Microecon - Final

What industry is typically believed to be important in times of national crisis in the United States?

Defense

In a cartel firms collude to maximize their joint profits.

True

True or False: For a Monopolist, Marginal Revenue will be less than the market Price.

True

True or False: Patents are a barrier to entry in a market.

True

(Refer to Table 1, Chap 15 in your Chiang textbook.) Most income in the United States comes from:

wages.

If a firm is operating in a perfectly competitive labor market, the ______ of labor equals the MRP of labor because _________.

VMP; MR = P

AVC (Average Variable Cost)

Variable cost / quantity

A quota is:

a government-set limit on the quantity of imports into a country.

Wealth

a measure of an individuals or family's assets, net of liabilities, at a given time

If the United States were to cut off its trade with developing nations that refuse to improve their wages or working conditions, the:

workers in developing nations would probably suffer.

When firms collude, they are looking to operate as a monopoly by:

raising price and reducing output in the market.

Suppose that the labor force participation rate increases. The labor supply curve should shift ____, and (all other things equal) the wage rate will _____.

right; decrease

The tragedy of the commons applies to goods that are:

rival and nonexcludable.

As a single seller in her area, Jasmine determined she could sell fifteen units at $12 per unit and sixteen units at $11.25 per unit. Her marginal revenue for the sixteenth unit is:

$0

Suppose a firm produces 20 units of output. At that level, ATC is 70, P = 50, MR and MC = 30. The firm is experiencing a loss of:

$400

Price Elasticity of Demand

% change in quantity demanded/change in price Elastic = >1 Inelastic = <1 Unitary = 1

Price Elasticity of Supply

% change in quantity supplied/change in price Elastic = >1 Inelastic = <1 Unitary = 1

Income Elasticity of Demand

% quantity demanded/ change in income Normal goods = >0 Luxury goods = >1 Inferior goods = <0

Profit

(Price x Quantity) - Costs

When a nation does not trade at all with other countries, it is called:

autarky

All of the following conditions are required for successful price discrimination, EXCEPT that sellers must: have some market power. be able to separate the market into different consumer groups based on their elasticities of demand. be in an industry with no barriers to entry. be able to prevent easy resale of the product (arbitrage).

be in an industry with no barriers to entry.

As the environment becomes cleaner and cleaner, the marginal:

benefit of abatement declines.

Cross-Price (good b) elasticity of Demand (good A)

change in quantity demanded (A)/ change in price (B) Complimentary = <0 Substitute = >0

Marginal Cost

change in total cost / change in quantity

Second-degree price discrimination occurs when:

consumers are charged different prices based on the quantities of goods/services in the purchase.

Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand have a price of $100. If free trade were allowed, we would expect the prices in both countries to:

converge to somewhere between $50 and $100.

Referring to the graphs, we see that the United States should export _____ to Canada and import _____ from Canada.

corn; watches

Suppose a Vietnamese shoe manufacturer were selling shoes to the European Union for $10 a pair, while selling those same shoes for $15 a pair in Vietnam. If the cost per pair of shoes is $12, the European Union:

could charge the Vietnamese shoe manufacturer with dumping.

If the income distribution becomes more equitable, the Gini coefficient __________.

declines

As the income distribution becomes more equal, the Gini coefficient:

decreases.

Import restrictions on a product protect domestic industries by:

decreasing the imports of the good, and raising the price.

If a tariff on steel is imposed by the U.S. government:

employment opportunities in the U.S. construction industry could fall.

The demand curve facing a monopoly firm is:

equivalent to the market demand curve.

According to international trade theory:

every country has a comparative advantage in something.

Which of the following will contribute to a cartel's stability?

few members with similar goals

Total costs

fixed + variable costs

AFC (Average Fixed Cost)

fixed cost / quantity

Explicit costs

fixed costs + variable costs

Income

flow of measure reflecting the funds received by individuals or business over a specific period

U.S. poverty thresholds are based on the affordability of:

food.

Public goods often face the:

free rider problem.

The distribution of income for resources or factors of production is referred to as the:

functional distribution of income.

The personal distribution of income measures how much income

goes to specific segments of the population

Governments prefer tariffs over quotas because:

governments don't collect revenue with a quota.

Gary Becker's theory of economic discrimination explains how firms that discriminate will:

have higher labor costs.

Compared with competitive markets, monopolies charge ______ prices and produce a ______ output.

higher; lower

Tariffs and quotas lead to ______ prices of imported goods and ______ levels of imports.

increased; decreased

Environmental protection is an income-elastic good. This means that as income ______, demand for environmental protection ______.

increases; increases

If a market exchange imposes costs on a party not involved in the transactions, the cost is called

negative externality.

Public goods are

nonexcludable and nonrival.

Common property resources are:

nonexcludable and rival.

A news website that can be accessed by many paid subscribers simultaneously is MOST likely:

nonrival and excludable

Externalities are the impacts

on third parties

In the grim trigger strategy, the actions of opponents are met with:

permanent retaliatory force.

A country has an absolute advantage in the production of a good if it can:

produce more of the good than can another country.

The "maximin principle" as proposed by John Rawls:

proposes that society should maximize the welfare of the least well-off individual.

(Refer to Table 1, Chap 15 in your Chiang textbook.) In recent years, the share of national income attributed to rent has _____________, and corporate profits have ______________.

risen; risen

Generally speaking, when a tariff is imposed on a good, domestic output of the good _______ and government revenue _____________.

rises; increases

A strategy in which a firm takes the same action that the other firm did in the last period is a:

tit-for-tat strategy.

ATC (Average Total Cost)

total cost / quantity

Repeated games tend to lead to _____ strategies.

trigger

A(n) _____________ on imports is a fixed amount per unit of the product assessed by the government at the border.

unit tax

If all income is earned by one household, the Gini coefficient is:

0

Which Gini coefficient represents the highest level of income inequality?

1.20

4 elasticizes

1: Price Elasticity of Demand 2: Price Elasticity of Supply 3: Income Elasticity of Demand 4: Cross-Price elasticity of Demand

Use the following information to answer the question below. Quantity Demanded Price 1 $10 2 $8 3 $7 4 $5 5 $3 6 $2 Suppose a monopolist faces the demand relationship shown in the table. If marginal cost is $6, then the profit-maximizing output is:

2

Suppose a water utility company charges a residential customer $1.50 per 1,000 gallons for the first 30,000 gallons of water used, and $1.00 per 1,000 gallons for any amounts used in excess of 30,000 gallons of water. The water utility is practicing:

2nd-degree price discrimination.

Use the following table to answer the question. Labor Output (daily) 0 0 1 7 2 19 3 34 4 47 5 57 The amount of labor and corresponding output are provided in the table. The price per unit of output is $11.50. The wage paid per day is $115. To maximize economic profit, how many people should the firm hire?

5

If the United States begins importing motorcycles from Tanzania, where workers are paid just 50 cents a day, which group is likely to be hurt the most?

American motorcycle workers

Income effect

As income increases, so does the quality and value of the lifestyle and goods consumed as a consumer. However, it reaches a point were less hours are worked to enjoy time off.

Which of the following regulatory schemes for a natural monopoly results in a normal profit for the firm?

Average cost pricing rule

Jagdish Bhagwati says that "...in economic terms, growth [is] an instrument—not a target." (pg 405 in your Chiang text). What does he mean by this? Do you agree?

Bhagwati is saying that economic growth is merely a means to eliminating poverty. It's not an economic end to itself.

In Canada, the average worker can produce 10 computers or six cars a year. In the United States, the average worker can produce 12 computers or 10 cars a year. Thus:

Canada has a comparative advantage in the production of computers.

Monopoly

One firm owns market power Higher barriers to entry Price makers

If Dixie's Dry Cleaners competes in a monopolistically competitive market, and if the firm is earning a normal profit, then:

P = ATC.

Labor market

Companies are buyers Employees & everyone else are sellers

Substitution Effect

Consumer behavior based on changes in income Normally shifting negatively, like consumers shopping for lesser valued items

Which of the following statements is NOT an argument against free trade?

Consumers need to be protected against comparative advantage.

Which of the following is a characteristic of a monopoly firm?

Correct Barriers to entry

If Larry is given a $2-per-hour pay increase, and in response he decides to work less overtime, then:

Correct for Larry, the income effect is dominating the substitution effect.

International trade produces only "winners."

False

True or False: ALL monopolies experience "super-normal" economic profits.

False

True or False: The U.S. government never allows monopolies in the U.S.

False

In a country with one export and one import, how would the terms of trade be defined?

Pexport / Pimport

PPF

Production Possibilities Frontier

Which of the following characteristics does monopolistic competition NOT have in common with the model of perfect competition?

Products of individual firms are different.

The "poverty rate" in the U.S. is determined largely on the basis of the cost of food. Why is that the measure? Do you believe it's the best measure of poverty?

Food is a basic need for humans in general. Food is a good that is consumed daily, and needs to be in order to sustain life. A common expense between the poorest and richest is food consumption. Though the money spent on food can vary greatly between different classes of wealth, they are still buying food. In terms of determining whether the cost of food is a good measure for the basis of poverty, my answer is "it depends." In the food market we are seeing a gap created for the quality of food bought by the affluent vs. the poor. Such examples are buying organic vs. regular vegetables, dining at higher quality restaurants vs. fast food, and eating fresher food vs. cheaper/processed foods. Since the food industry has created more artificially made goods to cut costs while increasing productivity, we have seen a rise in unhealthiness among poor dieters, which has caused a shift or desire in the market to eat healthier. It is becoming common knowledge that generally the cheaper the food, the less healthy it is. Throughout the past 15-20 years, we have seen a shift in how the diet of the impoverished in the US has effected their physique. The higher populations struggling with weight problems, like obesity, are found in lower income parts of the US. Overall, food could be an effective tool to measure poverty because it is one that is relatively inelastic in demand, and will continue to be a need among humans worldwide.

When the income distribution for the United States is adjusted for taxes and transfers, the:

Gini coefficient declines.

A monopolist has four distinct groups of customers. Group A has an elasticity of demand of 0.2, B has an elasticity of demand of 0.8, C has an elasticity of demand of 1.0, and D has an elasticity of demand of 2.0. The group paying the highest price for the product will be:

Group A.

Economic costs

Implicit costs + explicit costs

In Chapter 10 of your Harford book, he explains how China grew rich. Summarize his arguments. (Be thorough.) Do you agree?

In Harford's explanation, China was able to grow rich through incentives, investments, increased domestic and foreign competition, elimination of scarcity power, and a prominent standing in the world market. By becoming competitive in the world market, China has positioned itself as being one of the fastest growing economies in the world. Much of this change was experienced through moving closer towards a free market in the Chinese culture.

In Chapter 8 of your Harford book, he explains why poor countries are poor. Summarize his arguments. (Be thorough.) Do you agree?

In chapter 8, Harford uses Cameroon as a primary example for his explanation on why poor countries are poor. In the process, Harford rejects man explanations of poverty in the third world and shows that corrupt governments are the general cause of all such ongoing economically failing countries. Another major flaw pointed out was how the work that expert aid agencies enact may be causing more harm than good. An example is when they try to create infrastructure within a country that is chronically poor, it does not do much good. Nepal was an example used. I agree that forcing, or heavily influencing the use of a new infrastructure is not the correct path towards making a country rich. We have also seen how excessive aid can cause more harm than good for a country's economy, for example, the harm caused by Toms shoes or Clinton subsidizing rice seen in Poverty Inc.

Describe what that chart shows about poverty rates amongst various ethnic/racial groups in the U.S. Be specific in your assessment. Given what your text says are the root causes of poverty, explain what factors underlie the differences in poverty rates amongst the ethnic/racial groups.

In the US, many found in poverty are also in an ethnic/racial group. There are numerous factors that play into these statistics and cycles that are seen over a long period of time. Many of the factors that keep people in poverty include their culture, lack of education, single parent homes, parents without education, and lack of motivation/ignorance of how to escape poverty. Those are few examples of the long list of factors. In the Asian community, there are generally less in poverty compared to African-Americans and Hispanics. This is because statistically they are more educated (culture values education), and many find higher paying jobs because of their elevated education. In the African-American population within the U.S, many have been affected by government incentives, for example, welfare and food stamps. There are many people in the US from different ethnicities on welfare and food stamps, but it does not compare to the black community. Overall, there are many many factors that flow into trends and cycles that are seen within people groups and various demographics.

_______________ is a flow measure reflecting the funds received by individuals or households over a period of time.

Income

The Coase theorem claims that, in the case of tobacco:

It doesn't matter who is given the property rights to the air, as long as the parties involved are allowed to bargain.

Which of the following individuals won a Nobel Prize for his work on game theory?

John Nash

Which of the following items is NOT an example of a negative externality?

Landscaping

According to Coase, which of the following is NOT necessary to achieve a socially optimal level of pollution?

Low production costs

The optimal amount of a public good is determined where:

MC = P.

If the monopolist charges the same price to each customer, to sell an additional unit of output requires that the price be lowered on each unit sold. For the monopolist, this leads to:

MR < P

In which of the following market structures is there a potential for long-run economic profit? Perfect competition Monopoly Monopolistic competition Oligopoly

Monopoly Oligopoly

A constantly declining long-run average cost curve is a characteristic of what type of industrial structure?

Natural monopoly

_____________ is where the consumption of a good or service by one person does not reduce the utility of that good or service to others.

Nonrivalry

_____ is behavior where resources are expended to protect a monopoly position

Rent Seeking

Individual supply curve

Sideways bell curve that represents the substitution effect & income effect

Monopsony

Single buyer in industry

According to your Chiang textbook, which of the following factors is NOT a cause of income inequality in the United States?

Social Security tax

______________ rank(s) households of various income levels on the horizontal axis, relating this to their accumulated share of total income on the vertical axis.

The Lorenz curve

Which of the following characteristics is NOT typical of a monopoly? There is only one seller. There are significant barriers to entry. There is a no demand for the product. There are no close substitutes for the product.

There is a no demand for the product.

One way to achieve product differentiation is through:

These are all ways to achieve product differentiation.

Mary can clean 20 windows per hour or type 30 pages per hour. Tom can clean 18 windows per hour or he can type 25 pages per hour. Based on this:

Tom has a comparative advantage in cleaning windows.

According to international trade theory, when nations specialize and trade based on their comparative advantage, which of the following is true?

Total production and consumption in the world increase.

Use the following information to answer the question below. Quantity Demanded Price 1 $10 2 $8 3 $7 4 $5 5 $3 6 $2 Suppose a monopolist faces the demand relationship shown in the table. If the firm is currently selling 2 units per day and wants to sell 3 units, what is the effect on total revenue?

Total revenue rises by $5

If Mexico can produce 50 airplanes and 50,000 shirts in one year, while the U.S. can produce 5 airplanes and 15,000 shirts, which of the following is true?

Trade is mutually beneficial because Mexico has a comparative advantage in producing airplanes, and the United States has a comparative advantage in producing shirts.

Price caps can drive monopolies into bankruptcy if a large part of the regulated firm's output is purchased on the open market.

True

True or False: Natural monopolies exist in industries where the amount of demand in the market allows only one industry to gain enough economies of scale to operate profitably.

True

When countries trade with one another in a particular industry, there may be losses in jobs and plant closures in the country where the industry is not as competitive.

True

The United States and Japan both produce computer chips. Suppose the United States has a comparative advantage over the Japanese in the production of this good. If the two countries trade computer chips, which two groups are likely to support trade restrictions?

U.S. producers and Japanese consumers of computer chips

______________ is a stock measure of an individual's or household's assets, net of liabilities, at a given point in time.

Wealth

The trembling hand trigger game:

allows an opponent to make a mistake before employing the grim trigger game.

Alexander Hamilton argued for strong controls on imports to protect early American industries from competition from more established English industries. This is an example of the ______ argument for trade restriction.

infant industry

The HHI of a pure monopoly:

is equal to 10,000.

The Prisoner's Dilemma has all of the following characteristics, EXCEPT: it is a noncooperative game. there is no communication between players. there will be inferior results for both players. it has a cooperative structure.

it has a cooperative structure.

Factors of Production

land Labor Capital entrepreneurial ability

Suppose that wages in the automobile industry increase. The labor supply curve for other (non-auto) types of manufacturing jobs should shift ____, and the wage rate will _____.

left; increase

Hunter says that increasing taxes on the wealthy and expanding public education and Medicaid will help eliminate poverty. Craig says that welfare reduces incentives and increasing taxes will reduce growth and thereby increase poverty. Hunter would probably belong to the political ______ and Craig would probably belong to the political ______.

left; right

In a two-country model, consumers in the exporting country will be _____ and producers in the exporting country will be _____ with the opening of free trade.

less happy; happy

If a monopoly firm sells more than one unit, then marginal revenue will be

less than the price.

If a professional baseball player had recently retired from the sport and had accumulated assets of $15 million, but is currently teaching part time at a local high school for $15,000 a year, then he has:

low income and high wealth.

A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the:

marginal revenue product of labor

Sales are down this month at Dusty's Smoke House. It operates in a perfectly competitive environment with fixed costs of $3,000, variable costs of $500, and sales revenue is equal to $5,000. A new government regulation requires that it install a new dust collector. This requires a monthly cost of $2,000 to maintain. Dusty should:

shut down.

A tax on imports is called a(n):

tariff.

The difference between a tariff and a quota is that:

tariffs collect tax money, but quotas do not.

(Refer to Table 2, Chap 15 in your Chiang textbook.) Since 1970, which income quintiles have seen their share of U.S. national income fall?

the lowest four quintiles