Econ 4001.01
The indifference curves in Figure 21.1 slope upward because: http://ezto.mheducation.com/13252701973586409336.tp4?REQUEST=SHOWmedia&media=image004.png 1. a higher wage is necessary in order to compensate someone for getting more years of education. 2. as people achieve higher levels of education, they generally receive higher wages. 3. all indifference curves slope upward. 4. education is an inferior good.
a higher wage is necessary in order to compensate someone for getting more years of education.
Always There Wireless is wireless monopolist in a rural area. There are 200 customers, each of whom has a monthly demand curve for wireless minutes of Qd = 200 - 100P, where P is the per-minute price in dollars and Q is the number of wireless minutes. The marginal cost of providing the wireless service is $0.25 per minute. If Always There charges $0.25 per minute, how large of a fixed monthly fee can it charge and still persuade customers to buy their service? $200 $153.13 $306.25 $175
$153.13
Suppose Always There Wireless serves 100 high-demand wireless consumers, who each have a monthly demand curve for wireless minutes of QdH = 200 - 100P, and 300 low-demand consumers, who each have a monthly demand curve for wireless minutes of QdL = 100 - 100P, where P is the per-minute price in dollars. The marginal cost is $0.25 per minute. Suppose Always There Wireless charges $0.25 per minute. How much can Always There Wireless charge as a fixed fee without losing the low-demand consumers? $9.38 $28.13 $153.13 $1.00
$28.13
Figure 21.2 shows the benefit functions for low-ability workers and high-ability workers (A and B), along with one indifference curve for each worker type (C and D). The employer cannot observe worker type directly but has created two positions, E and F, as a screening mechanism. Which of the following is true? http://ezto.mheducation.com/13252701973586409336.tp4?REQUEST=SHOWmedia&media=image016.png 1. Curve A is an indifference curve for a low-ability worker, and curve B is an indifference curve for a high-ability worker. 2. Curve A is the benefit curve for high-ability workers, and curve B is an indifference curve for a high ability worker. 3. Curve A is an indifference curve for a high-ability worker, and curve C is the benefit curve for high-ability workers. 4. Curve A is the benefit curve for high-ability workers, and curve C is an indifference curve for a high ability worker.
Curve A is the benefit curve for high-ability workers, and curve C is an indifference curve for a high ability worker.
Each of the following is a challenge that society's would face in trying to use the second welfare theorem to achieve equity without sacrificing efficiency EXCEPT: 1. endowments aren't always easily observable. 2. wealth isn't an endowment. 3. lump-sum transfers distort choices. 4. transfers based on wealth aren't lump-sum transfers.
3. lump-sum transfers distort choices.
The idea that every Pareto efficient allocation is the competitive equilibrium for some initial allocation of resources is known as: 1. the first welfare theorem. 2. the second welfare theorem. 3. the third welfare theorem. 4. the exchange efficiency condition.
3. the third welfare theorem.
A firm has market power: 1. when it can profitably charge any price of its choosing. 2. when it is characterized as a price taker. 3. when it can profitably charge a price that is above its marginal cost. 4. only when it is the sole firm producing in a market.
3. when it can profitably charge a price that is above its marginal cost.
The increase in entry cost would ( ) the number of firms in Cournot Model. Increase Decrease
Decrease
A market is a natural monopoly when: 1. a good is produced most economically by several firms. 2. a good is produced most economically by one firm. 3. the government grants a firm a patent on a good. 4. the firm's average cost function is everywhere upward sloping.
a good is produced most economically by one firm.
An oligopoly market is: * a market with many sellers. *a market with a single seller. *a market with a few sellers. *a market with many buyers
a market with a few sellers.
When informed parties prefer trading circumstances that are disadvantageous to uninformed trading partners, economists say that ________ has occurred. information disequilibrium moral hazard signaling adverse selection
adverse selection
In many cases, signaling offers a partial solution to problems that arise from: adverse selection. moral hazard. separating equilibria. market unraveling.
adverse selection.
An action creates an externality if it: 1. does not affect someone with whom the decision-maker has not engaged in a related market transaction. 2. affects someone with whom the decision-maker has not engaged in a related market transaction. 3. affects only those individuals engaged in the market transaction. 4. affects someone with whom the decision-maker has not engaged in a related market transaction and affects only those individuals engaged in the market transaction.
affects someone with whom the decision-maker has not engaged in a related market transaction.
In order to induce desirable behavior, one might employ _______, which is a contract or compensation policy that ties rewards or punishments to performance. 1. signaling 2. an incentive scheme 3. nudges 4. advantageous selection
an incentive scheme
A free rider: 1. contributes little or nothing to a public good while benefiting from others' contributions. 2. prevents a market failure. 3. contributes little or nothing to a public good, but also 4. does not benefit from others' contributions. creates both positive and negative externalities.
contributes little or nothing to a public good while benefiting from others' contributions.
Pigouvian subsidization: 1. involves the use of taxes or fees to remedy negative externalities. 2. involves the use of subsidies to remedy negative externalities. 3. is a legal principle requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses. 4. requires that victims of an externality pay a tax to the producers of the externality.
involves the use of subsidies to remedy negative externalities.
A monopsony market: is a market with a single buyer. is a market with a single seller. is a market with a single input. is a market with a single product.
is a market with a single buyer.
A firm's markup: 1. is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price. 2. is the amount by which its marginal cost exceeds its average cost. 3. is the amount by which its average cost exceeds its marginal cost. 4. is the value of its profit.
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
An endowment: 1. is the bundle of goods an individual starts out with before trading. 2. is the bundle of goods an individual ends up with after trading. 3. is the bundle of goods an individual inherits. 4. is the bundle of goods and individual donates.
is the bundle of goods an individual stars out with before trading
Bundling: 1. is the practice of selling a single product in bulk at a reduced per unit price. 2. is the practice of selling several products together as a package. 3. is the practice of selling the same good to different types of consumers at different prices. 4. is the practice of selling different goods to different types of consumers at different prices.
is the practice of selling several products together as a package.
General equilibrium analysis: 1. is the study of competitive equilibrium in many markets. 2. illustrates the dependence among markets. 3. concerns competitive equilibrium in a single market, considered in isolation. 4. was pioneered by Nobel laureate Vernon Smith.
is the study of competitive equilibrium in many markets
When a monopolist maximizes its profit by selling a positive amount: 1. its marginal revenue must equal its marginal cost at that quantity. 2. its marginal revenue must exceed its marginal cost at that quantity. 3. its marginal revenue must be less than its marginal cost at that quantity. 4. its marginal revenue must be equal to zero.
its marginal revenue must equal its marginal cost at that quantity.
The use of common property resources: reduces positive externalities in many cases. reduces negative externalities in many cases. leads to positive externalities in many cases. leads to negative externalities in many cases
leads to negative externalities in many cases
Adverse selection can cause attractive trading partners to be driven from a market by unattractive trading partners, whose presence alters prices at which attractive trading partners could trade. This unfortunate result is known as: 1.market unraveling. 2. signal confusion. 3. moral hazard. 4. conspicuous consumption.
market unraveling.
When a firm ignores external costs: 1. it fails to maximize its profits. 2. it is willing to produce too little of the good at the given price. 3. the good is priced too cheaply in equilibrium. 4. it also ignores external benefits.
the good is priced too cheaply in equilibrium.
Input efficiency: 1. means that holding constant the total amount of each input used in the economy, there is no way to increase any firm's output without decreasing the output of another firm. 2. is not a requirement of Pareto efficiency in a production economy. 3. exists when it is possible to produce more of one good and at least as much of every other good using the same inputs. 4. is the same as efficient efficiency.
1. means that holding constant the total amount of each input used in the economy, there is no way to increase any firm's output without decreasing the output of another firm.
The first welfare theorem: 1. tells us that, in a general equilibrium with perfect competition, the allocation of resources is Pareto efficient. 2. clarifies how the "invisible hand" of the market guides people toward socially undesirable choices. 3. tells us that a general equilibrium with perfect competition is not Pareto efficient. 4. is also the only welfare theorem.
1. tells us that, in a general equilibrium with perfect competition, the allocation of resources is Pareto efficient.
Suppose Always There Wireless serves 100 high-demand wireless consumers, who each have a monthly demand curve for wireless minutes of QdH = 200 - 100P, and 300 low-demand consumers, who each have a monthly demand curve for wireless minutes of QdL = 100 - 100P, where P is the per-minute price in dollars. The marginal cost is $0.25 per minute. Suppose Always There Wireless charges $0.35 per minute. How many minutes will high-demand consumers purchase? 65 35 75 165
165
The exchange efficiency condition holds: 1. if every pair of individuals has inverse marginal rates of substitution for every pair of goods. 2. if every pair of individuals shares the same marginal rate of substitution for every pair of goods. 3. if every pair of individuals consumes the same quantities of every pair of goods. 4. if every pair of individuals have the same level of utility.
2. if every pair of individuals shares the same marginal rate of substitution for every pair of goods.
Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $A. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean and $300,000 if it's polluted. If _______, then abatement would be efficient. A < 300,000 A > 100,000 A < 100,000 A < 400,000
A < 100,000
A tradable emissions permit: 1. entitles a firm to generate a specified amount of a given pollutant. 2. is transferable. 3. can be used to promote least-cost abatement. 4. All of the responses are correct.
All of the responses are correct.
Firms bundle their products because: it is technologically efficient to do so. it can increase a firm's ability to extract consumer surplus. it can increase a firm's profits. All of these are reasons firms bundle their products.
All of these are reasons firms bundle their products.
In the Nash Equilibrium of Cournot Model, which of the following is not correct? 1. The deadweight loss is higher in monopoly than in oligopoly 2. All the competitors has no incentive to decrease or increase production 3. All the firms has zero profit 4. The price in equilibrium is usually higher than in Betrand model.
All the firms has zero profit
Suppose in the market for labor years of education is used as a signal of ability, and that there is a separating equilibrium such that high-ability workers receive EH years of education and low-ability workers receive EL years. Each of the following must be true about EL and EH EXCEPT: 1. EH cannot be so low that it is easy for low-ability workers to masquerade as high-ability workers. 2. EH cannot be so high that high-ability workers choose to masquerade as low-ability workers. 3. EH and EL cannot be equal. 4. EH may be higher or lower than EL.
EH may be higher or lower than EL.
Kate's Great Crete (KGC) is a local monopolist of ready-mix concrete. Its annual demand function is Q = 20,000 - 400P, where P is the price, in dollars, of a cubic yard of concrete and Q is the number of cubic yards sold per year. What is KGC's marginal revenue function? *MR = 20,000 - 200Q *MR = 400 - 10,000Q *MR = 50 - (1/400)Q *MR = 50 - 0.005Q
MR = 50 - 0.005Q
Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of low-quality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are observable to employers, how many workers of each type do employers hire? QH = 440; QL = 440 QH = 540; QL = 480 QH = 440; QL = 880 QH = 270; QL = 240
QH = 540; QL = 480
For the welfare effect of Horizontal Merger, which one is not sure Consumer surplus will decrease Total Surplus will decrease for sure Marginal cost usually decrease Producer surplus will increase
Total Surplus will decrease for sure
Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $75,000. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean and $300,000 if it's polluted. Suppose there is no law preventing the firm from polluting the river. Which of the following describes an efficient outcome in this case? 1. The farmer is unable to pay the owner of the mill enough to get him to stop polluting. 2. The owner of the mill pays the farmer $87,500 in compensation for its pollution. 3. The farmer pays the owner of the mill $112,500 to stop polluting. 4. The farmer pays the owner of the mill $87,500 to stop polluting
The farmer pays the owner of the mill $87,500 to stop polluting
Moral hazard occurs if one party to a transaction takes actions that the trading partner ________ and that ________ the benefits the trading partner receives from the trade. 1. observes; affect 2.observes; do not affect 3. cannot observe; affect 4. cannot observe; do not affect
cannot observe; affect
A firm engages in price discrimination when it: 1. charges different prices for different units of different goods. 2. charges the same price for different units of the same good. 3. charges a higher price for units for which the willingness to pay is high than for those units for which the willingness to pay is low. 4. charges a lower price for units for which the willingness to pay is high than for those units for which the willingness to pay is low.
charges a higher price for units for which the willingness to pay is high than for those units for which the willingness to pay is low.
With a two-part tariff: 1. consumers simply pay a fixed fee if they buy anything at all. 2. consumers pay a fixed fee if they buy anything at all, plus a separate per-unit price for each unit they buy. 3. consumers pay a fixed fee if they buy anything at all, plus an annual fee for the right to purchase anything. 4. consumers simply pay a fee for the right to buy anything.
consumers pay a fixed fee if they buy anything at all, plus a separate per-unit price for each unit they buy.
At the Nash equilibrium of an oligopoly market: 1. only one firm is able to earn profits. 2. each firm is making a profit-maximizing choice, regardless of the choices of its rivals. 3. each firm is making a profit-maximizing choice given the choices of its rivals. 4. each firm produces the same quantity.
each firm is making a profit-maximizing choice given the choices of its rivals.
In the Cournot model of oligopoly: 1. firms produce differentiated products and set their prices simultaneously. 2. firms produce homogenous products and set their prices simultaneously. 3. firms choose how much to produce simultaneously and the price clears the market given the total quantity produced. 4. firms choose how much to produce and the price to charge simultaneously
firms choose how much to produce simultaneously and the price clears the market given the total quantity produced.
In a Bertrand model of oligopoly: 1. firms produce differentiated products and set their prices simultaneously. 2. firms produce homogenous products and set their prices simultaneously. 3. firms choose how much to produce simultaneously and the price clears the market given the total quantity produced. 4. firms choose how much to produce and the price to charge simultaneously.
firms produce homogenous products and set their prices simultaneously.
Process-oriented notions of equity: 1. focus on the procedures used to arrive at an allocation of resources as well as on the allocation itself. 2. focus on whether the process used to allocate resources yields fair results. 3. focus on what people could choose rather than what they actually choose. . focus on what people actually choose, regardless of the choices available.
focus on what people could choose rather than that the actually choose
The Coase Theorem states that: 1. if bargaining is difficult, then regardless of how property rights are assigned, voluntary agreements between parties will remedy the market failures associated with externalities and restore economic efficiency. 2. if bargaining is frictionless, then the initial assignment of property rights determines the market failures associated by externalities and voluntary agreements between private parties are useless. 3. if bargaining is frictionless, then regardless of how property rights are assigned, voluntary agreements between private parties will remedy the market failures associated with externalities and restore economic efficiency. 4. if bargaining is frictionless, market failures must be remedied by government intervention.
if bargaining is frictionless, then regardless of how property rights are assigned, voluntary agreements between private parties will remedy the market failures associated with externalities and restore economic efficiency.
An allocation of resources is Pareto efficient if it is: 1. possible to make at least one consumer better off without making someone else worse off. 2. possible to make all consumers better off. 3. impossible to make any consumer better off without making someone else worse off. 4. impossible to make any consumer better off without making everyone worse off.
impossible to make any consume better off without making someone else worse off.
When competitors reach an agreement with one another about the quantities they will produce in order to keep profits high, they have engaged in: price fixing. quantity fixing. profit fixing. tacit collusion.
profit fixing.
Informed parties try to overcome problems of adverse selection through _________; uninformed parties try to overcome problems of adverse selection through _______. 1. social insurance; market unraveling 2. market unraveling; signaling 3. signaling; screening 4. screening; social insurance
signaling; screening
The deadweight loss from monopoly pricing is: 1. the amount by which aggregate surplus falls short of its minimum possible value, which is attained in a perfectly competitive market. 2. the amount by which consumer surplus exceeds producer surplus. 3. the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market. 4. the amount by which producer surplus exceeds consumer surplus.
the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market.
In a setting of repeated competition: 1. the cooperative outcome is the repetition in each period of the Nash equilibrium outcome that would arise were the firms to compete just once. 2. the non-cooperative outcome is the repetition in each period of the Nash equilibrium outcome that would arise were the firms to compete just once. 3. the non-cooperative outcome is the Nash equilibrium that arises only after firms compete many times. 4. the cooperative outcome is the Nash equilibrium that arises after firms compete many times.
the non-cooperative outcome is the repetition in each period of the Nash equilibrium outcome that would arise were the firms to compete just once
Under perfect price discrimination the monopolist produces ________ a perfectly competitive market. 1. the same amount of output as a non-discriminating monopolist as well as 2. less output than an imperfectly price discriminating monopolist, but more than 3. more output than an imperfectly price discriminating monopolist, but less than 4. the same amount of output as would
the same amount of output as would
The marginal social cost of production is: 1. the sum of the total cost to the producer and the total external cost. 2. the sum of the marginal cost to the producer and the total external cost. 3. the sum of the total cost to the producer and the marginal external cost. 4. the sum of the marginal cost to the producer and the marginal external cost
the sum of the marginal cost to the producer and the marginal external cost
Firms engage in explicit collusion when: 1. they predict what the other will do and attempt to undercut them. 2. they collude without communicating, sustaining a price above the noncooperative price that would arise in a single competitive interaction. 3. they communicate to reach an agreement about the prices they will charge. 4. they communicate what type of good they will produce.
they communicate to reach an agreement about the prices they will charge.
The market-clearing curve for substitutes is: 1. horizontal. 2. downward-sloping. 3. vertical. 4. upward-sloping.
upward-sloping
One of the most notable features of the main provisions of the Sherman Act is that they are: strict. weak. vague. obsolete.
vague
Price discrimination is based on observable customer characteristics: 1. when a firm can distinguish consumers with a high versus low willingness to pay. 2. when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay. 3. when a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit. 4. in all cases.
when a firm can distinguish consumers with a high versus low willingness to pay.
Price discrimination is based on self-selection: 1. when a firm can distinguish consumers with a high versus low willingness to pay. 2. when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay. 3. when a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit. 4. when monopolists decide for themselves whether to engage in price discrimination.
when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay.
Which of the following is NOT a reason why a monopoly might be regulated? 1. To reduce the inefficiency associated with profits 2. To limit prices in important markets with economic or political consequences 3. To deal with the negative consequences of government-created monopolies 4. To ensure that a good is produced at least cost
→ To reduce the inefficiency associated with profits
Because the monopolist doesn't pay attention to the willingness to pay of inframarginal consumers: 1. there can sometimes be a difference between what level of product quality is profitable for the monopolist and what level of product quality maximizes aggregate surplus. 2. the monopolist will choose the optimal level of product quality. 3. the quantity chosen by the monopolist will sometimes maximize aggregate surplus. 4. there can never be a difference between the marginal cost of higher product quality and the marginal value to consumers of higher product quality.
→ there can sometimes be a difference between what level of product quality is profitable for the monopolist and what level of product quality maximizes aggregate surplus.