Study for final exam

On a graph with a demand curve, consumer surplus is the area

above the market price and below the demand curve.

For purposes of utility analysis, marginal means

additional.

(Figure: Determining Surplus and Loss) In the graph, if the government sets a maximum price of $5, this is an example of a(n)

binding price ceiling.

(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a minimum price of $75, this is an example of an

binding price floor.

A monopolistically competitive firm is like a perfectly competitive firm in the long run because

both firms will earn zero profit.

(Figure: Bowling and Chinese Buffet) Bill can consume ten Chinese buffets or go bowling five times per month (or any other specific other combinations). This graph represents Bill's

budget line.

(Figure: Interpreting MC and Price Curves) The firm's marginal revenue is

$54.

Jen-Chi's Tea House produces 500 packets of tea per week. Jen-Chi's average variable cost is $14.10 per packet and his fixed cost per week is $1,775. Jen-Chi's total cost per week is

$8,825.

(Table) Based on the table, suppose the firm experiences fixed costs of $35. At two units of production, the firm would have total costs of

$90.

Which of these indicates a possible income elasticity measure for a normal good?

0.8

If the price elasticity of demand is 0.1, then for every 10% increase in price, there is a _____ in quantity demanded.

1% decrease

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium output for this monopolist?

12 units

In the market for surfboards in the graph, with free trade, the consumer surplus is _____.

20,000

(Table) Based on the table, the average product of three workers is _____ bats.

22

Consider the market for surfboards in the graph with a $100 tariff per imported surfboard. If the government wanted to impose an equivalent quota, the quota would need to be set at _____.

40

All of these are characteristic of monopolistic competition EXCEPT

barriers to entry.

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, how much is consumer surplus?

$11

(Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that after free trade, the price of watches in country A is _____ and the price of watches in country B is _____.

$150; $150

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium price for this monopolist?

$30

The monopolistically competitive firm in the following figure is earning a profit of _____; in the long run, _____ will occur in this industry.

$300; entry

(Figure: Determining Tax Burdens) Based on the graph, the original market price is $4. The graph depicts a tax of _____ with a corresponding deadweight loss of _____.

$3; $75

Given the information in the table, total variable costs at 5 units of production are

$400.

Bob loves to eat blue jellybeans. He gets 50 units of utility for the first jellybean, 40 units of utility for the second, 30 units of utility for the third, 20 units of utility for the fourth, and 10 units of utility for the fifth. For the first jellybean, the marginal utility is _____, and the total utility for eating five jellybeans is _____.

50; 150

(Figure: Understanding Cost Curves 2) Match the curves in the figure (lines A, B, and C) with the correct cost curve name.

A = marginal cost; B = average variable cost; C = average total cost

What is the primary reason a natural monopoly is allowed to exist?

A natural monopoly can produce at a lower cost due to economies of scale.

Which event occurs in the long run?

A new movie theater is built.

(Figure: Effects of Excise Tax) Based on the graph, after the excise tax is placed on the product, the producer surplus is

AEB.

Which statement represents a microeconomic issue?

About 15% of teachers were laid off last week.

Rational behavior requires thinking at the margin. Which example represents this type of thinking?

All of these examples represent thinking at the margin.

Which of these would NOT be a constraint on international trade?

China increases its ability to grow wheat.

What happens to a market if it transforms from a perfectly competitive industry to a monopoly without any change in market demand curve or any change in costs?

Consumer surplus decreases, producer surplus increases, and deadweight loss is created.

(Table) Based on the game table, where Delta's payoff is listed first, what is the Nash equilibrium pricing strategy?

Delta = price high; JetBlue = price low

One reason economists are generally in favor of free trade is that there are no "losers" from it.

False

The Trade Adjustment Assistance program provides help for domestic industries by offering production subsidies to those industries hurt by excessive imports.

False

Which statement is NOT considered a key principle of economics?

Irrational behavior requires thinking at the margin.

Which statement indicates a reason some policymakers are hesitant to use permit trading to reduce pollution?

It appears contradictory to use a market-based approach to solve market failure.

Which property is NOT a characteristic of a good environmental protection policy?

It minimizes abatement costs.

(Figure: Interpreting Short-Run Cost Curves) The short-run supply curve begins where the

MC equals the minimum AVC.

Which statement is NOT true about determining the equilibrium price and quantity for a monopolist?

Monopolists select the price that is equal to the average total cost.

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

Nonrivalry

(Figure: Nail Polish Externalities) Based on the figure, Sp (MPC) represents the private supply curve of a particular type of nail polish, the manufacture of which is associated with the release of toxic chemicals into the atmosphere. SS (MSC) includes the cost of that toxicity borne by others. What is the socially optimal price of this nail polish?

P2

Which statement does NOT involve thinking at the margin?

Sally worked eight hours today.

Jessie and Sammy are playing a game in which each has two choices. Based on the following game table (where Jessie's payoffs are listed first in each outcome), who has a dominant strategy?

Sammy's dominant strategy is "Tails"; Jessie does not have a dominant strategy.

If the average total cost is $10 and the price is $8 at the profit-maximizing quantity, what will happen in the long run in a perfectly competitive market?

Some firms will exit the market, pushing the market price higher.

If a store sells a good that has inelastic demand, what would be the net result on its total revenue from an increase in price of that good?

There would be an increase in total revenue.

Many economists prefer free trade over restrictions imposed on trade.

True

While free trade may result in job losses for domestic workers, it also encourages producers to be more productive and competitive.

True

(Table) Suppose you and your best friend are each deciding whether to spend the weekend in Key West or to stay home and study for next week's exam. The payoffs for each of the four possible outcomes are shown in the table (where higher numbers are better and the first number in each box represents your payoff, while the second number represents your friend's payoff). Which of these scenarios is the Nash equilibrium?

You travel but your friend studies, for a payoff of (75, 70).

Rohit had the opportunity to choose between two investments. The first investment was described as having a 30% chance of succeeding, while the second investment was described as having a 70% chance of failing. Rohit opted for the first investment because he thought it sounded less risky than the second investment. The chances of succeeding and failing are the same for the two investments, however, which implies that Rohit is subject to

a framing bias.

(Figure: Unicycle Production Costs) If the market price is $18, this firm makes

a normal profit or zero economic profit.

José tried caviar at a restaurant and found he did not like it. However, he ate all of it because he had paid such a high price for it. José's behavior can be explained as

a sunk cost fallacy.

People contribute to disaster relief even when they do not personally know anyone who has been affected by the disaster. What psychological factor associated with behavioral economics explains this behavior?

altruism

Mutually interdependent decision making among firms is a key characteristic of

an oligopoly.

Cartels are inherently unstable because

any one firm can make additional profits by selling additional output at a price above the marginal cost.

If the public utility commission allows a water company to earn a normal profit, then it is enforcing a(n) _____ rule.

average cost pricing

Government restrictions on common property resources

can improve allocative efficiency.

Which of the following words BEST describes what economics is about?

choices

An increase in the price of ice cream causes the demand for sprinkles to decrease. In this case, ice cream and sprinkles are _____ goods.

complementary

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $65

consumer surplus is greater than producer surplus.

The main focus of efficiency is for

consumers to get the goods and services they want at the lowest possible cost.

Under monopolistic competition, entry of new firms typically causes price to _____ and profits to _____.

decrease; decrease

Like the law of demand, marginal utility analysis predicts that, ceteris paribus, an increase in the price of a product

decreases the quantity demanded.

If price elasticity of demand is greater than 1, demand for the product is

elastic.

(Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, after free trade, country A will _____ and country B will _____ watches.

export; import

Game theory applies in all these settings EXCEPT

famers deciding their planting season.

(Figure: Monopolistic Competition) Based on the graph, under monopolistic competition in the short run, total revenue is represented by rectangle

fhdb.

At the shut-down point, the

firm is indifferent to whether it operates or shuts down.

(Figure: Determining Externalities) Based on the graph, the socially optimal level of production is at point

g.

In the long run, a monopolistically competitive firm charges a higher price than a perfectly competitive firm. The reason for this difference is that monopolistically competitive firms

have higher costs associated with advertising and product development.

At movie theaters, lower prices are charged for matinees than for evening shows of the same film. The customers attending the matinees have

higher elasticities of demand than customers attending the evening shows.

Which event would be an example of a common property resource market failure?

highway congestion

The free rider problem is that

if people cannot be prevented from consuming a certain good, they have little incentive to pay for it.

Economists understand that people respond to

incentives.

(Figure: Demand for Shoes) A shift to the right of the demand curve would NOT be caused by a(n)

increase in income given that shoes are a normal good.

If both the supply of and the demand for a good increase simultaneously, the equilibrium quantity will

increase.

Gasoline is produced from crude oil. Ceteris paribus, if the supply of crude oil falls, the equilibrium price of gasoline will _____ and the equilibrium quantity will _____.

increase; decrease

If the income elasticity of a good is negative, the good is a(n) _____ good.

inferior

Two different markets each have many buyers and many sellers, none of which have market power. Which of these would be MOST helpful in determining whether each market is monopolistically competitive or perfectly competitive?

information on the degree of product differentiation in each market

A firm is an economic institution that transforms _____ of production into _____ for consumers.

inputs; outputs

The assumption that people are rational

is fairly accurate for most cases.

The prisoner's dilemma has all of these characteristics EXCEPT

it is a sequential game.

If there is only one provider of electricity in a city, that market is likely to fail due to

lack of competition.

The cotton industry is experiencing negative economic profit. You can expect some firms to

leave the industry in the long run.

The government corrects for externalities in all of these ways EXCEPT

lobbying.

If a firm is able to change all of its factors of production, then it is operating in the

long run.

What would be a possible opportunity cost of a person going to a doctor for a check-up?

lost income due to not being at work for those hours

Perfectly competitive firms and monopoly firms should increase production when _____ marginal cost.

marginal revenue is greater than

Han and Micah have just started their own business: a food truck that sells specialty Vietnamese food. Although the start-up costs were low, Han and Micah charge a higher price for their food than their competitors because people from all over the city come to buy their food. What type of market structure do they face?

monopolistic competition

A market situation in which large numbers of firms produce similar but not identical products is

monopolistic competition.

Each oligopolistic firm recognizes that it must take into account the behavior of its competitors when it makes pricing decisions. This recognition is called

mutual interdependence.

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

negative externality.

A monopoly differs from a perfectly competitive market in that

no close substitutes exist for the monopolist's product.

The prisoner's dilemma is an example of a _____ game.

noncooperative

In which market structure is interdependent decision making most likely to occur among the firms?

oligopoly

Reece stayed out late last night and is very tired. He plans to skip his 8 A.M. economics class, even though he knows his professor will cover material that will be on the final exam. Reece is subject to

overvaluing the present relative to the future.

Which type of payment would NOT be considered a market transaction?

payment made to a victim of a natural disaster

If Pool Guy Jeremy negotiates a separate deal with each customer, he is engaging in _____ price discrimination.

perfect

Firms in _____ and _____ market structures earn zero economic profit in the long run.

perfect competition; monopolistic competition

A firm increases its price for a good and total revenues increase. From this, we can conclude that its demand is

price inelastic.

Economists explicitly assume that the primary objective of firms is to maximize

profits.

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

raising prices and reducing output in the market.

Assume that P1 > P2 > AVC. If market price decreases from P1 to P2, then the perfectly competitive firm that maximizes profit should

reduce production.

Which occurrence has led to an increased amount of trade between countries?

reduced transportation costs

(Figure: Market in Equilibrium) In the market in the figure, if price rises from $2.50 to $4.00, then total surplus will

rise by $35.

The law of supply states that as prices _____, the quantity _____.

rise; supplied rises

If demand is extremely elastic, it is likely that _____ will bear most of the burden of a tax and that the deadweight loss will be relatively _____.

sellers; large

(Figure: Determining Surplus and Loss) In the graph, if the government sets a maximum price of $5, there is a

shortage of 40 units.

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect the

supply of flour to decrease.

The maximum amount of a product that sellers are willing and able to provide for sale over a particular period at various prices, ceteris paribus, is called

supply.

(Figure: Predicting Demand Shifts) Which factor would change demand from D0 to D2?

the expectation of a decrease in the future price of the good

Marginal utility is NOT

the same for all units of a commodity consumed.

(Table) Based on the table, diminishing returns occur when hiring the _____ worker.

third

Economists categorize industries using all these characteristics EXCEPT the

total industry sales.

The measure of society's benefits due to a market transaction is called

total surplus.

When economists say that all societies face scarcity, they are describing

tradeoffs societies must make.

If the percentage change in quantity demanded is equal to the percentage change in price, then demand is

unitary elastic.

A surplus exists

when quantity supplied exceeds quantity demanded.

Reasons to study economics include all of these EXCEPT that you

will learn exactly how to invest your cash in the short term for the highest return on investment.

How large is deadweight loss in equilibrium and there are no market failures?

zero

(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.

zero economic