Review practice problems for exam 2

Chad loves playing Valorant on his computer. He will work as much as necessary to afford his apartment, food, and other necessities, but he prefers to spend as much time as possible playing Valorant. If Chad gets a raise, we expect him to choose to work___________ A) Fewer hours because for Chad, the income effect is very important B) More hours because for Chad, the income effect is very important C) Fewer hours because for Chad, the substitution effect is very important D) More hours because for Chad, the substitution effect is very important

A) Fewer hours because for Chad, the income effect is very important

According to what we learned in class, what is the main reason that perfect (first-degree)price discrimination is so rare? A) Finding everyone's willingness to pay is costly and difficult. B) Overcoming legal conflicts to charge each person differently is costly. C) Not every person has a maximum willingness to pay for a good. D) Most consumers have identical preferences

A) Finding everyone's willingness to pay is costly and difficult.

Relative to traditional monopoly pricing, price discrimination leads to A) Increased quantities B) Decreased quantities

A) Increased quantities

Among the following examples, the one that best illustrates a public good is a(n) A) The satellites used by the GPS technology in cell phones and other electronics B) A movie on Netflix C) Medical marijuana D) Fish in the ocean

A) The satellites used by the GPS technology in cell phones and other electronics

Globalization has made it easier for American companies to offshore work formerly done in the U.S. Some people think that this has resulted in American workers "competing" against cheaper labor. Despite this, American wages are still much higher than the wages in China and other low-income companies. This is mostly because: A) Tariffs prevent most international trade B) American workers are more productive than the workers in these countries C) Americans choose not to import goods from low-wage companies D) Greater competition prevents wages from changing

B) American workers are more productive than the workers in these countries

Asarta Inc. is polluting into a nearby fishing stream; doing so benefits them $40,000 a year. The fishermen are unhappy as their trout are dying off. Typically, the fishermen can catch trout and sell it to a local market where they can earn about $8,000 a year. Currently, the fishermen have the rights to use the stream as they see fit. Which of the following is an optimal solution according to the Coase Theorem? A) Asarta Inc. could pay the fishermen $7,000 and keep polluting B) Asarta Inc. could pay the fishermen $8,500 and keep polluting C) The fishermen could pay Asarta Inc. $4,000 to stop them from polluting D) There is no optimal solution given the current property rights

B) Asarta Inc. could pay the fishermen $8,500 and keep polluting

Francine owns a restaurant and is considering expanding her restaurant and hiring moreworkers. However, she knows that if she does this, she will have to offer daily happy hour specials in order to get extra customers to come. This is an example of: A) Diminishing marginal product B) Declining output prices C) Labor-capital substitution

B) Declining output prices

Consumers who clip and redeem discount coupons ________. A) exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons B) exhibit a relatively higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons C) exhibit a relatively lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons D) cause total revenue to decrease for firms that issue coupons for their products

B) exhibit a relatively higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons

Parker owns a car wash. She currently has four employees and is able to wash 18 carsper day. If she hires a fifth employee, she will be able to wash 21 cars per day. Carwashes cost $10 each. What is the marginal revenue product of the fifth employee? A) $3 B) 21 car washes C) $30 D) 3 car washes

C) $30

Which of the following is NOT an example of price discrimination? A) Sony sells cheaper Blu-ray discs overseas, but you cannot use them in an AmericanBlu-ray player B) Colleges offer need-based financial aid C) A jewelry store charges a higher price for a gold ring than it charges for a silver ring D) McDonald's offers half-price coffee to senior citizens

C) A jewelry store charges a higher price for a gold ring than it charges for a silver ring

Greg owns a company which manufactures dishwashers. He employs forklift drivers to move refrigerators around his factory and warehouse. Which of the following will increase the demand for forklift drivers? A) A decrease in the price of forklifts. B) An increase in the demand for dishwashers. C) Better management results in forklift drivers being more productive.

C) Better management results in forklift drivers being more productive.

Spain goes from being an autarchy to allowing world trade. As a result, Spain begins exportingolives. How does world trade affect consumer and producer surplus for olives? A) Consumer surplus increases and producer surplus increases B) Consumer surplus increases and producer surplus decreases C) Consumer surplus decreases and producer surplus increases D) Consumer surplus is unaffected and producer surplus decreases

C) Consumer surplus decreases and producer surplus increases

According to what we learned in class, what is the marginal cost of working for one hour if your hourly wage is $12 per hour? A) $12 B) $0 C) One hour of leisure D) One hour of work

C) One hour of leisure

If a good that generates negative externalities were priced to take these negative externalities into account, its A) price would decrease, and its output would increase. B) price would remain constant and output would increase. C) price would increase, and its output would decrease. D) price would increase but its output would remain constant.

C) price would increase, and its output would decrease.

Third-degree price discrimination for concessions at ball parks is not applied to adults and children because_____. A) children's demand for food is elastic and adults' demand for food is inelastic B) adults' demand for food is elastic and children's demand for food is inelastic C) there could be exchange of the products from children, who could buy them at a lower price, to adults D) Adults would buy goods at a high price and give them to their children

C) there could be exchange of the products from children, who could buy them at a lower price, to adults

Asarta Inc. is polluting into a nearby fishing stream; doing so benefits them $40,000 a year. Thefishermen are unhappy as their trout are dying off. Typically, the fishermen can catch trout and sell it toa local market where they can earn about $8,000 a year. Currently, Asarta Inc. has the rights to use thestream as they see fit. Which of the following is an optimal solution according to the Coase Theorem? A) Asarta Inc. could pay the fishermen $7,000 and keep polluting B) Asarta Inc. could pay the fishermen $8,500 and keep polluting C) The fishermen could pay Asarta Inc. $4,000 to stop them from polluting D) There is no optimal solution given the current property rights

D) There is no optimal solution given the current property rights

When producers do not have to pay the full cost of producing a product, they tend to A) overproduce the product because of a positive externality. B) underproduce the product because of a positive externality. C) underproduce the product because of a negative externality. D) overproduce the product because of a negative externality

D) overproduce the product because of a negative externality

Which of the following is NOT true about imperfect competition? a. Greater product differentiation decreases market power. b. A smaller number of sellers in a market increases market power. c. Imperfect competition among buyers gives them bargaining power. d. Sellers with market power can use independent pricing strategies.

a. Greater product differentiation decreases market power. Note that imperfect competition for buyers is similar to that for sellers, and it means buyers have more bargaining power and can offer lower price.

In which of the following situations would Maria's Doughnut Shop have the LEAST market power? a. Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries. b. There are two rival doughnut shops within three miles but no other bakeries. c. The closest doughnut shop is 10 miles away, but there is a bakery with breakfast pastries two miles away. d. The closest doughnut shop or bakery is 25 miles away from Maria's shop.

a. Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries. More competitors= less market power

Why can a company with monopsony power in its labor market succeed in paying low wages? a. Workers don't have other employment options. b. The employer doesn't have other options for employees. c. There is a very limited supply of workers. d. It must charge a low product price, so it cannot afford to pay a high wage.

a. Workers don't have other employment options.

Social safety nets, social insurance programs, and progressive tax systems are all types of income _____programs that have the impact of moving income distribution _____ equality. a. redistribution; closer to b. replacement; further from c. redistribution; further from d. replacement; closer to

a. redistribution; closer to

Human capital is: a. capital equipment made by hand. b. accumulated knowledge and skills that make a worker more productive. c. capital equipment that must be operated by humans. d. human labor used in place of machines.

b. accumulated knowledge and skills that make a worker more productive.

A characteristic of monopolistic competition that is not present in any other market structure is that there a. is only one seller and that seller holds a high level of market power. b. are many sellers and each produces its own version of the product. c. are a small number of sellers who have market power. d. are many sellers that produce identical products.

b. are many sellers and each produces its own version of the product.

When an individual's best choice may depend on what other people choose and other people's best choices may depend on what the individual chooses, then _____ is the science that is useful to help the decision makers analyze their options. a. strategic interaction theory b. game theory c. analytical strategy d. partial equilibrium analysis

b. game theory

Which of the following statements is true regarding views of what is "fair"? a. Everyone tends to agree that things should be fair, but everyone does not agree on exactly what is fair. b. Everyone tends to agree that things should be fair, and everyone tends to agree on what is fair. c. Few believe that things should be fair, and everyone does not agree on exactly what is fair. d. Few believe that things should be fair, but everyone tends to agree on what is fair.

c. Few believe that things should be fair, and everyone does not agree on exactly what is fair.

A coordination game exists when: a. the product or issue of the game concerns communication, such as phones or media. b. coordination is costless and easy, regardless of whether it is harmful. c. all players have a common interest in coordinating their choices. d. collusion created the market or situation from the start.

c. all players have a common interest in coordinating their choices.

The poverty line is: a. a measure that is used to define relative poverty and is based on housing and food costs. b. an estimate of the minimum income needed to provide a comfortable standard of living. c. an income level determined by the government, below which a family is defined to be in poverty. d. an income level set by the poor to identify the income needed to cover their basic needs.

c. an income level determined by the government, below which a family is defined to be in poverty.

Based on the Rational Rule for Sellers, how does a manager set price and quantity? If the company has nomarket power, the marginal cost _____ price. If the company has market power, the marginal cost is _____ than price. a. is less than; greater b. is greater than; less c. equals; less d. equals; greater

c. equals; less

Unions try to _____ union members by _____. a. ensure more jobs for; reducing wages b. ensure more jobs for; raising wages c. raise wages of; shifting the labor supply curve to the left d. raise wages of; shifting the labor supply curve to the right

c. raise wages of; shifting the labor supply curve to the left note: Unions increase the wage for its members, but also shift labor supply to the left and decreases the quantity oflabor supply.

In a monopoly, there is one _____; in a monopsony, there is one _____. a. unit of product; price b. price; unit of product c. seller; buyer d. buyer; seller

c. seller; buyer

Which of the following conditions is present for all sellers in a perfectly competitive market? a. All sellers have an equal and high level of market power. b. The product price varies across the sellers. c. The number of sellers is small. d. All sellers are selling identical products.

d. All sellers are selling identical products.

Which of the following statements is true regarding discrimination in labor markets? a. When discrimination occurs, all workers are treated equally. b. If two workers in the same job have different salaries, one is a victim of discrimination. c. If average income differs across groups of workers, there is discrimination. d. Discrimination accounts for only part of the differences in wages across groups of workers.

d. Discrimination accounts for only part of the differences in wages across groups of workers. note: Wage difference is caused by multiple reasons, including discrimination, productivity, human capital, demand of product, etc.

When a seller has a high level of market power, the seller a. produces a product that is identical to the output of other companies in the market. b. is in a market with growing demand. c. is one of many sellers selling in its market. d. can raise its price without losing many customers

d. can raise its price without losing many customers

Which of the following is NOT among the main factors affecting wages? a. discrimination b. regulation and institutional factors c. labor demand d. complements

d. complements

Kaila wants her employer to pay her 20% more for making night deliveries in a high-crime neighborhood than the day delivery people receive. Most of the delivery people are willing to make night deliveries in the neighborhood for only a 10% differential. Kaila is seeking: a. a compensating differential based on her individual concerns about the risks. b. a compensating differential because others are undervaluing her concerns. c. less than a compensating differential because she is asking for more than others are. d. more than a compensating differential because she has greater concerns than most workers.

d. more than a compensating differential because she has greater concerns than most workers.

Social insurance programs do NOT: a. set individual benefits based on past income. b. obtain revenue through program-specific taxes and fees. c. cover both rich and poor. d. use a means test to qualify people for benefits.

d. use a means test to qualify people for benefits.