ABM 1041

According to the graph at right, what is the monopolist's average total cost of production?

$20

A decrease in price will cause an increase in demand. This is the law of demand.

False

Which of these is an example of consumers creating a negative externality?

Litter is found in an area around a fast-food restaurant

Consider the market for new cars. Which of the following will cause higher prices and a greater quantity of new cars exchanged?

New government regulations make it more difficult for cars more than 8 years old to pass safety inspections.

Which of the markets is the best example of monopolistic competition

The fast food industry

Consider the market for breakfast cereal. Which of the following will cause lower prices and a greater quantity of breakfast cereal exchanged?

There is an increase in the number of firms selling breakfast cereal.

A firm seeking to maximize profits will increase the amount of output it produces when marginal revenue is greater than marginal cost

This is true for all firms regardless of market structure.

The demand for paperback books is decreasing. A possible cause is that more consumers are preferring digital over paperback books

True

Universities are engaging in price discrimination when they charge different levels of tuition to in-state and out of state students

True

because of scarcity people face tradeoffs in nearly every choice they make

True

The live band that plays nearby makes it difficult for patrons of a restaurant to hold a conversation. This is an example of

a negative externality.

A positive externality is a benefit that accrues to participants within the market

false

When a country is operating at its full potential output, it is producing at a point

on the production possibility frontier

The reason economists often consider monopoly socially undesirable is because the monopolist

produces less than socially efficient amount

If the price the U.S. Post Office charges to deliver Express Mail rises, the demand facing FedEx will rise because its respective services are _____ goods.

substitute

When markets are efficient

the sum of consumer and producer surplus is maximized

Consider the market for wool sweaters. Which of the following will cause lower prices and a greater quantity of wool sweaters exchanged?

Apparel manufacturers develop a more efficient way of processing wool fabrics.

Firms in an industry characterized by oligopoly usually don't have to consider the reactions of competitors when they formulate pricing, product and other strategies

False

The notion that individuals and firms are compelled to retaliate or punish others for engaging in noncooperative actions, but leaving the door open for future reconciliation, is BEST referred to as what kind of strategy?

Tit-for-tat

Unlike positive externalities from physical (non-network) goods, network externalities affect

existing and potential users.

The primary difference between perfect competition is that entry and exit is difficult in the case of monopolistic competition

false

Customers of monopolistically competitive firms will pay more for products than they would if the same products are sold in a perfectly competitive market structure. The higher price

represents the value that consumers place on product differentiation and innovation.

Suppose the government sets the price for water and the market for water is always experiencing shortages. One can infer that

the government has established a price ceiling for water.

A Nash equilibrium assumes that each player chooses his or he best strategy

true

A dominant strategy is an action that is the same best response regardless of what another player's actions are

true

According to the Coase theorem, if transactions cost are negligible, the outcome is efficient, regardless of the distribution of property rights

true

An event that will cause an increase in the supply of yogurt is an increase in the number of sellers in the yogurt market

true

An important lesson from the prisoner's dilemma response regardless of what anther player's action are

true

Charging different groups of people different prices (such as children's prices and seniors' prices versus regular or adult prices) is an example of third-degree price discrimination

true

Customers who purchase a network good after it matures are called casual users.

true

In the long run, a typical firm in a monopolistically competitive industry will likely earn little to no economic profit

true

Public goods are characterized by the inability to exclude non-players and the fact that consumption of the good does not preclude others from consuming it

true

Spraying for mosquito control in a local community is an example of a public good because it is nonrival and exhibits nonexcludability

true

Suppose medical studies reveal that long distance running reduces the chance of having a heart attack. We can expect that the equilibrium price of running shoes would increase and the equilibrium quantity of running shoes sold would increase

true

Suppose the price of raw materials and other inputs used to produce computers increases. We should expect that equilibrium market price of computers will increase and the quantity of computers sold will decrease

true

The free rider problem typically results in a production of output that is less than the social optimal quantity.

true

The social cost curve lies above the private supply curve for the producer in cases of negative externalities.

true

The speed by which a network good can enter into a virtuous or vicious cycle is generally faster than that of a non-network good.

true

Opportunity costs exist because

using resources for one activity means that their use elsewhere must be given up

Elasticity of demand is closely related to the slope of demand curve. The more responsive buyers are to a change in the price, the steeper is the demand curve.

False

If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely _____ goods

Compementary

Consider the market for wool sweaters. Which of the following will cause higher prices and a higher quantity of wool sweaters exchanged?

Consumers expect the weather to be colder than normal during the next several weeks.

Based on the graph at right, which statement is TRUE about this monopolist?

It is operating at a profit.

At an all-you-can eat buffet, a person will stop eating when

Marginal utility is equal to zero

Consider the market for new cars. Which of the following will cause lower prices and a greater quantity of new cars exchanged?

New technology improves the production efficiency of automobile manufacturers.

Consider the market for breakfast cereal. Which of the following will cause higher prices and a lower quantity of breakfast cereal exchanged?

The prices of inputs like refined sugar and cereal crops (wheat, corn, etc.) increase.

Which is an example of capital in the production process of an amusement park?

The roller-coaster

A country's comparative advantage is determined by an assessment of its opportunity cost

True

A decrease in consumer income will increase the demand for products and services that are income inferior

True

A firm should (at least in the short run) continue production if variable cost are less than revenues

True

An increase in price will cause an increase in quantity supplied. This is the law of supply.

True

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friend. However, this is still considered a market failure because the number of people who obtain flu shots is less than the socially optimal quantity

True

If price exceeds marginal cost at a competitive firm's current level of output, then the firm can increase profit if it increases its output

True

If the government sets a price ceiling below the market price, then we can expect that there will be shortages of the good

True

Other things being equal, a price-discriminating firm will charge less to the customers who

are the most elastic in their demand for a product.

It has been suggested that a way to save endangered species is to give hunting rights to people who live in the vicinity of that species. The idea behind this suggestion is that

by giving people rights to profit from the animals, they have an incentive to ensure their survival.

The reason a monopoly imposes a deadweight loss on society is that

consumers are denied output for which they are willing to pay more than the cost of producing it

A network good is one where the

cost to the user falls if there is a large number of other users of the good.

The reason monopolistic competitive firms have difficulty maintaining a profit in the long run is that

ease of entry into the market encourages new firms to enter and force down the price.

In which situation can a Prisoner's Dilemma outcome most likely be avoided?

if the game is repeated over and over under the same conditions.

The socially optimal level of a product that produces pollution

incorporates both the private and the social costs of production.

The Coase theorem claims that in the case of tobacco

it does not matter who is given the property rights to the air, as long as the parties involved are allowed to bargain

A subscription to an online movie streaming service is an example of a club good because

it is nonrival in consumption and excludable.

Fishing in a community lake is an example of using a common property resource because

it is rival in consumption and nonexcludable.

____ The income distribution in the United States is generally _____ equally distributed than in European countries and is _ _____ _equally distributed than in many South American countries.

less; more

Over time, interconnection in network industries creates a ___ environment that leads firms to __

more competitive; lower costs.