econ 3
For the monopolistic competitor, which of the following is INCORRECT?
If the firm in a monopolistically competitive industry were making economic losses, new firms will enter the industry.
The most common reason for the existence of oligopolies is
economies of scale.
The Social Security system is a(n)
pay-as-you-go system.
In general, the demand for the product of a monopolistic competitor is
relatively elastic.
A cartel will break down more easily if
there are many entrants in the industry.
The goal of a cartel is to
maximize industry profits.
A market situation in which a large number of firms produce similar but not identical products is
monopolistic competition.
Determinants of income differences include all of the following EXCEPT
moral hazard.
The demand curve for a monopolistically competitive firm is
more elastic than for a monopoly firm
The purpose of a strike is
to force management to accept the union's proposed contract terms.
Which of the following is LEAST likely to be a reason for firms to form a cartel?
to raise competition among firms in the cartel
The Taft-Hartley Act outlawed all of the following practices EXCEPT
union shops.
When it comes to productivity, some economists argue that
unions have caused a decrease in productivity by excessive staffing and make work requirements.
All of the following are benefits of labor unions EXCEPT
unions maximize employment for all workers.
The marginal factor cost of a monopsonist is
upward sloping and rises faster than the supply curve.
Joe's hotdog stand merges with a company that supplies the condiments to Joe's. This is an example of
vertical merger.
Suppose Nabisco merges with both a wheat firm and milling firm. This is an example of a
vertical merger.
A firm that is a monopolist in the output market and a monopsonist in the input market
will hire less labor and pay a lower wage compared to the perfectly competitive case.
A network effect exists whenever
a consumerʹs willingness to purchase a particular good or service is influenced by how many others also buy or have bought the item.
Which of the following will lead to a decrease in the firm's short-run demand for labor?
a decline in labor productivity
All of the following are characteristics of monopolistic competition EXCEPT
a few firms dominate the industry.
In an industry with network effects and differentiated products, it is possible for the industry to become an oligopoly if
a few firms reap most of the sales gains resulting from positive market feedback.
A noncooperative game is
a game in which firms will not negotiate in any way.
A cartel is
a group of producers that agree to set common prices and output quotas.
The joining of firms that are producing or selling a similar product is
a horizontal merger.
Monopolistic competition means
a large number of firms producing differentiated products.
A situation where a consumer's willingness to use an item depends on how many others use it is
a network effect.
For years, your neighbor insisted she had no desire to own a computer. Recently, however, she purchased one and says she did so because all her relatives have computers and she wants to exchange e-mail with them. Your neighbor's behavior is an example of
a network effect.
For years, your parents claimed they had no desire to join a social web site. Recently, however, they joined one and said they did so because all their relatives have joined the same site with them. Your parents' behavior is an example of
a network effect.
When a consumer's willingness to buy a good or service is influenced by the number of people who have purchased that good or service, this is called
a network effect.
When a new product is introduced in the market, Lenny always wants to see how popular the item becomes before he purchases it. Lenny's behavior is known as
a network effect.
Negative market feedback refers to a tendency for
a particular product to fall out of favor with additional consumers because other consumers have stopped purchasing the product.
Long-run equilibrium for a monopolistic competitor is characterized by
a price exceeding marginal cost.
In oligopoly, any action by one firm to change price, output, or quality causes
a reaction by other firms.
The mutual interdependence of oligopolists ensures that each oligopolist has
a reaction function.
A fall in the price of the final product produced by a firm will cause
a reduction in demand for an input used to produce the final product.
In the 1920s and 1930s, economists became increasingly aware that there were industries that did not fit the model of perfect competition or pure monopoly. Two separate theories of monopolistic competition resulted. Edward Chamberlin of Harvard published the Theory of Monopolistic Competition in 1933. Chamberlin defined monopolistic competition as
a relatively large number of producers offering similar but differentiated products.
When examining the financial status of households, wealth is
a stock variable and includes both tangible assets and human capital.
The long-run equilibrium of a monopolistically competitive firm is characterized by
a tangency of the average total cost curve with the firm's demand curve.
The joining of a firm with another to which it sells an output or from which it buys an input is known as
a vertical merger.
When U.S. Steel, a steel producer, bought control of iron ore companies at the beginning of the 20th century, the company was initiating
a vertical merger.
When there is a tendency for a particular product to fall out favor with additional consumers because other consumers have chosen not to purchase the product
negative market feedback occurs.
Suppose there are four firms in an industry. The market shares of the four firms are 5 percent, 20 percent, 35 percent, and 40 percent. The Herfindahl-Hirschman index for that industry is
3,250.
When a falloff in usage of a product by some consumers causes others to stop purchasing the item there is
negative market feedback.
In the long run, monopolistically competitive firms will not earn economic profits because
new firms will enter the industry.
In the long run, in a monopolistically competitive market, price will be
equal to ATC.
In the long run, the economic profits of a monopolistically competitive firm
equal zero.
The most common type of investment in human capital is
expanded years of schooling.
The attempt to force employers to use more labor than they otherwise would, or to force employers to use labor inefficiently, is known as
featherbedding.
Which of the following is NOT a program designed to attack poverty?
federal corporate income tax
The number of firms in a monopolistically competitive industry means that
firms will not cooperate to set a pure monopoly price.
The analytical framework in which two or more individuals, companies, or nations compete for certain payoffs that depend on the strategy that others employ is
game theory.
Under monopsony, marginal factor cost is
greater than the wage rate.
The monopolistic competitive firm in short-run equilibrium may experience economic profits that are
greater than, equal to, or less than zero.
Cheating in a cartel is more likely to occur if the industry
has a large number of firms.
If the price of labor increases, the typical perfectly competitive firm in the short run will
hire less labor.
Which of the following is NOT a characteristic of monopolistic competition?
homogeneous product
All of the following are assumptions of monopolistic competition EXCEPT
homogeneous product.
The recent merger of Southwest Bell (SBC) and AT&T companies is an example of a
horizontal merger.
In a perfectly competitive labor market, the labor supply curve facing the firm will be
horizontal.
Recent income distribution figures in the United States show
slightly more inequality.
The demand curve for the product of a monopolistic competitor
slopes downward.
If firms in a monopolistically competitive industry are operating with economic losses, over time we would see
some firms exiting the industry, causing the demand curves of the remaining firms to shift to the right.
Sometimes unions can raise wages above what productivity increases would permit. When this happens, we can be sure that
some union workers end up losing their jobs.
Any rule that is used to make a choice is
strategy.
The egalitarian principle says
that everyone should have exactly the same income.
The age-earnings profile predicts that earnings will peak at
the 45-50 age level.
A geometric representation of the distribution of income is referred to as
the Lorenz curve.
Monopolistic competition and perfect competition are similar in that each market structure is characterized by
the absence of long-run economic profits.
Marginal factor cost is
the change in total costs due to a one-unit increase in the variable input.
Unions tend to want import restrictions because
the restrictions decrease the demand for non-union made goods, increasing the demand for union made goods.
A concentration ratio measures
the share of industry sales accounted for by the largest firms in the industry.
The greater the the number and closeness of substitutes available between monopolistically competitive firms
the smaller the ability of a firm to raise its price above the price of close substitutes.
When manufacturing a car, parts must be soldered together. This work can be done by labor or by a robot (capital). More robots will be hired when the price of labor increases. This is known as
the substitution effect.
The demand for DVDs increases. As a result
the wage rate in the DVD industry increases and the quantity demanded of workers increases.
The demand for computers increases. As a result
the wage rate increases in the industry and the quantity supplied of workers increases.
An oligopoly is a market situation in which
there are very few sellers and they recognize their strategic dependence on one another.
When unions raise wages beyond what productivity increases would permit,
there is a redistribution of income from low- to high-seniority workers.
When unions exist in markets
there no longer is a perfectly competitive labor supply.
Monopolistic competitors advertise because
they produce goods that can be differentiated from the goods of other firms in the industry.
Firms in a monopolistically competitive market will advertise because
they want to differentiate their products.
If three firms of similar sizes join to form a cartel, then it is most likely that
they will charge a common, higher market price.
If five firms of similar sizes join to form a cartel, then it is most likely that
they will collectively produce less than before.
One of the fundamental problems a cartel faces is
to determine how much each producer will decrease its output.
If we were to compare the annual earnings of union and nonunion workers in recent years, we would find that
unions have not succeeded in raising the annual incomes of their members.
Goods X and Y are substitutes. If the price of good Y falls, the marginal revenue product of good X
will shift in.
The monopsonistic exploitation of labor refers to
workers being paid a wage less than their marginal revenue product.
In the long run, both monopolistically competitive and perfectly competitive firms attain
zero economic profits.
A game in which any gains by the group are exactly offset by equal losses by the end of the game is called the
zero-sum game.
A game in which any gains within the group are exactly offset by equal losses by the end of the game is a
zero-sum game.
The dominant strategy in the prisoners' dilemma is for
both players to confess.
In the long run in a monopolistically competitive market, a firm will, in theory,
break even.
The type of labor agreement that requires workers to be union members prior to being considered for employment is a
closed-shop agreement.
Which of the following is legal under the Taft-Hartley Act?
collective bargaining
Bargaining between the management of a company and the management of a union is
collective bargaining.
The measurement of industry concentration which calculates the percentage of all sales contributed by a specific number of leading firms is called the
concentration ratio.
A tit-for-tat strategy is one in which oligopolies
cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation.
Collusion always involves firms engaging in a
cooperative game.
When OPEC meets to set production levels, this organization is playing a
cooperative game.
Game theory would classify a cartel under the topic of
cooperative games.
Social Security is a pure transfer program because
current payroll taxes are used to pay the eligible retirees.
A cartel behaves like
a monopolist.
Which of the following is NOT true of an oligopoly?
Firms are price takers.
Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of $10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2 million. If the rest of the industry has annual sales of $12 million, the second largest firm has sales of
$7 million.
Inheritance accounts for about
10 percent of income inequality.
The federal government began officially measuring poverty in the
1960s.
If industry sales are $2,000, and the top four firms have sales of $170, $140, $100, and $80, respectively, what will be the four-firm concentration ratio?
24.5 percent
Suppose an industry has total sales of $25 million per year. The two largest firms have sales of $6 million each, the third largest firm has sales of $2 million, and the fourth largest firm has sales of $1 million. The four-firm concentration ratio for this industry is
60 percent.
Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of $10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2 million. If fifth through tenth largest firms combined have annual sales of $12 million, the four-firm concentration ratio for this industry is
65.7 percent.
The wealthiest 10 percent of the population owns about
70 percent of all the wealth in the United States.
An example of a cooperative game would be
a cartel.
Suppose union workers are earning more than similarly qualified nonunion workers. From this, we can conclude that
Any of these are possible and we cannot tell which without having more information.
Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation?
Both firm A and firm B choose the low price.
Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?
Cartel members make fewer profits.
How do economies of scale contribute to the development of an oligopoly?
Economies of scale make small-scale producers inefficient.
Which of the following is FALSE about a comparison between a perfectly competitive firm and a monopolistically competitive firm?
In the short run, a perfectly competitive firm will earn zero economic profits, while a monopolistically competitive firm will earn positive economic profits.
It has been argued that in the long run monopolistic competition is inefficient because
It has been argued that in the long run monopolistic competition is inefficient because
Which of the following statements about a monopolistically competitive firm is FALSE?
It sets price like a perfectly competitive firm.
If the price of golf balls increases, what will likely happen to the demand for golf club manufacturing employees?
It will increase.
Which of the following is TRUE for a monopolistically competitive firm?
MR < P
In the long run, equilibrium positions that arise in both monopolistically competitive and perfectly competitive markets are
MR = MC and P = ATC.
In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which
MR = MC.
Which of the following is NOT true about a cartel?
Members experience large economies to scale relative to industry demand.
In which market structure will a firm choose not to shut down when price is less than average variable cost?
None of these. All firms will shut down when P < AVC.
In a long-run monopolistically competitive equilibrium
P = ATC, and ATC is not at its minimum value.
Which of the following is NOT a wage or employment strategy that a union would follow?
Set a maximum wage rate such that a shortage of workers will result.
Which of the following is NOT a true statement about the Lorenz curve?
The Lorenz curve includes both money income and income in kind.
Suppose the market for pizza makers is initially in equilibrium, but then the equilibrium wage rate and the equilibrium quantity of labor both increased. What happened in the market for pizza makers?
The demand for pizza makers increased.
Which of the following assumptions is TRUE about monopolistic competition?
The firm's products are differentiated.
Which of the following statements regarding the Lorenz curve is FALSE?
The less bowed is a Lorenz curve, the less equally income is distributed.
Which of the following statements is TRUE about the market and individual firm's supply curve for labor?
The market supply curve is more inelastic than the firm's supply curve.
Between 1986 and 1998 the De Beers company controlled the world diamond market. De Beers and its affiliated association of producers restricted diamond sales to maximize profits. De Beers and its association was "the only game in town" and had what is
a cartel.
A change in a price of a substitute input for labor will cause
a change in the demand for labor in the same direction of the price change.
A business enterprise in which employees must belong to the union before they can be hired is called a(n)
closed shop.
Which of the following statements is an accurate statement about the Social Security (OASDI) program?
The program transfers income from those who work to those who do not work.
When there is an increase in the wages the banking industry offers accountants, what happens to the supply of accountants available to other industries?
The supply to other industries falls.
Which of the following is TRUE of an oligopoly?
They engage in nonprice competition.
The official poverty level is based on pretax income including cash. Which of the following statements is correct regarding this official specification of poverty?
This is not a good definition of poverty because it does not include in-kind subsidies.
Which of the following will not cause the supply of labor curve to shift in the economics professor industry?
Universities have discovered a way to make professors more productive.
Over the past several decades, U.S. firms have faced more competition from overseas firms. Does this have any impact on the market power of U.S. oligopoly firms?
Yes, competition from overseas firms can substantially limit domestic firms' market power.
In a Lorenz curve, perfect income equality is represented by
a 45-degree line originating from the origin.
An association of producers in an industry that agree to set common prices and output quotas to prevent competition is
a cartel.
At any quantity, the marginal factor cost is always
above the labor supply curve.
The Herfindahl-Hirschman index is measured by
adding the squares of the market shares of all firms in an industry.
A dominant strategy is one that
always yields the highest benefit regardless of what the other players do.
If a union establishes by collective bargaining a wage rate that is above a competitive market equilibrium wage rate, then
an excess quantity of labor will be supplied.
The age-earning cycle shows an individual typically earning
an income that increases with age, peaks, and then falls as retirement approaches.
Which of the following will lead to an outward shift in the firm's short-run demand for labor?
an increase in the price of output
There are fewer than half as many publishers of college textbooks in the United States now as a generation ago. Three companies alone account for almost two-thirds of the sale of new textbooks. This market situation characterized by very few sellers is known as
an oligopoly.
Featherbedding is the term for
any practice that forces employers to use more labor than they would otherwise.
Economies of scale
are commonplace and often a barrier to entry in oligopolistic industries.
The existence of economies of scale is one reason oligopolies exist because
as output increases average total cost decreases leading to large-scale firms.
In the long run, a monopolistic competitor will produce to the point at which
average total costs are higher than the minimum of possible ATC.
In the long run, monopolistic competitive firms are considered to be operating inefficiently because their
average total costs are not at a minimum.
When hiring additional workers, a firm operating in a perfectly competitive labor market will
be able to hire additional workers without offering higher wages.
A union can achieve higher wages without accepting lower levels of employment of members by
beginning a campaign against buying foreign imports.
An industry's equilibrium wage rate is established
by the intersection of the industry supply and demand curves for labor.
The outputs of an oligopolistic industry
can be homogeneous or differentiated.
The individual firm operating in a perfectly competitive labor market
can buy all the labor it wants at the going market wage rate.
A group of firms that try to work together to earn monopoly profits is called a(n)
cartel.
An association of producers such as OPEC that agrees to set common pricing or output goals is referred to as a
cartel.
Suppose firms in an industry hire unskilled labor and skilled labor. Unskilled labor is a substitute for capital and skilled labor is a complement with capital. A decrease in the real price of capital would
cause the demand for unskilled labor to decrease and the demand for skilled labor to increase. The wage of unskilled labor would decrease relative to the wage of skilled labor.
An industry utilizes capital and two types of labor. Unskilled labor is a substitute for capital while the skilled labor is complementary to capital. An increase in the price of capital will
cause the wage of unskilled labor to rise relative to the price of skilled labor.
A member in a cartel can earn more profits by
charging a slightly lower price and raising production.
Which type of collective bargaining agreement requires workers to be union members prior to being considered for employment?
closed shop
In order to hire additional laborers, a monopsony must
raise the wage rate.
When the price of labor increases, the substitution effect will ________ the quantity of labor demanded and the output effect will ________ it.
decrease; decrease
After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits by
decreasing prices.
Which of the following does NOT contribute to the marginal productivity of workers?
discrimination
All of the following are characteristics of an oligopoly EXCEPT
diseconomies of scale over all ranges of output.
The way income is allocated among the population is called the
distribution of income.
A noncooperative game would refer to a situation in which oligopoly firms
do not engage in collusive behavior together.
Some economists criticize the Lorenz curve because it
does not account for the effect of age on a family's income.
Suppose a firm can charge a relatively low price to try to compete actively with its rivals, or it can charge a relatively high, collusive price. If its strategy is to charge the low price regardless of the other firms' decisions, this low-price is the firm's
dominant strategy.
Because of product differentiation in a monopolistically competitive market, the demand curve for an individual firm will be
downward sloping.
The demand curve faced by a monopolistically competitive firm is
downward sloping.
The demand curve for the product of a monopolistic competitor is
downward sloping.
In a perfectly competitive labor market, the industry demand curve is ________ and the industry supply curve is ________.
downward sloping; upward sloping
For a monopolistically competitive market, the number of firms in the market implies that
each firm acts independently of other firms.
The number of firms in a monopolistically competitive market means that
each firm has a relatively small share of the total market since there are many firms in the industry.
The main objective of the members of a cartel is to
earn economic profits.
In the long run, firms in a monopolistically competitive market
earn zero economic profits.
Which of the following is a condition that helps enforce a cartel agreement?
easily observable prices
In the short run, the monopolistic competitor is just like the perfect competitor in that
either type of firm can earn economic profits, experience economic losses, or break even in the short run.
To reduce labor surplus above the equilibrium union wage level, a union may do all of the following EXCEPT
encourage nonunion members to join the union.
In an attempt to reduce the poverty rate, there has recently been a movement away from income maintenance programs to
encouraging people to get jobs.
The most significant difference between perfect competition and monopolistic competition is that
in a perfectly competitive market products are homogeneous, while in a monopolistically competitive market products are differentiated.
Economists argue that the union wage advantage
in the private sector is a 4% increase in wages for union workers over nonunion workers.
Which of the following is NOT a feature of monopolistic competition?
inability of firms to enter or exit the market
The earnings of most people
increase with age until around age 50 due to increased experience, training, and hours worked.
A decrease in the supply of labor could be caused by
increased wage rates in another industry.
The success of a cartel rests upon
inducing all members to limit their combined output and charge the same price.
The United Steelworkers is an example of a(n)
industrial union.
Under monopsony, marginal factor cost
is greater than the going wage rate.
In a bilateral monopoly, the wage rate that is determined in the market
is indeterminate.
Entry into a monopolistically competitive industry
is relatively easy.
The richest 10 percent of U.S. houses hold more than two-thirds of all wealth. The problem with this statement is that
it does not consider private and public pension plans.
A monopolistic competitor is in long-run equilibrium when
its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output.
An implication of the downward slope of the demand curve for a monopolistic competitive firm is that
its marginal revenue curve slopes downward but lies below the demand curve.
Income in the form of goods and services is
known as income in kind.
Research indicates that on average, state government unions have
raised wages to 20 percent above nonunionized government workers.
Which of the following is NOT a condition that helps enforce a cartel agreement?
large variation in input prices
A short-run increase in the price of a firm's output will typically
lead to more employment in the competitive firm.
The more bowed out the Lorenz curve is, the
less equal the distribution of income.
Advertising by monopolistically competitive firms can do all of the following EXCEPT
lower the consumer's purchase price.
In a monopolistically competitive market if the additional revenue generated from advertising equals the additional cost of advertising, the firm should
maintain its current amount of advertising.
The monopsonist will employ labor to the point at which the
marginal factor cost equals the marginal revenue product of labor.
Compared with a monopolist, the demand curve faced by a monopolistically competitive firm is
more elastic.
Suppose a sushi restaurant is making significant economic profit in the short run. In the long run
more people will open sushi restaurants, reducing the economic profit for each restaurant.
Since World War II, the share of total income going to the bottom 20 percent of U.S. households has
more than doubled.
In a 50-firm industry, two of the smallest firms merge. Yet the 4-firm concentration ratio and the 8-firm concentration ratio did not change. All things considered, we can say that the industry has
moved farther away from competition because the number of firms decreased.
The idea that if enough consumers cut back on their use of a product it induces other consumers to do the same is referred to as
negative market feedback.
If monopolistically competitive firms earn short-run economic profits, we expect to see
new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits.
If a union sets the wage rate to maximize the total wage receipts of its members, the price elasticity of demand for labor would be
numerically equal to 1.
The dominant strategy allows a firm to
obtain the highest benefit, regardless of its rivals' actions.
Much of a person's increased productivity can be linked to
on-the-job training.
In a zero-sum game
one player's losses are exactly offset by another player's gains.
Actions that ignore the possible long-run benefits of cooperation and focus solely on short-run gains are
opportunistic behavior.
In game theory, actions such as cheating that focus solely on short-run gains are referred to as
opportunistic behavior.
Union membership, in terms of percentage of the U.S. civilian labor force
peaked about 1960 and has since declined.
One reason earnings tend to fall before retirement age is that
people tend to reduce the number of hours they work after age 50.
A single firm in a competitive labor market has a labor supply curve that is
perfectly elastic.
When there is a tendency for a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product
positive market feedback occurs.
A tendency for a good to come into favor with consumers because other consumers have chosen to buy the item is
positive market feedback.
Stephanie listens to punk rock because her friends do. This is
positive market feedback.
When network effects are important, then an industry can experience
positive market feedback.
A game in which players as a group gain at the end of the game is referred to as
positive-sum game.
A game in which players collectively gain is known as a
positive-sum game.
The demand curve for the product of a monopolistically competitive firm slopes downward because
products are perceived by consumers as different.
The main difference between a monopsonist and a competitive buyer of labor is that
the competitor can hire as many workers as it wants at the going wage while the monopsonist must raise wages to hire additional workers.
The percentage of all sales contributed by the leading four or leading eight firms in an industry is known as
the concentration ratio.
The demand curve for labor will shift whenever
the demand for the final product changes.
All of the following shift an industry's labor supply curve EXCEPT changes in
the demand for the final product.
Monopsonistic exploitation is
the difference between the marginal revenue product of a worker and the wage received by the worker.
An example of a positive market feedback is
the emergence of the iPod.
In a perfectly competitive labor market, the wage rate paid by the individual firm is
the equilibrium market wage rate.
It has been argued that a monopolistically competitive industry involves "waste" because
the firms do not produce at the minimum of the average total cost curve and price is above marginal cost.
The equilibrium wage rate in an industry is found by
the intersection of the market demand curve for labor and the market supply curve of labor.
Economies of scale means that
the long-run average total cost curve slopes downward over it entire range.
Collective bargaining in the United States typically involves negotiations between
the management of a company and the leaders of the union over the wages and fringe benefits to be offered.
A reaction function is
the manner in which one oligopolist reacts to a change in price made by another oligopolist in the industry.
Monopsonistic exploitation refers to
the payment to a resource less than MRP.
In a "game," strategies are
the plans made by the participants.
If you believe that a worker should be paid on the basis of what he or she produced, you believe in
the productivity standard.
A cartel is likely to last longer if
the profits of participating members are relatively stable.
If the marginal productivity of labor decreases, then
the quantity of labor demanded at every possible wage rate will be less.