microeconomics final

A system under which the government would grant every citizen a cash payment each year, financed by an additional tax on earned income is known as

a negative income tax.

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality.

a positive; a negative

The value of the marginal product of labor is the dollar value of the _____ output a firm gets by employing one additional unit of labor.

additional

The marginal product of labor decreases ______.

as firms hire additional workers in the short run

If the wages in a given occupation increase, you would generally expect the quantity of labor supplied in that occupation to _

increase

Since 1980, income inequality in the United States has ______

increased sharply

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus.

increases; decreases- If a monopolist perfectly price discriminates, then will capture all of the economic surplus, and consumer surplus will be zero.

It is generally thought that the labor supply to any particular occupation:

is upward sloping

it is generally thought that the labor supply to any particular occupation:

is upward sloping

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is

its exclusive ownership of South African diamond mines.

One way to prevent a mass exodus from private-sector jobs to the public sector would be to ______

keep the public-employment jobs well-below minimum wage

A firm's value of marginal product of labor curve is its

labor demand curve

A firm's value of marginal product of labor curve is its Multiple choice question.

labor demand curve

The general resistance to change, often stemming from loss aversion, is known as

status quo bias- The general resistance to change, often stemming from loss aversion, is known as status quo bias.

Criticisms of public employment for the poor include ______.

such jobs would include "make-work" tasks and expand the government bureaucracy people would have a tendency to leave private sector jobs in favor of public-sector jobs

Firms should continue to hire additional workers whenever:

the VMP is greater than the wage rate

The marginal product of labor is

the additional output a firm gets by employing one additional unit of labor.

The policy under which low-income workers receive credits on their federal income tax is

the earned-income tax credit (EITC).

If a firm faces a downward-sloping demand curve, then

the firm's marginal revenue from selling an additional unit of output is less than price.

A (one word) is a group of workers who bargain collectively with employers for better wages and working conditions.

union

Consider the accompanying payoff matrix. Player BLeftRightPlayer AUp60 for A70 for A60 for B5 for BDown5 for A50 for A70 for B50 for B What is player A's dominant strategy?

up -Player A's dominant strategy is Up because regardless of whether Player B plays Left or Right, Player A is better off playing Up than Down.

The labor supply curve to a particular occupation is generally thought to be:

upward sloping

One solution that could avoid the pitfalls in the EITC, the negative income tax, and public-sector employment, would be to ______.

use a combination of all three

A firm's labor demand curve is its

value of marginal product of labor curve.

The value of the additional output a firm gets by employing one additional unit of labor is the

value of the marginal product of labor

In laboratory experiments, researchers have found that the behavior of Proposers and Responders in the ultimatum game is consistent with people

valuing fairness.

For people with very low incomes, the earned income tax credit operates like a(n)

wage subsidy.

A (blank) labor market is one in which small differences in human capital translate into large differences in pay.

winner take all

Select all that apply. Compensating wage differentials imply that, all else equal, workers are likely to be paid more if they:

work the night shift instead of the day shift face a high risk of injury on the job

The total revenue from selling 6 units is ______, and the marginal revenue of selling the 6th unit is ______. price :10,9,8,7,6,5,4, quantity: 1,2,3,4,5,6,7

$30; $0 -Total revenue when either 5 or 6 are sold is $30; therefore, the marginal revenue from selling the 6th unit is zero.

The marginal revenue of the 15th unit of output is

$40,Given the demand curve, we know the monopolist's marginal revenue curve has a horizontal intercept of 55. Thus, the marginal revenue of the 15th unit is $40

Alison decides to play the lottery. She has a 5 percent probability of winning $100 and a 95 percent probability of winning zero. The expected value of playing the lottery is

$5.- ( The expected value of this gamble is: $5 = (0.05)($100) + (0.95)($0).)

If each case sells for $5 more than the cost of the materials used in producing it, then the value of marginal product of the second worker is ______ per week.

$750 (Hiring the second worker increases output by 150 (from 160 to 310) cases per week. If each case can be sold for $5 more than the cost of the materials used in producing it, then the second worker's VMPL is $750 (= 150 × $5) per week.)

a labor union is

a group of workers who bargain collectively with employers for better wages and working conditions

If the demand for nurses rises, this will tend to _____ the equilibrium wage of nurses

increase

If the demand for nurses rises, this will tend to _____ the equilibrium wage of nurses.

increase

Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $250,000. Assume that the realtor's opportunity cost of negotiating the sale is $5,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house?

$25,000 - (If you do not use a realtor, total economic surplus from the sale of your house will be $20,000 (= $220,000 − $200,000). If you use a realtor, total economic surplus will be $45,000 (= $250,000 − $200,000 − $5,000). Thus, using a realtor increases total economic surplus by $25,000.)

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goatson the commons Price per 2-yearold goat ($)Income pergoat ($/year) 1,80,30. 2,75,25, 3,70,20, 4,65,15, 5,55,5 What will be the total village income if each villager decides how to invest based on his or her individual self-interest?

$25- Each of 5 villagers will earn $5, so total village income will be $25.

Since 1980, the growth in real earnings has been the largest for the top:

1 percent of U.S. earners

For a monopolist facing this demand curve, the profit-maximizing quantity is ______ and the profit-maximizing price is ______.

100; $2-For a monopolist facing this demand curve, the marginal revenue curve has a vertical intercept of $4 and a horizontal intercept of 100. Thus, marginal revenue equals marginal cost when quantity is 100. This corresponds to a price of $2 on the demand curve.(end of diagonal line is vertical intercept, half of what is given on bottom is marginal cost quantity , then follow line to see what corresponds to the bottom

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. 22,16,12,8,6,4

3-The third bike yields a marginal revenue of $4, which is greater than $3, but the fourth bike yields a marginal revenue of −$4, which is less than $3. Thus, Island Bikes will rent 3 bikes and charge $12 per bike.

Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. -36,34,32,30,28,26,24,22

32,Lydia's marginal revenue from mowing each of the first three lawns is greater than $25, while her marginal revenue from mowing each lawn after that is less than $25. Thus, Lydia should mow 3 lawns and charge a price of $32

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2. 0-0 1-25 2-45 3-60 4-70 5-75 6-78 The dollar value to the coffee shop of hiring the fifth worker is ______ per hour.

7.50 (Hiring the fifth worker increases output by 5 cups of coffee per hour, each of which can be sold for $1.50 more than the cost of the ingredients used to make each cup, so the value of the fifth worker is $7.50 = 5 × $1.50.)

Refer to the accompanying figure. What is the Nash equilibrium of this game? Player BLeftRightPlayer AUp5 for A10 for A30 for B12 for BDown−2 for A8 for A10 for B15 for B

A chooses Up, B chooses Left-Up is A's dominant strategy. Knowing A will choose Up, B will choose Left. Thus, the unique Nash equilibrium is: A chooses Up, B chooses Left.

Suppose one group of people is asked to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket, and a second group of people is asked to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets. According to the rational choice model, which group should be more likely to say they would still attend the performance?

Both groups should be equally likely to say they would attend.- For both groups, the cost of attending the performance would be $10, so the rational choice model predicts that both groups should be equally likely to say they would still attend.

Suppose Christina just saw an advertisement on television for an antidepressant, but it has been a long time since James saw one. According to the availability heuristic

Christina is likely to think that depression is more common than James.

Which of the following is NOT a commitment device? Multiple ChoiceA nonrefundable advance payment to reserve a room at a resort.A manufacturer's 2-year agreement to fix, at no cost to you, anything that breaks on your computer.A pre-nuptial agreement that provides for a large penalty in the event a spouse has an affair.High fines for illegal parking on campus.

High fines for illegal parking on campus. ( Agreements in advance, backed by a cost, to secure a promise are commitment devices. Fines levied after an offense are not.)

decreases

In the short-run, as firms hire additional workers, the marginal product of labor

Refer to the accompanying figure. Based on the matrix CoryABJessA5 for Jess0 for Jess5 for Cory10 for CoryB10 for Jess7 for Jess14 for Cory10 for Cory

Jess has a dominant strategy, but Cory does not.- In this instance, Jess has a dominant strategy, but Cory does not.

All profit-maximizing firms chose the level of output at which

MR=MC, -Following the Cost-Benefit Principle, all firms maximize their profit by choosing the level of output at which marginal revenue equals marginal cost.

Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both firms require their employees to work for 9 hours a day, but Firm A allows its employees to have a flexible work schedule, while Firm B requires its employees to be at work from 9 a.m. to 5 p.m. Otherwise, the jobs are identical. You would expect:

Sarah's wages to be lower at Firm A than at Firm B.(All else equal, jobs with more favorable working conditions (like flexible work hours) will pay lower wages.)

marginal product of labor

The additional output a firm gets by employing one additional unit of labor is the

Consider two coupons: one offers 10 percent off a pair of jeans that costs $100, and the other offers 50 percent off a pair of sunglasses that costs $20. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable?

The coupon for the sunglasses since 50 percent is greater than 10 percent.(The Weber-Fechner law is the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus. In this case, even though both coupons lead to a savings of $10, the Weber-Fechner law predicts that people will tend to perceive the coupon for the sunglasses to be more valuable because $10 is a bigger proportion of the original price of the sunglasses.)

value of marginal product of labor

The value of the additional output a firm gets by employing one additional unit of labor is the

Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. . Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch. The figure shows Tracy chooses at point X. A line from X goes diagonally up to point Y marked Amy chooses on the top right. From point Y a line goes diagonally up and to the right where a caption reads: 25 for Tracy, 225 for Amy. From point Y a line comes diagonally down and to the right where a caption reads: 300 for Tracy, 200 for Amy. From point X a line goes diagonally down to point Z marked Amy chooses. From point Z a line goes diagonally up and to the right where a caption reads: 75 for Tracy, 150 for Amy. From point Z a line comes diagonally down and to the right where a caption reads: 125 for Tracy, 125 for Amy.

Tracy gets 75 and Amy gets 150.(Tracy knows that Amy will always choose the top branch, so if Tracy chooses the top branch, she will earn 25, and if she chooses the bottom branch she will earn 75. So, Tracy will choose the bottom branch, and then Amy will choose the bottom branch.)

Given the total cost function TC = 2,250 + 4Q, when output is 1,000 units, average total cost is ______ and average fixed cost is ______.

When Q = 1,000, total cost = 2,250 + (4 × 1,000) = 6,250. Average total cost is total cost divided by Q, here 6,250/1,000 = 6.25. Fixed cost is $2, regardless of Q. $6.25; $2.25

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window.,If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café cannot negotiate with each other, then will Quick Burger operate a drive-through window?

Yes, because Quick Burger's payoff is higher when it operates a drive-through.,If Quick Burger and The Sunshine Café cannot negotiate with each other, then Quick Burger will choose to operate a drive-through window because Quick Burger's payoff is higher when it operates a drive-though.

Suppose Vinnie is looking for a month-long vacation rental in San Diego. The first vacation rental Vinnie finds costs $800 per month. If he looks for another vacation rental, there's a 75 percent chance he'll find another one for $800 per month and a 25 percent chance he'll find one for $600 per month. Other than price, all of the vacation rentals are identical. Vinnie's marginal cost of searching for an additional vacation rental is $45. Since searching for another apartment is a ______ gamble, if Vinnie is risk-neutral, then he ______ search for another apartment.

better-than-fair; will- The expected value of search is: $5 = (0.75) ($0) + (0.25) ($200) − $45. Since this is greater than zero, we know that searching is a better-than-fair gamble, and a risk-neutral person will accept any better-than-fair gamble.

One concern economists have about the minimum wage is that it:

could lower employment

A means-tested benefit program is one in which the benefit level

decreases as the recipient earns additional income.

Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost ______ and your marginal cost ______.

decreases; stays the same

Refer to the figure below. In this case, the private market ______ resources efficiently because ______.

does not allocate; some of the costs of paper production do not fall on producers

An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______.

downward-sloping; horizontal

The reason that the prisoner's dilemma presents a dilemma is that:

each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy.(A prisoner's dilemma is a game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if both had played a dominated strategy. Thus, everyone would be better off if they did not pursue their narrow self-interest.)

Select all that apply. A worker's human capital includes factors such as the worker's

education, motivation, creativity, intelligence

Economic theory predicts that an increase in the minimum wage will lead:

employment to fall

Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. You would expect that, as the semester progresses, students who really care about getting an A will

engage in a positional arms race, studying more and more.

In a competitive labor market, a worker's wage will be _____ the value of the marginal product of labor.

equal to

For perfectly competitive firms, marginal revenue ______ price; for monopolists, marginal revenue ______ price.

equals; is less than -Perfectly competitive firms do not have to lower price to sell an additional unit; monopolists do. As a result, marginal revenue is less than price for a monopolist.

A negative income tax is a system under which the government would grant ______.

every citizen a cash payment each year, financed by an additional tax on earned income

Curly is offered the following gamble: a 25 percent chance of winning $1,500 and a 75 percent chance of losing $500. This is a(n)

fair gamble.(The expected value of this gamble is: $0 = (0.25) ($1,500) + (0.75) (−$500). Since the expected value of this gamble is zero, it is a fair gamble.)

If the demand for car mechanics falls, the equilibrium wage of car mechanics will tend to:

fall

Firms should hire additional workers as long as the value of the marginal product of labor is _____ than the market wage.

greater

If the production of a good generates a negative externality, then at the market equilibrium quantity, the marginal cost to society of another unit of the good will be

greater than the marginal benefit of another unit. (Firms do not consider negative externalities when making their production decisions. Thus, at the market equilibrium quantity, the marginal cost to society of another unit will be greater than its marginal benefit.)

Since 1980, real earnings for the top 1 percent of U.S. earners has:

grown rapidly

All else equal, nondiscriminatory employers who pay workers based on their ability rather than their race will earn _____ discriminatory employers

higher profits than

All else equal, nondiscriminatory employers who pay workers based on their ability rather than their race will earn _____ discriminatory employers.

higher profits than

Suppose supply of labor decreases. At the new equilibrium, wages would be ______ and ______ teachers would be hired.

higher; fewer

The set of worker characteristics such as education, experience and work habits that affect the value of a worker's marginal product is referred to as a worker's:

human capital

Payments made to low-income families in the form of a good or service are

in-kind transfers.

The lemons model predicts that the market price of high-quality used cars will be ______ the true value of high-quality used cars, so that only relatively ______ cars will be put up for sale in market.

less than; low-quality - If risk-neutral buyers cannot observe that a car is high-quality, then they will not be willing to pay more than their reservation price for an average-quality car. As a result, the owners of high-quality cars will be reluctant to put them up for sale.

The earned-income tax credit (EITC) is a policy under which

low-income workers receive credits on their federal income tax.

Discriminatory employers who pay men more than women simply because they prefer working with men are likely to earn _____ employers who do not discriminate.

lower profits than

The additional output a firm gets by employing one additional unit of labor is the

marginal product of labor

If the benefits an individual receives from a welfare program decrease as their earnings increase, then the welfare program is

means-tested

According to the adaptive rationality standard, individuals

might rationally choose to have preferences that are not self-interested.( The adaptive rationality standard regards goals as objects of choice, and the choice about which goals to have must be made efficiently. Thus, people might choose to have unselfish preferences if doing so is in their own self-interest.)

Suppose Jack just booked a ticket to fly home to see his family for Thanksgiving. When he purchases the ticket, he decides to purchase travel insurance that allows him to get a full refund on his ticket if he's too sick to travel. Knowing this, Jack doesn't bother to take care of himself in the weeks leading up to the trip, reasoning that if he ends up being too sick to travel, then he can always get a full refund. Jack's failure to take care of himself in the weeks leading up to his trip is an example of

moral hazard. (This is an example of a moral hazard because after Jack insured himself against illness, he made less effort to protect his health.)

Loss aversion is the tendency to experience losses as

more painful than the pleasures that result from gains of the same magnitude.

Consumer discrimination exists when consumers are willing to pay ______ for a good or service produced by the favored group, even though the quality of the good or service is ______.

more; the same

Government-sponsored jobs for low-income, unemployed individuals excels over EITC and negative income tax because __

negative income tax can weaken work incentives EITC does nothing for the unemployed poor

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good.

nonexcludable

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. This game is _______ because ______.

not a prisoner's dilemma; OPEC does not have a dominant strategy - A prisoner's dilemma is a game in which each player has a dominant strategy, and when each plays it, the resulting payoff is lower than if each had played a dominant strategy.

Suppose the accompanying table describes the demand for a good produced by monopolist. price- 10,9,8,7,6,5,4 quantity- 1,2,3,4,5,67

not produce the 7th unit.- The marginal revenue of the 7th unit is negative

If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n)

perfect competitor., Marginal revenue is a constant $20 for this firm, so it must face a horizontal demand curve.

Suppose the latest Avengers movie first played in theaters, where it sold out during its opening week. Several months later it was available on pay-per-view TV. Two years later it was shown on CBS, a broadcast television network. When the movie was playing in theaters, it was a ______ good; when it was available on pay-per-view TV, it was a ______ good; and when it was shown on CBS, it was a ______ good.

private; collective; public

A compensating wage differential is a difference in the wage rate that Blank______

reflects the attractiveness of a job

The rule of thumb according to which people are more likely to assume something belongs to a given category if it shares many characteristics with the stereotypical members of that category is the

representative heuristic.

In a winner-take-all labor market:

small differences in human capital translate into large differences in pay

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

start-up costs; variable costs