm to enter earns​ ___________.

zero economic profits

In a competitive labor​ market, the​ profit-maximizing number of workers that a firm will hire occurs where the​ ____________.

value of marginal product of labor is equal to market wage

To say that a good has network effects means that the​ ____________

value of the product increases as more people use it

Tax incidence refers to​ ____________.

who bears the burden of tax

Firms earn economic profits in the long run.

perfect competition- F monopoly- T monopolistic competition- F

Suppose the market for​ T-shirts in the country of Argonia is perfectly​ competitive, and the price of a​ T-shirt is​ $20. A producer in this market has the following total cost and marginal cost​ functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q what would be the​ firm's average variable costs if it produced at the​ profit-maximizing quantity?

$10

The graph on the right shows the​ demand, marginal​ revenue, marginal​ cost, and average total cost curves for a monopolist. Show the impact if this firm was regulated to charge the​ fair-returns price?

**impact point being where ATC meets demand** The deadweight loss is created from the monopoly producing less than the socially optimal output. This area is below the demand curve and above marginal cost and is between the socially optimal output level and the​ fair-returns output level.

The graph on the right shows the​ demand, marginal​ revenue, marginal​ cost, and average total cost curves for a monopolist. Show the impact if this firm was regulated to charge the socially optimal price.

**impact pt where marginal cost meets demand.*** rectangle between marginal cost and ATC

In assessing the performance of a perfectly competitive​ market, we can say that​ ____________.

. price efficiently allocates goods and services to buyers and sellers. no individual can be made better off without making someone else worse off. any departure from the equilibrium necessarily reduces social surplus.

Suppose the market for​ T-shirts in the country of Argonia is perfectly​ competitive, and the price of a​ T-shirt is​ $20. A producer in this market has the following total cost and marginal cost​ functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q Which of the following equations represents the​ firm's average variable​ cost?

0.1q

Suppose the market for​ T-shirts in the country of Argonia is perfectly​ competitive, and the price of a​ T-shirt is​ $20. A producer in this market has the following total cost and marginal cost​ functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q for the firm to maximize its profits, how many t shirts should it produce

100

Suppose the market for​ T-shirts in the country of Argonia is perfectly​ competitive, and the price of a​ T-shirt is​ $20. A producer in this market has the following total cost and marginal cost​ functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q When this firm produces the​ profit-maximizing quantity of​ T-shirts, its average total cost equals ​

14$

Suppose you engage in​ second-degree price discrimination and offer your customers what seems to be a very generous​ deal: "Buy one at the regular price of ​$7575​, 60 percent off on a​ second." With this​ deal, each customer will buy​ _______ units and you will earn a profit of​ _______.

2; 97$

Suppose there are fourfour firms in an​ industry, each with an equal market share. The​ Herfindahl-Hirschman Index​ (HHI) for this industry is

4 time (25q)= 2500

Suppose the market for​ T-shirts in the country of Argonia is perfectly​ competitive, and the price of a​ T-shirt is​ $20. A producer in this market has the following total cost and marginal cost​ functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q What part of the total cost function represents fixed​ costs?

400

This chapter explains that a firm engaging in seconddegree price discrimination charges the same consumer different prices for different units of a good. You are a monopolist with many identical customers. Each will buy either​ zero, one, or two units of the good you produce. A consumer is willing to pay ​$7575 for the first unit of this good and ​$3030 for the second. You produce this good at a constant average and marginal cost of ​$44. For​ simplicity, assume that if a consumer is indifferent between buying and not​ buying, he will buy. If you could not engage in​ second-degree price​ discrimination, what price would you​ charge?

75$

According to the Copyright Act of​ 1790, a​ copyright's life was limited to 28​ years, including extensions.​ Today, copyrights are valid for the entire period of the​ author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by​ now, but books published after 1923 are still under copyright protection. Research has shown​ that, of all the books that are in print​ today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before​ 1923?

A copyright gives the owner an exclusive right to a piece of intellectual​ property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce.

Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. ​Then, other things remaining the​ same, why is price lower in a competitive market than in a​ monopoly?

A firm in a competitive industry sets its price where marginal cost equals demand​ (which also equals marginal revenue in perfect​ competition), while a monopolist finds its optimal quantity where marginal cost equals marginal revenue and then sets its price based on the demand curve at that quantity. Competitive markets face perfectly elastic demand and marginal​ revenue, while monopolies face​ downward-sloping demand and marginal revenue.

Which of the following describes a​ monopolist's demand​ curve?

A y​-intercept of​ $8 and​ **downward-sloping** with a slope of dash-1.

According to reports in the Chinese​ media, commuters in Beijing are facing a somewhat paradoxical​ situation: they find it difficult to get a cab while hundreds of cabs lie idle during rush hour. The demand for taxis in Beijing has increased as average incomes have risen.​ Government-determined gasoline prices have also increased. But the​ government, worried about rising prices for cab​ rides, has left the​ cabs' base fare unchanged. The figure on the right displays the situation in the market for cab rides prior to the events cited above. Based on your understanding of how the invisible hand​ works, what do you think should be done to correct this​ problem?

Cab fares should be allowed to increase.

The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict​ trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic​ policy?

Consumers pay a price that is lower than the world​ price, increasing consumer surplus.

To restrict a​ firm's monopoly​ power, why​ can't antitrust authorities just set a floor or a ceiling in the​ market?

It is difficult to set a fair​ price, and even if regulators​ did, the firm would then have no incentive to innovate.

New York levies the highest cigarette tax in the countrylong dash—​$5.85 per pack. Other states in the United States impose taxes that are much lower. The state of Virginia levies a tax of 30 cents per​ pack, which is the second lowest after Missouri. How would this explain the thriving black market for cigarettes in New​ York?

It is more profitable to sell cigarettes on the black market in New York.

Salmon fishing in Alaska is a seasonal​ business; May through September is the best time to bait salmon and halibut. Toland​ Fisheries, a small commercial​ fishery, recorded its highest ever catch last year. They started this​ year's fishing season with the same number of workers and equipment. With the new season also starting​ well, Toland has increased hiring substantially.​ However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining​ unchanged, what is likely to happen to the marginal product of each new worker in the short​ run?

It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. Your answer is correct.

Suppose the production of a particular good causes a negative externality. Based on market forces​ only, how will this impact the production levels for a factory if negative externalities are​ present?

It will produce the good above the socially efficient level.

Hardware stores charge higher prices for snow shovels after a big snow storm. What role do prices play in the snow shovel​ market?

It would incentivize distributors to ship more snow shovels into the area to meet the increased demand.

How would the introduction of legal or technical barriers to entry affect the​ long-run equilibrium in a perfectly competitive​ market?

It would reduce any downward pressure on prices from entry and allow economic profits in the long run.

How does a natural monopoly differ from a firm that becomes a monopoly due to network​ effects?

Natural monopolies result from economies of​ scale, while network effects come from the benefits to consumers from having many people use a service.

Most of your friends prefer drinking​ Budweiser, Miller, or Coors beer. Budweiser is manufactured by​ Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this​ information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is​ true, examine whether each one will independently support or weaken your conclusion Consumers are unlikely to switch between different brands of​ beer; most beer consumers are highly brand loyal.

Neither, because differentiated products are a characteristic of both monopolistic and oligopolistic markets.

Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so​ low, a large number of firms can enter the market and compete away economic profits. Do you agree with this​ analysis?

No, Edgar's argument ignores potentially large fixed costs that will act as a barrier to entry.

In your environmental economics study​ group, a friend argues that using taxes to control pollution is not efficient​ because, even with​ taxes, a positive amount of pollution is still produced. Do you​ agree?

No, because an efficient outcome balances costs with benefits and eliminating all pollution would be cost prohibitive.

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive?

No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that government has been consistently running a budget​ deficit?

No, government deficits depend upon spending and tax revenue.

compared to the market for electric​ drills, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for drills than in the vintage button market. Is it then correct to assume that the outcome in the drills market is Pareto efficient while in the vintage button market it is​ not? Explain.

No, market size has no bearing on the attainment of Pareto efficiency.

Janet knows a lot of people who do not like​ Marmite®, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that​ Unilever, the company that manufactures​ Marmite®, cannot possibly have any monopoly power. Do you agree with this analysis?

No, monopoly power is based on whether a good has any close​ substitutes, not whether your friends like the product.

Since everyone who wants an iPod obtains​ one, and everyone who wants to get rid of their iPod sells it at the price they​ wanted, is social surplus maximized in the​ market?

No, this trade arrangement yields zero social surplus since each participant trades at his or her reservation value.

Antitrust policy started with the​ ____________, which prohibited any agreements or actions that would put restraints on trade.

Sherman Act of 1980

What is the problem with the argument that infant industries need to be protected from foreign​ competition?

Starting a company in isolation may deprive it of​ "technological spillovers" that its​ competitors, all located near one​ another, may enjoy.

Most of your friends prefer drinking​ Budweiser, Miller, or Coors beer. Budweiser is manufactured by​ Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this​ information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is​ true, examine whether each one will independently support or weaken your conclusion The fixed cost of setting up a brewery is relatively high.

Support, because firms could earn​ long-run economic profits.

Draw the demand curve described above as well as the related marginal revenue curve. A y​-intercept of​ $8 and​ **downward-sloping** with a slope of dash-1.

The marginal revenue curve for a monopolist has the same y​-intercept as the demand curve but has twice the slope.​ Therefore, the marginal revenue curve has a y​-intercept of​ $8 and an x​-intercept of 4 units.

From the given​ information, can you conclude whether the firm is operating in a competitive​ market? Explain your answer.

The market is competitive since the firm​ doesn't need to lower price to sell more The market is competitive since the firm treats the price as fixed.

in a command​ economy, a planning agency sets prices for various inputs and final goods. In a market​ economy, supply and demand decide the prices of various goods. In both​ cases, there is a set of prices operating in the economy. Then why are market economies considered more efficient than planned​ economies?

The price mechanism utilized by market economies reflects all that is collectively known and thus ensures that economic agents make trades that are in their best interest and maximize social surplus. The prices set by central planners tend to be​ inflexible, responding to changing conditions only when planners recognize that circumstances are changing and then figure out the significance of the underlying change. The prices set by central planners reflect their very incomplete knowledge regarding the multitude of factors that determine the interests and decisions of economic agents.

Which of the following is one of the common arguments against free​ trade?

The stock of certain types of animals is endangered comma threatening species extinction.The stock of certain types of animals is endangered, threatening species extinction. The desire to maintain diversification to preserve integrity in times of war.The desire to maintain diversification to preserve integrity in times of war. Fear of the effects of globalization on a nation's culture.Fear of the effects of globalization on a nation's culture. Potential negative effects on local wages.Potential negative effects on local wages.

As this chapter​ explains, a monopoly is an industry structure where only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further. In​ 1947, the United States government charged the DuPont Company with a violation of the Sherman Act. The government argued that DuPont was monopolizing the cellophane market. At​ trial, the government showed that DuPont produced nearly 75 percent of all of the cellophane sold in the United States each year.​ Nonetheless, the U.S. Supreme Court ruled in favor of DuPont and dismissed the case. Which of the following is a likely argument used by DuPont to convince the Supreme Court that it did not violate the Sherman​ Act?

There are many close substitutes for cellophane such as aluminum foil and waxed​ paper, so DuPont did not have significant market power.

Sirius XM Satellite Radio and XM Satellite Radio were the only two satellite radio providers in the United States. The Department of Justice​ (DOJ) and the Federal Communications Commission​ (FCC) approved the merger of the two companies in 2008 even though​ Sirius-XM would then control 100 percent of the satellite radio market. Which of the following arguments do you think Sirius and XM used to convince the DOJ and the FCC to allow the merger to​ proceed?

There are many close substitutes for satellite​ radio; therefore,​ Sirius-XM would not exercise market power.

How will the invisible hand move corn prices in response to each of the​ following: A change in consumer tastes away from hot dogshot dogs toward corn dogscorn dogs.

This will increase corn prices by shifting the demand curve for corn rightward

How will the invisible hand move corn prices in response to each of the​ following: An increaseincrease in the number of demanders in the corn market

This will increase corn prices by shifting the demand curve for corn rightward

How will the invisible hand move corn prices in response to each of the​ following: A flood that destroys a great deal of theflood that destroys a great deal of the corn crop.

This will increase corn prices by shifting the supply curve for corn leftward

What is the intent of a Pigouvian​ tax?

To induce producers of a negative externality to reduce production to the socially optimal level.

Which of the following is true regarding the differences between a monopoly and a perfectly competitive​ firm?

Unlike a perfectly competitive​ firm, a monopoly faces a​ downward-sloping marginal revenue curve and does not have a supply curve.

Most of your friends prefer drinking​ Budweiser, Miller, or Coors beer. Budweiser is manufactured by​ Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this​ information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is​ true, examine whether each one will independently support or weaken your conclusion Anheuser-Busch and MillerCoors are two of the many firms that operate in this market.

Weaken, because firms would have less market power.

How do economic profits and losses allocate resources in an​ economy?

When an​ industry's goods​ (or services) become less highly valued by​ society, firms in the industry suffer losses and thus become motivated to put their resources to more profitable uses elsewhere. Businesses always seek to improve their profits and in so​ doing, they move resources into the production of goods and services that society values the highest. When an​ industry's goods​ (or services) become more highly valued by​ society, positive economic profits emerge for firms in the​ industry, attracting new firms and their resources to that industry.

Consider the standard monopoly graph on the right that illustrates a​ monopoly's demand, marginal​ revenue, and marginal cost curves. If this monopoly is able to engage in perfect price​ discrimination, what area would be considered producer​ surplus?

With perfect price​ discrimination, a monopoly is able to charge each consumer up to their willingness to pay. The monopoly will want to do this for as many consumers as​ possible, and will keep producing until the last​ consumer's willingness to pay matches the​ firm's cost of making that unit. This means they will produce until the demand curve intersects the marginal cost curve. And since producer surplus is the area below the price paid and above MC​, the entire area above the marginal cost line is producer surplus.

Would a​ profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short​ run?

Yes, but only if price stayed above average variable cost.

In the United States in​ 2011, there were 104 fatalities per​ 100,000 workers in the logging industry. This is the​ second-highest rate after the fisheries industry. Everything else​ equal, would you expect workers in the logging industry to be paid higher wages than workers with similar levels of education in other​ industries? Explain.

Yes, loggers should be paid higher wages to compensate for risk

Are there​ real-world markets that resemble double oral​ auctions?

Yes, trading on the New York Stock Exchange is very similar to a double oral auction.

The market for electric drills in a certain country is characterized by a large number of buyers. The market for drills is in equilibrium. Does this also mean that it is Pareto​ efficient? Explain your answer.

Yes, with the market in​ equilibrium, no one participant can be made better off without someone else being harmed.

People who need​ life-saving drugs cannot do without them and surely will be willing to pay very high prices for them. So why​ can't producers of​ life-saving drugs charge any price that they wish​ to?

a monopolist, such as one selling life saving drugs, still faces downward sloping demand curves

When comparing the graph of your ATC curve for a natural monopoly with that of a firm in perfect​ competition, we see that​ ____________.

a natural monopoly has a​ downward-sloping ATC​ curve, while a firm in perfect competition has a​ U-shaped curve

Which of the following is likely covered by a​ copyright?

a new song architectural drawings a piece of poetry

a black market is

a non legal market for regulated goods and services

How does the​ labor-leisure trade-off determine the supply of​ labor?

and increase in the wage rate is an increase in the opportunity cost of leisure, and can be therefor expected to reduce the amount of leisure one wishes to consume. choosing less leisure is equivalent to supplying more labor, thus yeilding a positive relationship between the wage rate and the amount of labor supplied

Which of the following is a cost associated with government intervention in an economic​ system?

bureaucracies

Externalities are called market failures because they​ ___________.

cause markets to produce suboptimal social outcomes.

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. What approach would be the effective way to deal with the overfishing​ problem?

charge a tax of fish per caught restock the lake more often with fish enact a fishing law limiting the number of fish that can be caught per person

a librarys collection of e books is a____

club good

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a

common pool resource

Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. ​Then, other things remaining the​ same, why is price lower in a competitive market than in a​ monopoly?

competitive markets face perfectly elastic demand and marginal revenue, while monopolies face downward sloping demand and marginal revenue

compared to a monopoly, in a perfectly competitive market

consumer surplus is lower producer surplus is higher and dead weight loss is higher

A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the​ ____________ problem.

coordination

Suppose the government grants an individual or company the exclusive right to intellectual propertyexclusive right to intellectual property. In this​ case, the government is granting a

copyright

How would the following factors affect equilibrium in the market for​ labor? an increase in the age when people begin to receive social security benefits

demand no change supply increase wage increase employment increase

Oligopolistic firms that sell differentiated products determine their prices when prices are​ __________.

determined simultaneously by the firms as best responses given other firm prices.

Firms estimate the demand for labor by​ ____________.

determining the value of marginal product of labor computing the marginal product of labor and multiplying it be the price of the product being produced

How are the products sold by a monopolistically competitive firm different from the products sold in a competitive​ market? Unlike products sold in a competitive​ market, the products sold in a monopolistically competitive market are​ ___________.

differentiated

What types of goods are likely to be traded in a black​ market?

drug dealing prostitution

Suppose there are four firms in a market and each of them sells differentiated products. If the four firms engage in a price​ war, then​ ____________.

each​ firm's profit will be less than with collusion but not zero.

If demand shifts to the left​ (decreases), the last firm that entered​ ____________.

earns negative economic profits and so exits the market.

Assume there are two industries in our​ economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC​ curve, ____________.

firms currently making pizza will switch to making calzones. When firms switch from making pizza to making​ calzones, the price of pizza will increase and the price of calzones will decrease.

Which of the following common features do monopolistically competitive markets and monopolies​ share

firms face downward sloping demand curves

In which of the following ways is a monopoly beneficial to an​ economy?

firms that are allowed monopoly profits search out innovative technologies that they can bring to the market with natural monopolies, costs may be lower than those that would exist in competitive market with many producers monopoly profits give firms more reason to invest in the creation of new products through research and development

in which consumers are charged the maximum price they are willing to pay.

first degree (perfect price discrimination)

This dropdrop in price and corresponding change in the​ firm's profit status​ ___________.

has no bearing on the​ market's characterization as​ competitive, since nonzero values for economic profit reflect​ short-run events.

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. Common pool resources are

high in rivalry and low in excludability

Given the​ long-run adjustment process that takes place after a supply or demand​ shock, we know that the industry supply curve must be​ __________.

horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.

Salmon fishing in Alaska is a seasonal​ business; May through September is the best time to bait salmon and halibut. Toland​ Fisheries, a small commercial​ fishery, recorded its highest ever catch last year. They started this​ year's fishing season with the same number of workers and equipment. With the new season also starting​ well, Toland has increased hiring substantially.​ However, the fishery did not make any additional investment in trawlers and other fishing equipment. In the long​ run, if Toland Fisheries would like to increase the productivity of its​ workers, it will need to​ ____________.

increase its amount of capital and equiment.

The largest source of revenue for the federal government is​ ___________.

individual income taxes

To construct the supply curve in a market with many firms with different cost​ structures, the​ ___________.

individual supply curves for each firm are added together.

How would you depict the​ trade-off between equity and efficiency on a​ graph?

inequality on one axis and social surplus on the other with a positively sloped function

Consider the market for college textbooks. Assume this market is monopolistically competitive. A representative​ firm's demand ​(D​), marginal revenue ​(MR​), marginal cost ​(MC​), and average cost ​(AC​) curves are illustrated in the figure on the right. This industry​ ____________.

is not in​ long-run equilibrium, because firms are earning profits​, which will result in firms entering.

A collusive agreement between two firms is likely to break down when​ ____________.

it is hard to punish cheaters

If the firm were facing MR2​, then we know that this firm should​ __________.

keep​ producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.

If the firm were facing MR1​, then we know that this firm should​ __________.

keep​ producing, since it is making a profit at the​ profit-maximizing output.

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. What approach would be the least effective way to deal with the overfishing​ problem?

limit who is allowed to fish in the lake

When a firm exercises its monopoly​ power, social surplus is _____ when compared to a perfectly competitive market.

lower

For a market to be characterized as perfectly competitiveperfectly competitive​, there must be​ ___________.

many sellers where the price of the good is determined by the market

Consider four market​ structures: perfect​ competition, monopolistic​ competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where​ ___________

marginal revenue = marginal cost

Consider a market with many firms that have different cost structures. Unless shutdown or exit is​ optimal, every firm expands production until​ ___________.

marginal revenue, marginal cost, and price are all equal

Natural market power is created by​ ___________, and arises due to​ ____________.

market forces; controlling a key resource

The sources of revenue for state and local governments are different from those of the federal government. Which of the following is the largest source of revenue for state​ governments?

miscellaneous taxes and fees, such as tolls on roads and public transportation tickets

A monopoly may earn positive economic profits in both the long run and the short run because a​ ____________.

monopoly has barriers to entry

Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost​ curves, would you expect prices to be higher in a monopoly or a monopolistically competitive​ market?

monopoly, because its demand is more inelastic

Compared to a monopoly that does not price​ discriminate, a monopolist who engages in perfect price discrimination will produce ________ and have _______ deadweight loss.

more; no

You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following​ conversations: Jeb mentions that the hog farm down the road from his house is creating a very nasty smell.

negative externality

John Maynard Keynes​ (a famous British​ economist) said​ "In the long run we are all​ dead." An important message in this chapter​ is, to paraphrase​ Keynes, "In the long​ run, all profits in a monopolistically competitive market are​ dead." Consider a monopolistically competitive industry earning positive economic profits in the short run. In the long​ run, a monopolistically competitive industry earns zero economic profits because​ ____________.

new firms​ enter, shifting a​ firm's demanddemand curve to the left.

Monopolistically competitive firms might earn positive economic profits in the short run due to​ ___________.

no brand differentiation product innovation

In a competitive​ market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply​ curve?

no, a monopoly is a price maker and its production decisions are determined by its downward sloping demand curve

Suppose an identical tax is levied on​ capital, labor, and land. Would the tax have the same effect in each of these​ markets? Explain your answer.

no, an identical tax would yield similar effects, but not the same effects, since it is rather unlikely that the relative demand and supply elasticities would be the same in each market

You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following​ conversations: Lauren mentions that it is extremely windy today.

not an externality

If the price is ​$2 per​ unit, the firm should​ ___________.

not produce​, because price is less than the average variable cost of production.

Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami but only two airlines providebut only two airlines provide the service. This market is best characterized as​ ___________.

oligopoly

Firms equate price and marginal cost.

perfect competition- T monopoly- F monopolistic competition- F

Firms produce the quantity that minimizes​ long-run average cost.

perfect competition- T monopoly- F monopolistic competition- F

New firms are free to enter the industry in the long run.

perfect competition- T monopoly- F monopolistic competition- T

Firms equate marginal revenue and marginal cost.

perfect competition- T monopoly- T monopolistic competition- T

demand for a perfectly competitive firm is

perfectly elastic

You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following​ conversations: George mentions that Ms. Daisy has planted some lovely new roses in front of her store.

positive externality

Examples of direct regulation include​ ____________. ​

price ceiling zoning restrictions antismoking laws

​ non-market price imposition is a

price control

In a market​ economy, the alignment of interests is accomplished through the use of

prices

The Coase Theorem states that​ ____________.

private bargaining will result in an efficient allocation of resources.

Priceline is a Web site that sells flights and hotel bookings based on the price that a consumer states that he or she is willing to pay. So consumers who want to book a flight or a hotel room need to tell Priceline the price that they are willing to​ pay, and the seller lets Priceline know whether it is willing to accept that price. Which of the following outcomes is likely using this form of​ pricing?

producer surplus will rise, since some prices offers by consumers will be higher than the price that priceline would have charged, causing consumer surplus to shrink

To reduce inequality and poverty in an​ economy, the government uses a​ ___________.

progressive tax system to fund transfer payments.

Malaria is spread by mosquitos. That is a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs and others shows a strong correlation between the incidence of malaria in a country and poverty. Malaria is known to exist in poor​ countries; it has also been found that the incidence of malaria exacerbates poverty. One of the simplest and effective ways of preventing the occurrence of malaria is by using​ insecticide-treated nets​ (ITNs). Consider the private market for ITNs. Use supply and demand curves to show the equilibrium level of nets that will be produced. This outcome is not socially efficient. The government could encourage the production of the efficient number of ITNs by​ ____________.

providing a subsidy for ITNs

a video on youtube is a ____

public good

The price at which a buyer is indifferent between making a purchase and not doing so is known as her___________.

reservation price willingness to pay value

Upper A fast minus food combo meal costs less than if you bought each item separatelyA fast−food combo meal costs less than if you bought each item separately. This is an example of​ ___________.

second degree price discrimination

Upper A local grocery store charges more for one soda than for a six minus packA local grocery store charges more for one soda than for a six−pack. This is an example of​ ___________.

second degree price discrimination

in which consumers are charged different prices based on characteristics of their​ purchase, such as the quantity they purchase.

second degree price discrimination

he graph on the right shows the​ long-run average cost curve and marginal cost curve for a firm in a perfectly competitive market. Based on the graph to the​ right, the​ long-run supply curve is​ __________.

segment​ BC, since at prices below B the firm would shut down in the long run.

Despite the logic described​ above, several recent studies have found that different online retailers often charge quite different prices. How might you explain this​ result?

sellers warranties and shipping costs differ

If the firm were facing MR3​, then we know that this firm should​ __________.

shut​ down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.

characteristics of monopoly

single seller price maker market power

Why are there two different views on the effect of taxation on labor supply in the United​ States?

the effect of tax on labor supply depends on the elasticity of supply the effect of a tax on labor supple depends on the amount of deadweight loss created by the tax it depends on normative questions such as how much to tax or how much the government intervention is necessary

Legal market power is created by​ ___________, and arises due to​ ____________.

the government; copyrights

In​ 1999, Priceline attempted to replicate this pricing strategy with groceries and gasoline. Using this pricing strategy with these two goods soon proved unprofitable. What could explain​ this?

the marginal cost of selling an airplane set or a hotel room is relatively small, while the marginal cost of selling groceries and gasoline is relatively high

In the long​ run, the supply curve for a perfectly competitive firm is represented by​ __________.

the portion of the marginal cost curve above average total cost

A perfectly competitive firm will choose to shut down when the price (marginal revenue) intersects the marginal cost curve below the average variable cost curve . ​Therefore, the​ short-run supply curve for a perfectly competitive firm is represented by​ __________.

the portion of the marginal cost curve above average variable cost.

Using your​ graph, the slope of the industry demand curve demonstrates​ __________.

the realistic assumption that the Law of Demand holds for the good under consideration.

demand for this perfectly competitive firm is perfectly elastic occurring because

there are many producers all selling identical​ goods, meaning no one firm can impact the market price

How is a monopolistically competitive market similar to a perfectly competitive​ market?

there are no restrictions on the entry of new firms

A government would want to be on this curve where​ ___________.

there is no correct answer to this​ question, as the answer depends on a​ government's value judgments.

Which of the following are properties of a​ monopoly?

there is only one seller price maker there are high barriers to entry

In recent​ years, some online firms have offered different consumers different prices for the same good. These firms use the​ consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is​ ____________.

third degree price discrimination

Upper A local restaurant offers a discount on meals to seniorsA local restaurant offers a discount on meals to seniors. This is an example of​ ___________.

third degree price discrimination

car insurance companies charge males more for insurance than females. This is an example of​ ___________.

third degree price discrimination

in which different groups of consumers are charged different prices based on customer or location attributes​ (such as​ age, gender,​ location, and so​ on).

third degree price discrimination

How will the invisible hand move corn prices in response to each of the​ following: A riserise in the price of wheat​ (a substitute for​ corn).

this will increase corn prices by shifting the demand curve for corn rightward

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. The overfishing by the Reed brothers is an example of

tragedy of the commons

The Coase Theorem will breakdown when​ ____________. ​

transaction costs become high. when property rights are not clearly defined. there are a large number of agents.

Most of your friends prefer drinking​ Budweiser, Miller, or Coors beer. Budweiser is manufactured by​ Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this​ information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is​ true, examine whether each one will independently support or weaken your conclusion Both MillerCoors and​ Anheuser-Busch increased the prices of beer when demand had actually fallen in 2009.

​Support, because firms would have market power.

The two most important goals for government policy involve a​ trade-off between​ __________ and​ __________.

​equity; efficiency.

The equilibrium price is the​ ___________.

​long-run average total cost of the last entrant into the market.

Direct regulation is​ ____________.

direct actions by the government to control the amount of an activity

Which of the following is not likely to be subject to the tragedy of the​ commons?

national defense

terms of trade are determined on the basis of

opportunity costs

When determining which firms enter the market​ first, we look at​ ____________

average total cost

radio spectrum is a ___

common pool resource


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