Micro Final

The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of A)20 to 40 percent. B)70 to 100 percent. C)Zero to 5 percent. D)Zero to 2 percent.

20 to 40 percent.

A bond is A)A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU. B)A coupon used to collect a dividend. C)An insurance policy investor's purchase to protect against the possibility of falling stock prices. D)A share in a corporation.

A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU.

Output regulation is likely to result in A)An increase in the cost of subsidies. B)A decline in the quality of the product. C)Profit maximization for the monopolist. D)A surplus of the product.

A decline in the quality of the product.

Over a given period of time, if imports are greater than exports, the result is A)A trade war. B)A trade deficit. C)An embargo. D)A trade surplus.

A trade deficit.

Ceteris paribus, the price of a stock will definitely increase when the A)Demand for the stock and supply of the stock both decrease. B)Demand for the stock increases. C)Supply of the stock increases. D)Prevailing interest rate increases.

Demand for the stock increases.

The risk premium is the A)Interest rate divided by the expected value. B)Interest rate charged to borrowers. C)Interest rate paid to savers. D)Difference in rates of return on safe and risky investments.

Difference in rates of return on safe and risky investments.

In terms of the world as a whole, imports must equal exports because A)Most countries, other than the United States, have a balanced trade situation. B)Every good exported by one country becomes an import for another country. C)It is part of international law. D)The United Nations requires it.

Every good exported by one country becomes an import for another country.

Par value is the A)Increase in the market value of an asset. B)Rate of return on a share of stock. C)Face value of a bond; the amount to be repaid when the bond is due. D)Rate of interest to be paid on a bond.

Face value of a bond; the amount to be repaid when the bond is due.

Product differentiation refers to A)The selling of identical products in different markets. B)Features that make one product appear different from competing products in the same market. C)The charging of different prices for the same product in different markets. D)Different prices for the same product in a certain market.

Features that make one product appear different from competing products in the same market.

The present discounted value of a future payment will increase when the A)Interest rate decreases. B)Risk of nonpayment increases. C)Opportunity cost of money increases. D)Future payment is moved further into the future.

Interest rate decreases.

A natural monopoly is a desirable market structure because A)It allows the producer to deliver a higher-quality product to the market. B)It allows the producer to deliver products to the market at the lowest possible cost. C)The jobs it creates pay higher wages than those in a competitive industry. D)It allows the producer to earn greater profit than is possible under competition.

It allows the producer to deliver products to the market at the lowest possible cost.

Brand loyalty usually makes the demand curve for a product A)More price-elastic. B)Less price-elastic. C)More income-elastic. D)Unitary elastic.

Less price-elastic.

If a monopolistically competitive firm raises its price, it will A)Not lose any of its customers. B)Lose most of its customers. C)Lose all of its customers. D)Lose some of its customers, but nowhere close to all its customers.

Lose some of its customers, but nowhere close to all its customers.

Liquidity is A)The ability of an asset to be converted to cash. B)Low for cash. C)Not important for bondholders. D)The opportunity cost of purchasing a bond.

The ability of an asset to be converted to cash.

A motivation for holding stock is A)To have a direct role in the operation of the corporation. B)To own a low-risk, illiquid asset. C)The anticipation of capital gains. D)To receive interest payments on the firm's debt.

The anticipation of capital gains.

A natural monopoly occurs because of A)Legal restrictions preventing entry into the industry. B)Low fixed costs. C)The existence of economies of scale. D)High marginal costs.

The existence of economies of scale.

The value of future payments is affected by A)The possibility of nonpayment. B)The par value. C)The level of dividends. D)Capital gains.

The possibility of nonpayment.

Bonds may be issued by the U.S. A)Treasury. B)Immigration and Naturalization Agency. C)Federal Reserve Bank. D)Congress.

Treasury.

Entry into a market characterized by monopolistic competition is generally A)As difficult as in oligopoly. B)Entirely blocked by existing firms. C)More difficult than entry into monopolized markets. D)Very easy because few barriers exist.

Very easy because few barriers exist.

What is meant by price efficiency? A)Price is greater than average total cost. B)Price is greater than marginal cost. C)Price is equal to marginal cost. D)Price is equal to average total cost.

Price is equal to marginal cost.

In the loanable funds market, A)If interest rates rise, firms borrow more. B)The demand curve reflects the behavior of lenders. C)The supply curve reflects the behavior of borrowers. D)The price is the interest rate.

The price is the interest rate.

The owners of a corporation are A)The board of directors. B)Those people who own the bonds issued by the corporation. C)Liable for its debts. D)The shareholders of the corporation's stock.

The shareholders of the corporation's stock.

If U.S. quotas on imported sugar were eliminated, A)The world price of sugar would rise. B)The supply of sugar in the United States would shift to the right and sugar prices would fall. C)The demand for sugar in the United States would shift to the left and prices would fall. D)The supply of sugar in the United States would shift to the left and prices would rise.

The supply of sugar in the United States would shift to the right and sugar prices would fall.

Marginal cost pricing means that a firm charges A)A price that is marginally higher than the average total cost of production. B)Any price as long as average total cost is greater than marginal cost. C)A price that is marginally lower than the average total cost of production. D)A price that is equal to the marginal cost of production.

A price that is equal to the marginal cost of production.

Which of the following is similar for oligopoly and monopolistic competition? A)Both have low concentration ratios. B)Both have many firms. C)Both have market power. D)Both make independent production decisions.

Both have market power.

Monopolistically competitive firms have a "monopoly" element to them because A)There is only one seller. B)There are high barriers to entry. C)Brand loyalty gives them a captive audience. D)The cross-price elasticity is very high.

Brand loyalty gives them a captive audience.

Shares of ownership in a corporation are known as A)Corporate stock. B)Retained earnings. C)Corporate bonds. D)Savings bonds.

Corporate stock

The interest rate set for a bond at the time of issuance is the A)Coupon rate. B)Liquidity rate. C)Default rate. D)Par value.

Coupon rate

A major difference between oligopoly and monopolistic competition is that oligopolies do not A)Have many competitors. B)Have high concentration ratios. C)Confront a downward-sloping demand curve. D)Have high barriers to entry.

Have many competitors.

Increased opportunities for trade increase production by A)Improving efficiency through specialization. B)Protecting countries from competition. C)Encouraging countries to be self-sufficient. D)Shifting the production possibilities curve outward.

Improving efficiency through specialization.

Specialization in production and then trading with other countries A)Increase the standard of living for rich countries but not for poor countries. B)Mean that every citizen in every country is better off. C)Change the mix of output for rich countries but not for poor countries. D)Change the mix of output for each country and increase total world output.

Change the mix of output for each country and increase total world output.

Dividends are equal to A)Corporate profits. B)Capital gains minus retained earnings. C)Corporate profits plus retained earnings D)Corporate profits minus retained earnings.

Corporate profits minus retained earnings.

In which form of business is a single individual responsible for the repayment of any debts? A)Partnership. B)Corporation. C)Family-run business. D)Proprietorship.

Proprietorship.

The purpose of an initial public offering is to A)Change the membership of the board of directors. B)Raise funds for investment and growth by selling shares of the company to the public. C)Borrow funds for investment and growth. D)See if there is a demand for a company's new product.

Raise funds for investment and growth by selling shares of the company to the public.

Economies of scale refer to the A)Downward-sloping portion of the average total cost curve. B)Reduction in minimum average costs due to an increase in the number of workers hired. C)Downward-sloping portion of the marginal cost curve. D)Reduction in minimum average costs due to an increase in plant size.

Reduction in minimum average costs due to an increase in plant size.

Higher interest rates A)Result in a higher risk premium. B)Reflect a higher opportunity cost of money. C)Raise the present value of future payments. D)Lower the future value of current dollars.

Reflect a higher opportunity cost of money.

Which of the following is a form of government intervention? A)Regulation. B)Natural monopoly. C)Externalities. D)Public goods.

Regulation.

The function of financial intermediaries is to transfer purchasing power from A)Savers to dissavers. B)Dissavers to savers. C)Consumers to savers. D)Dissavers to consumers.

Savers to dissavers.

Financial intermediaries A)Increase search and information costs for savers and investors. B)Spread the risk of investment failure over many individuals. C)Transfer purchasing power from spenders to savers. D)Always allocate funds to the least productive investments.

Always allocate funds to the least productive investments.

Which of the following is an example of a financial intermediary? A)The S&P 500. B)The U.S. Treasury. C)The department of finance. D)Banks.

Banks.

To ensure mutually beneficial trade, the terms of trade between two countries should always A)Be set to favor the country with the least comparative advantage in a good to ensure the greatest gains from specialization. B)Allow each country to develop its area of absolute advantage. C)Be between their respective opportunity costs in production. D)Be set to favor the larger country because its output will be greater.

Be between their respective opportunity costs in production.

Which of the following is not characteristic of monopolistic competition? A)Firms have zero control over price. B)Some market power. C)Low concentration ratios. D)Many firms in an industry.

Firms have zero control over price.

Government failure occurs when A)There is market power. B)Public goods are present. C)Dealing with a natural monopoly. D)Government intervention fails to improve economic outcomes.

Government intervention fails to improve economic outcomes.

When firms have the ability to restrict output, raise prices, stifle competition, and inhibit innovation, the market failure involved is A)Externalities. B)Market power. C)Inequities. D)Public goods.

Market power.

As long as interest-earning opportunities exist, present dollars are worth A)More than previous periods' dollars. B)Less than inflation-adjusted dollars. C)Less than future dollars. D)More than future dollars.

More than future dollars.

Suppose the country of Maverick has specialized in the production of a good but has not yet entered into trade. At this point in time, Maverick has A)Shifted its production possibilities curve outward. B)Moved along its existing production possibilities curve. C)Moved to a level of production outside its production possibilities curve. D)Moved to a level of consumption outside its production possibilities curve.

Moved along its existing production possibilities curve.

From a consumer's viewpoint, which of the following policies would be least desirable? A)No trade. B)Quotas on imported goods. C)Free trade. D)Tariffs on imported goods.

No trade.

Market participants are likely to save a portion of current income if they A)Place a higher value on future consumption than on current consumption. B)Believe that banks might fail. C)Believe that money will lose much of its value in the future. In deciding to save rather than spend, people effectively reallocate their spending over time. That is, people save now in order to spend more in the future. D)Place a higher value on current consumption than on future consumption.

Place a higher value on future consumption than on current consumption.

The intersection of the demand for loanable funds and the supply of loanable funds determines the A)Real interest rate. B)Prevailing interest rate. C)Par value. D)Price ÷ earnings ratio.

Prevailing interest rate.

A natural monopoly A)Charges a lower price than a competitive firm. B)Will charge high prices if unregulated. C)Has high marginal costs. D)Has low barriers to entry.

Will charge high prices if unregulated.