Microeconomics

If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is

$0.75 or less

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$75

If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?

$80

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

BREAD on X, WINE on Y; A, B, C, D create a PPF curve. E outside the curve, F, G inside the curve. Refer to the figure above. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:

C to F

Linesha, a college student working part-time receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information,

Blu-ray discs are normal goods and DVDs are inferior goods

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

A government program guarantees $18,000 in income, even for those who do not work at all. If the recipient earns income by working, then the $18,000 benefit is reduced by 50 cents for each $1 earned. Will this program eliminate the poverty trap?

No, enacting such a program may still reduce the incentive to work.

_______________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.

Social costs

_______________________ are numerically small, but well organized groups that are able to exert a disproportionate effect on political outcomes.

Special interest groups

The problem of ________________ in insurance markets is that insurance companies are unable to ______________

adverse selection; differentiate those with low and high risks

The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

allocative efficiency

The marginal revenue curve for a monopolist ____________________ the market demand curve.

always lies beneath

Quantity of Labor Output (units) 1 80 2 170 3 240 4 300 5 350 6 390 7 420 If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

$150

ToasterOvensInc. is developing technology to make a toaster oven than uses less electricity. If successful, the technology will significantly reduce the amount of energy that is wasted due to product inefficiencies. If the firm sells only in response to the market price, the quantity shown in the third column is supplied. If the firm were also to receive the broader social benefits of the new technology, the willingness to supply is shown in the fourth column. If the firm were to receive a price based on both private and social benefits, the equilibrium price and quantity would be

$16, 740

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

A drug company is deciding how much to invest in Research and Development into finding a cure for diabetes. The table below shows the company's demand for financial capital for R&D based on its expected rates of return from selling the cure. Every investment provides an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole. If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest ___ in R&D if it receives only the private benefits of this investment.

$250

A drug company is deciding how much to invest in Research and Development into finding a cure stomach cancer. The table below shows the company's demand for financial capital for R&D of this drug, based on its expected rates of return from selling the drug. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole. If the opportunity cost of financial capital for the drug company falls from 7% to 5%, the drug company will invest ___ more in R&D if it receives only the private benefits of this investment.

$30

Kip and Yale run separate mining companies in the same forest. Both pollute the river flowing through the forest with debris from their work. In the table below, the first row shows the current level of debris that makes its way into the river from their work. The following table set out information that shows how much it would cost each company to reduce its pollution by additional increments of 10 pounds. If each mining company is forced to cut its debris in half, the respective cost to Kip and Yale will be

$5, $2

Kip and Yale run separate mining companies in the same forest. Both pollute the river flowing through the forest with debris from their work. In the table below, the first row shows the current level of debris that makes its way into the river from their work. The following table set out information that show how much it would cost each company to reduce its pollution by additional increments of 10 pounds. If a system of tradable permits is introduced, the total cost of cutting current debris in half is

$50

The government wants to enact tax legislation aimed at reducing increasing discharge levels of toxins into municipal waste water systems. The annual cost of the tax to the 100 worst industrial polluters will be $5 million each. The annual benefits of the tax, in terms of reduced toxin levels in water systems, are valued at $25 per person. There are 300 million people directly affected by the 100 worst industrial polluters. The total cost of this tax is ___________ while the total benefit to society is ___________.

$500 million; $7.5 trillion

The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each Based on this information, the Herfindahl-Hirschman Index is

1,836

The information below sets out the estimated market shares for the cellular phone manufacturing market are given in the table below. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each If Samsung were to acquire Sanyo, the Herfindahl-Hirschman Index would be

1,884

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

Carl and Don run separate chemical fertilizer manufacturing companies in the same industrial park. Both pollute the river flowing through the industrial park with debris and waste from their manufacturing processes. In the table below, the first row shows the current level of debris and waste each produces that makes its way into the river. The information in the table also indicates how much it would cost each manufacturer to reduce its pollution by additional increments of 10 pounds. If the government imposes a pollution tax of $7 for each 10 pounds of debris, total pollution will fall by ____ pounds, at a total cost of ____.

40; $17

A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the bottom quintile of this income distribution is

5.5%

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one percent increase in income leads to a five percent increase in wine consumption

A positive externality arises in a situation where a third party, outside the transaction,

benefits from a market transaction by others

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase.

What American economist wrote "An Economic Theory of Democracy" in which it is stated: "It seems probable that for a great many citizens in a democracy, rational behavior excludes any investment whatever in political information per se."

Anthony Downs

______________ give government the power to block certain mergers, and in some cases, to break up large firms into smaller ones.

Antitrust laws

Which of the following would be classified as a positive externality?

converting a derelict empty lot to a public vegetable garden

Government developed a method called __________________ to assist the working poor through the tax system. The amount of the tax break ____________ with the amount of income earned, ________________ .

earned income credit; increases; up to a point

The circular flow diagram of economic activity is a model of the:

flow of goods, services, and payments between households and firms.

Which of the following would reduce the supply of microcomputers?

higher wage rates for the workers that assemble the computers

The longer the time period considered, the more the elasticity of supply tends to:

increase

Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will ______ employment and _____ wages for high-income workers.

increase, increase

While the U.S. command-and-control environmental regulations initiated in the 1970s have been very effective at reducing pollution, some economists have difficulty with the legislation because

it is full of fine print and exceptions, and costly for some firms to comply with.

Economists refer to the relationship that a higher price leads to a lower quantity demanded as the _____________.

law of demand

The term ____________ refers to the percentage share of a firm's total sales in the market.

market share

In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

market-oriented economy

The basic difference between macroeconomics and microeconomics is:

microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

In circumstances dealing with poverty, the term ______________ means taking income from those with higher incomes and providing income to those with lower incomes.

redistribution

The problem of special interests in politics can be related to an economic policy problem called ________________________.

regulatory capture

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent.

relatively inelastic

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

Since 1969, when the Cuyahoga River in Ohio was so polluted that it spontaneously burst into flame, the overall quality of water in the U.S. has

steadily improved.

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

substitution effect

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

Quantity in pounds on x, Price per pound in dollars on y, Supply points at (4000, $3), (8000, $6), and (12000, $9). Demand points at (4000, $9), (8000, $6) and (12000, $3) The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9

the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high.

Economics History I 94 76 II 87 84 III 77 91 Referring to Table 2-1: A student has only a few hours to prepare for two different exams this afternoon. The above table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is:

15 points on the history exam.

Quantity Total Cost Variable Cost 0 1000 0 100 1360 360 200 1560 560 300 1960 960 400 2760 1760 500 4000 3000 600 5800 4800 Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. If the market price of each camera case is $8, what is the profit-maximizing quantity?

400 units

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct? Qty VC FC TC AVC MC 0 0 30 30 0 - 1 12 B 12 E 2 25 C D F 3 A 72 14 G

A = 42, E = 12

In which of the following countries will the national government have the greatest influence with respect to the nation's economy?

Cuba

In countries like _____________ the command economy predominates.

Cuba and North Korea

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run than it is in the short run

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

To maximize profit, the firm will produce

Q2.

The efficient output level is

Qa.

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the right

Assume the market for organic produce sold at farmers' markets is perfectly competitive. All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

The equilibrium price is likely to decrease and profits are likely to decrease.

Consider the market for opticians. What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?

The equilibrium wage and the equilibrium quantity of opticians fall.

________________ occurs when a group of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor.

Logrolling

"The Firm in Competitive Equilibrium" Refer to the diagram above. Based on the information illustrated in this graph, which of the following is an accurate statement?

MC is initially downward sloping in the region of increasing MR at low output levels

_____________________ that are issued by government agencies are a form of validation that a worker has completed a certain type of education or passed a certain test.

Occupational licenses

When r=100 and p=50, Refer to the budget line shown in the diagram above. At point U, __________.

P1/P2 = MU1/MU2

The firm's profit-maximizing price is

P3.

A change in price of a good or service typically causes ___________________________ for that specific good or service.

a change along the supply curve

Which of the following best denotes the reason for the existence of substantial black markets?

a command economy

One strategy insurance companies have adopted to reduce moral hazard is to require an injured party to pay a _______________

a deductible

If U.S. auto manufacturers cut the prices of their vehicles to sell a greater quantity, buyers may assume that the lower price implies _____________ compared to foreign manufactured vehicles.

a lower quality

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:

a shift of the demand curve for beef to the left.

_____________________ cannot be eliminated, but it can often be managed

Imperfect information

_____________________ can lead to a situation where, even if sellers are faced with a situation of _______________, they will decide not to cut prices for awhile because they know that buyers in this situation will not react by purchasing a _______________ .

Imperfect information; excess supply; higher quantity

If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could

change price a little bit and observe what happens to total revenue.

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

The absence of which of the following best explains why government agencies are slower to correct mistakes than private firms.

competition or a threat of new entry

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

complements.

The four-firm ___________________ measures the percentage share of the total sales in the industry that is accounted for by the largest four firms.

concentration ratio

In the U.S. political arena, ______________________ may tend to emphasize the virtues of markets and the limitations of government, while _____________ may tend to emphasize the shortcomings of markets and the need for government programs.

conservatives; liberals

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

Market-oriented environmental tools _______________ for firms to take the social costs of pollution into account and ____________________ in reacting to these incentives

create incentives; allow firms some flexibility

A Lorenz curve graphs the _________________ received by everyone up to a certain quintile.

cumulative shares of income.

Which of the following is not a consequence of minimum wage laws?

Producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage.

_____________ and __________________ refer to the quantity and price at a point in time.

Productive; allocative efficiency

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

average cost

Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .

barriers to entry; to a few oligopoly firms

Tom, Mary and Jill have apartments in the same building. A security system for their building costs $750. Tom is willing to pay $100 for the security system, Mary is willing to pay $300 and Jill is willing to pay $300. They have a meeting to vote on whether to pay $250 each for the security system. At least two of them must vote for the system to be installed before the vote is passed. The efficient outcome is to have the security system installed. After the meeting the security system will __________, which illustrates ___________.

be installed, the free rider problem

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

budget constraint

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. How can you convince your manager that you are worth more money than you are currently being paid?

by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop

In the case of insurance, _______________ arises because the buyers of insurance have more information about _____________________than the insurance company does.

adverse selection; the risk group they belong to

Using the term "spillover" is a less formal means of describing

an externality.

Which of the following will not result in a rightward shift of the market supply curve for labor?

an increase in labor productivity

All of the following will shift the labor supply curve except

an increase in the wage rate

Suppose that the government implements a new policy that provides free skills training to all low-skilled workers, which makes them more productive and turns them into high-skilled workers. This will ______ the supply of low-skilled workers and ______ the supply of high-skilled workers.

decrease, increase

The most common pattern for marginal utility is ____________________.

diminishing marginal utility

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

diminishing marginal utility

In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

division of labor

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

A problem may arise when politicians are elected by the votes of 60% or less of the population, because these politicians may not enact

economic policy in the best interests of 100% of the population

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.

elastic

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price

An agreement between a manufacturer and a distributor stipulating that a dealer will only distribute that manufacturer's products would be classified as a form of

exclusive dealing.

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production

Why do U.S. economists commonly refer to externalities as an example of market failure?

externalities present a case where markets only consider some social costs

Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits.

fails to allocate resources efficiently

The trick in graphing a Lorenz curve is that you must transform the shares of income ________________, which are shown in the first column of numbers in the table, into ___________, shown in the ________ column of numbers.

for each specific quintile; cumulative income; second

An inferior good is a product:

for which demand decreases as income increases.

If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and child care that a nonworking mother will not face, then

her economic gains from working will be even smaller.

If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.

increases; fall

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.

inelastic

The _________________ budget constraint shows the tradeoff between present and future consumption.

intertemporal choice

I'mAComputerCo. would likely be more willing to undertake an innovative research project to reduce the amount of electricity required to run its computers if there were some form of guarantee that if it succeeded,

it could sell the new computers as a monopoly for at least a few years.

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

law of diminishing marginal utility

Which of the following have historically been more willing to sacrifice their environmental quality for some additional economic output?

low incomes and command economies

The main categories of market-oriented approaches to pollution control are

marketable permits; better-defined property rights; pollution charges.

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

natural monopoly

The demand curve for a typical good has a(n):

negative slope because some consumers switch to other goods as the price rises.

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is

negative, so Sefton considers potatoes to be an inferior good.

If incomes rise for both low-income and high-income workers, but rise less for the high-income workers,

then povety will fall and inequality will fall

Of 1000 homeowners insured with Crown Insurance, 250 live in a flood plain, 150 live in an area with frequent tornadoes, 100 live in earthquake prone regions, and the remaining 500 reside in small communities located in less hazardous regions. Which of the following will likely apply to the low-risk group of homeowners?

they must buy insurance and pay more than the actuarially fair amount for their risk group

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using ____________ to increase its profits.

tie-in sales

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

Which of the following would most likely be identified as being the ultimate goal of public policies that pertain to technology?

to encourage a stream of invention that benefits the whole of society

When a firm pursues a predatory pricing strategy, it does so

to maximize profits in the long run. (not sure)

A minimum resale price maintenance agreement requires a dealer who buys from a manufacturer ______________________________ .

to sell for at least a certain minimum price

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit

total revenue

Garth inherited $25,000. He needs to decide now much to spend now and how much to save for later. If he saves the money, then he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should:

spend nothing now and $28,750 in the future

The term ____________ refers to a market exchange that affects a third party who is outside or external to the exchange.

spillover

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

sunk costs

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,

total utility rises, but marginal utility falls.

a government chooses a system of marketable permits as its environmental managing tool, the reduction in pollution will

take place in the firms where it is least expensive to do so

If insurance premiums are going to be set below the actuarially fair level for a certain group, who will likely be targeted to make up the difference?

taxpayers or other buyers of insurance (not sure)

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied.

price

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

Raven Farms raises a substantial number of bees and uses the honey to produce its own skin healing cream. Raven Farms is situated next to the Oakcreek Apple Orchard. The bees from Raven Farms pollinate Oakcreek's apple trees. In this instance, Raven Farms

provides more social benefits than it derives in private benefits.

Why would a bank require a borrower to have collateral or a cosigner before agreeing to lend funds?

reduces risk associated with imperfect information

The term ______________ refers to a situation where the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow.

regulatory capture

The two primary factors determining monopoly market power are the firm's

revenues and size of its customer base (not sure)

If buyers become reluctant to purchase high-quality goods because they can't be confident of purchasing a high-quality product, then

the equilibrium price and quantity will be adversely affected by a thin market

In a market economy, the high salaries of some star baseball players such as Adrian Gonzalez, are determined by

the interaction of the demand for star athletes and the supply of star athletes.

Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?

The elasticity coefficient is likely to be low and supply is highly inelastic.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output

YummyCandiesCo. has developed a new candy bar that contains a full recommended daily allowance of vitamins and minerals. This invention will provide considerable spillover benefits to society. The table below shows the demand for the candy bars, the supply of candy bars if the company receives only the private benefits, and the supply of candy bars if the firm also receives the full social benefits. If the firm's candy bars were sold on the basis of both private and social benefits, the equilibrium price and quantity would be

$1, 250,000

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

$44

Given the data provided in the table below, what will the marginal revenue equal for production at quantity (Q) level 4?

$5.00

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?

1 movie, 5 yoga classes

For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point?

4 salads, 8 smoothies

Quantity of Labor Output (units) 1 80 2 170 3 240 4 300 5 350 6 390 7 420 The marginal product of the fourth unit of labor is

60

The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each Based on this information, the four-firm concentration ratio is

70

Troy has a part-time job in a book store to help pay for his college. He can work up to 30 hours each week at his job, which pays $9 per hour. The table below shows his utility from different levels of leisure and income. Troy currently works 20 hours per week. If he decides to work 30 hours instead, his marginal utility gain from the additional income is ____.

9

Why is there scarcity?

Because our unlimited wants exceed our limited resources

________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.

Deadweight loss

The most useful topic in college is:

Economics

______________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

WAGE Labor Supplied Labor Demanded $7.50 530,000 650,000 $8.50 550,000 630,000 $9.50 570,000 610,000 $10.50 590,000 590,000 $11.50 610,000 570,000 $12.50 630,000 550,000 What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?

W* = $10.50; Q* = 590,000

An increase in the wage rate causes

a decrease in the quantity of labor demanded

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

budget constraint

The term "tie-in sales" is synonymous with

bundling

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

The demand for gasoline in the short run is

inelastic because there are no good substitutes for gasoline.

The demand curve perceived by a perfectly competitive firm

is horizontal

Why would a typical U.S. business fail to take the social costs of pollution into consideration during the development of their operating strategies?

it isn't required to pay any of the cost of cleaning up its pollution

When a monopolist increases sales by one unit,

it loses some marginal revenue and all of the above. (not sure)

If some of the products developed by I'mASoftwareCo. must face market competition that can very quickly produce either an identical product or a close substitute for it, then

it may decide against R&D projects of this sort.

If the firm is producing 700 units,

it should cut back its output to maximize profit.

Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will shift the demand curve for low-income workers to the ______ while shifting the demand curve for high-income workers to the _____.

left, right

Which of the following is most likely to be a monopoly?

local electricity distributor

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being:

low inflation

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the _____________ of reducing the emissions is _______________ .

marginal cost; less than the tax

If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,

marginal revenue is affected by adding one additional unit sold at the new price.

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

The term _________________ refers to the additional utility provided by one additional unit of consumption.

marginal utility

The step-by-step process of finding the choice with highest total utility involves a comparison of the:

marginal utility gained and lost from different choices along the budget constraint.

The price of a seller's product in perfect competition is determined by

market demand and market supply

A decrease in consumer preference for a product, other things being equal, will cause:

market demand to shift to the left.

The Herfindahl-hirschman index is calculated by taking ___________________, squaring it, and adding them up to get a total.

market share of each firm in the industry

When people have insurance against a certain event, the notion that those people are less likely to guard against that event occurring is called a _____________________

moral hazard

The major problems caused by imperfect information in insurance markets are

moral hazard and adverse selection

If a typical firm in a perfectly competitive industry is earning profits, then

new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

nonexcludable

A public good is a good that is ____________________ , and thus is difficult for market producers to sell to individual consumers.

nonexcludable and nonrivalrous

In order for a good to be classified as ______________ , when one person uses the good, others are also able to use it.

nonrivalrous

Property rights are the legal rights of ownership on which others are

not allowed to infringe without paying compensation.

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

output will be too small and its price too high.

Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .

patent; a limited time

What role does the US government play with respect to market competition?

policing anticompetitive behavior and prohibiting contracts that restrict competition

When reference is made to the ____________, it means the specific amount of income needed for a basic standard of living.

poverty line

Antipoverty programs that are set up so that the amount of government benefits will decline substantially as poor people earn more income typically create ______________.

poverty trap

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

preparing to exit operations.

As a general rule, utility-maximizing choices between consumption goods occur where the:

price ratio and marginal utilities ratio of two goods is equal.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases.

price, quantity demanded

For a positive externality, _________________________than the social benefits

private benefits of an action are less

For a positive externality, _________________________than the social benefits.

private benefits of an action are less

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

profits equal $40

Web page designs vs costs graph. Refer to the diagram above. In this instance, at the range of output represented at point c,

profits will be maximized.

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

raise prices, cut production, and realize positive economic profits.

The theory of __________________ holds that people won't bother incurring the costs of becoming informed and voting, because they know that their vote ___________________________________________.

rational ignorance; won't be decisive in the election

When there few close substitutes available for a good, demand tends to be

relatively inelastic

Economists are able to determine total utility by:

summing up the marginal utilities of each unit consumed.

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A positive externality that can result is

the bees helping to pollinate the orchard, leading to more fruit.

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

the competitive actions of other business firms

If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?

the new firm will produce more efficiently and all of the above

Price elasticity of demand is defined as:

the percentage change in quantity demanded divided by the percentage change in price

If large numbers of individuals choose to behave as free riders,

the public good may never be provided.

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:

the supply curve

If new manufacturers enter the computer industry, then (ceteris paribus):

the supply curve shifts to the right.

If a rise in incomes for both low-income and high-income workers is higher for the high-income workers,

then poverty will fall and inequality will rise.

In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

trade secret

Many states do have ____________, which impose an upper limit on the interest rate that lenders can charge.

usury laws

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

utility

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

In economics, the demand for a good refers to the amount of the good that people:

will buy at various prices.

Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The statement is correct

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms.

Which of the following would most likely shift the production possibilities curve inward?

a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?

a decrease in the price of cattle

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

When ___________________ occurs, the result will be determined by the order in which choices are presented and voted on, not by_____________, because every choice is both preferred to some alternative and also not preferred to another alternative.

a voting cycle; majority rule

Any given demand or supply curve is based on the ceteris paribus assumption that ___________________.

all else is held equal

Which of the following has become a common condition for allowing a merger of large firms?

commitment to hire more workers

The greater inequality of wages can be viewed as a sign that

demand for skilled labor is increasing faster than supply

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?

e. only

The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if:

either 2) or 3) occurs, but not as a result of 1).a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.

elastic

The ____________ is the quantity where quantity demanded and quantity supplied are equal at a certain price.

equilibrium quantity

In the ______________, households receive goods and services and pay firms for them.

goods and services market

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses.

If the 2014 poverty line is based on the amount of money an individual has earned as income, then

government programs that provide non-cash assistance to the poor are not considered.

Which of the following would an economist identify as a difficulty relating to environmental command-control regulations?

high degree of inflexibility

An insurance company is likely to believe that having a major accident is a signal of being a _____________, and thus try to _________________.

high-risk driver; raise this driver's insurance premiums

Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by five units per hour, then to maximize profits the firm should

hire the additional worker

A Lorenz curve refers to a graphic illustration of the share of population on the _______________ and the cumulative percentage of total income received on the __________________ .

horizontal axis; vertical axis

The demand curve for an individual seller's product in perfect competition is

horizontal.

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

increase its output.

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, the supply of products in good condition will likely __________ due to the improved information, causing price to __________ .

increase, decrease

A situation of __________ arises when one group receives a higher share of total income or wealth than others.

inequality

Which of the following best describes a monetary policy tool?

interest rates

In a city with rent-controlled apartments, all of the following are true except

landlords have an incentive to rent more apartments than they would without rent control.

When a natural monopoly exists in a given industry, the per-unit costs of production will be

lowest when a single firm generates the entire output of the industry.

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?

merged firms can increase price and maintain permanently higher profits

In order to be binding, a price ceiling

must lie below the free market equilibrium price.

The term _______________ is used to describe circumstances where government takes over ownership of a business.

nationalization

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

normative statement

Attending college is a case where the ________________ exceeds the monetary cost.

opportunity cost

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

A method often used by economists to look at distribution of income in a society's economy involves

quintiles, or dividing a whole group into fifths.

When the level of insurance premiums that someone pays is equal to the amount that an average person in that risk group would collect in insurance payments, the level of insurance

reaches actuarial fairness

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

should shut down.

Legislators who focus on local spending projects for their own district typically show a lack of sufficient concern for

spending in the interest of the nation as a whole

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

supply curve

WAGE Labor Supplied Labor Demanded $7.50 530,000 650,000 $8.50 550,000 630,000 $9.50 570,000 610,000 $10.50 590,000 590,000 $11.50 610,000 570,000 $12.50 630,000 550,000 If a minimum wage of $9.50 is mandated there will be a

surplus of 40,000 units of labor.

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.

P, MR, AC, MC. After maximizing profits, what do the firm's profit's equal?

the area of rectangle BDEG

Demand in factor markets differs from demand in product markets in that

the demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues, not by tastes and preferences of consumers.

A firm's primary interest when it hires an additional worker is

the extra revenue the firm realizes from hiring that worker

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

the marginal utility per dollar is the same for both goods

If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S1 represent?

the market supply curve reflecting private cost

Which of the following concerns would groups like the Consumer Federation of America and Public Knowledge most likely raise with regulators considering a merger application?

the merger would reduce competition

A pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits.

A practical approach to microeconomic policy will need to take a realistic view of the specific strengths and weaknesses of markets and ___________________________________.

the specific strengths and weaknesses of government

Are markets always in equilibrium?

No, but if there is no outside interference, they tend to move toward equilibrium

Which of the following statements most likely lies within the realm of microeconomics?

An increase in labor costs will increase the additional cost of producing another bus.

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:

Goods X and Y are complement goods.

Pork-barrel spending can be thought of as another case where democracy is challenged by _______________ and __________________.

NOT "specials interest groups; disconnected voters"

In a 1948 novel titled "Walden II", one of the characters states: "The chance that one man's vote will decide the issue in a national election...is less than the chance that he will be killed on his way to the polls." This statement addresses

NOT why the margin of victory in elections is measured in hundreds, thousands, and millions of votes.

Government policy-makers often must decide how to balance the potential benefits of ______________ against the potential benefits of _____________

corporate size; competition

Which of the following characteristics differentiates the private economy from government?

EITHER self-correcting mechanism OR moderate future behavior (not sure)

_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economies of scale

Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as

cost-plus regulation

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the second-to-bottom quintile of this income distribution is

11.6%

____________________ is a particular type of spending that mainly benefits a single political district.

Pork-barrel spending

The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below. The equilibrium price and quantity when social costs are taken into account are

Price = $55, Quantity = 30

"The price of compact fluorescent light bulbs fell because of improvements in production technology. As a result, the demand for incandescent light bulbs decreased. This caused the price of incandescent light bulbs to fall; as the price of incandescent light bulbs fell the demand for incandescent light bulbs decreased even further." Evaluate this statement.

The statement is false. A decrease in the price of compact fluorescent light bulbs would decrease the demand for incandescent light bulbs, but a decrease in the price of incandescent light bulbs would not cause the demand for incandescent light bulbs to decrease.

Which of the following statements about price elasticity of demand is false?

The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.

Which of the following would some economists be likely to perceive as the most appropriate public policy response to a positive externality created by the development of a highly innovative new technology?

develop ways to provide a greater share of the social benefits to the innovator

The problem of _________________ arises when an antique dealer knows more about the quality of an item than the potential buyer, and as a result the buyer with less knowledge must worry about ending up at a ________________.

imperfect information; disadvantage

The presence of _____________________ in transactions involving goods can easily cause a ______________________ if the result is only a relatively small number of buyer and sellers communicating enough information so that they can agree on a price.

imperfect information; thin market

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same.

There is a skating rink in your city that is open to anybody to use at any time. They even provide skates for people who don't own any. This is an example of a good that is

rivalrous and nonexcludable

If a small electric automobile manufacturer is able to gain the social return generated by its electric motor, its demand for financial capital would

shift to the left.