Micro Economics Final
For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood. u
downward sloping; many
The term diminishing returns refers to a:
decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.
Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _____ curve will shift to the _____. u
demand; right
A Pigouvian subsidy is:
designed to encourage activities generating external benefits.
The term autarky refers to a situation when a country:
does not trade with other countries.
The MAIN reason a monopoly engages in price discrimination is that:
doing so increases its profits.
In game theory, when a player has an action that is always best for that player, regardless of the action taken by the other player(s) in a game, we say this player has a _____ strategy.
dominant
Kawamura, a careful utility maximizer, consumes peanut butter and ice cream. Assume that both peanut butter and ice cream are normal goods and that diminishing marginal utility applies to both goods. Right after he achieves the utility-maximizing level of consumption of the two goods, the price of peanut butter falls. After he adjusts to this event, the marginal utility of peanut butter goes _____ and that of ice cream goes _____.
down, up
For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood.
downward sloping; many
Mexico is relatively labor-abundant when compared with the United States. Therefore, Mexico has a comparative advantage in _____ compared with the United States.
goods that are labor-intensive in production
If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from:
government restrictions to entry.
If you had an official license for the exclusive right to sell breakfast bagels in your community, your monopoly would result from: u
government-set barriers.
If quota rents do not accrue to the government, then the net loss to the government from an import quota is _____ the deadweight loss from an equivalent tariff.
greater than
A perfectly competitive firm will earn a profit in the short run when it produces the profit-maximizing quantity of output and the price is:
greater than average total cost.
The price for a firm under monopolistic competition is _____ revenue.
greater than marginal
A natural monopoly is one that:
has increasing returns to scale over the entire relevant range of output.
If a product's usefulness increases with the number of users, it:
has network externalities.
Price discrimination leads to a _____ price for consumers with a _____ demand.
higher, less elastic
To maximize profits, an airline will offer _____ prices to customers with _____ demand. u
higher; inelastic
The United States places a tariff on imported Brazilian ethanol. The impact of this tariff on the domestic ethanol market is a _____ domestic price, _____ consumer surplus, and _____ producer surplus.
higher; less; more
Suppose the price elasticity of demand for coffee at the Coffee Barn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to _____ prices for men and _____ prices for women _____.
higher; lower; as long as women can't resell drinks to men
One government policy for dealing with natural monopoly is to:
impose a price ceiling to reduce economic profit.
To practice effective price discrimination, a monopolist must be able to:
prevent the resale of goods among groups of buyers.
The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is:
price discrimination
Many hotel chains offer discounts to senior citizens. This is an example of _____ that is _____ in the United States.
price discrimination; legal
If the government wants to minimize the deadweight loss from taxes, it should tax goods for which the:
price elasticity of demand is low.
The burden of a tax on a good is said to fall completely on the consumers if the:
price paid by consumers for the good increases by the amount of the tax.
Individuals in a market who must take the market price as given are:
price takers.
Stephanie stops at a gas station to fill up the tank of her car. The unleaded gasoline in her tank is BEST described as a(n):
private good
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
produce at a profit.
If the United States removed the tariffs and quotas on sugar, in the U.S. market for sugar:
producer surplus would decrease.
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2:
producers are paying more of the tax than are the consumers.
A monopoly:
produces a product with no close substitutes.
A tax of $10 on an income of $100, $25 on an income of $200, and $60 on an income of $300 is:
progressive
Suppose an income tax is levied on none of the first $1,000, 10% of the next $10,000, and 20% of the remainder of earnings. This type of tax can be defined as:
progressive
The evidence suggests that federal taxes in the U.S. economy are:
progressive
Which good is MOST likely a common resource?
public park
According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:
purchase more of the now less expensive good.
In the importing country, the MOST likely effect of a tariff is to:
raise the price and decrease the quantity demanded.
The Coase theorem states that, in the presence of externalities, a market economy will:
reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.
Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is:
regressive
Sales taxes are considered to be:
regressive
Critics of advertising argue that it:
results in higher prices to consumers.
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will:
rise
The restaurant industry is characterized by excess capacity. This means that:
the profit-maximizing level is less than the level that minimizes average total costs.
Both the United States and Canada produce automobiles and their components; however, each particular model or component is produced in only one of the two countries. Which factor explains this pattern of production and trade? u
the role of increasing returns
A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that:
the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
Mexico produces lettuce but can also import it. If Mexico imports some lettuce: u
the world price is lower than the domestic price
The BEST example of a common resource(s) is/are:
fish to catch in a local public lake
An input whose quantity CANNOT be changed in the short run is:
fixed.
Monopolistic competition is characterized by:
free entry and exit in the long run.
Taxation according to the benefits principle is best illustrated in the United States by:
gasoline tax
Once diminishing returns have set in, as output increases, the total cost curve:
gets steeper
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.
$0.75; $0.25
You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:
$-45,000
Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. The marginal cost of the third slice is:
$1
The price elasticity of demand for a particular cancer drug is zero and the price elasticity of supply is 0.50. If a $1 excise tax is levied on producers, how much of this tax will eventually be paid by consumers?
$1
If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:
$10
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:
$19
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is: u
$19
Assume that Maia spends all of her income on halvah (H) and pomegranates (P) and is purchasing the optimal consumption bundle. If MUH/MUP = 3 and the price of halvah is $12, then the price of pomegranates must be:
$4
Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is _____, and her short-run profits are _____.
$5; $150
John's accountant tells him that he made a profit of $43,002 running a pottery studio in Orlando. John's wife, an economist, claims John lost $43,002 running his pottery studio. This means his wife is claiming that he incurred _____ in _____ costs.
$86,004; implicit
Until recently, Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is: u
-12000
Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 3 hats is _____ sweater(s).
1
Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat?
10
Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market?
100
Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:
100,000
A monopoly will have a Herfindahl-Hirschman index equal to:
10000
During its only year of operation, a firm collected $175,000 in revenue and spent $50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of their own money to build the firm's factory (instead of buying bonds and earning a 10% annual rate of return), which they sold at the end of the year for $100,000. The firm's economic profit is: u
115000
Suppose that hiring one, two, three, or four workers at a diaper factory generates total outputs of 200, 350, 450, or 500 diapers, respectively. The marginal product of the second worker is:
150
The rent for Oscar's sporting goods store is $2,500 per month. Oscar pays his staff $9 per hour, and his monthly electricity bill averages $700, depending on his total hours of operation. Oscar's fixed costs of production equal:
2500 per month
The United States must give up the production of 300 motorcycles to produce 15 additional SUVs with the same resources. The opportunity cost of producing 100 motorcycles is _____ SUV(s).
5
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The price of a book is $5 and the price of a pencil is $0.50. The equation for Adam's daily budget constraint can be written as:
5(B) + 0.50(P) ≤ 20.
The Herfindahl-Hirschman index equals _____ when _____ have/has _____% of the market.
5,000; two firms each; 50
Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If Faruq purchases 10 milkshakes, he can purchase _____ tacos. u
8
The MOST likely effects of tariffs and/or import quotas are to _____ prices and to _____ consumption of the protected goods in the importing country. u
Raise, lower
Which statement is CORRECT? An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources. An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known.
An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources.
Which statement describes a positive externality?
Sam buys a dilapidated house, renovates it, and increases the property values of all the houses in the neighborhood.
Which scenarios BEST describes an oligopolistic industry?
Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
To engage in price discrimination, a firm must be:
a price setter and able to identify consumers whose elasticities differ.
Since the United States imports a large quantity of textiles from Asia, the overall wages of U.S. textile workers have _____, while the price of textiles in the United States has _____. u
Decreased, decreased
France and England both produce wine and cloth with constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. Using this information, we can conclude that:
England has a comparative advantage in cloth production.
Which characteristic is not shared by both perfect and monopolistic competition? Free entry and exit Many competing producers in the industry Production occurs at minimum ATC in the long run Zero profit in the long run
Production occurs at minimum ATC in the long run
If the United States can produce 30 computers for every car it produces and Japan can produce 15 computers for every car it produces, _____ has the _____ advantage in car production.
Japan, comparative
If the United States can produce 30 computers for every car it produces and Japan can produce 15 computers for every car it produces, _____ has the _____ advantage in car production. u
Japan, comparative
What product is most likely produced in a monopolistic competitive market? Table Salt —------perfect comp Jeans Diamonds —----------monopoly Phones —---------small number of producers
Jeans
Chile has a comparative advantage over the United States in copper. Which factor is a source of this comparative advantage? u
Larger deposits on copper ore
The principle of diminishing marginal utility means that, when Sarah eats pizza, her satisfaction from the second slice of pizza is probably _____ that from the first. u
Less than
The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and total broccoli output in the market is _____ than if it were monopolistically competitive. u
Lower, higher
Lower wages in China reflect _____ labor productivity in China than in the United States. This means that if the United States moved high-tech industries to China, the overall cost of production would be _____ in China than in the United States. u
Lower; higher
In economics, maximization of the total profit of an activity occurs when:
MB = MC
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which expression must be TRUE for this firm?
MR = MC and P > ATC.
Suzy knows she has maximized her utility because she is on her budget constraint and:
MUCameras/PCameras = MUCoffee/PCoffee.
Suzy knows she has maximized her utility because she is on her budget constraint and: u
MUx/Px = MUy/Py
Which statement BEST describes the income effect of a price increase?
Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine.
A well-known example of an international cartel is:
OPEC.
When workers earn income, they and their employer pay equal portions of FICA (the Federal Insurance Contributions Act). Which statement is TRUE?
The worker bears almost all of the burden of the tax.
Which statement is NOT characteristic of perfect competition? All firms produce the same standardized product. There are many producers, and each has only a small market share. There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each. There are no obstacles to entry into or exit from the industry.
There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.
Suppose the absolute value of the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax?
Yacht builders will pay more.
You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which event would MOST likely increase your market power?
You acquire exclusive rights to harvest lemons from all domestic citrus orchards
Which activity generates a negative externality?
Your next-door neighbor mows the lawn at 6 A.M.
An "either-or" decision entails:
a choice between two activities.
Natural monopolies are NOT likely to include:
a diamond-mining company.
Tacit collusion in an industry is limited by: u
a large number of firms and the bargaining power of buyers.
The main difference between a tariff and an import quota is that:
a tariff generates tax revenue, while an import quota generates rents to the license holders.
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary summarizes his pricing strategy as, "I'll do to Frank (price-wise) what Frank did to me last time." This is an example of:
a tit-for-tat strategy.
An example of an import quota is a:
limit on the total number of Honda automobiles imported from Japan.
A principle suggesting that people with more income or wealth should pay more taxes is the _____ principle.
ability-to-pay
The costs economists use in the concept of economic profit are: u
accounting costs and implicit costs (i.e., the value of the best opportunity forgone).
A dominant-strategy equilibrium occurs when: u
all players' action of choice is always best for them, regardless of the action of the other players.
Many economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT:
allow reductions in pollution to be achieved at minimum cost.
Which example BEST fits the characteristics of a private good?
an ice-cream cone
Sunk costs:
are not considered in marginal analysis.
Tankao makes earbuds for mobile devices. When Tankao produces 20 sets of earbuds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's:
average fixed cost is $3 per set.
Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly total fixed costs are $500, and her monthly total variable costs are $2,500. If for some reason Cindy's fixed cost fell to $400, then her _____ costs would _____.
average total; decrease
he average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week:
average variable cost is $8.
Conditions that keep new firms out of a monopoly market are:
barriers to entry.
Taken collectively, people in nations that engage in international trade are NOT likely to: u
be made worse off
An external benefit is a:
benefit that individuals or firms confer on others without receiving compensation.
The profit-maximizing rule MC = MR is followed by firms operating in: u
both monopolistic competition and perfect competition
The profit-maximizing rule MC = MR is followed by firms operating in:
both monopolistic competition and perfect competition.
Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, both spend two years in prison; if both confess, both spend three years in prison. If one confesses and the other does not, the confessor gets off with one year but the other gets six years. According to game theory, the MOST likely strategy of the prisoners is that:
both will confess
If tax efficiency is the only goal, a tax system should be designed to minimize its:
burden and its administrative costs.
Benny spends all of his money buying wine and cheese. Diminishing marginal utility applies to both goods. The marginal utility of the last bottle of wine he bought is 60, and the marginal utility of the last block of cheese he bought is 30. The price of wine is $3, and the price of cheese is $2. Benny: u
buy more wine and less cheese
When a monopolist practices price discrimination, compared with a single-price monopolist, consumer surplus will:
decrease
The BEST example of an artificially scarce good is:
cable television programming.
An increase in a consumer's income will NOT:
can be increased by decreasing production.
If a monopolist is producing a quantity where MC > MR, then profit:
can be increased by decreasing production.
If a perfectly competitive firm is producing a quantity where P < MC, then profit:
can be increased by decreasing production.
Suppose a monopoly is producing output so that marginal revenue equals marginal cost. If the monopolist reduces output, it:
can charge a higher price
An increase in a consumer's income will NOT:
change the slope of the budget line.
A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than is the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:
charge a lower price in the United States and a higher price in Japan.
A monopolist generally _____ than does a perfectly competitive industry with the same market demand.
charges a higher price
In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to: u
confess
Melika spends all of her income on magazines and carry-out lunches. The price of a magazine is $5, and the price of a carry-out lunch is $7. At the current consumption bundle, the marginal utility of magazines is 10, and the marginal utility of carry-out lunches is 21. Assuming that diminishing marginal utility applies to both goods, to maximize utility given her income, Melika should:
consume more carry-out lunches and fewer magazines.
If Japan levies tariffs on U.S. goods entering Japan, this will tend to:
damage U.S. producers and benefit Japanese producers.
The wedding dress industry is monopolistically competitive. As a result: u
dresses tend to be differentiated among the many sellers serving this market.
Diminishing marginal returns occur when:
each additional unit of a variable factor adds less to total output than the previous unit.
Monopolistically competitive firms have zero economic profits in the long run because of: u
easy entry and exit.
Assuming a downward-sloping demand curve, a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n):
economic profit for firms in the short run.
If the accounting profit for a firm is negative, the:
economic profit must be negative.
Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:
economies of scale.
It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with:
economies of scale.
Because tourist demand for airline flights is relatively _____, small _____ in ticket price will result in relatively _____ in additional tourists.
elastic; reductions; large increases
According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____. u
equal to; an activity is being produced at the optimal quantity
Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient.
exceed
Computer software that you can download from the Internet for a price is an artificially scarce good because it is _____ but _____ in consumption.
excludable; nonrival
Assume an economy moves from autarky to free international trade. In the export sector, consumer surplus _____, producer surplus _____, and the economy as a whole _____. u
falls, raises, Gains
Taxation according to the ability-to-pay principle is best illustrated in the United States by:
income taxes
Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will:
increase by less than $4.
A tariff is MOST likely to _____ prices and _____ domestic consumption of the good or service being protected.
increase; decrease
Assume that the United States imposes an import quota on Scottish wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely _____.
increase; decrease
When an increase in the firm's output reduces its long-run average total cost, it has _____ returns to scale.
increasing
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on goods for which the supply is _____ and the demand is _____.
inelastic; inelastic
Game theory is commonly used to explain behavior in oligopolies because oligopolies are characterized by:
interdependence.
Oligopoly is a market structure characterized by:
interdependence: each firm's decision affects the profit of the other firms
When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5. When 11 pork sandwiches are produced, the total cost rises to $6. From this we know that the marginal cost of the eleventh pork sandwich:
is greater than the average cost of 11 pork sandwiches.
Sri Lanka's comparative advantage over the United States in textiles can be explained by its: u
labor abundance
Saudi Arabia has a tremendous comparative advantage in petroleum. Which factor is a source of this comparative advantage?
large reserves of crude oil
An industry with production that generates external costs produces a quantity of output that is:
larger than the socially optimal quantity.
Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity.
less
An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.
less than 13
For MOST firms, economic profit is:
less than accounting profit.
According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.
less than; an activity should be reduced
Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that, if she waits long enough, she will recover her investment. What type of behavior does this represent?
loss aversion
Lower wages in China reflect _____ labor productivity in China than in the United States. This means that if the United States moved high-tech industries to China, the overall cost of production would be _____ in China than in the United States.
lower, higher
The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and total broccoli output in the market is _____ than if it were monopolistically competitive.
lower, higher
Amtrak is a publicly owned company that provides rail service. This means that Amtrak's prices tend to be _____ than if it were a private company, and the quality of service tends to be _____ than if it were a private company.
lower; worse
Long-run equilibrium in perfect competition and in monopolistic competition are similar because in both models, firms _____ in the long run.
make zero economic profits
The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which: u
marginal cost equals marginal revenue
Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15: u
marginal revenue will be greater than marginal cost.
The optimal consumption rule for all goods requires the:
marginal utility of all goods consumed divided by their respective prices to be equal.
When the market does NOT result in an efficient allocation of scarce resources, economists say that there has been:
market failure
The short-run shut-down price is the:
minimum of the AVC curve
Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be:
monopolistically competitive.
In general, when marginal benefit is greater than marginal cost, the decision maker should do _____ of the activity.
more
Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of her income. If a consumer purchases a combination of coffee and football tickets such that MUCoffee/ /PCoffee = 20 and MUFootball tickets/ /PFootball tickets = 10, to maximize utility, the consumer should buy _____ coffee and _____ football tickets.
more, fewer
Smedley, a careful utility maximizer, consumes peanut butter and ice cream. Assume that both peanut butter and ice cream are normal goods. Right after he achieves the utility-maximizing level of consumption of the two goods, the price of ice cream increases. To adjust to this event, he consumes _____ peanut butter and _____ ice cream. u
more, less
The BEST example of a public good is:
national defense
Which example is considered a nonexcludable good?
national defense
Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:
network externalities
Which feature is shared by monopolistic competition and perfect competition? u
no barriers to entry or exit in the long run
Public goods differ from common resources in that, while both are _____, public goods are _____, while common resources are _____.
nonexcludable; nonrival in consumption; rival in consumption
Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:
number of firms in the industry will increase
A feature of monopolistic competition that makes it different from monopoly is the: u
number of firms in the industry.
If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as:
oligopolistic.
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of:
oligopoly
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of: u
oligopoly
The substitution effect always entails a change in consumption in the _____ direction as (of) the change in _____.
opposite; price
The long run is a planning period:
over which a firm can consider all inputs as variable.
Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can go offshore, lower a crab pot, and harvest king crab. This common resource will likely be _____ because the marginal social cost of harvesting crabs _____ the market price of crab.
overfished, exceeds
Which good is MOST likely an artificially scarce good?
pay-per-view of a boxing match
The purpose of behavioral economics is to determine why:
people make decisions that appear to be irrational.
For a perfectly competitive firm, the short-run supply curve is the:
rising part of the MC curve beginning at the shut-down point.
People are willing to buy insurance because of:
risk aversion
The willingness to sacrifice some economic payoff to avoid a potential loss is
risk aversion
Wolfgang really likes both rutabagas and broccoli. The price of each good is $0.60 per pound and Wolfgang is maximizing utility. At the point of maximal utility, the marginal utility of:
rutabagas and broccoli is the same
If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market.
small; standardized; little or no
The average total cost curve has a shape because the _____ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output.
spreading; diminishing returns
The tendency to avoid making a decision is:
status quo bias
To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry.
sum the squared; all of the firms
Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market _____ curve will shift to the right, and _____ will _____.
supply; output; increase
China, which is labor-abundant, has a comparative advantage in clothing production, which is labor-intensive. Which model explains this pattern of comparative advantage? Group of answer choices
the Heckscher-Ohlin model
Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is:
the existence of economies of scale.
Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is: u
the existence of economies of scale.
Perfect competition is characterized by:
the inability of any one firm to influence price.
The free-rider problem is a direct result of:
the inability to exclude nonpayers
Tacit collusion is difficult to achieve in practice:
the larger the number of firms in the industry.
Given the general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is:
the level at which the marginal social cost is equal to the marginal social benefit.
The implicit cost of capital is: u
the opportunity cost of the capital used by a business
A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:
too much of society's resources is being used to produce copper.
The marginal utility of coffee consumption for Steve is the change in _____ generated by consuming an additional cup of coffee.
total utility
Average variable cost is:
total variable cost divided by output.
For Heidi, the marginal cost of producing one additional photograph equals the change in _____ cost divided by the change in the _____ of photographs.
total; number
Licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:
tradable emissions permits.
If a person engages in mental accounting, he or she:
values some dollars more than others.
An input whose quantity can be changed in the short run is a(n) _____ input.
variable
Tax incidence refers to:
who really pays the tax.
In a long-run equilibrium, economic profits in a perfectly competitive industry are:
zero
In the long run, monopolistically competitive firms tend to have:
zero economic profits.
