micro econ

50. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and a. the available production technology. b. society's preferences. c. the available demand for the output. d. a fair distribution of the output.

a

An agreement between two duopolists to function as a monopolist usually breaks down because a. each duopolist wants a larger share of the market to capture more profit. b. each duopolist wants to charge a higher price than the monopoly price. c. they cannot agree on the price that a monopolist would charge. d. they cannot agree on the output that a monopolist would produce.

a

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together, a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist. b. each firm's profit always ends up being zero. c. society is worse off as a result. d. Both a and c are correct.

a

If the price elasticity of supply is zero, then a. the quantity supplied is the same, regardless of price. b. supply is more elastic than it is in any other case. c. the supply curve is horizontal. d. a change in demand will cause a relatively small change in the equilibrium price.

a

In order to maximize profits in the short run, a firm should produce where a. marginal cost equals marginal revenue. b. marginal cost is minimized. c. average total cost is minimized. d. marginal revenue exceeds marginal cost by the greatest amount.

a

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. What are Sebastian's implicit costs from running his own business? a. $30,600 b. $75,600 c. $50,000 d. $55,600

a

Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive a. less marginal revenue on the 50th game than it received on the 49th game. b. more average revenue on the 50th game than it received on the 49th game. c. more total revenue on the 50 games than it received on the first 49 games. d. Both b and c are correct.

a

The fundamental source of monopoly power is a. barriers to entry. b. a product without close substitutes. c. decreasing average total cost. d. profit.

a

The tax burden will fall most heavily on buyers of the good when the demand curve a. is relatively flat, and the supply curve is relatively steep. b. is relatively steep, and the supply curve is relatively flat. c. and the supply curve are both relatively steep. d. and the supply curve are both relatively flat.

a

Total surplus in a market will increase when the government a. removes a binding price ceiling from that market. b. imposes a binding price floor on that market. c. imposes a tax on that market. d. None of the above is correct.

a

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks? a. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous. b. Both the equilibrium price and quantity would increase. c. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous. d. Both the equilibrium price and quantity would decrease.

a

A natural monopoly occurs when a. production requires the use of free natural resources, such as water or air. b. there are economies of scale over the relevant range of output. c. the product is sold in its natural state, such as water or diamonds. d. the firm is characterized by a rising marginal cost curve.

b

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. positive, and the good is a normal good. c. negative, and the good is a normal good. d. positive, and the good is an inferior good.

b

At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a a. club good. b. common resource. c. private good. d. public good.

b

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Randall owns the right to play his music and Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer? a. less than $350 b. less than $220 c. less than $920 d. less than $570

b

If an oligopolist is part of a cartel that is collectively producing the monopoly level of output, then that oligopolist has the incentive to increase production with the aim of a. increasing profits for the group of firms as a whole. b. increasing profits for itself, regardless of the impact on profits for the group of firms as a whole. c. decreasing costs of production. d. increasing prices.

b

If the supply of a product decreases, then we would expect equilibrium price a. and equilibrium quantity to both increase. b. to increase and equilibrium quantity to decrease. c. to decrease and equilibrium quantity to increase. d. and equilibrium quantity to both decrease.

b

If the total cost curve gets steeper as output increases, the firm is experiencing a. diseconomies of scale. b. diminishing marginal product. c. economies of scale. d. increasing marginal product.

b

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's a. marginal revenue exceeds her marginal cost. b. marginal cost exceeds her marginal revenue. c. marginal revenue exceeds her total cost. d. total revenues exceed her total accounting costs.

b

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are a. $75, and her economic profits are $125. b. $100, and her economic profits are $25. c. $25, and her economic profits are $100. d. $100, and her economic profits are $75.

b

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

b

Monopolies are socially inefficient because the price they charge is a. equal to marginal revenue. b. above marginal cost. c. above demand. d. equal to demand.

b

New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and the price of the glue used in the production of the new oak tables increased? a. Quantity will fall, and the effect on price is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will rise, and the effect on price is ambiguous. d. Price will fall, and the effect on quantity is ambiguous.

b

Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive a. a lower average cost per unit at 100 units of output than at 99 units of output. b. less marginal revenue on the 100th widget than it received on the 99th widget. c. more total revenue on the 100 widgets than it received on the first 99 widgets. d. more average revenue on the 100th widget than it received on the 99th widget.

b

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of a. the definition of a market in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the availability of close substitutes in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

b

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding? a. Consumers' income increases, and soybeans are a normal good. b. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans. c. The number of farmers selling soybeans decreases. d. The number of consumers buying soybeans increases.

b

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the a. greater the deadweight loss from the tax. b. smaller the deadweight loss from the tax. c. more equitable is the distribution of the tax burden between buyers and sellers. d. less efficient is the tax.

b

The deadweight loss from a $3 tax will be largest in a market with a. inelastic supply and elastic demand. b. elastic supply and elastic demand. c. inelastic supply and inelastic demand. d. elastic supply and inelastic demand.

b

To determine whether a good is considered normal or inferior, one could examine the value of the a. cross-price elasticity of demand for that good. b. income elasticity of demand for that good. c. price elasticity of supply for that good. d. price elasticity of demand for that good.

b

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that a. the game becomes more competitive. b. the players play the game not once but many times. c. each player tries to capture a large portion of the market share. d. self interest results in the Nash equilibrium which is the best outcome for the players.

b

When a free-rider problem exists, a. the cost of the good will always be more than the benefit of the good. b. the market will devote too few resources to the production of the good. c. the good will not be produced. d. entrepreneurs will eventually find a way to make free-riders pay their share.

b

Which of the following is a characteristic of a natural monopoly? a. Fixed costs are typically a small portion of total costs. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct.

b

Which of the following quantities decrease in response to a tax on a good? a. the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

b

Which of the following statements is not correct? a. Monopolists typically charge higher prices than competitive firms. b. Monopolists typically produce larger quantities of output than competitive firms. c. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research. d. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms.

b

Which of the following statements is not correct? a. Trade has the potential to benefit all nations. b. Absolute advantage is the driving force of specialization. c. Trade allows for specialization. d. Trade allows nations to consume outside of their production possibilities curves.

b

23. Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is a. inelastic and equal to 0.17. b. elastic and equal to 0.17. c. elastic and equal to 6. d. inelastic and equal to 6.

c

A tax imposed on the sellers of a good will a. lower both the price buyers pay and the effective price sellers receive. b. raise both the price buyers pay and the effective price sellers receive. c. raise the price buyers pay and lower the effective price sellers receive. d. lower the price buyers pay and raise the effective price sellers receive.

c

Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier? a. (300 cashews, 60,000 peanuts) and (200 cashews, 80,000 peanuts) b. (300 cashews, 60,000 peanut) and (200 cashews, 50,000 peanuts) c. (200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts) d. (200 cashews, 40,000 peanuts) and (150 cashews, 30,000 peanuts)

c

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. positive, and the good is an inferior good. b. negative, and the good is an inferior good. c. positive, and the good is a normal good. d. negative, and the good is a normal good.

c

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to a. pay your roommate at least $51 to clean up after herself. b. charge your roommate at least $25 to have you clean up after her. c. pay your roommate at least $25 but no more than $50 to clean up after herself. d. charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.

c

Exceptionally favorable growing conditions in the vineyards of Napa Valley would cause a(n) a. decrease in the demand for wine, decreasing price. b. increase in the demand for wine, increasing price. c. increase in the supply of wine, decreasing price. d. decrease in the supply of wine, increasing price.

c

If the government passes a law requiring buyers of college textbooks to send $5 to the government for every textbook they buy, then a. sellers of textbooks are unaffected by the tax. b. buyers of textbooks pay $5 more per textbook than they were paying before the tax. c. the demand curve for textbooks shifts downward by $5. d. All of the above are correct.

c

Marginal cost tells us the a. amount by which output rises when labor is increased by one unit. b. value of all resources used in a production process. c. amount by which total cost rises when output is increased by one unit. d. marginal increment to profitability when price is constant.

c

Monopolistic competition is characterized by which of the following attributes? (i) (ii) (iii) free entry product differentiation many sellers a. (ii) and (iii) only b. (i) and (ii) only c. (i), (ii), and (iii) d. (i) and (iii) only

c

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will a. decrease consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games. b. decrease consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. c. increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. d. increase consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games.

c

Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that a. Canada has an absolute advantage, relative to other countries, in producing hockey sticks. b. Canada has a comparative advantage, relative to other countries, in producing baseball bats. c. if Canada were to allow trade, it would export hockey sticks. d. All of the above are correct.

c

The cross-price elasticity of demand can tell us whether goods are a. luxuries or necessities. b. normal or inferior. c. complements or substitutes. d. elastic or inelastic.

c

The fundamental source of monopoly power is a. many buyers and sellers. b. low fixed costs. c. barriers to entry. d. rising average total costs.

c

The fundamental source of monopoly power is a. rising average total costs. b. low fixed costs. c. barriers to entry. d. many buyers and sellers.

c

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of resources that must be devoted to its production. b. market price of the additional amount produced. c. amount of the other good that must be given up. d. number of dollars that must be spent to produce it.

c

Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the a. production of a public good. b. consumption of a club good. c. consumption of a common resource good. d. production of a private good.

c

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus? a. $0 b. $50 c. $30 d. $25

c

Total revenue equals a. output - input. b. (price x quantity) - total cost. c. price x quantity. d. price/quantity.

c

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 1.50. b. 0.22. c. 0.67. d. 1.33.

c

Which of the following is not a characteristic of a perfectly competitive market? a. Goods offered for sale are largely the same. b. There are many sellers in the market. c. Firms have difficulty entering the market. d. Firms are price takers.

c

A dominant strategy is one that a. increases the total payoff for the player. b. makes every player better off. c. makes at least one player better off without hurting the competitiveness of any other player. d. is best for the player, regardless of what strategies other players follow.

d

A free-rider problem exists for any good that is not a. free. b. a private good. c. rival in consumption. d. excludable.

d

Cartels are difficult to maintain because a. costs to the firms in a cartel are continually rising. b. the monopoly output is very difficult to determine. c. the number of firms is always large. d. each firm has an incentive to deviate from its agreed output level.

d

Competitive markets are characterized by a. a small number of buyers and sellers. b. the interdependence of firms. c. unique products. d. free entry and exit by firms.

d

Competitive markets are characterized by a. unique products. b. the interdependence of firms. c. a small number of buyers and sellers. d. free entry and exit by firms.

d

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the cost of producing the good. b. a buyer's willingness to pay for a good plus the price of the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

d

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. b. a right triangle. c. a triangle, but not necessarily a right triangle. d. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.

d

For which pairs of goods is the cross-price elasticity most likely to be positive? a. bicycle frames and bicycle tires b. peanut butter and jelly c. college textbooks and iPods d. pens and pencils

d

Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will a. decrease consumer surplus in the market for hot dog buns and increase producer surplus in the market for hot dogs. b. increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog buns. c. increase consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs. d. decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.

d

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying a. fixed costs. b. The firm must pay all its costs, even if it shuts down. c. total costs. d. variable costs.

d

If two firms comprise the entire soft drink market, the market would be a(n) a. Nash equilibrium. b. monopolistically competitive market. c. oligopolistically competitive market. d. duopoly.

d

In a competitive market, the actions of any single buyer or seller will a. have little effect on market equilibrium quantity but will affect market equilibrium price. b. adversely affect the profitability of more than one firm in the market. c. affect marginal revenue and average revenue but not price. d. have a negligible impact on the market price.

d

In the long run, a firm will enter a competitive industry if a. the firm can earn economic profits. b. the price exceeds average total cost. c. total revenue exceeds total cost. d. All of the above are correct.

d

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market. b. a deadweight loss to society. c. not a concern if a market is perfectly competitive. d. All of the above are correct.

d

Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade? a. Olivia is better than Andrew at baking cakes and Andrew is better than Olivia at growing corn. b. Olivia cannot grow corn and Andrew cannot bake cakes. c. Olivia is better than Andrew at baking cakes and at growing corn. d. Both Olivia and Andrew can benefit from trade in all of the above cases.

d

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output? a. $2 b. $32 c. $64 d. $8

d

Suppose that the Town of Mapledale is considering hiring an additional firefighter. The expected benefit is estimated to be worth $5 for each of Mapledale's 15,000 residents. What should the city do? a. Hire the firefighter only if the benefit to the residents exceeds $75,000. b. Do not hire the firefighter because the costs exceed the benefits. c. Hire the firefighter because additional fire protection is priceless. d. Hire the firefighter if the cost of the new firefighter is less than $75,000.

d

The Tragedy of the Commons results when a good is a. excludable and not rival in consumption. b. neither rival in consumption nor excludable. c. both rival in consumption and excludable. d. rival in consumption and not excludable.

d

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss. b. revenue loss. c. consumer surplus loss. d. deadweight loss.

d

The sum of all the individual supply curves for a product is called a. total output. b. aggregate supply. c. total supply. d. market supply.

d

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the value to buyers minus the cost to sellers. d. All of the above are correct.

d

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are a. $67,500. b. $25,000. c. $32,500. d. $7,500.

d

Which of the following is not correct? a. A tax places a wedge between the price that buyers pay and the price that sellers receive. b. In the new after-tax equilibrium, buyers and sellers share the burden of the tax. c. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. d. Taxes levied on sellers and taxes levied on buyers are not equivalent.

d