Microecon test 2

What percentage of the federal government budget does foreign aid constitute? A. 0-2% B. 2-7% C. 7-15% D. 15-25% E. 25-40%

A ( 0-2%)

The rise of the Internet and file sharing has turned media such as movies and music into public goods. How? A. It has made those goods nonexcludable. B. It has made those goods nonrival. C. It has made those goods excludable. D. It has made those goods rival.

A ( It has made those goods nonexcludable.)

In the highly competitive TV manufacturing industry, a new innovation makes it possible to cut the average cost of a 50-inch plasma screen from $1,000 to $400. Most TV manufacturers quickly adopt this new innovation, earning massive short-run profits. In the long-run, what will the price of a 50-inch plasma TV be? A. $400 B. $1,000 C. Between $400 and $1,000 D. Over $1,000

A ($400)

Characterize each of the following items as excludable or nonexcludable. I. apples II. open heart surgery A. Both I and II are excludable. B. I is excludable, II is nonexcludable. C. I is nonexcludable, II is excludable. D. Both I and II are nonexcludable.

A (Both I and II are excludable.)

Characterize each of the following items as excludable or nonexcludable. I. farm-raised salmon II. Yosemite National Park A. Both I and II are excludable. B. I is excludable, II is nonexcludable. C. I is nonexcludable, II is excludable. D. Both I and II are nonexcludable.

A (Both I and II are excludable.)

Characterize each of the following items rival or nonrival. I. Apples II. Open-heart surgery A. Both I and II are rival. B. I is rival, II is nonrival. C. I is nonrival, II is rival. D. Both I and II are nonrival.

A (Both I and II are rival.)

Assess the validity of the following statements. I. Price discrimination is more likely to occur in monopoly-type markets than in competitive markets. II. A monopoly will create more output when it's allowed to perfectly price discriminate compared to when the government bans price discrimination. A. Both I and II are true. B. Only I is true. C. Only II is true. D. Neither I nor II is true.

A (Both I and II are true.)

Usually, we think of cheating as a bad thing. But in this chapter, cheating turns out to be a very good thing in some important cases. Who gets the benefit when a cartel collapses through cheating: consumers or producers? In other words, does cheating increase consumer surplus, producer surplus, or both? A. Consumer surplus. B. Producer surplus. C. Both consumer and producer surplus. D. Neither consumer nor producers benefit.

A (Consumer surplus.)

Is education—a college course, for instance—excludable? Is it rivalrous? If your class has more students, do you get a worse education, on average? A. Education is excludable and rival. B. Education is excludable and nonrival. C. Education is nonexcludable and rival. D. Education is nonexcludable and nonrival.

A (Education is excludable and rival.)

In Figure 11.6, you saw what happens in the long run when demand rises in a constant-cost industry. Let's see what happens when demand falls in such an industry: For instance, think about the market for gasoline or pizza in a small city after the city's biggest textile mill shuts down. The figure below shows this type of fall in demand and the resulting shift from the initial long-run equilibrium to a short-run equilibrium and finally a second long-run equilibrium. Will the long-run response mostly involve firms leaving the industry, or will it mostly involve individual firms shrinking? A. Firms will leave the industry and remaining firms will be the same size. B. Firms will shrink and the number of firms in the industry will remain the same. C. Firms will leave the industry and remaining firms will also shrink. D. Firms will leave the industry and remaining firms will grow larger.

A (Firms will leave the industry and remaining firms will be the same size.)

The mantra of Amazon.com CEO Jeff Bezos is ?Get big fast.? As we saw in our monopoly chapter, one reason to ?get big fast? is because in some industries the firm?s average cost will plummet as the firm expands?so size helps on the supply side. In this chapter, network effects illustrated how size helps on the demand side. With this in mind, explain the following real world drives to get big fast: Do you think it?s mostly about increasing returns or mostly about network effects? I. Adobe Acrobat Reader is free, but the software to create sophisticated Adobe documents is not. II. Match.com, the online dating site, lets people post profiles, look at other people?s profiles, and even get mail from other members for free. To send an email to a member, you have to pay. A. I and II are both network effects. B. I is network effects and II is increasing returns. C. I is increasing returns and II is network effect. D. I and II are both increasing returns to scale.

A (I and II are both network effects.)

In the competitive electrical motor industry, the workers at Galt Inc. threaten to go on strike. To avoid the strike, Galt Inc. agrees to pay its workers more. At all other factories, the wage remains the same. What does this do to the marginal cost curve at Galt Inc.? A. It makes the marginal cost curve shift upward. B. It makes the marginal cost curve shift downward. C. It does not change the marginal cost curve. D. It makes the marginal cost curve get flatter.

A (It makes the marginal cost curve shift upward.)

The average person doesn?t like working the night shift. According to the theory of compensating differentials, how would pay for night shift workers differ from that of day shift workers? A. Night shift workers would be paid more. B. Night shift workers would be paid less. C. Night shift workers would be paid the same amount as day shift workers. D. This cannot be determined without more information.

A (Night shift workers would be paid more.)

If consumers are easily able to resell goods in a market, then: A. Price discrimination may not be possible B. Firms can practice third degree price discrimination, but not first degree price discrimination C. Firms can more easily practice price discrimination D. There is no impact on price discrimination, as it is illegal

A (Price discrimination may not be possible)

It is commonly said that women earn 80 cents for every dollar that a man earns, even when doing the same job. Let's assume this is literally true in order to see how an entrepreneur would respond to this fact. Netrovia, a battery manufacturer, has an all-male workforce. It pays $10 million per year in salary to these men, and has annual profits of $1 million. You've just been hired as an outside consultant to help Netrovia raise its profits. Your advice is to fire all the men and replace them with women. If Netrovia followed your advice, what would Netrovia's salary costs fall to? How much would this decision raise Netrovia's profits? A. Salary costs fall to $8 million and profits rise by $2 million. B. Salary costs fall to $8 million and profits rise by $3 million. C. Salary costs fall to $2 million and profits rise by $8 million. D. Salary costs fall to $2 million and profits rise by $9 million.

A (Salary costs fall to $8 million and profits rise by $2 million.)

Suppose Sam sells apples in a competitive market. The apples are picked from his apple tree. Assume all apples are equal in quality, but grow at different heights on the tree. Sam, being fearful of heights, demands greater compensation the higher he goes: so for him, the cost of grabbing an apple rises with the height he must climb. The market price of an apple is $0.50. What is Sam's marginal revenue for selling apples? A. Sam's marginal revenue is $0.50 for each apple. B. Sam's marginal revenue increases with quantity. C. Sam's marginal revenue decreases with quantity. D. Sam's marginal revenue cannot be determined without more information.

A (Sam's marginal revenue is $0.50 for each apple.)

A physical DVD disc is a rival good, while a streaming video that can be used by multiple paying users is non-rival. A. True B. False

A (True)

Just based on self-interest, who is more likely to support strong patents on pharmaceuticals: young people or old people? Why? A. Young people, because they have a longer time horizon to enjoy the benefits of newly invented drugs. B. Young people, because they have higher salaries and can better afford patented drugs. C. Old people, because they?re more likely to be in poor health and will use patented drugs. D. Old people, because they?re more likely to vote for stronger legislation supporting patents.

A (Young people, because they have a longer time horizon to enjoy the benefits of newly invented drugs.)

Monopolistically competitive industries: A. are characterized by a greater than economically efficient number of firms with each firm producing an output level that is below the cost-minimizing level B. always lead to overproduction C. achieve productive efficiency but not allocative efficiency D. achieve allocative efficiency but not productive efficiency E. have no advantages over perfectly competitive industries

A (are characterized by a greater than economically efficient number of firms with each firm producing an output level that is below the cost-minimizing level)

Labor unions: A. generally increase wages for their members, leading to lower wages for non-members B. increase wages for all workers in an economy C. are only important in blue collar jobs like construction D. work to increase labor supply in their industry

A (generally increase wages for their members, leading to lower wages for non-members)

In 2006, Medicare Part D was created to subsidize spending on prescription drugs. One would expect this expansion to ________ pharmaceutical prices, because ____________. A. increase; fewer prescription expenses will be paid by those who consume the drugs B. increase; the demand for pharmaceuticals will become more elastic C. decrease; fewer prescription expenses will be paid by those who consume the drugs D. decrease; the demand for pharmaceuticals will become more elastic

A (increase; fewer prescription expenses will be paid by those who consume the drugs)

A pharmaceutical company selling a new powerful antibiotic is ____ likely to charge a bigger markup than a firm selling a new powerful cure for dandruff because __________________. A. more; the demand for a dandruff cure is more elastic than the demand for a powerful antibiotic B. more; the demand for a dandruff cure is less elastic than the demand for a powerful antibiotic C. less; the demand for a dandruff cure is more elastic than the demand for a powerful antibiotic D. less; the demand for a dandruff cure is less elastic than the demand for a powerful antibiotic

A (more; the demand for a dandruff cure is more elastic than the demand for a powerful antibiotic)

A doctor visit is a: A. private good B. club good C. common resource D. public good

A (private good)

Cartels are most likely to be successful when: A. they are supported by the government B. they are in a manufacturing industry, compared to natural resources C. the firms in the cartel are of different sizes and have different cost structures D. there are lots of firms in the industry

A (they are supported by the government)

The average daily demand for dinners at Paradise Grille, an upscale casual restaurant, is as follows: Demand for dinners by senior citizens: P = 50 - 0.5Q; MR = 50 - Q Demand for dinners by regular diners: P = 100 - Q; MR = 100 - 2Q Marginal cost = 10 in both cases Ignoring fixed costs, how much profit would Paradise Grille make if it could price discriminate? A. $3,675 B. $2,825 C. $2,025 D. $850

B ($2,825)

Let's look at the market for one kind of apple: the Gala. Assume that there are 300 producers of Gala apples and that MC = AC = $0.40 per pound. In a competitive market, price will be driven down to marginal cost. Let's assume that when P = MC, each apple grower produces 2 million pounds of apples for a total market production of 600 million pounds. Now imagine that the apple growers form a cartel and each agrees to cut production to 1 million pounds, which drives the price up to $0.70 per pound. If a single apple grower broke from the cartel and produced an extra million pounds of apples, how much additional profit (approximately) would this apple grower make? A. $0 B. $300,000 C. $400,000 D. $700,000

B ($300,000)

Since the demand for labor is like the demand for any other good, how might the following factors shift the demand for janitors at McDonald's? I. A new junior high school opens up across the street from McDonald's. II. Customers suddenly become much more concerned about clean restaurants and they'll walk out if there's dirt on the floor. III. As robots like the Roomba vacuum cleaner become cheaper, McDonald's buys some robots to do half the janitors' work. A. I and III would increase demand and II would decrease demand. B. I and II would increase demand and III would decrease demand. C. III would increase demand and I and II would decrease demand. D. II would increase demand and I and III would decrease demand.

B (I and II would increase demand and III would decrease demand.)

Characterize each of the following items rival or nonrival. I. Farm-raised salmon II. Yosemite National Park A. Both I and II are rival. B. I is rival, II is nonrival. C. I is nonrival, II is rival. D. Both I and II are nonrival.

B (I is rival, II is nonrival.)

As you read in the chapter, the requirements for an industry to be considered monopolistically competitive are that there are many firms and that those firms are producing unique, or differentiated, products. One industry in which we find differentiated products is the recording industry. Not only are there many genres of music (iTunes lists almost 50), but within each genre there are countless artists as well. Over the past few decades, technology has reduced the fixed costs of recording and the marginal costs of distributing music. In 1979, for example, the average studio bill for an album was more than $30,000 ($170,000 in today's dollars). Nowadays, with digital recording technology, an artist or band can record an entire album for a few thousand dollars and the albums can then be distributed at low cost as MP3s on the Internet, with no record store involved What do you expect to happen to the number of recording artists in the music industry because of the evolution of much cheaper recording technology? A. It will stay the same. B. It will go up. C. It will go down. D. It is impossible to know with the given information.

B (It will go up.)

When a sports team hires an expensive new player or builds a new stadium, you often hear claims that ticket prices have to rise to cover the new, higher cost. Let's see what monopoly theory says about that. It's safe to treat these new expenses as fixed costs: Something that doesn't change if the number of customers rises or falls. Treat the local sports team as a monopoly in this question, and to keep it simple, let's assume there's only one ticket price. As long as the sports team is profitable, what affect will a rise in fixed costs have on the equilibrium ticket price? A. It will raise the ticket price. B. It will not affect the ticket price. C. It will lower the ticket price. D. There is not enough information to answer this problem.

B (It will not affect the ticket price.)

When is a pharmaceutical company more likely to spend $100 million to research a new drug: when it knows it will be able to charge different prices in different countries or when it knows that it will be required to charge the same price in different countries? Why? A. It will spend that much research money when it knows it will be able to charge different prices in different countries, because this would lead to lower profits. B. It will spend that much research money when it knows it will be able to charge different prices in different countries, because this would lead to higher profits. C. It will spend that much research money when it knows that it will be required to charge the same price in different countries, because this would lead to lower profits. D. It will spend that much research money when it knows that it will be required to charge the same price in different countries, because this would lead to higher profits.

B (It will spend that much research money when it knows it will be able to charge different prices in different countries, because this would lead to higher profits.)

Rapido, the shoe company, is so popular that it has monopoly power. It's selling 20 million shoes per year, and it's highly profitable. The marginal cost of making extra shoes is quite low, and it doesn't change much if they produce more shoes. Rapido's marketing experts tell the CEO of Rapido that if it decreased prices by 20 percent, it would sell so many more shoes that profits would rise. If the expert is correct, at its current output, what can you infer about its marginal revenue and marginal cost? A. MC > MR B. MC < MR C. MC = MR D. There is not enough information given to answer this question.

B (MC < MR)

Suppose Sam sells apples in a competitive market. The apples are picked from his apple tree. Assume all apples are equal in quality, but grow at different heights on the tree. Sam, being fearful of heights, demands greater compensation the higher he goes: so for him, the cost of grabbing an apple rises with the height he must climb. What does this suggest about the marginal cost of apples? A. This tells us nothing about marginal cost. B. Marginal cost is increasing. C. Marginal cost remains the same. D. Marginal cost is decreasing.

B (Marginal cost is increasing.)

In 2005, American studios released 563 movies and American publishers produced 176,000 new books. How does the fixed cost of producing movies and books explain such a wide difference? Which is riskier: publishing a book or producing a movie? A. Movies have higher fixed costs and are therefore less risky than books. B. Movies have higher fixed costs and are therefore more risky than books. C. Books have higher fixed costs and are therefore less risky than movies. D. Books have higher fixed costs and are therefore more risky than movies.

B (Movies have higher fixed costs and are therefore more risky than books.)

Most companies do their high-skilled work during the day: The big meetings, the major deliveries, and the crucial repair work gets done during the day. As a result, firms prefer to hire workers with more human capital during the day, and they prefer to hire less-skilled workers at night. According to the theory of human capital, how would pay for night-shift workers differ from that of day-shift workers? A. Night-shift workers would be paid more. B. Night-shift workers would be paid less. C. Night-shift workers would be paid the same amount as day-shift workers. D. This cannot be determined without more information.

B (Night-shift workers would be paid less.)

In the competitive electrical motor industry, the workers at Galt Inc. threaten to go on strike. To avoid the strike, Galt Inc. agrees to pay its workers more. At all other factories, the wage remains the same. Surely, more workers will want to work at Galt Inc. now that it pays higher wages. Will more workers actually work at Galt Inc. after the labor agreement is struck? Why or why not? A. Yes. More workers will work at Galt because there will be a greater quantity of workers supplied with the higher wages. B. No. Fewer workers will work at Galt because the higher marginal cost after the labor deal means Galt will be making fewer motors. C. Yes. More workers will work at Galt because the higher marginal cost after the labor deal means Galt will be making more motors. D. No. The number of workers at Galt will remain the same after the labor deal is in place.

B (No. Fewer workers will work at Galt because the higher marginal cost after the labor deal means Galt will be making fewer motors.)

In Figure 11.6, you saw what happens in the long run when demand rises in a constant-cost industry. Let's see what happens when demand falls in such an industry: For instance, think about the market for gasoline or pizza in a small city after the city's biggest textile mill shuts down. The figure below shows this type of fall in demand and the resulting shift from the initial long-run equilibrium to a short-run equilibrium and finally a second long-run equilibrium. When is P > AC? When is P < AC? When does P = AC? A. P = AC in both long-run equilibria and P > AC in the short-run equilibrium. B. P = AC in both long-run equilibria and P < AC in the short-run equilibrium. C. P > AC in both long-run equilibria and P = AC in the short-run equilibrium. D. P > AC in both long-run equilibria and P < AC in the short-run equilibrium.

B (P = AC in both long-run equilibria and P < AC in the short-run equilibrium, see Ch 11 hw for graph)

Let's look at the market for one kind of apple: the Gala. Assume that there are 300 producers of Gala apples and that MC = AC = $0.40 per pound. In a competitive market, price will be driven down to marginal cost. Let's assume that when P = MC, each apple grower produces 2 million pounds of apples for a total market production of 600 million pounds. Now imagine that the apple growers form a cartel and each agrees to cut production to 1 million pounds, which drives the price up to $0.70 per pound. Calculate profit per pound and total industry profit if the apple growers behave as if they were a monopoly, producing 300 million pounds and selling at a price of $0.70 per pound. A. Profit per pound is $0 and industry profit is $0. B. Profit per pound is $0.30 and industry profit is $90 million. C. Profit per pound is $0.30 and industry profit is $180 million. D. Profit per pound is $0.40 and industry profit is $120 million.

B (Profit per pound is $0.30 and industry profit is $90 million.)

In Figure 11.6, you saw what happens in the long run when demand rises in a constant-cost industry. Let's see what happens when demand falls in such an industry: For instance, think about the market for gasoline or pizza in a small city after the city's biggest textile mill shuts down. The figure below shows this type of fall in demand and the resulting shift from the initial long-run equilibrium to a short-run equilibrium and finally a second long-run equilibrium. When are profits positive? Negative? Zero? A. Profits are equal to zero in both long-run equilibria and profits are positive in the short-run equilibrium. B. Profits are equal to zero in both long-run equilibria and profits are negative in the short-run equilibrium. C. Profits are positive in both long-run equilibria and profits are equal to zero in the short-run equilibrium. D. Profits are positive in both long-run equilibria and profits are negative in the short-run equilibrium.

B (Profits are equal to zero in both long-run equilibria and profits are negative in the short-run equilibrium. ch 11 hw for graph)

Suppose Sam sells apples in a competitive market. The apples are picked from his apple tree. Assume all apples are equal in quality, but grow at different heights on the tree. Sam, being fearful of heights, demands greater compensation the higher he goes: so for him, the cost of grabbing an apple rises with the height he must climb, as shown in the Total Cost column below. The market price of an apple is $0.50. Which apples does Sam pick first? A. Sam picks the apples on high branches first. B. Sam picks the apples on low branches first. C. Sam doesn't care which branches he picks the apples from first. D. Sam would never pick any apples at this price.

B (Sam picks the apples on low branches first.)

In 1983, Congress passed the Orphan Drug Act, which gave firms that developed pharmaceuticals to treat rare diseases (diseases with U.S. patient populations of 200,000 people or fewer) the exclusive rights to sell their pharmaceutical for seven years, basically an extended patent life. In other words, the act gave greater market power to pharmaceutical firms who developed drugs for rare diseases. Perhaps surprisingly, a patient organization, the National Organization for Rare Disorders (NORD), lobbied for the act. Why would a patient group lobby for an act that would increase the price of pharmaceuticals to its members? A. The act would decrease the number of new drugs. B. The act would increase the number of new drugs. C. The act would have no effect on the number of new drugs. D. The act would help many suffering from rare diseases obtain existing drug treatments.

B (The act would increase the number of new drugs.)

The competitive children's pajama industry is in long run equilibrium when a new government safety regulation raises the average cost of children's pajamas by $2 per pair. If this is an increasing cost industry, then what happens to the price of children's pajamas in the long run? A. The price remains the same. B. The price increases by less than $2. C. The price increases by exactly $2. D. The price increases by more than $2.

B (The price increases by less than $2.)

In the competitive electrical motor industry, the workers at Galt Inc. threaten to go on strike. To avoid the strike, Galt Inc. agrees to pay its workers more. At all other factories, the wage remains the same. In this competitive market, what will the Galt Inc. labor agreement do to the market price of motors? A. The price of motors will rise. B. The price of motors will remain the same. C. The price of motors will fall. D. This cannot be determined without more information.

B (The price of motors will remain the same.)

Perhaps it was in elementary school that you first realized that if everyone in the world gave you a penny, you'd become fantastically rich. This insight is at the core of modern politics. Sort the following government policies into concentrated benefits and diffuse benefits. a. Social Security b. Tax cuts for families c. Social Security disability insurance for the severely disabled d. National Park Service spending for remote trails e. National Park Service spending on the National Mall in Washington, D.C. f. Tax cuts for people making over $250,000 per year g. Sugar quotas A. all of these are examples of diffuse benefits. B. a, b, and e are examples of diffuse benefits, while c, d, f, and g represent concentrated benefits. C. c, d, f, and g are examples of diffuse benefits, while a, b, and e represent concentrated benefits. D. All of these are examples of concentrated benefits.

B (a, b, and e are examples of diffuse benefits, while c, d, f, and g represent concentrated benefits.)

A non-crowded swimming pool is a: A. private good B. club good C. common resource D. public good

B (club good)

Most famines are primarily the result of unexpectedly low food production: A. true B. false

B (false)

When the Pilgrims landed at Plymouth Rock, they established a system of collective farming in which all corn production was shared and this resulted in A. an incentive for each farmer to produce as much corn as possible. B. free riders. C. diseconomies of scale. D. economies of scale.

B (free riders.)

Economist Peter Kostiuk, in a 1990 article in the Journal of Political Economy, wanted to see whether the theory of compensating differentials was true for U.S. workers. He had information on the wages, education backgrounds, and work experience of U.S. workers, and he knew whether they worked the day shift or the night shift. On average, those who worked the night shift actually earned about 4 percent less than workers on the day shift. Is this probably because of compensating differentials or is it probably because of human capital differences? A. compensating differentials B. human capital C. Both A and B are correct. D. Any of the above is possible.

B (human capital)

In Figure 11.6, you saw what happens in the long run when demand rises in a constant-cost industry. Let's see what happens when demand falls in such an industry: For instance, think about the market for gasoline or pizza in a small city after the city's biggest textile mill shuts down. The figure below shows this type of fall in demand. When firms cut prices, they often do so in dramatic ways. When will the local pizza shops offer "Buy one, get one free" offers? During which stage will the local gas station be more likely to offer a "Free car wash with fill-up"? A. in the long run, before demand falls B. in the short run, after demand falls C. in the long run, after demand falls D. All of the above are correct.

B (in the short run, after demand falls, see Ch. 11 hw for graph)

A producer of new trendy shoes is ____ likely to charge a bigger markup than someone selling ordinary tennis shoes because __________________. A. more; the demand for trendy shoes is more elastic than the demand for ordinary shoes B. more; there are fewer substitutes for trendy shoes than for ordinary shoes C. less; the demand for trendy shoes is more elastic than the demand for ordinary shoes D. less; there are fewer substitutes for trendy shoes than for ordinary shoes

B (more; there are fewer substitutes for trendy shoes than for ordinary shoes)

If markets are not competitive: A. prices will still send the correct signal in a free market. B. the invisible hand does not work perfectly. C. there will be an ideal balance between industries. D. there will be significant externalities.

B (the invisible hand does not work perfectly.)

Construction jobs in New Chongqing pay $20 per hour. The job isn't that safe: a lot of sharp objects, a lot of ways to fall off a building. The city council of New Chongqing decides to set some job safety regulations for the construction industry. Let's assume that the government enforces these new regulations effectively and fairly, so that half as many workers get hurt on the job. Let's also assume that the city council makes the taxpayers pay the cost of making these jobs safer, so there's no noticeable shift in the labor demand curve. After these new job safety regulations come into effect, will workers be more willing to take these jobs than before or less willing than before? What will happen to the supply of labor for this industry? A. less willing; the supply of labor will fall B. less willing; the supply of labor will rise C. more willing; the supply of labor will rise D. more willing; the supply of labor will fall

C ( more willing; the supply of labor will rise)

Sandy owns a firm with annual revenues of $1,000,000. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur Sandy could get a job with an annual salary of $100,000. Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit. A. $100,000 B. $50,000 C. $0 D. -$150,000

C ($0)

Sandy owns a firm with annual revenues of $1,000,000. Wages, rent, and other costs are $900,000. What is Sandy's accounting profit? A. $1,000,000 B. $900,000 C. $100,000 D. $0

C ($100,000)

Nobel Laureate Paul Krugman once asked "Who would enter a demolition derby without the incentive of a prize?" (Source: Krugman, Paul. 1998. Soft microeconomics: The squishy case against you-know-who, Slate www.slate.com/id/1933/. Posted April 24, 1998.) The "demolition derby" he was talking about was the battle over Internet browsers: Many enter the battle, but only one (or two) survive. But let's take his story literally: Say there were two cars in a demolition derby, and each car costs $20,000 to build, and one car will be totally destroyed. How big will the prize probably have to be to get two people to enter if there's a 50-50 chance of losing all your investment? Assume that drivers are risk adverse. A. $20,000 B. $30,000 C. $40,000 D. $10,000

C ($40,000)

Sandy owns a firm with annual revenues of $1,000,000. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur Sandy could get a job with an annual salary of $50,000. Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit. A. -$150,000 B. $0 C. $50,000 D. $100,000

C ($50,000)

The average daily demand for dinners at Paradise Grille, an upscale casual restaurant, is as follows: Demand for dinners by senior citizens: P = 50 - 0.5Q; MR = 50 - Q Demand for dinners by regular diners: P = 100 - Q; MR = 100 - 2Q Marginal cost = 10 in both cases If you owned this restaurant, what "Senior Citizen Discount" would you offer? A. 0 percent B. 11 percent C. 45 percent D. 83 percent

C (45 percent)

In the textbook, The Applied Theory of Price, D.N. McCloskey refers to the equation MR=MC as the rule of rational life. What types of firms follow this rule? A. Only competitive firms follow this rule. B. Only monopolies follow this rule. C. All types of firms follow this rule. D. The decision of whether or not to follow this rule depends on the shape of a firm's cost curves.

C (All types of firms follow this rule.)

We've seen what happens when job safety regulations are imposed. Now let's see what happens when they're taken away. If a radical free-market, antiregulation government comes to power in the land of Pelerania, and it begins dismantling job safety regulations, what will this tend to do to the supply of labor for dangerous jobs in Pelerania: Will it increase or decrease? Will that push wages in dangerous jobs up or down? A. Increase the supply of labor for dangerous jobs, which will push wages up. B. Increase the supply of labor for dangerous jobs, which will push wages down. C. Decrease the supply of labor for dangerous jobs, which will push wages up. D. Decrease the supply of labor for dangerous jobs, which will push wages down.

C (Decrease the supply of labor for dangerous jobs, which will push wages up.)

When a drought hits a country, and a famine is possible, what probably falls more: The demand for food or the demand for haircuts? Why? A. Demand for food falls more because people want to eat less during a drought or famine. B. Demand for food falls more because food is more of a luxury good than haircuts. C. Demand for haircuts falls more because haircuts are more of a luxury good than food. D. Demand for haircuts falls more because haircuts are an inferior good compared with food.

C (Demand for haircuts falls more because haircuts are more of a luxury good than food.)

Characterize each of the following items as excludable or nonexcludable. I. Central Park, New York II. Cable television A. Both I and II are excludable. B. I is excludable, II is nonexcludable. C. I is nonexcludable, II is excludable. D. Both I and II are nonexcludable.

C (I is nonexcludable, II is excludable.)

An initiative on Arizona's 2006 ballot would have handed out a $1 million lottery prize every election. The only way to enter the lottery would be to vote in a primary or general election. How do you think a lottery like this would influence voter ignorance? A. It would reduce voter ignorance. B. Voter ignorance would remain unchanged. C. It would increase voter ignorance. D. Any of the above is possible.

C (It would increase voter ignorance.)

The competitive industry of children's pajamas is in long-run equilibrium when a new government safety regulation raises the average cost of children's pajamas by $2 per pair. If this is an increasing cost industry, how much will this new safety regulation change the average pajama maker's profits in the long run? A. It will increase the long-run profits. B. It will decrease the long-run profits. C. Long-run profits will remain the same. D. This cannot be determined without further information.

C (Long-run profits will remain the same.)

Driving along America's interstates, you'll notice that few rest areas feature commercial businesses in these areas. Vending machines are the only reliable source of food or drink, much to the annoyance of the weary traveler looking for a hot meal. Thank the National Association of Truck Stop Operators (NATSO), who consistently lobby the U.S. government to deny commercialization. They argue that "Interchange businesses cannot compete with commercialized rest areas, which are conveniently located on the highway right-of-way. . . . [R]est area commercialization results in an unfair competitive environment for privately operated interchange businesses and will ultimately destroy a successful economic business model that has proven beneficial for both consumers and businesses." Why does NATSO often succeed in its lobbying efforts despite the fact that it inconveniences a large number of travelers? A. NATSO succeeds because the total benefits to truck stop operators from this legislation exceed the total costs to travelers. B. NATSO succeeds because travelers care a great deal more about their convenience than truck stop owners do about their profits. C. NATSO succeeds because each traveler is only slightly inconvenienced, while truck stop operators see large benefits. D. All of the above answers are correct.

C (NATSO succeeds because each traveler is only slightly inconvenienced, while truck stop operators see large benefits.)

In many college towns, rumors abound that the gas stations in town collude to keep prices high. Assess the validity of the following statements regarding where you might expect this conspiracy against the public to work best? I. This type of plan will work better in towns with dozens of gas stations than it will in towns with less than 10. II. This type of plan will work better in towns where the city council has many environmental and zoning regulations that make it hard to open new gas stations than it will in towns where there is lots of open land for development. III. This type of plan will work better in towns where all the gas stations are equally busy than it will in towns where half the gas stations are always busy and half tend to be empty? A. I, II, and III are all true. B. Only I is true. C. Only II and III are true. D. None of these are true.

C (Only II and III are true.)

The average daily demand for dinners at Paradise Grille, an upscale casual restaurant, is as follows: Demand for dinners by senior citizens: P = 50 - 0.5Q; MR = 50 - Q Demand for dinners by regular diners: P = 100 - Q; MR = 100 - 2Q Marginal cost = $10 in both cases What is the profit-maximizing price for each group? A. P = $10 for both groups B. P = $40 for senior citizens and $45 for regular diners C. P = $30 for senior citizens and $55 for regular diners D. P = $80 for senior citizens and $90 for regular diners

C (P = $30 for senior citizens and $55 for regular diners)

In a constant cost industry, what happens to the price of the good in the long run when there is a rise in demand? A. Prices rises. B. Price falls. C. Price stays the same. D. Price falls, then returns to initial price.

C (Price stays the same.)

As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries. Congress often considers passing laws to make it easier to import drugs from these low-price countries. If one of these laws passes, and it becomes effortless to buy AIDS drugs from Africa or antibiotics from Latin America—drugs that are made by the same companies and have essentially the same quality controls as the drugs here in the United States—how will drug companies change the prices they charge in Latin America and Africa? Why? A. Prices in Latin America and Africa will fall. B. Prices in Latin America and Africa will remain unchanged. C. Prices in Latin America and Africa will rise. D. The impact on prices in these areas cannot be determined without more information.

C (Prices in Latin America and Africa will rise.)

Assess the validity of each of the following statements. I. The only clothing store in a small town is in a more contestable market than the only natural gas provider in a small town II. The only clothing store in a small town is in a more contestable market than the only cable TV provider in a small town III. De Beers diamond mining is in a more contestable market than H&R Block tax preparation services A. All three statements are true. B. All three statements are false. C. Statements I and II are true, but statement III is false. D. Only statement I is true, and statements II and III are false.

C (Statements I and II are true, but statement III is false.)

In the competitive electrical motor industry, the workers at Galt Inc. threaten to go on strike. To avoid the strike, Galt Inc. agrees to pay its workers more. At all other factories, the wage remains the same. What will happen to the number of motors produced by Galt Inc.? A. The number of motors produced will rise. B. The number of motors produced will remain the same. C. The number of motors produced will fall. D. This cannot be determined without more information.

C (The number of motors produced will fall.)

The competitive children's pajama industry is in long run equilibrium when a new government safety regulation raises the average cost of children's pajamas by $2 per pair. If this is a constant cost industry, then what happens to the price of children's pajamas in the long run? A. The price remains the same. B. The price rises by less than $2. C. The price rises by exactly $2. D. The price rises by more than $2.

C (The price rises by exactly $2.)

As noted in your book, universities are one of the biggest practitioners of price discrimination. If Congress passed a privacy law making it illegal for colleges to ask for parents' tax returns, how would that affect the university's ability to price discriminate? Would it tend to help students from high-income families or students from low-income families? A. This law would make price discrimination easier and hurt high-income students. B. This law would make price discrimination easier and hurt low-income students. C. This law would make price discrimination more difficult and hurt low-income students. D. This law would make price discrimination more difficult and hurt high-income students.

C (This law would make price discrimination more difficult and hurt low-income students.)

Which of the following examples specifies the cause of the tragedy of the common? A. People like to eat chicken so demand for chicken has significantly increased. B. The supply of chicken is plentiful, causing the profit margin of selling chicken to decrease. C. Tuna in the ocean are not privately owned so fishermen have an incentive to overfish. D. The supply of tuna is rare, creating high profit margins and incentives for fishermen to underfish tuna.

C (Tuna in the ocean are not privately owned so fishermen have an incentive to overfish.)

You've been hired as a management consultant to four different companies in competitive industries. They're each trying to figure out if they should produce a little more output or a little less in order to maximize their profits. The firms all have typical marginal cost curves: they rise as the firm produces more. Your staff did all the hard work for you of figuring out the price of each firm's output and the marginal cost of producing one more unit of output at their current level of output. WaffleCo, maker of generic-brand frozen waffles: price = $4 per box; marginal cost = $2 per box Rio Blanco, producer of copper: price = $32 per ounce; marginal cost = $45 per ounce GoDaddy.com, domain name registry: price = $5 per Web site; marginal cost = $2 per Web site Luke's Lawn Service: price = $80 per month; marginal cost = $120 per month. Which firms should produce more, which should produce less, and which are producing just the right amount? A. All the companies are currently producing the right amount. B. WaffleCo and GoDaddy.com are producing too much and Rio Blanco and Luke's Lawn Service are producing too little. C. WaffleCo and GoDaddy.com are producing too little and Rio Blanco and Luke's Lawn Service are producing too much. D. This cannot be determined without more information.

C (WaffleCo and GoDaddy.com are producing too little and Rio Blanco and Luke's Lawn Service are producing too much.)

The elimination principle, a general feature of competitive markets, tells us that: A. below-normal profits may be permanent. B. above-normal profits may be permanent. C. above-normal profits are temporary. D. above-normal profits result in firms exiting the industry.

C (above-normal profits are temporary.)

Passenger pigeons are/were: A. private goods B. club goods C. common resources D. public goods

C (common resources)

Which of the four types of goods suffers from the tragedy of the commons? A. private goods B. club goods C. common resources D. public goods

C (common resources)

In the late fifteenth century, Europe consumed about 2 million pounds of pepper per year. At this time, Venice (ruled by a small, tightly knit group of merchants) was the major player in the pepper trade. But after Portuguese explorer Vasco de Gama blazed a path around Africa into the Indian Ocean in 1498, Venice found itself competing with Portugal's trade route. By the middle of thesixteenth century, Europeans consumed 6 to 7 million pounds, much of it obtained through Lisbon. After de Gama's success, the price of pepper fell. Based on this information, which of the following best explains the decline of Venice's influence on the world pepper trade? A. declining demand for pepper B. cheating by cartel members C. competition from new entrants to the market D. government prosecution of cartels

C (competition from new entrants to the market)

As chronicled in the TV series The Deadliest Catch, fishing in Alaska used to be a very dangerous job. However, changes in governmental fishing policies have made it much safer in recent years. As a result, we would expect the wages for fishermen in Alaska to have: A. decreased, due to demand-side effects B. increased, due to demand-side effects C. decreased, due to supply-side effects D. increased, due to supply-side effects E. remain unchanged, as they are now supplemented by Hollywood investment

C (decreased, due to supply-side effects)

Rapido, the shoe company, is so popular that it has monopoly power. It's selling 20 million shoes per year, and it's highly profitable. The marginal cost of making extra shoes is quite low, and it doesn't change much if they produce more shoes. Rapido's marketing experts tell the CEO of Rapido that if it decreased prices by 20 percent, it would sell so many more shoes that profits would rise. If Rapido's CEO follows the expert's advice, marginal revenue will _____, and total revenue will ______. A. rise; rise B. rise; fall C. fall; rise D. fall; fall

C (fall; rise)

Which of the following four items is the smallest in the terms of federal government expenditure? A. social security B. welfare C. foreign aid D. health care

C (foreign aid)

Consider industries X and Y. Industry X has total revenue of $100 million and total costs of $77 million. Industry Y has total revenue of $80 million and total costs of $40 million. We should expect that: A. prices are higher in Industry X. B. resources will move from Industry Y to Industry X. C. labor and capital will move from Industry X to Industry Y. D. firms in both industries will shut down operations.

C (labor and capital will move from Industry X to Industry Y.)

Why does the market not always provide club goods (non-rival private goods) efficiently? A. this statement is inaccurate. the market always provides club goods efficiently because they are excludable B. free riders in the market lead to the underprovision of club goods C. non-rivalry implies that the marginal cost of production for these goods in near zero. however, firms often charge relatively high prices for them D. the lack of excludability of club goods leads to their overuse

C (non-rivalry implies that the marginal cost of production for these goods in near zero. however, firms often charge relatively high prices for them)

In 2008, Jean Nouvel won the Pritzker Architecture Prize (the highest prize in architecture). One of his most notable works is the Torre Agbar (pictured), a breakthrough skyscraper that lights up each night thanks to more than 4,000 LED devices—a pricey but purely cosmetic feature. Many people enjoy looking at the illuminated façade of Torre Agbar, the third tallest building in Barcelona. Considering that enjoyment, how would you classify the Torre Agbar: rival or nonrival? Excludable or nonexcludable? A. rival and excludable B. rival and nonexcludable C. nonrival and nonexcludable D. nonrival and excludable

C (nonrival and nonexcludable)

Suppose that a pharmaceutical company receives patents for various drugs, each one designed to treat one of the ailments described below. Which is likely to have the largest price mark-up? A. Allergy symptoms B. Mild pain relief C. The flu D. Itchy insect bites

C (the flu)

If more people are willing to work as farm laborers in Mexico than the US, then: A. the demand for farm laborers is lower in Mexico than in the US B. the demand for farm laborers is higher in Mexico than in the US C. the supply of farm laborers is higher in Mexico than in the US D. the supply of farm laborers is lower in Mexico than in the US E. we need to build the wall!

C (the supply of farm laborers is higher in Mexico than in the US)

Capital stuffing is A. the government's attempt to limit the number of fishing boats. B. using other people property and resources to hunt or fish. C. using better equipped fishing boats that are capable of catching more fish in response to government limits on the number of days of fishing. D. overinvesting in the protection of common resources.

C (using better equipped fishing boats that are capable of catching more fish in response to government limits on the number of days of fishing.)

Characterize each of the following items rival or nonrival. I. Central Park, New York when it's nearly empty II. cable television A. Both I and II are rival. B. I is rival, II is nonrival. C. I is nonrival, II is rival. D. Both I and II are nonrival.

D ( Both I and II are nonrival.)

Sandy owns a firm with annual revenues of $1,000,000. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur Sandy could get a job with an annual salary of $250,000.Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit. A. $100,000 B. $50,000 C. $0 D. -$150,000

D (-$150,000)

How does easy arbitrage affect the ability of a firm to price discriminate? Who is more likely to get priced out of a market with easy arbitrage: those with elastic demand or those with inelastic demand? A. Arbitrage makes it easier to price discriminate and those with elastic demand are more likely to be priced out of the market. B. Arbitrage makes it easier to price discriminate and those with inelastic demand are more likely to be priced out of the market. C. Arbitrage makes it harder to price discriminate and those with inelastic demand are more likely to be priced out of the market. D. Arbitrage makes it harder to price discriminate and those with elastic demand are more likely to be priced out of the market.

D (Arbitrage makes it harder to price discriminate and those with elastic demand are more likely to be priced out of the market.)

Characterize each of the following items as excludable or nonexcludable. I. The Chinese language II. The idea of calculus A. Both I and II are excludable. B. I is excludable, II is nonexcludable. C. I is nonexcludable, II is excludable. D. Both I and II are nonexcludable.

D (Both I and II are nonexcludable.)

Characterize each of the following items rival or nonrival. I. the Chinese language II. the idea of calculus A. Both I and II are rival. B. I is rival, II is nonrival. C. I is nonrival, II is rival. D. Both I and II are nonrival.

D (Both I and II are nonrival.)

Which of the following is NOT a network good? A. Snapchat B. Massively multiplayer online games C. Ebay D. Bugatti Veyron Automobile

D (Bugatti Veyron Automobile)

It is commonly said that women earn 80 cents for every dollar that a man earns, even when doing the same job. Let's assume this is literally true in order to see how an entrepreneur would respond to this fact. You're an outside consultant to firms that want to increase their profits. Your first contract was with Netrovia, a battery manufacturer, where you increased their profits significantly by advising them to fire their all-male workforce and replace it with an all-female workforce. After your success at Netrovia, you start getting a lot more consulting jobs. You give the same advice to all the companies looking to boost profits: Fire your men and hire an all-female workforce for 20 percent less. What will this do to the demand for female labor? And what will this tend to do to women's wages? A. Demand for female labor will fall and women's wages will fall. B. Demand for female labor will fall and women's wages will rise. C. Demand for female labor will rise and women's wages will fall. D. Demand for female labor will rise and women's wages will rise.

D (Demand for female labor will rise and women's wages will rise)

Which of the following is the smallest fraction of the U.S. federal budget? Which are the two largest categories of federal spending? welfare interest on the federal debt defense foreign aid Social Security Medicare A. Medicare is the smallest, and welfare and defense are the largest. B. Social Security is the smallest, and foreign aid and welfare are the largest. C. Defense is the smallest, and foreign aid and interest on the federal debt are the largest. D. Foreign aid is the smallest, and Social Security and defense are the largest.

D (Foreign aid is the smallest, and Social Security and defense are the largest.)

Suppose Bill is willing to pay $30 for HBO, $50 for ESPN, and $15 for HGTV, while Barry is willing to pay $20 for HBO, $30 for ESPN, and $5 for HGTV, and Martha is willing to pay $25 for HBO, $10 for ESPN, and $45 for HGTV. If the cable company were to price the channels separately, what price would they choose for each? Assume 0 marginal costs. A. HBO=$30; ESPN=$50; HGTV=$45 B. HBO=$20; ESPN=$10; HGTV=$5 C. HBO=$25; ESPN=$30; HGTV=$15 D. HBO=$20; ESPN=$30; HGTV=$45

D (HBO=$20; ESPN=$30; HGTV=$45)

The mantra of Amazon.com CEO Jeff Bezos is "Get big fast." As we saw in our monopoly chapter, one reason to "get big fast" is because in some industries the firm's average cost will plummet as the firm expands—so size helps on the supply side. In this chapter, network effects illustrated how size helps on the demand side. With this in mind, explain the following real-world drives to get big fast: Do you think it's mostly about increasing returns or mostly about network effects? I. King Gillette (real name) gave away his first disposable razor blades in 1885.They came free with the purchase of a box of Cuban cigars. II. Amazon.com itself. A. I and II are both network effects. B. I is network effects and II is increasing returns. C. I is increasing returns and II is network effect. D. I and II are both increasing returns.

D (I and II are both increasing returns.)

Driving along America's interstates, you'll notice that few rest areas have commercial businesses. Vending machines are the only reliable source of food or drink, much to the annoyance of the weary traveler looking for a hot meal. Thank the National Association of Truck Stop Operators (NATSO), who consistently lobby the U.S. government to deny commercialization. They argue: "Interchange businesses cannot compete with commercialized rest areas, which are conveniently located on the highway right-of-way . . . rest area commercialization results in an unfair competitive environment for privately operated interchange businesses and will ultimately destroy a successful economic business model that has proven beneficial for both consumers and businesses." How does NATSO affect travel for consumers? A. It makes travel cheaper and more convenient. B. It makes travel cheaper, but less convenient. C. It makes travel more expensive, but more convenient. D. It makes travel more expensive and less convenient.

D (It makes travel more expensive and less convenient.)

In this chapter, we discussed the story of Dalton, Georgia, and its role as the "Carpet Capital of the World." A similar story can be used to explain why some 60 percent of the motels in the United States are owned by people of Indian origin or why, as of 1995, 80 percent of doughnut shops in California were owned by Cambodian immigrants. Let's look at the latter case. In the 1970s, Cambodian immigrant Ted Ngoy began working at a doughnut shop. He then opened his own doughnut shop (and later, more shops). Ngoy was drawn to the doughnut industry because it required little English, start-up capital, or special skills. Speaking the same language as your workers, however, helps a lot. As other Cambodian refugees came to Los Angeles fleeing the tyrannical rule of the Khmer Rouge, which group—the refugees or existing L.A. residents—was Ngoy more likely to hire from? Did this make it more or less likely that other Cambodian refugees would open doughnut shops? A. Ngoy was more likely to hire existing L.A. residents which made it less likely that other Cambodian refugees would open doughnut shops. B. Ngoy was more likely to hire existing L.A. residents which made it more likely that other Cambodian refugees would open doughnut shops. C. Ngoy was more likely to hire Cambodian refugees which made it less likely that other Cambodian refugees would open doughnut shops. D. Ngoy was more likely to hire Cambodian refugees which made it more likely that other Cambodian refugees would open doughnut shops.

D (Ngoy was more likely to hire Cambodian refugees which made it more likely that other Cambodian refugees would open doughnut shops.)

Just based on self-interest, who is more likely to support strong patent and copyright protection on video games: People who really like old-fashioned video games or people who want to play the best, most advanced video games? A. People who like to play old-fashioned games, because they want to play the games at lower prices. B. People who like to play old-fashioned games, because they want to support the companies that make the older games. C. People who want to play new, advanced games, because they want to play the games at lower prices. D. People who want to play new, advanced games, because they want to encourage innovation for video game companies.

D (People who want to play new, advanced games, because they want to encourage innovation for video game companies.)

Suppose there are two industries: a high-profit industry, Industry H, and a low-profit industry, Industry L. If the two industries have similar costs, what must be TRUE about prices in the two industries? A. There is not enough information to answer this question. B. The prices are the same in both industries. C. Prices in Industry H must be lower than Industry L. D. Prices in Industry H must be higher than Industry L.

D (Prices in Industry H must be higher than Industry L.)

A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps use that time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginal hour spent studying literature will raise her GPA by 0.02. Should she reallocate her time? A. She should not reallocate her study time at all. B. With the given information, it is impossible to determine whether she should reallocate her time. C. She should spend more time studying literature and less time studying economics. D. She should spend more time studying economics and less time studying literature.

D (She should spend more time studying economics and less time studying literature.)

Who probably has more elastic demand for a Hertz rental car: someone who reserves a car online weeks before a trip, or someone who walks up to a Hertz counter after he walks off an airplane after a 4-hour flight? Who probably gets charged more? A. The person at the counter has a more elastic demand and will be charged less. B. The person at the counter has a more elastic demand and will be charged more. C. The person who booked in advance has a more elastic demand and will be charged more. D. The person who booked in advance has a more elastic demand and will be charged less.

D (The person who booked in advance has a more elastic demand and will be charged less.)

Consider the following facts: The average person doesn't like working the night shift and most companies do their high-skilled work during the day: the big meetings, the major deliveries, and the crucial repair work gets done during the day. As a result, firms prefer to hire workers with more human capital during the day, and they prefer to hire less-skilled workers at night. Based on the theories of compensating differentials and human capital, how would pay for night-shift workers differ from that of day-shift workers? A. Night-shift workers would be paid more. B. Night-shift workers would be paid less. C. Night-shift workers would be paid the same amount as day-shift workers. D. This cannot be determined without more information.

D (This cannot be determined without more information.)

Construction jobs in New Chongqing pay $20 per hour. The job isn't that safe: a lot of sharp objects, a lot of ways to fall off a building. The city council of New Chongqing decides to set some job safety regulations for the construction industry. Let's assume that the government enforces these new regulations effectively and fairly, so that half as many workers get hurt on the job. Let's also assume that the city council makes the taxpayers pay the cost of making these jobs safer, so there's no noticeable shift in the labor demand curve. After these new job safety regulations come into effect, what will happen to the wage for construction jobs in New Chongqing? What principle does this illustrate? A. Wages will rise. This is an example of human capital. B. Wages will rise. This is an example of compensating differentials. C. Wages will fall. This is an example of statistical discrimination. D. Wages will fall. This is an example of compensating differentials.

D (Wages will fall. This is an example of compensating differentials.)

Oligopolies: A. are generally less economically efficient than perfectly competitive industries B. are often highly innovative as part of their competitive strategies C. are difficult to analyze as they involve mutual interdependence and strategic interaction among firms D. all of the above

D (all of the above)

Did firms find it easier to price discriminate before the existence of eBay or after? Which of the two "principles of price discrimination" does this stem from? A. after; differences in demand curves B. after; arbitrage. C. before; differences in demand curves. D. before; arbitrage.

D (before; arbitrage.)

Economist Peter Kostiuk, in a 1990 article in the Journal of Political Economy, wanted to see whether the theory of compensating differentials was true for U.S. workers. He had information on the wages, education backgrounds, and work experience of U.S. workers, and he knew whether they worked the day shift or the night shift. Kostiuk then used statistical techniques to simulate how much a typical low-skilled worker would earn if he were switched from the day shift to the night shift. The answer? The low-skilled worker would earn 44 percent more money on average. Is this 44 percent wage increase probably because of compensating differentials or is it probably because of human capital differences? A. Any of the above is possible. B. Both A and B are correct. C. human capital D. compensating differentials

D (compensating differentials)

Monopolists charge a higher markup when demand is highly _________, and when customers have ____ good substitutes for a product. A. elastic; many B. elastic; few C. inelastic; many D. inelastic; few

D (inelastic; few)

Profits will be higher for a patented drug with an _________ demand, and a drug with a highly elastic demand is ____ likely to be "important" than a patented drug with an inelastic demand. A. elastic; more B. elastic; less C. inelastic; more D. inelastic; less

D (inelastic; less)

A New York City street vendor selling popcorn is ____ likely to charge a bigger markup than a movie theater selling popcorn because __________________. A. more; the cost of doing business is higher in New York City than in a movie theater B. more; there are few close substitutes for popcorn in a movie theater C. less; the cost of doing business is higher in New York City than in a movie theater D. less; there are few close substitutes for popcorn in a movie theater. In addition, there are many close substitutes for a given street vendor's popcorn in New York City

D (less; there are few close substitutes for popcorn in a movie theater. In addition, there are many close substitutes for a given street vendor's popcorn in New York City)

Which of the following choices correctly ranks the representative firm demand curves from the given industry type from least elastic to most elastic? A. monopolistic competition, monopoly, perfect competition B. perfect competition, monopolistic competition, monopoly C. monopoly, perfect competition, monopolistic competition D. monopoly, monopolistic competition, perfect competition

D (monopoly, monopolistic competition, perfect competition)

Which of the four types of goods is the market best able to provide efficiently? A. public goods B. common resources C. club goods D. private goods

D (private goods)

In 2008, Jean Nouvel won the Pritzker Architecture Prize (the highest prize in architecture). One of his most notable works is the Torre Agbar (pictured), a breakthrough skyscraper that lights up each night thanks to more than 4,000 LED devices—a pricey but purely cosmetic feature. Many people enjoy looking at the illuminated façade of Torre Agbar, the third tallest building in Barcelona. What type of good is the LED façade this building? A. private good B. nonrival private good C. common resource D. public good

D (public good)

Fireworks displays are: A. private goods B. club goods C. common resources D. public goods

D (public goods)

Suppose a new government policy is implemented making college education free for anyone living in the US. If this greatly increases the number of college graduates in the US, what would we expect to happen to the wages of college graduates? A. there will be no change in the wages of college graduates B. since the labor demand of college graduates would decrease, we would expect their wages to fall C. since the labor demand of college graduates would increase, we would expect their wages to rise D. since the labor supply of college graduates would increase, we would expect their wages to fall

D (since the labor supply of college graduates would increase, we would expect their wages to fall.)

The prisoners' dilemma is one of the most important models in all of social science: Most games of trust can be thought of as some kind of prisoners' dilemma. Here's the classic game: Two men rob a bank and are quickly arrested. The police do not have an airtight case; they have just enough evidence to put each man in prison for one year, a slap on the wrist for a serious crime. If the police had more evidence, they could put the men away for longer. To get more evidence, they put the men in separate interrogation rooms and offer each man the same deal: If you testify against your accomplice, we will drop all the charges against you (and convict the other guy of the full penalty of 10 years of prison time). Of course, if both prisoners take the deal the police will have enough evidence to put both prisoners away and they will each get 6 years each. And, as noted above, if neither testifies both will get just one year of prison time. What's the best thing for each man to do? In each cell in the table below, the first number is the number of years Butch will spend in prison, and the second is the number that Sundance will spend in prison given the strategies chosen by Butch and Sundance. If years in prison are minuses, then we can write it like this: If Sundance keeps quiet, what's the best choice for Butch? If Sundance chooses to testify, what's the best choice for Butch? A. keep quiet; keep quiet B. keep quiet; testify C. testify; keep quiet D. testify; testify

D (testify; testify)

Which of the following is a normative statement? A. minimum wage laws lead to increased unemployment among low-skill workers B. minimum wage induced unemployment is relatively higher among teenagers than other age groups C. wage subsidies have the potential to increase employment among low-skill workers D. wage subsidies are better public policy than minimum wage laws

D (wage subsidies are better public policy than minimum wage laws)