ECON Final - Chapters 8, 11, 14, Microeconomics 202 Final Exam Study Guide, ECON FINAL, Micro Exam 2, Eco 2314 McClung Test 2 Ch 7-8, micro final, Micro economics chapter 6,7,8,11 and 14., ECON 101 FINAL, Micro Final Exam

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Refer to the figure above. At the profit-maximizing level of output, profit for this monopolist is _______.

$444.62

The term "applied research" refers to research that is focused on a particular product that promises

an economic payoff in the short or medium term.

Mutually Beneficial Exchange

an exchange that benefits both parties inefficient if it does^

Using the term "spillover" is a less formal means of describing

an externality

Fungibility is the property of an entity whose individual units:

are interchangeable.

Products have network economies if they

are more valuable to own as more people own them.

A positional externality:

arises in situations in which rewards depend on relative performance.

Excess demand

demand is greater than supply.

The figure below shows the supply and demand curves for oranges in Smallville. At a price of $4 per pound there will be an excess ______ of ______ pounds of oranges per day.

demand; 20

In a free market, if the price of a good is below the equilibrium price, then;

demanders, to acquire the good, will bid the price higher.

Patents

encourage innovation by helping firms recoup the costs of research and development

If an imperfectly competitive firm wants to sell another unit of output...

it must lower its price

In a free market economy, the decisions of buyers and sellers are:

guided by prices.

An imperfectly competitive firm is one that:

has at least some influence over the market price.

A price setter is a firm that:

has some degree of control over its price A price setter has at least some latitude to set the price of its output.

A price setter is a firm that:

has some degree of control over its price.

A price setter is a firm that

has some degree of control over the price of its product

The hurdle method of price discrimination usually _____ consumer surplus and _____ producer surplus.

increases; increases

Refer to the figure above. At the point of profit maximization, the monopolist

incurs a loss of $38.50.

Statistical discrimination occurs when:

individuals are judged on the basis of the groups to which they belong.

Good is characterized by network economies if

it becomes more valuable as more people own it

When the Water Authority in Townsville cuts cost by $1000, the government cuts its budget by $1000. The most likely reason for this is, that _______

it is a state-owned natural monopoly

The major problems caused by imperfect information in insurance markets are

moral hazard and adverse selection.

A good or service that is both rival and excludable is a: public good. private good. collective good. commons good.

private good

A good or service that is both rival and excludable is a:

private good.

A good or service that is highly nonrival and highly nonexcludable is a(n) ______ good.

pure public

Joaquin's marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3.00, then Joaquin:

should reallocate his spending towards pecan pie and away from pumpkin pie.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 10 cents, then this firm:

should produce 50 doughnuts.

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then this firm should:

shut down in the short run.

Suppose that when a firm produces the level of output at which price equals marginal cost, the firm's total revenue is less than its variable cost. In this case, the firm should:

shut down.

Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that:

wants are limited and resources are scarce, so trade-offs have to be made

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing level of output for this monopolist is ______ units per day.

A crowded beach without an entrance fee is a ______ good.

commons

Beyond the provision of public goods, government exists to address:

externalities and property rights. Governments can help regulate activities that generate externalities, and they can help enforce property rights.

The marginal benefit of additional information:

falls as more information is collected.

The profit maximizing rule, P = MC, applies to

perfect competitors only.

The profit maximizing rule P = MC applies to:

perfectly competitive firms only

Free entry and exit of firms is a characteristic of:

perfectly competitive industries.

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

perfectly elastic

A benefit of an activity received by people not participating in the activity is called a(n):

positive externality

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________

shortage or excess demand.

A monopolist calculates its marginal revenues to be $15 and marginal costs to be $16. One can infer that it

should decrease output.

An imperfectly competitive firm is one

that possesses some degree of control over its price.

Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect:

the demand for sport utility vehicles to decrease

Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect:

the demand for sport utility vehicles to decrease.

An example of an implicit cost is

the value of a spare bedroom turned into a home office.

According to the ______, it is illegal to monopolize or attempt to monopolize.

Sherman Act

Price discrimination means charging

different prices to different consumers when production costs are the same.

One would expect to see more mail in rebate coupons being offered at

discount stores.

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price.

Minimum wage laws are an example of:

price floor

Industries in which firms have high fixed costs and low marginal costs are likely to have a

small number of large firms.

Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $250,000. Assume that the realtor's opportunity cost of negotiating the sale is $5,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house?

$25,000

Refer to the figure above. The monopoly structure in this market causes __________ units produced and a price that is __________ when compared with social efficiency

2 fewer; $2 higher

If the monopolist's demand curve is P = 50 - 10 * Q, then marginal revenues are zero when Q equals _______ units.

2.5

11). Suppose a monopolist faces the demand curve shown below. Picture If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing level of output is: 50 units. 40 units. 20 units. 30 units.

20 Units Like a perfectly competitive firm, a monopolist maximizes profit by choosing the output level at which marginal revenue equals marginal cost.

43). If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. Picture If the regulated pay-per-view charge to watch a fight were $15 per household, then ______ households would watch the fight, and the loss is total economic surplus would be ______ relative to when there is no charge to watch the fight. 10 million; $25 million 20 million; $225 million 20 million; $25 million 10 million; $225 million

20 million; $225 million At a price of $15, 20 million households would watch the fight. Relative to when the fight is show free of charge, the loss in total economic surplus would be 1/2 ($15 × 30M) = $225M.

Refer to the figure above. If this monopolistic firm's marginal cost is constant at $30, its profit maximizing output is

20 units

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Dusty can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter.

20; 10

Refer to the figure above. At the point of monopoly profit maximization, consumer surplus is _______, and at the point of perfectly competitive profit maximization, consumer surplus is _____

222.14; $500

Refer to the figure above. This firm's marginal revenue function would intersect the horizontal axis at a quantity of _______.

If the bookstore can charge two different prices for this book, the list price for the book will be _____ and the discounted price for the book will be ____.

36; $24

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase.

Refer to the figure above. The difference between consumer surplus given the monopoly market structure and consumer surplus with the socially efficient quantity is the area _______.

GCEI

Refer to the figure above. The socially optimal equilibrium would yield consumer surplus equal to the area

GJI

Which one of the following is an example of exclusive contracting for natural monopoly?

Garbage collection

Which of the following best describes fiscal policy tool?

Government spending

Which of the following is NOT an example of a public good?

Government-subsidized public housing

Which of the following is NOT an example of a public good?

Government-subsidized public housing Although the government subsidizes housing for some low-income families, housing is not considered a public good because it is neither nonrival nor nonexcludable.

Which of the following is NOT a commitment device?

High fines for illegal parking on campus.

Jason, a high-school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?

If Jason raises his price he could lose all his customers.

Which of the following situations will come closest to perfect price discrimination?

Negotiating a price with each individual consumer

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:

inconsistent reasoning; saving $20 is saving $20.

It is impossible for total utility to be ______ when marginal utility is ______.

decreasing; positive

Price discrimination means charging:

different prices to different buyers for essentially the same good or service.

Price discrimination means charging:

different prices to different consumers when production costs are the same

In the realm of public policy, loss aversion makes it:

difficult to enact policy changes.

The allocative function of price is to:

direct resources away from markets that are overcrowded and toward markets that are underserved.

The term "basic research" applies specifically to research pertaining to fundamental scientific breakthroughs that may offer commercial applications in the

distant future.

In the first chapter of The Wealth of Nations, Smith introduces the idea of the ________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

division of labor

When the U.S. Congress begins to draft laws and regulations that attempt to reduce the harmful effects of environmental pollution, industry lobbyists will

do all of the above in order to influence legislation in their favor.

To sell an extra unit of output, a perfect competitor __________ while an imperfect competitor __________.

does not alter price; must lower price

If a perfectly competitive firm wants to sell another unit of output...

does not need to alter its price

The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest:

doesn't always lead to an efficient outcome.

Imperfectly competitive firm

downward sloping curve MR < P Possesses some degree of control over its price

The common feature in pure monopoly, oligopoly, and monopolistic competition is

downward sloping demand.

An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______.

downward-sloping; perfectly elastic.

One reason the demand curve slopes ______ is that as prices fall ______.

downward; more people find that the price is now less than their reservation price.

Both buyers and sellers are price takers in a perfectly competitive market because

each buyer and seller is too small relative to other to independently affect the market price.

Perfect price discrimination occurs when

each buyer pays exactly his or her reservation price

If either the production or consumption of a good generates an external cost, then the market equilibrium quantity will be:

greater than the socially optimal quantity.

Comparing the non-price discriminating monopoly outcome to the perfectly price discriminating monopoly outcome, profits are

greater when price discriminating.

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

her final salary and the least she would be willing to accept to star in the movie.

Natural monopolies are most likely to arise when firms have:

high start-up costs and low marginal costs.

Natural monopolies are most likely to arise when firms have:

high start-up costs and low marginal costs. A monopoly that results from economies of scale is called a natural monopoly, and economies of scale often arise when production entails high start-up costs and low marginal costs.

A firm is most likely to experience economies of scale if it has _____ start up costs and ______ marginal costs.

high; low

Total economic surplus will be ______ in nations with well-defined property rights than in nations with poorly-defined property rights.

higher

Total economic surplus will be ______ in nations with well-defined property rights than in nations with poorly-defined property rights.

higher The tragedy of the commons can be solved if property rights are well defined, leading to greater economic surplus.

A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers.

higher than

A perfectly competitive firm faces a demand curve that is

horizontal

The demand curve for an individual seller's product in perfect competition is

horizontal

A Lorenz curve refers to a graphic illustration of the share of population on the _____________ and the cumulative percentage of total income received on the ______________.

horizontal axis; vertical axis

Perfectly competitive firm

horizontal demand curve perfectly elastic

The most important challenge facing a firm in a perfectly competitive market is deciding:

how much to produce

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

hyper-intense production will be unsustainable in the long run.

Suppose a monopolist charges a uniform price of $10 based on profit maximization and has constant marginal costs of $3. Cody is willing to pay $6 for the monopolist's output. Therefore

if resale of the output is impossible, the monopolist should lower its price to $6 just for Cody.

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit

The demand for pick-up trucks is relatively inelastic. However, the demand for the Ford F-150 brand of truck is elastic. Why is the demand for a specific brand of of truck more elastic than trucks in general?

if you need a truck you need a truck - inelastic. However, brands are elastic; you have other choices; substitutes

Suppose a single-price monopolist is considering becoming a price discriminating monopolist. If the firm does begin to price discriminate, it can expect to

increase both its output and its profit.

Suppose the accompanying figure illustrates the demand curve facing a monopolist. If the monopolist decreases its price from $12 to $10, its total revenue will ______.

increase by $600

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

increase output until marginal revenue equals marginal cost. Following the Cost-Benefit Principle, all firms maximize their profit by choosing the level of output at which marginal revenue equals marginal cost.

Improvements in the productivity of labor will tend to:

increase wages

Suppose a competitive firm and a monopolist are both charging $5 for their respective outputs. One can infer that

marginal revenue is $5 for the competitive firm and less than $5 for the monopolist.

If a theater company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the

marginal revenue of the sixth performance is $38,000.

For all firms, the additional revenue collected from the sale of one additional unit of output is

marginal revenue.

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

marginal revenue.

On a graph of a production possibilities curve, if a point is attainable, then it:

might or might not be efficient.

A __________ is a promise that the buyer's money will be refunded under certain conditions.

money-back guarantee

If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $105 in revenue when it sells 6 units, then one can infer the firm is a:

monopolist

In order for a good to be classified as __________, when one person uses the good, others are also able to use it.

nonrivalrous

Perfect competition and monopoly stand at ________of the spectrum of competition.

opposite ends

The ______ combination of goods is the combination of goods that yields the highest total utility given the consumer's income.

optimal

The ______ combination of goods is the combination that yields the highest total utility given a consumer's income.

optimal

Assume that each day a firm uses 13 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.

profit; $170

Points that lie outside the production possibilities curve are ________, and points that lie inside the production possibilities curve are ________.

unattainable; attainable

Scarcity exists because

unlimited wants and limited resources

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs.

According to economists, the satisfaction people get from their consumption activities is called:

utility

according to economists, the satisfaction people get from their consumption activities is called:

utility

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its

variable cost

Growing rice requires extensive irrigation in California. Economists consider water to be a ______ for rice farmers in California.

want

Taking a limousine to a five-star restaurant in New York is a:

want to both Joe Average and Richie Rich.

Higher education is a ______ and assigned textbooks are ______.

want;want

After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as:

wants

Excess demand occurs

when price is below the equilibrium price.

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.If the cost of paving the driveway is $2,000 and Lane proposes that they each pay 50 percent of this cost, then Riley ______ agree to Lane's proposal because ______.

will not; if they split the cost, then Riley's economic surplus would decrease

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.

$13

If the bookstore can charge two different prices for this book, the economic profit for the bookstore is ______.

$144

You save $10 on gas every week because you take the bus to school. You have class 5 days a week. What is your average benefit per day of taking the bus to school?

$2 ($10 % 5)

If S3 is the market supply curve, then each firm in this market will earn an economic loss of ______ per week.

$2,000

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total revenue at its profit-maximizing level of output is ______.

$2,400

Cost plus regulation would result in a price for this drug of

$25

Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ______ per day.

$250

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public's willingness to pay for the 2nd acre of parkland is ______.

$26.

Refer to the figure above. At a price of $8 per unit of output the total revenue for the monopolist is ____, and the marginal revenue earned from the last unit sold is ____.

$40; 0

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

$44

Refer to the figure above. The marginal revenue of the third unit of output is

A firm's profit equals:

(P − ATC) × Q [(price minus average total cost) times the quantity sold].

Refer to the figure above. If this firm were to increase sales from 20 units to 30 units of output, its marginal revenue would be

+$20.

If the demand curve facing the monopolist is P = 70 − 14Q, then the slope of its marginal revenue curve is:

-28

If the monopolist's demand curve is P = 70 - 14 * Q, then the slope of its marginal revenue curve is

-28

Refer to the figure above. The socially efficient price and output combination is

5 and 7.

Refer to the figure above. The socially efficient price and quantity combination is _______.

5 units and $6

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit if output is $15, what is this firm's profit-maximizing level of output?

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a private good, then at a price of $4, market demand is ______ units.

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is _____.

What is a Nash Equilibrium?

A Nash Equilibrium is a situation in which the other players chose the best strategies, given the other players' choices.

AP - IM TR - (EC - IM)

If a firm's EC = 0

AP = IM

If a firm earns EP = 0

AP is positive TR = EC AP = IM

Suppose that there are just two firms in a small market. Acme Manufacturing's Total Costs equal $100 + $3 Qty. Generic Industries' Total Costs equal $500 + $3 Qty. Compare cost functions at the two firms. Which statement is true?

Acme and Generic have equal marginal costs.

Suppose that Acme and Generic face the same demand function, that they are both pursuing a profit maximization policy, and that both companies are earning positive economic profits at that quantity. Which statement is true?

Acme and Generic will produce the same quantity, but Acme will have higher profits.

If each firm is making the same quantity,

Acme has lower average total costs than Generic.

Who wrote: "The Wealth of the Nations"?

Adam smith

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product.

In highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?

All of the above

Producer surplus (PS)

Area Above Supply, Below Price

13). Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Picture The profit-maximizing price for this monopolist to charge is: A. B. C. E.

B MC = MR at F units of output. From the demand curve, we can see that this corresponds to a price of B.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing price for this monopolist to charge is:

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. in the graph above, the average variable cost curve is labeled _____, the average total cost curve is labeled _____, and the marginal cost curve is labeled ______.

C; B; A

The insight that people can always arrive at efficient solutions to the problems caused by externalities if they can negotiate the purchase and sale of the right to perform activities that cause externalities is called the _______.

Coase Theorem The Coase theorem states that if at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.

________ arises when firms act together to reduce output and keep prices high.

Collusion

Which of the following statements is true?

Comparative advantage does not require absolute advantage.

Socially efficient level of output

Demand = Supply MC = P

AP - IM

Computer printer

Good with no network economies

All profit-maximizing firms chose the level of output at which

MR = MC

Profit maximizing rule

MR = MC

All profit-maximizing firms chose the level of output at which:

MR = MC Following the Cost-Benefit Principle, all firms maximize their profit by choosing the level of output at which marginal revenue equals marginal cost.

The monopolist will maximize profits at the output level for which:

MR=MC

Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:

MUc/Pc will fall.

Loss of surplus

Middle triangle area

Which of the following is the best example of a pure public good?

National defense

IM equals

No subsidy

PS = $0

The downward slope of the production possibilities curve illustrates the:

Scarcity Principle

ATC

TC / Q

Which of the following is the most likely to be a variable factor of production at a university?

The number of librarians

Which of the following firms is most likely to be a monopolist?

The one grocery store in a small town

For the two good case, the rational spending rule requires that

The ratio of marginal utility to price be equal for the two goods

If you assumed that college professors were outgoing individuals, which heuristic are you applying and why might this application lead to an error?

The representativeness heuristic associates something with a given category (e.g., outgoing individuals) based on shared characteristics (e.g., being in front of people as a major part of the job).

What distinguishes the economic short-run from the long-run?

The short-run is the time frame within which at least one input (or factor of production) is fixed. The long-run is the period in which all inputs are variable.

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit firms.

When a buyer purchases a good, ceteris paribus:

There is no change in demand or the quantity demanded

Which of the following would most likely be identified as being the ultimate goal of public policies that pertain to technology?

To encourage a stream of invention that benefits the whole of society.

Why do business firms need financial capital?

To make real physical capital investments.

If country A can produce more of practically everything than can country B, then which of the following statements is true?

Trade can benefit both countries.

If measuring opportunity cost on a budget constraint line. Can the opportunity cost be less than one? Can it be half good?

True

Is the budget constraint a visual of the opportunity cost between two goods?

True

Refer to the figure below. The socially optimal quantity in this market is ______ units per day. [graph w MC, Social Demand, Private Demand - K, L, M, N, T, U, V, W]

W The socially optimal outcome is given by the intersection of MC and Social Demand.

Which of the following is the best example of a perfectly competitive industry?

Wheat production

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates aDrive-Through Window Quick Burger Does NotOperate Drive-Through Window Quick Burger $24,000 $15,000 The Sunshine Café $11,000 $23,000 If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café CANNOT negotiate with each other, then will Quick Burger operate a drive-through window?

Yes, because Quick Burger's payoff is higher when it operates a drive-through.

Kate and Ali can live together in a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali to play her music in the apartment?

Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate.

If a firm is operating in the short-run where MR = MC, is that firm earning their maximum profits? Explain.

Yes. The Cost-Benefit Principle tells us that a firm should continue to expand output so long as MR>MC because each unit of output adds more to Total Revenues and to Total Costs. Given Profits = TR - TC, if MR>MC adding output increases profits. If MR<MC, adding output adds more to TC than to TR, thus reducing profits. So, if MR>MC - firm should increase output to increase profits. If MR<MC, the firm should reduce output to increase profits. Maximum profit is found where MR = MC. NOTE: This point does not guarantee economic profit, simply that the firm is doing the best it can at this point.

If a firm collects $90 in revenues when it sells 4 units, $100 in revenues when it sells 5 units, and $105 when it sells 6 units, one can infer the firm is likely to be

a monopolist.

Shelter for homeless people is an example of:

a need

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

a negative externality.

The long run is best defined as:

a period of time sufficiently long that all factors of production are variable.

Broadcast television is an example of:

a public good provided by private firms.

A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. One can infer that the consumer had

a reservation price of at least $300 but jumped the hurdle anyway

A technological advance would best be represented by:

a shift outward of the possibilities curve

A price ceiling that is set below the equilibrium price will result in:

a shortage of the good.

A pure monopoly exists when:

a single firm produces a good with no close substitutes

Pure monopoly

a single firm produces a good with no close substitutes

A pure monopoly exists when:

a single firm produces a good with no close substitutes A monopoly is the only supplier of a unique product with no close substitutes.

A pure monopoly exists when

a single firm produces a good with no close substitutes.

A pure monopoly exists when:

a single firm produces a good with no close substitutes.

A pure monopoly exists when: many firms produce a good with no close substitutes. a single firm produces a good with no close substitutes. only a single firm is present in the market. a single firm produces a good with many close substitutes.

a single firm produces a good with no close substitutes.

Pure monopoly exists when

a single firm produces a good with no close substitutes.

In a labor market, a stipulation that the first three months of employment is a trail period is

a standard precaution against hiring a lemon.

Whose income do you predict will be more affected by the expansion of Internet access:

a. Stockbrockers b. Pharmacists c. Bookstore owners

The pattern in which insurance is purchased more frequently by those who are the most costly for companies to insure is referred to as:

adverse selection

The profit maximizing rule MR = MC applies to:

all firms

The profit maximizing rule MR = MC applies to

all firms.

In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?

all of the above

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:

an application of the Cost-Benefit Principle

Two goods are complements if:

an increase in the price of one good leads to a decrease in demand for the other.

An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:

anchoring and adjustment

Pure public goods:

are frequently provided by the government, and are sometimes provided by private firms.

Pure public goods:

are frequently provided by the government, and are sometimes provided by private firms. Not all public goods should be provided by the government, and not all goods and services provided by the government are public goods. Nonetheless, public goods are often (but not always) provided by the government.

Refer to the accompanying figure. At quantities less than 50 doughnuts per day:

average cost is declining because marginal cost is less than average cost.

Economies of scale exist when

average costs fall as the scale of production grows.

A feature of natural monopoly is economies of scale in production, which means marginal cost will always

be less than average total cost

If a firm is earning zero economic profit, then its accounting profit will:

be positive.

Evidence suggests that as the importance of what's at stake grows, loss aversion:

becomes even more pronounced

A good is characterized by network economies if it:

becomes more valuable as more people own it.

A good is characterized by networks economies if it:

becomes more valuable as more people own it.

Variable costs

costs that change as output changes

If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should:

decrease its output

The demand curve shifts right:

demand goes up

A _____________ is a direct payment from a firm to its shareholders.

dividend

Guarantees, warranties, and service contracts are all examples of

forms of explicit reassurance provided by sellers.

Economics is best defined as the study of

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

Most buyers face a situation of ___________ when they invest in the stock market.

imperfect information

Refer to the figure above. If the monopolist decreases price from $14 to $12, its total revenue will ______.

increase by $8

increase; the total social benefit of the pool is greater than the total cost of the pool

Economies of scale arise from:

increasing returns to scale

Suppose a firm increases its labor usage and office space (the only inputs used) by 10% and observes a 13% increase in output. The firm has

increasing returns to scale.

Refer to the figure above. At the socially efficient level of output, the monopolist would

incur a loss of $100.10

If a natural monopoly sets price equal to its marginal cost it will _______.

incur an economic loss

A situation of ___________ arises when one group receives a higher share of total income or wealth than others.

inequality

In the U.S. comparisons of high and low incomes raise issues of economic

inequality and poverty.

The shapes of this firm's cost functions suggest that production of this drug

involves high start up costs

When effective price ceilings are set for a market:

is set below equilibrium price.

Both a perfectly competitive firm and a monopolist find that:

it is best to expand production until the benefit and the cost of the last unit produced are equal.

Both the perfectly competitive firm and the monopolist find that

it is best to expand production until the benefits and costs of the last unit produced are equal.

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

its exclusive ownership of South African diamond mines. DeBeers owns the majority of South African diamond mines, and exclusive ownership of an input is one source of market power.

Price setters face

less than perfectly elastic demand.

If the consumption of good generates an external benefit, then the market equilibrium quantity will be:

less than the socially optimal quantity.

If U.S. auto manufacturers cut the prices of their vehicles to sell a greater quantity, buyers may assume that the lower price implies a ____________ compared to foreign manufactured vehicles.

lower quality

In some instances where voters have more than two choices in a democratic election, the principle that the _____________ will decide the outcome may no longer make logical sense.

majority of voters

The primary objective of an imperfectly competitive firm is to:

maximize profit

A monopoly that results from economies of scale is called a(n):

natural monoply

The demand curve for a typical good has a:

negative slope because some consumers switch to other goods as the price rises.

If the demand for steak increases as income increases, then steak is a(n):

normal good

In economic terms, when a company invests in new technology innovations,

positive externalities arise.

A good or service that is both rival and excludable is a:

private good

Total revenue minus both explicit and implicit costs defines a firm's:

profit

Patents and copyrights

protect research, development and creative expression

Market power measures the firm's ability to

raise its price without losing all of its sales.

Market power refers to a firm's ability to:

raise its price without losing all of its sales.

The theory of ___________ holds that people won't bother incurring the costs of becoming informed and voting, because they know their vote

rational ignorance; won't be decisive in the election.

Subsidies

reduce total economic surplus

Pareto efficiency

situation where any further trades will harm someone

The demand curve for a public good is constructed by:

summing voters' reservation prices at each quantity.

The relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus is known as:

the Weber-Fechner law

The optimal amount of information to acquire before making a purchase is:

the amount such that the marginal cost of acquiring information equals the marginal benefit.

Typically, when people use anchoring and adjustment to estimate something, the importance of _______ in influencing their assessment is too large.

the anchor

Economies of scale exist when:

the average cost of production falls as output rises.

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

the benefit to his grades from studying for an hour.

A firm's revenue is determined by

the demand curve that the firm faces.

The demand curve for a monopoly's product is

the market demand for the product

Marginal Revenue (MR)=

∆TR/∆Q

What does a budget constraint show?

Various combination of goods or services an individual can purchase with their income.

Emotions like guilt and sympathy:

can solve commitment problems.

In the Circular Flow Model do businesses demand or supply?

Both

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

Widespread behavioral evidence suggests that people:

weigh losses more heavily than gains

Normal profit

when EP = 0 Owners of business are receiving TRs just sufficient to cover all of their EC and IM Number of firms in the industry is stable

Recently, real estate prices in Evansville soared. You started noticing more "For Sale" sings in years. You conclude that:

when housing prices rose, they started to exceed some of your neighbors' reservation prices.

The Principle of Increasing Opportunity Costs states that:

when increasing production, resources with the lowest opportunity costs should be used first

The Principle of Increasing Opportunity Costs states that:

when increasing production, resources with the lowest opportunity costs should be used first.

A risk-averse individual will:

accept only better-than-fair gambles.

After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as:

"wants"

15). Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Picture At this monopolist's profit-maximizing level of output, deadweight loss equals ______. $1,000 $2,000 $4,000 $6,000

$1,000 Deadweight loss is ½ × $40 × 50 = $1,000.

Refer to the figure above. If this firm were to sell 20 units of output, its total revenue would be

$1,000.

$1,490.

If you make 1000 T-shirts, your average total cost is _______.

$10.30

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, the equilibrium price will be _____ per gallon, and each firm's profit-maximizing quantity will be ______ gallons per week.

$15; 300

Refer to the accompanying table below. The average cost of 4 units of this activity is: Units of Activity: 0, 1, 2, 3, 4, 5, 6, Total Cost: $0, $30, $40, $60, $100, $150, $210 Total Benefit: $0, $100, $160, $190, $210, $220, $225

$25

42). f a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. Picture If the regulated pay-per-view charge to watch a fight were $5 per household, then what would be the loss in total economic surplus relative to when the there is no charge to watch the fight? $25 million $50 million $225 million $625 million

$25 million The loss in total economic surplus would be 1/2 ($5 ×10M) = $25M.

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. [graph w D1, D2, & S lines - $/doses & doses/day] At the private market equilibrium, the deadweight loss is ______ per day.

$250 Deadweight loss is given by ½ × 25 × $20 = $250.

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

$3,750.

Refer to the figure above. The marginal revenue of selling the 4th unit, for the monopolist is ______ while for the perfectly competitive firm it is _____.

$4; $10

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates aDrive-Through Window Quick Burger Does NotOperate Drive-Through Window Quick Burger $24,000 $15,000 The Sunshine Café $11,000 $23,000 If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to NOT operate a drive-through window.

$9,000

Suppose Chris is offered the following gamble: with probability 0.1 he will win $90, with probability 0.4 he will win $50, and with probability 0.5 he will lose $60. The expected value of this gamble is ______.

-$1

The distance representing the profit maximizing level of output to the monopolist is

The distance representing the profit maximizing price to the monopolist is

10.30

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. [graph w D1, D2, & S lines - $/doses & doses/day] The socially optimal quantity of the vaccine is ______ doses per day.

100 D2, the social demand curve, crosses the supply curve at 100 units per day.

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

News channel 5

If the marginal cost of producing each unit of output is $5, then this monopolist's profit-maximizing level of output is ______.

Refer to the figure above. The profit maximizing quantity and price for this monopolist are

3 units and $8.

Refer to the figure above. To profit maximize, the firm will choose to produce __________ units and charge a price of __________.

3.5; $22.50

Refer to the figure below. The socially optimal quantity of paper is ______ tons per year. [graph w Social MC, Private MC, D - tons of paper per year & $/ton]

300 The socially optimal quantity occurs where at the intersection of the demand curve and the social MC curve.

Imagine that you are an entrepreneur, making designer T-shirts in your garage. Your accountant has estimated that your firm's total costs are TC = 300 + 10 * Q. Your fixed costs are _______ and your marginal costs are _____.

300; 10

Refer to the figure above. The total revenue of selling six units is _______ and the marginal revenue of selling the sixth unit is

30; 0.

Refer to the figure above. The profit-maximizing level of output for the monopolist is ____ and the profitmaximizing price is _______.

33.33; $26.67

Marginal revenue

Additional revenue collected from the sale of one additional unit of output

Which of the following results in a rightward shift of the market demand curve for labor?

An increase in demand for the firm's product

Which of the following will not result in a rightward shift of the market supply curve for labor?

An increase in labor productivity

What might cause a demand curve to shift to the right?

An increase in the price of a substitute

Which of the following will not result in a leftward shift of the market demand curve for labor?

An increase in the wage rate

_________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

An oligopoly

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. [graph w letters A, B, C, E, F, G, H, I, J, K, L, N] The profit-maximizing price for this monopolist to charge is:

B. MC = MR at F units of output. From the demand curve, we can see that this corresponds to a price of B.

Which of the following is an example of the rationing function of price?

Bill Gates purchasing the Mona Lisa for $5 billion

Refer to the figure above. At the point of monopoly profit maximization, consumer surplus is represented by the area

CJE.

Coase Theorem

______________ are numerically small, but well-organized groups that are able to exert a disproportionate effect on political outcomes

Special interest groups

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. [graph w D1, D2, & S lines - $/doses & doses/day] The private demand for the vaccine is given by ______, and social demand for the vaccine is given by ______.

D1; D2 Since the vaccine generates a positive externality, the social demand curve will lie above the private demand curve.

The demand curve shifts to the left:

Demand goes down

Which of the following will need to strike some balance between economic output and environmental quality as a prominent climate change priorty?

Every country

Why do U.S. economists commonly refer to externalities as an example of market failure?

Externalities present a case where markets only consider some social costs.

F MC = MR at F units of output.

In a circular flow model looking at just firms and households. Do physical goods and money flow in the same direction?

False

Is the product market and the factor market the same thing?

False

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Refer to the figure below. Private markets will provide _____ units of this good per day, and the socially optimal number of units per day is ______.

G; F

You recently purchased a new video game. The purchase involves a $10 rebate if you will fill out and mail in a coupon with your receipt. Given your knowledge of microeconomics, when does it make sense for you to complete the rebate?

It makes sense for you to complete the rebate if your time is worth less than $10. If your time is worth more than $10 for however long it takes to fill out the survey then you are losing more than you are gaining.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then what will happen to the market supply curve in the long run?

It will shift to S2.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

JLN

14). Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. Picture At the monopolist's profit-maximizing level of output, deadweight loss equals the area: C0N ALN JLN JKN

JLN The monopolist's profit-maximizing level of output is F and the socially optimal level of output is H. Deadweight loss is the area to the right of F below the demand curve and above the marginal cost curve.

Jessica lives in complete isolation in Montana. She is selfsufficient and feeds herself through hunting, fishing, and farming. Which of the following statements about Jessica is true?

Jessica has to make trade-offs.

Refer to the figure above. The deadweight loss resulting from monopoly is represented by the area

KEI

In order to sell another unit, an imperfectly competitive firm must

Lower its prices

Which of the following is an oversimplified term that is sometimes used to describe the meaning of democracy?

Majority rule

For all firms, the additional revenue collected from the sale of one additional unit of output is

Marginal Revenue

Suppose a monopolist is charging $12 for output. One can infer that

Marginal revenues are less than $12

Most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

Market-oriented economy

The primary objective of an imperfectly competitive firm is to:

Maximize profit

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($) 0 100 1 110 2 126 3 148 4 172 5 200 6 235 Should Ben shut down?

No, because he can earn enough revenue to cover his variable cost.

Which of the following is an example of an activity with an external cost?

Speeding on the interstate. An external cost, also called a negative externality, is a cost of an activity that falls on people other than those who pursue the activity. One person's speeding imposes costs on others.

The beneficiaries of this deal are

State U and CheapFizz

______ is the general resistance to change, often stemming from loss aversion.

Status quo bias

Which one of the following government actions is intended to generate positive externalities?

Subsidies for planting trees on hillsides

TC = *300 + 10 x Q

TC = 300 + *10 x Q

TR-EC

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to

The "hurdle" method of price discrimination

Define the Weber-Fechner Law AND provide an example.

The Weber-Fechner Law relates to how we perceive stimuli. The law states that our perception of any stimulus varies according to how the size of the change relates/compares to the original stimulus. One example is how you react to saving $20. If you have the chance to save $20 on an item that costs $25, you will react more strongly than if you had the chance to save $20 on an item that costs $1,000. This reaction, which the Weber-Fechner Law explains, makes no economic sense as saving $20 is saving $20.

Which of the following is NOT an example of an explicit cost? - The income the owner could have earned in his or her next best employment opportunity - The overtime wages paid to workers. - The salaries paid to the managers who help run the business. - The rent the owner pays each month to lease office space.

The income the owner could have earned in his or her next best employment opportunity

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of

The item that will give you the greatest marginal utility per dollar spent

Which of the following is the most likely to be a fixed factor of production at a farm?

The land on which the farm is located

Which of the following firms is most likely to be a pure monopolist?

The only gas station in a small, isolated town

The Principle of Increasing Opportunity Costs states that:

The opportunity cost of each additional unit of output of a good over a period of time increases as more of that good is produced

Which of the following determines whether a firm will earn higher revenues when it raises its price?

The price elasticity of demand.

Which of the following would cause an increase in quantity of wheat supplied?

The price farmers receive for their wheat rises

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. [table w $200 $400 $180 $50 $130 $25] If all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter?

Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter. The increase in the fishermen's and bird watchers' benefits is $310 ̶ $75 = $235; they must pay Erie more than $200, so there is room for a mutually beneficial transaction.

Which of the following is NOT an example of a good with network economies?

a computer printer

Office workers and word processing programs are complements if:

a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.

The existence of a negative externality will result in:

a greater than optimal level of production.

The existence of a negative externality will result in:

a greater than optimal level of production. A supplier will not consider external costs, and so will produce more than is socially optimal.

The existence of a negative externality will result in: a less than optimal level of production. a greater than optimal level of production. prices that are artificially high. elimination of deadweight loss.

a greater than optimal level of production. A supplier will not consider external costs, and so will produce more than is socially optimal.

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:

a higher opportunity cost of taking the day off work.

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality. a positive; a negative a negative; a positive a positive, no no; a negative

a positive; a negative Positive externalities yield benefits to others while negative externalities impose costs on others.

Broadcast television is an example of:

a public good provided by private firms. Broadcast television is both nonrival and nonexcludable, so it is a public good, but it is provided by private companies.

Carlos is risk-neutral and has an ancient farmhouse with great character for sale in Slaterville Springs. His reservation price for the house is $130,000. The only possible local buyer is Whitney, whose reservation price for the house is $150,000. The only other houses on the market are modern ranch houses that sell for $125,000, which is exactly equal to each potential buyer's reservation price for such a house. Suppose that if Carlos does not hire a realtor, Whitney will learn from her neighbor that Carlos's house is for sale and will buy it for $140,000. However, if Carlos hires a realtor, he knows that the realtor will put him in touch with an enthusiast for old farmhouses who is willing to pay up to $300,000 for the house. Carlos also knows that if he and this person negotiate, they will agree on a price of $250,000. If realtors charge a commission of 5 percent of the selling price and all realtors have opportunity costs of $2,000 for negotiating a sale, will Carlos hire a realtor?

a. Carlos will hire a realtor b. Total economic surplus without the realtor: $20,000 c. Total economic surplus with the realtor (including the realtor's surplus): $168,000

Traditional economic models assume that people care about:

absolute consumption.

Any combination of goods that can be produced with currently available resources is an:

attainable Point

When a firm with constant returns to scale uses 30% more of all inputs and input prices remain unchanged, then

average costs remain unchanged.

A financial gain earned by purchasing stock in a publicly traded company and subsequently selling the investment at higher price is commonly referred to as a _________.

capital gain.

A good is characterized by network economies if it:

becomes more valuable as more people own it. Network economies exist when the value a consumer places on a good increases when other consumers have the same or compatible goods.

A sunk cost is

beyond recovery at the moment a decision must be made.

Information about the quality of a product is

both beneficial to have and costly to obtain, and therefore subject to economic principles

On Saturdays, Stan goes to the park to play his saxophone. Some of the people in the park love listening to Stan play, while others find his music really annoying. In this case, Stan's saxophone playing generates:

both positive and negative externalities

Suppose a cup of tea costs $0.60 and a scone costs $1.20. If Edith spends all of her income on these two goods, and at her current level of consumption, she receives a marginal utility of 6 utils from the last cup of tea she buys and a marginal utility of 24 utils from the last scone she buys, then Edith should:

buy less tea and more scones

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers

To understand how the price of a good is determined in a free market, one must account for the desires of:

buyers and sellers

the nature of demand indicates that as the price of a good increases:

buyers desire to purchase less of it.

In the long run, in a perfectly competitive industry:

economic profit and loss are driven to zero by entry and exit.

Suppose Paul just saw a car accident while driving home from work. According to the availability heuristic, this is likely to make Paul think that:

car accidents are more common than they really are.

According to the textbook, social norms:

can help curtail positional arms races.

Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that producer:

can produce more of one good without producing less of the other good.

Psychological incentives:

can serve as commitment devices.

Traditional economic models _______ the fact that people sometimes regret making decisions with perfectly predictable consequences.

cannot explain

If a country's economic decisions are made by an individual or small number of individuals, then it has a:

centralized economy

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded

The logical implication of the scarcity principle is that:

choices must be made

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us _____ .

choices must be made: how to make choices

Which of the following would be classified as a situation where a third-party benefits from a market transaction by others?

city buying 10,000 trees for green space renewal projects.

A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______.

commons good; collective good

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

consumer surplus.

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase. Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports. If the subscription price of Consumer Reports increases, then the impact of this could be portrayed by the marginal:

cost curve shifting from MC1 to MC0.

Government regulators in Idaho set the price of electricity based on the explicit costs of the Electric Power Company, then add an extra amount to assure a normal return on the firm's investment. This procedure is called

cost-plus regulation.

create deadweight loss.

A Lorenz curve graphs the _________ received by everyone up to a certain quintile.

cumulative shares of income

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. Moe's short run supply curve is:

curve A above curve C.

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to:

decrease

Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77 th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:

decrease production.

Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:

decrease production.

As you increase production of T-shirts your average fixed costs _____ and your marginal costs ________.

decrease; stay the same

Price discrimination means charging:

different prices to different buyers for essentially the same good or service. Price discrimination is the practice of charging different buyers different prices for essentially the same good or service.

Price discrimination means charging: higher prices to women and minorities. different prices for different products because production costs are different. the same price to all buyers even if production costs are different. different prices to different buyers for essentially the same good or service.

Suppose famers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. As a result of the increase in the price of corn, farmers who were already growing corn will earn an:

economic profit in the short run

Entry into a perfectly competitive industry occurs whenever

economic profit is greater than zero

In a market with barriers to entry:

economic profit will not fall to zero in the long run.

Generally, ______ motivates firms to enter an industry, while ______ motivates firms to exit an industry.

economic profit; economic loss

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______

economic surplus; $3000 ($15,000-$12,000)

A natural monopoly is a monopoly that arises from:

economies of scale

According to the textbook, the most important and enduring source of market power is:

economies of scale

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S1, then in the long run firms will:

enter the market, leading the market supply curve to shift out to S2.

For perfectly competitive firms price _____ marginal revenue; for monopolists price ____ marginal revenue

equals; is greater than

For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal revenue ______ price.

equals; is less than

The Scarcity Principle applies to

everyone

A bond is a form of ______________ through which a corporation agrees to repay the amount that was borrowed together with a ____________ over a period of time in the future.

financial contract; a rate of interest

Oligopoly

firm of a small number of firms that produce goods that are either close or perfect substitutes

According to the Principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that:

have the lowest opportunity cost.

Both individual buyers and sellers in perfect competition

have to take the market price as given.

Perfect competition is characterized by all of the following except

heavy advertising by individual sellers.

If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and childcare that a nonworking mother will not face, then

her economic gains from working will be even smaller.

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

Refer to the figure below. If negotiation is impractical, the socially optimal level of production can be achieved by: [graph w Social MC, Private MC, D - tons of paper per year & $/ton]

imposing a tax on paper equal to the external cost. A tax equal to the external cost would align the private MC with the social MC.

When Brady is driving he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is:

imposing an external cost on others. By throwing his cigarette butts out the window, Brady is imposing a cost on others.

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):

increase in the demand for apartments.

If a monopolist's marginal revenue is $25 and its marginal cost is $19, then the monopolist should:

increase its output

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

increase output until marginal revenue equals marginal cost.

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

increase total economic surplus.

Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. Resident Reservation Price Income Kris $100 $1,000 Taylor $200 $5,000 Max $700 $6,000 Installing the public good would ______ total economic surplus by ______.

increase; $100

The quantity that sellers wish to sell tends to ________ as price increases, and so the supply curve is ________ sloping.

increase; upward

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

inefficient If firms differ in their marginal cost of pollution abatement, then it is efficient for firms with the lowest marginal cost of pollution abatement to reduce pollution the most.

Venture capitalist typically create wealth by investing in a start up firm when its stock is less valuable, and then subsequently selling that stock for a higher price during the firm's

initial public offering

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

keeps the price of her lemonade the same and increases the output.

National defense is an example of a good that is:

largely nonrival and nonexcludable.

National defense is an example of a good that is:

largely nonrival and nonexcludable. One person's enjoyment of national defense does not diminish others' enjoyment of national defense, and people who don't pay for national defense can't be excluded from enjoying its benefits.

National defense is an example of a good that is: neither nonrival nor nonexcludable. largely nonrival and nonexcludable. only nonexcludable. only nonrival

Refer to the figure above. The __________ at the socially efficient level of output will be __________ at the profit maximizing level of output.

loss; larger than

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

low

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

low The importance of economies of scale depends on how large fixed costs are in relation to marginal cost.

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

marginal revenue. Marginal revenue is the change in total revenue that results from a one-unit change in output.

The additional utility gained from consuming an additional unit of a good is called:

marginal utility

The price of a seller's product in perfect competition is determined by

market demand and market supply.

The primary objective of most private firms is to:

maximize profit

The primary objective of a monopolist is to

maximize profits.

The rational spending rule is derived from the consumer's desire to:

maximize utility

One problem with antitrust laws is that they:

may prevent companies from achieving economies of scale.

measure the forgone opportunities of the firm's owners

measure the payments made to the firm's factors of production

Explicit costs:

measure the payments made to the firm's factors of production.

In most markets, scarce goods or services are rationed among competing users using:

monetary prices

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ________ utility from eating the first pie than from eating the third pie.

Relative to the profit maximizing output, the number of doses produced under cost plus regulation is

more efficient.

When the expected value of search increases:

more searches occur.

Spike pays $14,000 in taxes and earns $100,000. Ace earns $120,000. If the tax system is progressive, Ace will pay ______ in taxes.

more than $16,800.

Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for

more than 75 cents because other firms must exit the market.

A state-owned natural monopoly will have _______.

no incentive to minimize cost

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

normative statement

Property rights are the legal rights of ownership on which others are

not allowed to infringe without paying compensation.

If a monopolist's price is $50 per unit and its marginal cost is $25, then

not enough information is given to say what the firm should do to maximize profit.

In the case of either a positive or negative externality, a good's market price will:

not fully reflect a good's social marginal cost or social marginal benefit.

In the case of either a positive or negative externality, a good's market price will: be too low. be too high. not fully reflect a good's social marginal cost or social marginal benefit. not equate the quantity supplied by sellers with the quantity demanded by buyers.

not fully reflect a good's social marginal cost or social marginal benefit. When there are externalities, the market equilibrium price will not fully capture a good's social marginal cost or social marginal benefit.

The hurdle method of price discrimination is _____ efficient, however it is ______efficient than charging a single price to all buyers.

not perfectly; more

A monopolistically competitive firm is one

of many firms that produce slightly different but very similar goods.

A monopolistically competitive firm is one:

of many firms that sell products that are close but not perfect substitutes.

According to the Incentive Principle:

people tend to do more of something when its benefits are greater.

The use of psychological incentives to solve commitment problems would be least effective in games played:

once between strangers.

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes.

If a firm functions in an oligopoly, it is: one of a small number of firms that produce goods that are either close or perfect substitutes. the only firm that produces a good with no close substitutes. one of a large number of firms that produce goods that are either close or perfect substitutes. one of a large number of firms that produce a good with no close substitute.

one of a small number of firms that produce goods that are either close or perfect substitutes.

Monopolistically competitive firm

one of many firms that sells products that are close but not perfect substitutes

Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town. The most likely reason for this is that:

people who buy gas at freeway exit stations tend to have higher search costs.

The free-rider problem occurs when:

people who do not pay for a good or service cannot be excluded from enjoying it.

If all the world's resources were to magically increase one hundredfold, then:

people would still have to make trade-offs.

If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n):

perfect competitor

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n):

perfect competitor

Suppose a firm's total revenue is $100 when it sell 10 units, and $110 when it sells 11 units. The firm, therefor, is an:

perfect competitor.

A price ceiling that is set below the equilibrium price will cause:

producer surplus to fall.

A good or service that is highly nonrival and highly nonexcludable is a(n) ______ good. pure public commons collective private

pure public A pure public good is a good that, to a high degree, is both nonrival and nonexcludable.

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the:

quantity fo coal produced at the market equilibrium will be greater than socially optimal

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the:

quantity of coal produced will be greater than the socially optimal quantity.

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the:

quantity of coal produced will be greater than the socially optimal quantity. Firms do not consider external costs when making their output decisions, so if a good generates a negative externality, they will produce more than the socially optimal quantity at the market equilibrium.

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales

The phenomenon that unusual events are likely to be followed by more nearly normal is known as:

regression to the mean

If taxpayers pay a smaller fraction of their income in taxes as their incomes rise, the tax is ______ and if taxpayers pay a larger fraction of their income in taxes as their income rise, the tax is ______.

regressive; progressive

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:

reservation price.

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

resources; satisfaction

Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ______ and the market price will ______.

rise; fall

The marginal cost of collecting information:

rises as more information is collected.

The law of demand indicates that as the cost of an activity:

rises, less of the activity will occur.

Industries in which the firms have large fixed costs and small, constant marginal costs will, over time,

see an increase in the average size of firms.

In the market for used cars, the lemons model predicts that:

sellers are more likely to sell low-quality cars than high-quality cars.

Any hurdle method of price discrimination is an attempt to

separate consumers on the basis of their reservation prices.

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

small number of large firms. High fixed costs and low marginal costs give rise to economies of scale, meaning that average costs fall as output rises. As a result, small firms will find it difficult to compete with large firms.

According to the textbook, the owners of restaurants encourage tipping in order to:

solve a commitment problem with their wait staff.

The demand curve for a public good is constructed by:

summing voters' reservation prices at each quantity. Constructing the demand curve for a public good entails the vertical (not the horizontal) summation of individual demand curves.

Perfect competitor

suppose a firm is collecting $100 in total revenues when it sells 10 units and receives $110 in total revenues when it sells 11 units

A price above equilibrium price will lead to a(n)

surplus

In order to achieve the socially optimal level of output, goods that entail negative externalities should be:

taxed

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to:

the "hurdle" method of price discrimination

When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to

the "hurdle" method of price discrimination.

Economies of scale exist when:

the average cost of production falls as output rises. When production is subject to economies of scale, the average cost of production declines as the number of units produced increases.

Economies of scale exist when: firms become larger. input prices are falling. the average cost of production falls as output rises. doubling all the inputs leads to less than double the output.

the average cost of production falls as output rises. When production is subject to economies of scale, the average cost of production declines as the number of units produced increases.

Consumer surplus measures:

the difference between the most a buyer would be willing to pay for a product and the price actually paid.

When a market is not in equilibrium

the economic motives of sellers and buyers will move the market to its equilibrium.

Dean should play golf instead of preparing for tomorrow's exam in economics if:

the economic surplus from playing golf is greater than the economic surplus from studying

The sum of the possible outcomes of a gamble multiplied by their respective probabilities is known as:

the expected value of the gamble.

Refer to the figure above. When the firm lowers price from $8 to $7, marginal revenue is less than $7 because

the firm is charging $1 less for each of the first three units of output.

If a firm's average total cost is less than price where MR=MC,

the firm should continue to produce the output it is producing.

If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then:

there is evidence of diminishing marginal utility

When a market is in equilibrium:

there is neither excess demand nor excess supply.

the marginal benefit of picking up the 10th bag of litter exceed the marginal cost.

Firm might have monopoly in a market bc

the market is geographically isolated from other sellers

When it comes to enacting policy changes, loss aversion often leads to status quo bias because:

the resistance from those who stand to lose from the policy often overwhelms the support from those who stand to gain.

The core principle that is illustrated by the production possibilities curve is:

the scarcity principle

An individual seller in perfect competition will not sell at a price lower than the market price because

the seller can sell any quantity she wants at the prevailing market price.

Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:

the substitution effect of a price change

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be leftward shift of:

the supply curve

Assume the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

the supply curve will shift to the left and the equilibrium price will increase.

The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as:

the tragedy of the commons.

The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as:

the tragedy of the commons. The tragedy of the commons is the tendency for a resource that has no price to be used until its marginal benefit falls to zero.

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

the value she places on seeing the movie

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:

the wage for teachers in that district is lower than the equilibrium wage.

If a rise in incomes for both low-income and high-income workers is higher for the high-income workers,

then poverty will fall and inequality will rise.

If incomes rise for both low-income and high-income workers, but rise less for the high-income workers,

then poverty will fall, and inequality will fall.

A monopolist sets its price at $100 and offers a 10% rebate. For this to be a perfect hurdle, it must be the case that

those with a reservation price of $100 or more purchase and ignore the rebate while those with a reservation price between $99 and $90 purchase and use the rebate.

One common way of measuring income inequality is to rank all households by income, from lowest to highest, and then

to divide all households into quintiles.

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

to maximize profit the firm should continue to produce the output it is producing.

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

total revenue always rises; total revenue could rise, fall, or remain unchanged

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

total revenue always rises; total revenue could rise, fall, or remain unchanged For perfectly competitive firms, marginal revenue is equal to price. For firms that face a downward sloping demand curve, selling another unit can increase revenue, decrease revenue, or keep revenue the same.

Refer to the figure above. This imperfectly competitive firm's demand function gives information that is used to determine

total revenue at different price and quantity combinations.

When marginal revenue is zero:

total revenue is maximized.

Economic profit is equal to:

total revenue minus the sum of explicit and implicit costs.

When marginal revenues are zero,

total revenues are maximized.

If the consumption of good generates an external benefit, then the market equilibrium quantity: will be socially optimal. will be less than the socially optimal quantity. will be greater than the socially optimal quantity. could be either less than or greater than the socially optimal quantity.

will be less than the socially optimal quantity. If a good generates an external benefit, then marginal benefit to society of another unit of the good is greater than the private benefit of another unit, implying that the market equilibrium quantity will be less than the socially optimal quantity.

In the market for labor. What happens to real wages when there is an increase in the demand curve?

will increase

Consumer surplus (CS)

willingness to pay - price Area Below Demand, Above Price

Refer to the figure below. The deadweight loss at the market equilibrium quantity is equal to the area ______.

½ × FG × AC

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. [graph w D1, D2, & S lines - $/doses & doses/day] The private market equilibrium quantity is ______ doses per day.

75 D1 is the private demand curve, so the private market equilibrium quantity is 75 doses per day.

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ______ acres.

If the bookstore is selling the socially efficient number of books how many will it sell?

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. The socially optimal level of output is:

8 units per day.

which of the following is generally accepted as a valid criticism of the production of useful goods and services?

Environmental pollution

AP is greater than or equal to

Long run economic profit

EP = $0

Which of the following is NOT a characteristic of a perfectly competitive market?

Each firm in the market sells a somewhat different variant of the good.

Which of the following is not a characteristic of a monopolistically competitive market structure?

Each firm must react to actions of other firms.

Which of the following is NOT an example of an activity with external benefits?

Eating a sandwich in the dining hall

According to the textbook, the most important and enduring source of market power is

Economies of scale

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production.

How does that cost financial capital innovative research and development activities in a competitive market?

At low cost, firms demand a large quantity, as R&D projects will likely return a higher rate.

Economies of scale exist when

Average costs fall as the scale of production grows

Which of the following statements is true for both Microsoft and a locally owned restaurant?

Both seek to maximize profits.

what items could cause equilibrium quantity to go up?

Demand goes up, Supply goes up, Supply goes down

Long run equilibrium price

P = ATC = MC

Exclusive ownership/license

source of market power for a specific good

The demand curve has a negative slope

true

$1,490. The total benefit of the pool is found by summing the marginal benefit for each voter.

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total cost at its profit-maximizing level of output is ______.

$1,600

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The long-run equilibrium price in this industry is:

$10

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day Total Cost Per Day 0 $100 1 $180 2 $220 3 $300 4 $400 5 $520 6 $660 Sarah's fixed cost is ______ per day.

$100

Refer to the figure above. The deadweight loss resulting from monopoly is _______.

$111.19

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates aDrive-Through Window Quick Burger Does NotOperate Drive-Through Window Quick Burger $24,000 $15,000 The Sunshine Café $11,000 $23,000 If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would be willing to pay Quick Burger as much as ______ per month to NOT operate a drive-through window.

$12,000

What will be the economic profit for the bookstore when selling its profit-maximizing quantity?

$120

The government has decided to impose a pollution tax on coal burning power plants in an attempt to reduce harmful emissions. The new tax will cost the 20 largest industrial carbon emitters $6 million annually. In terms of reduced emissions, the annual tax benefit are valued at $20 per person. The total annual cost of this tax is _____, while the total annual benefit to society is ___________.

$120 million $2 billion

Refer to the figure above. If it did not price discriminate, this firm would earn total profits of

$120.

If you make 100 T-shirts, your average total cost is _______.

$13

The accompanying table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. What's the average benefit of 4 car washes per month? Number of Car Washes Per Month: 0, 1, 2, 3, 4, 5, 6 Total Monthly Benefit from Car Washes $0, $20, $36, $48, $56, $60

$14

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's explicit costs are ______, and Pat's implicit costs are ______.

$16,000; $35,000

The figure below shows the supply and demand curves for jeans in Smallville. Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ______ per day.

$160

The figure below shows the supply and demand curves for oranges in Smallville. When this market is in equilibrium, total economic surplus is ______ per day.

$160

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. [graph w $/textbook & textbooks/week] At this monopolist's profit-maximizing level of output, consumer surplus is ______.

$2,000 Consumer surplus is the area of the triangle below the demand curve, above price to the left of the monopolist's profit-maximizing level of output, which in this case is ½ × $40 × 100 = $2,000.

Refer to the figure above. The marginal revenue of the fifth unit of output is

$2.

Refer to the accompanying table below. The marginal cost of the 3rd unit of this activity is: Units of Activity: 0, 1, 2, 3, 4, 5, 6, Total Cost: $0, $30, $40, $60, $100, $150, $210 Total Benefit: $0, $100, $160, $190, $210, $220, $225

$20

$20 D1 is the private demand curve and D2 is the social demand curve. D2 lies $20 above D1.

25). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture The cost (in thousands of dollars) of the filter to Erie Textiles is ______, and the net benefit (in thousands of dollars) of the filter to the fishermen and bird watchers is _______. $400; $310 $310; $200 $200; $75 $200; $235

$200; $235 With the filter, Erie's benefits are $200 lower, the fishermen's benefits are $130 higher, and the bird watchers' benefits are $105 higher.

he accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At this monopolist's profit-maximizing level of output, the deadweight loss to society equals:

$24 per day.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. [graph w ATC, MC, MR, & D] At this monopolist's profit-maximizing level of output, the deadweight loss to society equals:

$24 per day. Deadweight loss is given by the area of the triangular region to the right of the monopolist's profit-maximizing level of output (4 units), below the demand curve and above marginal cost: ½ × $12 × 4 = $24.

Refer to the figure below. If a price ceiling were imposed at $4, total economic surplus would be ______, which is ______ less than when the market is unregulated market.

$24; $8

suppose the accompanying table describes the demand for a good produced by monopolist. Price Quantity $10 1 $9 2 $8 3 $7 4 $6 5 $5 6 $4 7 The monopolist's total revenue from selling 3 units is ______, and the monopolist's marginal revenue from selling the 3rd unit is ______.

$24; 6

Suppose the accompanying table describes the demand for a good produced by monopolist. Price Quantity $10 1 $9 2 $8 3 $7 4 $6 5 $5 6 $4 7 The monopolist's total revenue from selling 3 units is ______, and the monopolist's marginal revenue from selling the 3rd unit is ______.

$24; 6 Total revenue when 2 are sold is $18, and total revenue when 3 are sold is $24; thus, the marginal revenue of the 3rd unit is $6.

Refer to the figure above. The total revenue of selling 3 units is ______ and the marginal revenue of selling the third unit is

$24; 6.

Suppose the accompanying table describes the demand for a good produced by monopolist. Price Quantity $10 1 $9 2 $8 3 $7 4 $6 5 $5 6 $4 7 The total revenue from selling 6 units is ______, and the marginal revenue of selling the 6th unit is ______.

$30; 0

$30; 0 Total revenue when either 5 or 6 are sold is $30; therefore, the marginal revenue from selling the 6th unit is zero.

Refer to the accompanying figure. The equilibrium price in this market is ______ and the equilibrium quantity is ______.

$30; 25

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is _______, and Pat's economic profit is _______.

$34,000; −$1,000

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35 ($15+$20)

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12.

$36

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. What is the opportunity cost of going to the concert?

$36

For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat all of the meals, your average cost for a meal is:

$4 (600%150)

23). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture When Erie Textiles operates without a filter, the total gain (in thousands of dollars) to all three parties is ______. $985 $325 $510 $475

$475 Erie's benefits are $400, the fishermen's are $50 and the bird watchers' are $25.

Given the total cost function TC = 2,000 + 2 * Q, when output is 1,000 units average total costs are __________ and total fixed costs is __________.

$4; $2,000

Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______.

$4; $2,000

$50. D1 is the private demand curve, so at the private market equilibrium, the price of each dose is $50.

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas Per Day Fixed Cost ($/Day) Variable Cost ($/Day) 0 500 0 25 500 150 50 500 250 75 500 450 100 500 850 125 500 1,650 When the pizzeria makes 100 pizzas a day, its fixed cost is ______ and its total cost is ______.

$500; $1,350

24). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture When Erie Textiles operates with a filter, the total gain (in thousands of dollars) by all three parties is ______. $985 $600 $510 $475

$510 Erie's benefits are $200, the fishermen's are $180 and the bird watchers' are $130.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q If each firm produces 10 units, Mega Corp's total cost will be ______, and Big Inc's total cost will be ______.

$6,000; $6,000

48). There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. Picture Collectively, the residents of Towneburg would be willing to pay ______ for the 10th shell, and the marginal cost of the 10th shell is ______. $30; $100 $600; $1100 $30; $10 $600; $10

$600; $10 The collective willingness to pay for the 10th shell is $600 = $30 × 20, and the marginal cost of each shell is $10, regardless of how many shells have been fired off.

When the bookstore does not price discriminate, consumer surplus is ________, and when the bookstore can charge two different prices for this book, the consumer surplus will be _______.

$60; $66

41). f a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. Picture If viewing a fight were free to anyone who tuned in, total economic surplus would be ______. $25 million $50 million $225 million $625 million

$625 million Economic surplus is given by the area of the triangle under the demand curve up the to equilibrium quantity. If viewing a fight were free, there would be 50 million viewing households, so economic surplus would be 1/2 ($25 × 50M) = $625M.

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity Price 1 $10 2 $9 3 $8 4 $7 5 $6 6 $5 7 $4 8 $3 If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit.

$8 The marginal revenue of each of the first three units is greater than $5, but the marginal revenue of each of the subsequent units is less than $5. Thus, this monopolist should produce three units of output. At that level of output, the monopolist will charge $8 per unit.

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, how much profit does this firm earn at its profit-maximizing level of output?

$800

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25.When Acme Dynamite produces 250 units of output, its average variable cost is ______ and its average total cost is ______.

$8; $10

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, then the marginal benefit of the 30th unit is:

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. [3 graphs w dif D curves] If the good shown on the graphs is a public good, then the marginal benefit of the 30th unit is:

$9 Citizen A is willing to pay $3 for the 30th unit, Citizen B is willing to pay $2, and Citizen C is willing to pay $4. Thus, the marginal benefit of the 30th unit is $3 + $2 + $4 = $9.

Refer to the figure above. The distance representing the profit maximizing level of output to the monopolist is

0A.

Refer to the figure above. The distance representing the profit maximizing price to the monopolist is

0C.

Refer to the figure above. At the profit-maximizing level of output, the monopolist collects total revenues equal to the area

0CEA.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At this monopolist's profit-maximizing level of output, its total revenue equals the area:

0FJB.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. [graph w letters A, B, C, E, F, G, H, I, J, K, L, N] At this monopolist's profit-maximizing level of output, its total revenue equals the area:

0FJB.

Refer to the figure above. A perfectly competitive equilibrium would have resulted in a price equal to the distance __________ and a quantity equal to the distance __________.

0G; 0H

Which of the following is a characteristic of a perfectly competitive market?

1. There are many sellers, each of which sells only a small fraction of the total quantity exchanged. 2. Buyers and sellers are well-informed. 3. Sellers can easily buy and sell the productive resources needed to enter the market.

Refer to the figure above. If the firm does not price discriminate, this monopolist will choose a quantity of ________, and charge a price of _______.

10; $22

The figure below shows the supply and demand curves for oranges in Smallville. At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day.

10; 30

Refer to the figure above. As a perfect price-discriminator, this firm would produce approximately _______ units of output.

This graph shows the marginal cost and marginal benefit associated with roadside litter clean up. Assume that the marginal benefit curve and marginal cost curve each have their usual slope. The socially optimal number of bags of litter removed from the roadside each day is:

This graph shows the marginal cost and marginal benefit associated with roadside litter clean up. Assume that the marginal benefit curve and marginal cost curve each have their usual slope. [graph w intersection @15,15 - bags of litter removed per day & $] The socially optimal number of bags of litter removed from the roadside each day is:

15. Litter should be removed up until the marginal benefit of litter removal equals marginal cost of litter removal.

If the drug manufacturer cannot price discriminate, to maximize profit it will produce ____doses and charge a price of _____

150; $150

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter Marginal Benefit Kyle $420 Dylan $360 Fran $350 Ronnie $190 Sam $170 If Fran proposes that the city build the pool and finance it with a $200 tax on each resident, then ______ residents will vote in favor of the proposal and ______ will vote against, so the proposal will ______.

3; 2; fail

3; 2; fail Only the three residents for whom the marginal benefit of the pool exceeds $200 will vote in favor, while the two for whom the marginal benefit of the pool is less than $200 will vote against the proposal. Given that a 4/5ths majority is required, the proposal will fail.

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. Number of Mugs Per Day Total Cost Per Day 0 $10 1 $14 2 $19 3 $25 4 $32 5 $40 6 $49 If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day.

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $5, then what is the optimal quantity of the public good?

40 units

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. [3 graphs w dif D curves] If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $5, then what is the optimal quantity of the public good?

40 units The optimal quantity of a public good occurs where the marginal benefit of the public good equals its marginal cost. The marginal benefit of the 40th unit is $5 ($2 for A + $1 for B + $2 for C), which is equal to the marginal cost of the public good.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.

4; $18

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's profit-maximizing level of output is ______.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. [graph w ATC, MC, MR, & D] This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.

4; $18 The monopolist maximizes its profit by choosing the level of output at which marginal revenue equals marginal cost, or 4 units per day. From the demand curve, we can see that at this level of output, the monopolist should charge $18 per unit.

At the profit maximizing price how many books will they sell each day?

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. [3 graphs w dif D curves] If the good shown on the graphs is a private good, then at a price of $4, market demand is ______ units.

60 The quantity demanded by Citizen A is 20, by Citizen B is 10, and by Citizen C is 30, so the total quantity demanded is 60.

Refer to the figure above. At the price of $6 per unit of output, this monopolist will sell _____ units and a perfect competitor will sell _____ units.

6; as many as it wants to

If the bookstore can charge two different prices for this book, how many books will the bookstore sell?

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. [3 D curves w Citizen X, Y, Z] Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ______ acres.

8 The optimal size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. The public's willingness to pay for the 8th acre is $2 + $3 + $3 = $8. Thus, both the marginal benefit and the marginal cost of the 8th acre are $8.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. [graph w ATC, MC, MR, & D] The socially optimal level of output is:

8 units per day. The socially optimal level of output occurs where the marginal benefit of an additional unit of output equals the marginal cost of an additional unit of output. The marginal benefit of an additional unit of output is the amount people are willing to pay for it, which is given by the demand curve.

Which of the following is NOT an example of a good with network economies?

A computer printer

Which of the following is Not an example of a good with network economies?

A computer printer

Which of the following is not an example of hurdle method of price discrimination?

A going-out-of-business sale

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:

A shift of the demand curve for beef to the left.

Monopolists

A single firm controlling something powerful w/ no substitute

Ann and Barbara are computer programmers in Nashville who are planning to move to Seattle. Each owns a house that has just been appraised for $100,000. But whereas Ann's house is one of hundreds of highly similar houses in a large, well-known suburban development, Barbara's is the only one that was built from her architect's design. Who will benefit more by hiring a realtor to assist in selling her house, Ann or Barbara?

Barbara

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?

Because Microsoft could potentially lose sales if it sets prices indescriminately.

If a window gets broken and somebody says, 'do not fret, this creates wealth because it creates a job for the glass maker'. What is this an example of:

Broken window Fallacy

Which of the following would be considered a factor of production in the provision of bus service?

Bus drivers

Which of the following would legally qualify you to be registered as a shareholder of a publicly traded firm?

Buying the stock on the New York Stock Exchange

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

Dan has the comparative and absolute advantage in sandwiches.

Dan should specialize in sandwiches, and Tracy should specialize in smoothies.

Which of the following industries does not fit the natural monopoly model?

Diamonds

Price Discrimination means charging

Different prices to different consumers when production costs are the same.

The common feature in pure monopoly, oligopoly, and monopolistic competition is

Downward sloping demand

What does it mean when we say a perfectly competitive firm is a "price taker" in a market?

Due to the assumptions related to perfect competition (many buyers/sellers, homogeneous product, perfect information), the competitive firm must take the market price since they have no power/control in the market - they are simply one of a multitude. Firms face a perfectly elastic demand curve for their product.

Which of the following is not an example of the hurdle method of price discrimination?

Eliminating all sales specials and reducing all prices by 10%

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Eventually prices will equalize across all three lemonade stands.

True, False or Uncertain - Please explain. A perfectly competitive firm can lose money and still operate in the long-run.

FALSE. In the long-run, perfectly competitive firms earn ONLY normal profits - P = ATC. There are no profits or losses to be earned in the special case of perfect competition in the long-run. Now, if you misread the question to mean a perfectly competitive firm can lose money (in the short-run) and still be around to operate in the long-run - that is fundamentally true. However, this reading of the question and subsequent answer would require a lengthy answer involving exit of firms, supply decreases, and resulting price increases in moving from the short-run to long-run to be acceptable.

True, False, or Uncertain — Every game, like the one above, has a Nash Equilibrium. Explain.

False. Not all games have a Nash Equilibrium. If the game has an infinite amount of players and/or strategies then the game may not contain a Nash Equilibrium. However, like the game above, if a game has a known number of players and strategies then their should be a known Nash Equilibrium.

Which of the following is the most appropriate response of public policy to a negative like pollution?

Find ways to account for the social costs of the negative externality in economic decisions.

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

Firms in these industries sell identical products.

Refer to the figure below. Private markets will provide _____ units of this good per day, and the socially optimal number of units per day is ______. [graph w Social MC, Private MC, Demand - letters A, B, C, D, E, F, G, H]

G; F The intersection of the private MC curve and the demand curve occurs at output level G, while the intersection of the social MC curve and the demand curve occurs at output level F.

Currently, an economy is producing at a point below their Production Possibilities Curve (PPC). The central planners for the economy want to move to a point on their PPC. How might the central planners move their economy towards their goal?

If the central planners move their economy towards their goal they need to use all of their available resources to be most efficient. If they want to be more efficient in one aspect then they need to give up another resource (TANSTAAFL).

If an increase in income leads to a decrease in the demand for a good, the good is a(n)

Inferior goods

which of the following best describes a monetary policy tool?

Interest rates

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. [graph w letters A, B, C, E, F, G, H, I, J, K, L, N] At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

Joe is shopping for a new computer. A computer can be delivered to Joe's home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer?

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200.

John has a big exam tomorrow. He considered studying this evening, but decided to hang out with Christina instead. If neither activity involves any explicit costs, and John always chooses rationally, it must be true that:

John gets more benefit from spending time with Christina than from studying.

The deadweight loss resulting from monopoly is represented by the area

KEI

Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. Resident Reservation Price Income Kris $100 $1,000 Taylor $200 $5,000 Max $700 $6,000 If the government proposes to pay for the public good with a proportional income tax of 8 percent, then:

Kris and Max will vote in favor of the tax, but Taylor will vote against it.

___________ occurs when a group of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor.

Logrolling

_______ is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude:

Loss aversion

Refer to the accompanying table. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. Time to Make a Pie- Martha 60 minutes ; Julia 50 minutes Time to Make a Cake- Martha 80 minutes ; Julia 60 minutes

Marth; Julia

Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. Resident Reservation Price Income Kris $100 $1,000 Taylor $200 $5,000 Max $700 $6,000 If the government proposes to pay for the public good with a head tax of $300 per resident, then

Max will vote in favor of the tax, but Kris and Taylor will vote against it.

A production possibilities curve indicates:

Maximum combinations of goods and services an economy can produce given its available resources andtechnology.

The basis difference between macroeconomics and microeconomics is that:

Microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

In many cities in the United States, a single firm provides electricity. Those firms are:

Monopolists

The delivery of first-class mail by the U.S. Postal Service is an example of a

Monopoly

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

More drivers would drive on the non-toll road, making the toll road less congested.

Which of the following is the best example of a pure public good?

National defense National defense is both highly nonrival and nonexcludable.

A firm that emerges as the only seller in an industry with economies of scale is termed

Natural Monopoly

The ______ combination of goods is the combination of goods that yields the highest total utility given the consumer's income.

Optimal

In the U.S. why is figuring out a way of strengthening people's feeling of connectedness to society still an issue of importance?

Other proposals offered have failed to substantially increase voter turnout.

Perfect competition is efficient and monopoly is not because in perfect competition __________ while in monopoly __________.

P = MC; P > MC

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ______, while under monopoly ______.

P = MC; P > MC

Which of the following mechanisms will increase the rate of return that can be earned by inventors of new technology?

Patents, copyrights, and each of the above.

Which of the following items is an example of a good that is nonrival but excludable?

Pay-per-view movies

Which of the following items is an example of a good that is nonrival but excludable?

Pay-per-view movies More than one person can enjoy a per-per-view movie at one time, but people who don't pay for it can be excluded from enjoying it.

Which of the following items is an example of a good that is nonrival but excludable? Pay-per-view movies. Corn. National defense. Broadcast television.

Pay-per-view movies. More than one person can enjoy a per-per-view movie at one time, but people who don't pay for it can be excluded from enjoying it.

Blair has vast riches and consumes thousands of dollars' worth of consumer goods each week, yet she is never satisfied. Why not?

People's wants are unlimited

______________ is a particular type of spending that mainly benefits a single political district.

Pork-barrel spending

Should a firm that is losing money in the short-run shut down and why?

Possibly. The answer depends on whether or not the firm is covering any of their fixed costs. If P < AVC, then the firm should shut down. Otherwise, earning a loss is not grounds to shut down.

Which of the following statements is false?

Price Setters can sell any quantity at any price

A ballet performance had many empty seats. This implies that the:

Price of the tickets must have been above the equilibrium price.

Because monopolist charges a price in excess of marginal costs, it must be the case that the monopolist

Produces less than the socially efficient level of output

what is a chart that shows all possible combinations a country can produce of two different goods. It shows the trade off of producing more of one good over another one.

Productions possibility frontier.

the term "ceteris paribus" means that:

all variables except those specified are constant.

There is movement up the demand curve:

Quantity demanded goes down

There is movement down the demand curve:

Quantity demanded goes up

When effective price ceilings are set for a market:

Quantity demanded will be greater than the equilibrium quantity, and price will be less than the equilibrium price.

Why would a bank require a borrower to have collateral or a cosigner before agreeing to lend funds?

Reduces risk associated with imperfect information.

Today the broken window Fallacy can similarly be applied to the fear of jobs being lost due to a rise in

Robotics

the group of government programs that provide assistance to the poor and the near-poor is synonymous with which of the following?

Safety net

What is not included in calculating AP?

Salary the owner could have earned working elsewhere

What role can advertising play with respect to differentiated products?

Shapes consumers intangible preferences.

Which of the following is an example of an activity with an external cost?

Speeding on the interstate.

Consumer surplus is the area of the triangle below the demand curve and above the equilibrium price.

The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, consumer surplus is equal to ½(40 × 4) = $80.

The opportunity cost of attending university is likely to include all except which of the following?

The cost of haircuts received during the school term.

Assume the market for cage-free eggs is perfectly competitive. All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

The equilibrium price is likely to decrease and profits are likely to decrease.

Which of the following is a characteristic of a firm in perfectly competitive market?

The firm can sell as much as it wants without having to lower its price.

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output.

If a firm faces a downward-sloping demand curve, then:

The firms marginal revenue from selling an additional unit of output is less then price.

What does it mean when economists say "price is a signal?"

The price signal can be seen via the two functions of prices. Prices serve to ration scarce goods among potential consumers ensuring those who purchase the goods are the individuals who value the goods the most. Second, prices allocate resources across markets. Resources leave markets where they are undervalued and move to markets where they are highly valued. Thus, prices signal who gets what goods in markets and where resources are most highly valued.

An increase in available resources would cause:

The production-possibilities curve to shift outward

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?

The size of the seating area

Which of the following is a characteristic of an oligopolistic market structure?

There are few dominant sellers

Steel mill wage increase by 18 percent over a year. What is the likely economic effect on the market for steel?

There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.

Which of the following is a characteristic of monoply?

There is only one seller in the market.

What do stocks, bonds, securitized mortgage assets and other financial investments all have in common?

They can only be purchased in financial markets.

Choose the correct statement concerning natural disasters.

They create jobs at the expense of other jobs, and they destroy wealth.

In its efforts to keep medical costs down, the government has decided to impose a $15 price ceiling on a weekly dose of this drug. What is likely to happen?

This drug will disappear from the market.

Demand for a good goes up. Because of this the price of the good rise.

True

Which of the following investments is part of a positional arms race?

Trying to improve your position when relative performance counts is an investment in a positional arms race. ex: Studying hard for your economics exam because your professor grades on a curve

Treasury bonds are issued by the federal government through the

U.S. Department of the Treasury.

Natural monopoly model

Utilities (Huge FC)

What is the definition of a shortage

When quantity demanded is greater than quantity supplied.

28). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture If all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter? No, because it makes $200 less in profit with the filter. Yes, because the benefit it would receive from being able to advertise that it acts in an environmentally responsible way exceeds the cost of using a filter. No, because use of a filter would result in smaller total economic surplus. Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter.

Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter. The increase in the fishermen's and bird watchers' benefits is $310 minus $75 = $235; they must pay Erie more than $200, so there is room for a mutually beneficial transaction.

The problems of externalities and poorly formed property rights are: minor in modern economies. among several rationales for the existence of government. better solved by private rather than government action. the only two legitimate reasons for creating government.

among several rationales for the existence of government. Governments can help regulate activities that generate externalities, and they can help enforce property rights.

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be:

an efficient allocation of resources.

The price of bananas will increase in response to:

an excess demand for bananas.

Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali play her music in the apartment? Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate. No, because the benefit to Ali of listening to her music is less than the cost to Kate. Yes, because the benefit to Ali of listening to her music is less than the cost to Kate. No, because the benefit to Ali of listening to her music is greater than the cost to Kate.

Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate. The benefit to Ali of listening to her music is $300 per month (the amount you would have to pay her to give up listening to her music). The cost to Kate of listening to Ali's music is $100 per month (the amount Kate would be willing to pay to avoid hearing Ali's music). Since the benefit to Ali of listening to her music is greater than the cost to Kate of hearing her music, it is socially optimal for Ali to play her music if they live together.

Poverty is measured by the number of people who fall below

a certain level of income, the income needed for a basic standard of living, and the nation's economic poverty line.

suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $200. A couple of weeks later you see the same system for sale on e-Bay for $500, so you sell your system. Your market role is as:

a consumer at the electronic store and as a seller on e-Bay.

According to the textbook, expensive advertising campaigns are:

a credible signal of product quality.

If a firm collects $80 in revenues when it sells 4 units, $100 in revenues when it sells 5 units, and $120 when it sells 6 units, one can infer the firm is more likely to be

a perfect competitor.

The short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed.

The daily demand and supply curves for milk in the small town of Dairyville are as shown in the figure. Suppose the government imposes a price ceiling on milk of $5 per gallon. a. How many gallons of milk will be bought and sold each day after the imposition of the price ceiling? b. What will be the excess demand for milk each day after the imposition of the price ceiling? c. What will be consumer surplus after the imposition of the price ceiling? d. What will be producer surplus after the imposition of the price ceiling? e. What will be the loss in total economic surplus each day that results from the imposition of the price ceiling?

a. 400 b. 600 c. 1600 d. 800 e. 300

A risk-neutral individual will:

accept only gambles with an expected value of zero or greater.

Better information about consumers' reservation prices generally leads to:

acquisition of goods by consumers who are willing to pay the highest price

The _______ assumes that people choose efficient means to achieve their ends, but it regards goals as objects of choice that are subject to a similar efficiency requirement.

adaptive rationality standard

A market equilibrium is only efficient if:

all relevant costs and benefits are reflected in the market supply and demand curves.

A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______.

commons good; collective good A commons good is a good or service that is nonexcludable but rival. A collective good is a good or service that is nonrival but excludable.

A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______. public good; private good commons good; public good commons good; collective good public good; collective good

commons good; collective good A commons good is a good or service that is nonexcludable but rival. A collective good is a good or service that is nonrival but excludable.

If a person's opportunity cost of performing a task is lower than another person's, you know the person has _______________________ in performing the task.

comparative advantage

The fact that most people make some decisions based on intuition rather than calculation is:

consistent with the cost-benefit model because most people intuitively weigh costs and benefits.

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $200. A couple of weeks later you see the same system for sale on e-Bay for $500, so you sell your system. Your market role is as:

consumer at the electronics store and a seller on e-Bay.

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:

consumer at the electronics store and a seller on e-Bay.

If a good is nonrival, then:

consumption of the good by one person does not diminish its availability to others.

If a good is nonrival, then:

consumption of the good by one person does not diminish its availability to others. A nonrival good is a good whose consumption by one person does not diminish its availability to others.

From the perspective of an externality, most communities have zoning laws to:

control external costs.

The development of pay-per-view technology: converted a collective good into a private good. allows consumers to see movies that were previously unavailable for several years. converted a pure public good into a collective good. has made all consumers worse off.

converted a pure public good into a collective good. With broadcast television, anyone with an antenna could receive television signals and one person's watching did not prevent others from watching. With pay-per-view technology, those who don't pay can be excluded from watching.

If perfectly competitive market involves many firms selling identical products, then, in the face of such competition,

each of these firms must act as a price-taker.

The demand curve for each seller's product in perfect competition is horizontal at the market price because

each seller is too small to affect market price.

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. If mushrooms sell for $40 per bushel, and Moe chooses the profit-maximizing quantity, he will:

earn positive profit.

If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:

earning a normal profit.

If a firm shuts down in the short run, then its:

economic loss will equal its fixed costs.

The information given in the graph suggests that the source of market power for this drug manufacturer is

economies of scale in the production of the drug

According to the textbook, the most important and enduring source of market power is

economies of scale.

A natural monopoly is a monopoly that arises from: having an exclusive right to operate in a national park. having exclusive control over the natural resources used to produce a good. a firm's natural desire to maximize its profit. economies of scale.

economies of scale. A monopoly that results from economies of scale is called a natural monopoly.

The government subsidizes education because:

education is thought to have positive externalities.

The government subsidizes education because:

education is thought to have positive externalities. Since education entails positive externalities, market demand will not reflect all of the benefits of education.

The government subsidizes education because: it is a pure public good. private firms will not provide education. the government can provide a better education than can private firms. education is thought to have positive externalities.

education is thought to have positive externalities. Since education entails positive externalities, market demand will not reflect all of the benefits of education.

If a country is producing at point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an:

efficient point

If a country is producing at a point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an:

efficient point.

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.If the cost of paving the driveway is $2,000, then it is ______ for the driveway to be paved because total economic surplus would ______.

efficient; increase by $400

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. If the cost of paving the driveway is $2,000, then it is ______ for the driveway to be paved because total economic surplus would ______.

efficient; increase by $400 The combined value of the paved driveway is $2,400, and its cost is only $2,000. Thus, paving the driveway is efficient since total economic surplus would increase by $400.

Patents, which confer market power, are intended to:

encourage innovation by helping firms recoup the costs of research and development.

For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal revenue ______ price.

equals; is less than Perfectly competitive firms do not have to lower price to sell an additional unit; monopolists do. As a result, marginal revenue is less than price for a monopolist.

the ______ is the quantity where quantity demanded and quantity supplied are a certain price.

equilibrium quantity

The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is:

establishing the optimal size of the tax.

Constant returns to scale occur when a doubling of all inputs

exactly doubles output.

A perfectly price discriminating monopolist charges each buyer:

exactly his or her reservation price.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then in the long run firms will:

exit the market, leading the market supply curve to shift back to S2.

If a monopolist finds that its marginal revenue exceeds its marginal costs at the current level of output, it should

expand output until marginal revenue equals marginal costs.

To produce 150 units of output, a firm must use 3 employees per day. To produce 300 units of output, the firm must use 8 employees per day. Apparently, the firm is:

experiencing diminishing returns.

Beyond the provision of public goods, government exists to address:

externalities and property rights.

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the

extra benefit of the last unit produced is greater than the extra cost

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve.

Market failure describes a situation in which the market itself _____________ in a that balances social costs and benefits.

fails to allocate resources efficiently in a that balances social cost and benefits.

The monopolist will maximize profits if it produces where

marginal revenue equals marginal cost.

If a firm is experiencing economies of scale, then as the firm's output rises, its average total cost _____.

falls When production is subject to economies of scale, the average cost of production declines as the number of units produced increases

According to the law of demand, when the price of shoes ______, people will consume ______ shoes.

falls; more

In a perfectly competitive industry, the industry demand curve is horizontal, whereas for a monopoly it is downward-sloping.

false

Which of the following industries does NOT fit the natural monopoly model?

fast food restaurants

According to the theory of disappearing political discourse, politicians remain silent about issues because politicians:

fear that if they speak out they will be misunderstood.

A _____________ arrangement exists when medical care providers are paid according to the services they provide.

fee-for-service

The marginal cost of providing another viewer with access to HBO is zero. Since only people who pay for HBO can watch it:

fewer than the socially optimal number of people will have access to HBO.

The marginal cost of providing another viewer with access to HBO is zero. Since only people who pay for HBO can watch it: fewer than the socially optimal number of people will have access to HBO. more than the socially optimal number of people will have access HBO. HBO will not be profitable in the long run. access to HBO is nonexcludable.

fewer than the socially optimal number of people will have access to HBO. The marginal cost of providing another viewer with access to HBO is zero. Since people have to pay for access to HBO, we know that the marginal benefit of providing another viewer with access is greater than zero. Since marginal benefit is greater than marginal cost, less than the socially optimal number of people will have access to HBO.

Price setter

firm that has some degree of control over its price

Market power

firm's ability raise its price without losing of its sales

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

firms in these markets do not sell identical products.

The circular flow diagram of economic activity is a model of the:

flow of goods, services, and payments between households and firms.

This graph illustrates a hypothetical market for a newly-developed antibiotic drug. Bacteria mutate quickly, and so new antibiotics must be developed to work against bacteria strains that have evolved to be resistant to existing antibiotics. The demand curve for this market is relatively steep because

for some consumers this good is a necessity

there are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. Cheap Charlie is one of Towneburg's 20 residents. While Charlie enjoys fireworks as much as the next Towneburger, when the fireworks fund-raising campaign kicks off, he claims to hate them. Cheap Charlie is trying to:

free ride.

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a _____________.

free rider

The branch of mathematics that analyzes situation in which players must make decisions and then receive payoffs most often used by economist __________.

game theory

Price discriminating monopolist

generates more total surplus

Refer to the figure below. This graph describes a good that:

generates negative externalities.

Economists readily admit that in settings that involve a monopoly or negative externalities, a potential role exists for _________________.

government intervention

A monopolist's profit-maximising price and output correspond to the point on a

graph where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

increase; $100 The sum of the reservation prices is $1,000, which is $100 more than the $900 cost. Thus, total economic surplus would increase by $100.

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ______ with the first three pies you ate.

increased

Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's total utility ______ with each hour that he skied.

increased

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At this monopolist's profit-maximizing level of output, it:

incurs an economic loss of $16 per day.

incurs an economic loss of $16 per day. The monopolist loses $4 on each of the 4 units sold.

The term "natural monopoly" refers to

industries with economies of scale.

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

inefficient

44). If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. Picture If there is a pay-per-view charge to watch a fight, the outcome is ______ because ______. efficient; prices will allocate the program to those who value it the most efficient; the marginal cost of an additional viewing household is zero inefficient; the marginal cost of an additional viewing household is zero inefficient; television stations would not always make a profit

inefficient; the marginal cost of an additional viewing household is zero Since the marginal cost of an additional viewing household is zero, the efficient number of viewing households is 50 million (since this is when marginal benefit of an additional viewing household is zero). If there is a pay-per-view charge to watch a fight, then there will be fewer than 50 million viewing households.

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ______ and the market equilibrium quantity will be ______.

inefficiently low; inefficiently high

9). Suppose a monopolist faces the demand curve shown below: Picture If you were to draw the monopolist's marginal revenue curve, it would: lie on top of the demand curve. intersect the vertical axis at $35. intersect the horizontal axis at 35. have a slope equal to the reciprocal of the slope of the demand curve.

intersect the horizontal axis at 35. For any straight-line demand curve, the corresponding marginal revenue curve will have twice the slope of the demand curve and the same vertical intercept as the demand curve. As a result, the horizontal intercept of the marginal revenue curve will be half the horizontal intercept of the demand curve.

Suppose a monopolist faces the following demand curve. [graph w just demand curve] If you were to draw the monopolist's marginal revenue curve, it would:

Cost plus regulation in this market would yield a result that

is adequate to assure continued production of the drug while minimizing deadweight loss

Cory gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Cory:

is experiencing diminishing marginal utility.

According to the Weber-Fechner law, the perceived size of a change in a stimulus will be large when the change in the stimulus:

is large in proportion to the original stimulus.

If a firm functions in an oligopoly, it

is one of a few firms that produces a good with close substitutes.

In some countries, medical care is provided free-of-charge to citizens and is paid for by the government. In those countries, medical care:

is rationed by some non-monetary method.

One problem with cost-plus regulation is that:

it blunts regulated firms' incentives to cut costs

In some of the products developed by software company must face market competition that can very quickly produce either an identical product or a close substitute for it, then

it may decide against R&D projects of this sort.

Cartel agreements are difficult to sustain because:

it's a dominant strategy for each cartel member to cheat on the cartel agreement.

If a natural monopoly decreases the quantity of output it produces,

its average costs will increase.

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

its exclusive ownership of South African diamond mines.

De Beers accounts for approximately 80% of diamond sales worldwide. The source of their market power is

its exclusive ownership of South African diamond mines.

If a firm's demand function shifts

its marginal revenue function and profit maximizing output will also change.

Rules of thumb that reduce computation costs are known as:

judgemental and decision heuristics

Rules of thumb that reduce computation costs are known as:

judgmental and decision heuristics.

The tendency for consumers to purchase more of a good or service as its price falls is captured by the:

law of demand

Relative to a single price monopolist, a price discriminating monopolist generates

less deadweight loss

If Terry's total utility is maximized when he owns 10 pairs of shoes, then Terry's total utility from owning 7 pairs of shoes is ______ Terry's total utility from owning 8 pairs.

less than

If the consumption of good generates an external benefit, then the market equilibrium quantity will be:

less than the socially optimal quantity. If a good generates an external benefit, then marginal benefit to society of another unit of the good is greater than the private benefit of another unit, implying that the market equilibrium quantity will be less than the socially optimal quantity.

An external benefit implies that private markets will provide ______ than the socially optimal quantity, and an external cost implies that private markets will provide ______ than the socially optimal quantity.

less; more

less; more External benefits and external costs are not considered by firms and consumers. Thus, if a good involves an external cost, then private markets will produce too much of the good, and if a good involves an external benefit, then private markets will provide too little of the good.

socially optimal graph

look where MC= D Subtract from ATC

monopolist's profit-maximizing level of output graph

look where MR=MC then find the D at this point. Subtract ATC with D.

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $15, then at this firm's profit-maximizing level of output, it will earn a ______ of ______.

loss, $60

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost. Following the Cost-Benefit Principle, all firms maximize their profit by choosing the level of output at which marginal revenue equals marginal cost.

26).Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture If Erie Textiles does not install the filter, there will be a net social ______ of ______ (in thousands of dollars). loss; $35 gain; $75 loss; $110 gain; $200

loss; $35 Net benefits without the filter are $475 and with the filter are $510.

When half of the consumers in a small town move away, the markets for different goods and services will generally experience:

lower equilibrium price and lower equilibrium quantity

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price.

In order to sell another unit, an imperfectly competitive firm must

lower its price.

Refer to the accompanying table. According to the table, Corey has the absolute advantage in: Pizzas made per hour- Corey 12 ; Pat 10 Pizzas delivered per hour- Corey 6; Pat 15

making pizza

In general, perfectly competitive firms maximize their profit by producing the level of output at which:

marginal cost equals price.

In general, when the price of a fixed factor of production increases:

marginal cost is unchanged.

The most efficient distribution of pollution abatement is such that the:

marginal cost of abatement is the same across all polluters.

If a production process exhibits diminishing returns, then as output rises:

marginal cost will eventually increase.

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

marginal revenue

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost.

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economist call

monopolistic competition.

In many cities in the United States, a single firm provides electricity. Those firms are:

monopolists

In many cities in the United States, a single firm provides electricity. Those firms are:

monopolists.

In many towns in the United States a single firm provides electricity. Those firms are

monopolists.

In many cities in the United States, a single firm provides electricity. Those firms are:

monopolists. A monopoly is the only supplier of a unique product with no close substitutes.

As the name monopolistic competition implies, a firm's decision in this setting will in certain ways resemble _________ and in other ways resemble __________.

monopoly; perfect competition

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the first pie than from eating the third pie.

Spike pays $14,000 in taxes and earns $100,000. Ace earns $120,000. If the tax system is progressive, Ace will pay ______ in taxes.

more than $16,800. Spike's tax is 14 percent of his income ($14,000/$100,000 = 0.14). If the tax system is progressive, then Ace will have to pay more than 14 percent of his income (that is, more than $16,800 = 0.14 × $120,000).

Economies of scale

most important and enduring source of market power

Refer to the figure above. The firm illustrated in the graph is a(n)

natural monopolist.

A monopoly that results from economies of scale is called a(n):

natural monopoly A monopoly that results from economies of scale is called a natural monopoly.

A firm that emerges as the only seller in an industry with economies of scale is termed a(n)

natural monopoly.

A monopoly that results from economies of scale is called a(n):

natural monopoly.

A monopoly that results from economies of scale is called a(n): antitrust violator. large-scale monopolist. natural monopoly. cost-plus firm.

natural monopoly. A monopoly that results from economies of scale is called a natural monopoly.

A downward sloping demand function

necessarily implies that the firm's marginal revenue will be less than price.

To sell an extra unit of output, a perfectly competitive firm ______________, and an imperfectly competitive firm ___________________.

need not alter its price; must lower its price.

Pat's total utility after eating 99 Reese's Peanut Butter Cups was greater than his total utility after eating 100 Reese's Peanut Butter Cups. Therefore, Pat's marginal utility from the 100th peanut butter cup was:

negative

A cost of an activity that falls on people not engaged in the activity is called a(n):

negative externality.

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ________ because these two goods are ________.

negative; complements

The slope of a production possibilities curve is ______ because ______.

negative; producing more of one good requires producing less of the other

The slope of a production possibilities curve is ________ because ________.

negative; producing more of one good requires producing less of the other

If a good can be consumed by one person without reducing its availability to others, then it is a ______ good. nonexcludable pure public common nonrival

nonrival A nonrival good is a good whose consumption by one person does not diminish its availability to others.

A collective good is one that, to at least some degree, is:

nonrival but excludable.

29). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture Suppose you observe that Erie has not added a filter. You could conclude that the Coase Theorem failed to solve the externality problem because: Erie's benefits to operating without a filter are greater than the benefits of a filter to the fishermen and bird watchers. negotiation with many individual fishermen and bird watchers was too costly. Erie has a property right to the river. regulators prevent application of the Coase Theorem when the environment is at stake.

negotiation with many individual fishermen and bird watchers was too costly. The Coase Theorem only applies if it is not costly to negotiate.

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. [table w $200 $400 $180 $50 $130 $25] Suppose you observe that Erie has not added a filter. You could conclude that the Coase theorem failed to solve the externality problem because:

negotiation with many individual fishermen and bird watchers was too costly. The Coase theorem only applies if it is not costly to negotiate.

Refer to the figure above. Based on the marginal revenue data in the table, one can predict the firm will

never produce the seventh unit.

27). Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. Picture Local fishermen and bird watchers would be willing to compensate Erie Textiles ______ for operating with a filter. up to $310 thousand dollars no more than $235 thousand dollars no more than $75 thousand dollars nothing

no more than $235 thousand The increase in the fishermen's and bird watchers' benefits is $310 minus $75 = $235.

Market equilibrium is efficient if

no more trades remain that benefit some without harming others

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good.

nonexcludable

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good. nonexcludable pure public private nonrival

nonexcludable A nonexcludable good is a good that is difficult, or costly, to prevent nonpayers from enjoying.

A public good is a good that is _________, and thus is difficult for market producers to sell to individual consumers.

nonexcludable and nonrivalrous

If a good can be consumed by one person without reducing its availability to others, then it is a ______ good.

nonrival

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone.If public television stations collect less than $100 per child during the pledge drive, then this is evidence:

of the free-rider problem.

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. If public television stations collect less than $100 per child during the pledge drive, then this is evidence:

of the free-rider problem. Since public television is nonexcludable, the free-rider problem will emerge, so every parent has an incentive to contribute less than $100 in hopes that others will make donations.

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public televisions hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. If public television stations collect less than $100 per child during the pledge drive, then this is evidence: that the government should not subsidize public television. that parents do not care about their children. of the free-rider problem. that head taxes are regressive.

Adam Smith's theory of the invisible hand posits the actions of independent, self-interested buyers and sellers will ______ lead to the most efficient allocation of resources.

often often lead to the most efficient allocation of resources.

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

often lead to the most efficient allocation of resources

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes. An oligopoly is an industry in which a small number of large firms produce products that are either close or perfect substitutes.

The essential cause of the tragedy of the commons is the fact that:

one person's use of a commonly held resource imposes an external cost on others.

Start-up costs

one-time costs incurred when beginning the production of a new product (FIXED)

Start up costs are

one-time costs of starting production of a new product.

When the government imposes a tax on a good, total economic surplus will:

only increase if the good entails a negative externality.

A profit-maximizing perfectly competitive firm must decide:

only on how much to produce, taking price as fixed.

31). Refer to the figure below. This graph suggests that the private market provides incentives to: Picture eliminate the externalities generated by paper production. under-produce paper relative to the social optimum. over-produce paper relative to the social optimum. over-price paper relative to the social optimum.

over-produce paper relative to the social optimum. The private market would provide 350 tons; the socially optimal quantity is 300 tons.

Refer to the figure below. This graph suggests that the private market provides incentives to: [graph w Social MC, Private MC, D - tons of paper per year & $/ton]

over-produce paper relative to the social optimum. The private market would provide 350 tons; the socially optimal quantity is 300 tons.

If Doug has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will:

overestimate the dangers of air travel.

Traditional economic models cannot explain why:

people donate money to charity completely annomosly

An implication of scarcity is that

people must make trade-offs

Suppose a firm is collecting $100 in total revenues when it sells 10 units and it receives $110 in total revenues when it sells 11 units. The firm is a(n)

perfect competitor.

For a very flat demand curve, the price elasticity of demand is:

perfectly elastic =infinity

If consumers completely cease purchasing a product when its price increases by any amount, then demand is:

perfectly elastic.

The demand curve for a perfectly competitive firm is __________ while the demand curve for a monopolist is __________.

perfectly elastic; downward sloping

if the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ________ with respect to price.

perfectly inelastic

One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:

positive economic profit is only possible in the short run.

In economic terms, when a company invests in new technology innovations, _________.

positive externalities arise

When reference is made to the __________, it means the specific amount of income needed for a basic standard of living.

poverty line

Payments made to an insurance company in return for a policy of insurance are called __________.

premiums

The law of supply functions in labor markets; that is, higher _____ for labor leads to higher quantity of labor supplied.

price

Assume that both the supply of winter coats and the demand for winter coats fall during the summer but that supply decreases less rapidly (and less in magnatude) than demand. What happens to the equilibrium price and the equilibrium quantity?

price and quantity falls.

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the demand for textbooks is:

price inelastic

In order to be classified as a __________, a firm must be owned by the people who run it on a day-to-day basis.

private company

Suppose the latest Hunger Games movie first played in theaters, where it sold out during its opening week. Several months later it was available on pay-per-view TV. Two years later it was shown on CBS, a broadcast television network. When the movie was playing in theaters, it was a ______ good; when it was available on pay-per-view TV, it was a ______ good; and when it was shown on CBS, it was a ______ good.

private; collective; public

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should:

produce 80 doughnuts.

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output.

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output. Because profit-maximizing monopolists produce a level of output at which price is greater than marginal cost, monopolists always produce less than the socially optimal level of output.

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists:

produce less than the socially optimal level of output. The marginal benefit to society of the last unit produced is measured by price. Thus, if price is greater than marginal cost, this implies that the marginal benefit to society of the last unit produced is greater than the marginal cost to society of the last unit produced, so that society would benefit if output were to increase.

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists: earn a positive economic profit. earn a negative economic profit. produce more than the socially optimal level of output. produce less than the socially optimal level of output.

Suppose a market is in equilibrium. The area below the market price and above the supply curve is:

producer surplus.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

producer surplus.

The difference between the price a seller actually receives for a good and the seller's reservation price is:

producer surplus.

The reason economists consider monopoly socially undesirable is the monopolist

produces less than the socially efficient amount.

Because the monopolist charges a price in excess of marginal costs, it must be the case that the monopolist

produces less than the socially efficient level of output.

10). Suppose a monopolist faces the demand curve shown below. Picture The monopolist maximizes its profits by: charging $70 for each unit. producing 35 units, since this is where total revenue is maximized. producing the level of output at which marginal revenue minus marginal cost is greatest. producing the level of output at which marginal revenue equals marginal cost.

producing the level of output at which marginal revenue equals marginal cost. Like a perfectly competitive firm, a monopolist maximizes profit by choosing the output level at which marginal revenue equals marginal cost.

Suppose a monopolist faces the following demand curve. [graph w just demand curve] The monopolist maximizes its profits by:

Because a monopoly's demand curve is the same as the market demand curve for its

product the monopoly must lower its price to sell more of its product.

Total revenue minus both explicit and implicit costs defines a firm's: gross earnings. profit. marginal earnings. net worth.

profit

The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day Output Per Day 0 0 1 40 4 80 9 120 15 160 23 200 When the firm uses 9 employee-hours per day, it earns a daily ______ of ______.

profit; $64

profit; $650

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm's profit maximizing level of output, the firm will earn an economic ______ of ______ per day.

profit; $8

Joe earns $10,000 in income and pays $1,000 in taxes while Jack earns $30,000 and pays $4,000 in taxes. The structure of this tax is:

progressive.

Joe earns $10,000 in income and pays $1,000 in taxes while Jack earns $30,000 and pays $4,000 in taxes. The structure of this tax is:

progressive. The tax takes 10 percent of Joe's income ($1,000/$10,000 = 0.10), and it takes slightly more than 13 percent of Jack's income ($4,000/$30,000 = 0.133). Since the tax takes a greater share of Jack's income than of Joe's income, the tax is progressive.

Patents and copyrights, which confer market power, exist to

protect research, development and creative expression.

Jeremy is an 18-year-old college student with no prior credit history, who still lives at home. He will have a part-time job while he is attending college and has applied for a car loan. In these circumstances, the bank's loan officer will most likely approve the loan if Jeremy can

provide a cosigner on the loan.

A highway without any tolls between 12am and 5am when there is very little traffic is an example of a ______ good.

public

A highway without any tolls between 12am and 5am when there is very little traffic is an example of a ______ good.

public The highway is both nonrival and nonexcludable.

A ___________ is a firm that has sold its stock by making it available to be bought and sold by outside investors.

public company

A good or service that is highly nonrival and highly nonexcludable is a(n) ______ good.

pure public A pure public good is a good that, to a high degree, is both nonrival and nonexcludable.

The _______ is a game in which the first player has the power to confront the second player with a take-it-or-leave-it offer.

ultimatum bargaining game

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the: price of coal will be higher than the socially optimal price. quantity of coal produced will be less than the socially optimal quantity. quantity of coal produced will be greater than the socially optimal quantity. supply curve will lie to the left of the regulated supply curve.

quantity of coal produced will be greater than the socially optimal quantity. Firms do not consider external costs when making their output decisions, so if a good generates a negative externality, then they will produce more than the socially optimal quantity.

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales.

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales. Market power is defined as a firm's ability to raise price and not lose all of its sales.

"Market power" refers to a firm's ability to: undercut its competitors' prices. force consumers to buy high-priced products. raise its price without losing all of its sales. influence the price its competitors charge.

raise its price without losing all of its sales. Market power is defined as a firm's ability to raise price and not lose all of its sales.

If a consumer buys two different goods, the rational spending rule requires that the:

ratio of marginal utility to price be equal for the two goods.

Alex wants to maximize his utility. At his current level of consumption, Alex's marginal utility from an additional cup of coffee is 15 utils, and his marginal utility from an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and the price of a can of soda is $2, Alex should:

reallocate his spending away from coffee and towards soda.

Government has a variety of policies that allow inventors to ___________such as the granting patents and __________.

receive an increased rate of return,; subsidization of research and development.

In circumstances dealing with poverty, the term ________ means taking income from those with higher incomes and providing income to those with lower incomes.

redistribution

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

reduce output to earn greater profits or smaller losses.

If sellers have more information about the quality of goods than do buyers, then:

sellers of better-than-average goods will have difficulty getting their asking price.

Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Total economic surplus will be maximized if Sydney:

sells only in the upscale mall and charges $10.

Traditionally, policies for environmental protection in the U.S. have focused on ___________________ pollutant could be emitted.

setting limits for how much of each

An increase in an economy's productive resources will lead the production possibilities curve to:

shift outward

A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

shift to right, decreasing the price of the drug.

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________

shortage or excess demand

If a perfectly competitive firm raises its price, the quantity demanded of its product___________.

should fall to zero

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

small number of large firms.

small; relatively inelastic

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ______ reduction in driving if demand is ______. small; perfectly elastic large; perfectly inelastic small; relatively inelastic large; relatively inelastic

small; relatively inelastic If demand is inelastic, a tax will increase price but will not change the quantity demanded by a large amount.

Imperfect price discrimination occurs when

some buyers pay less than their reservation price.

If all firms in a perfectly competitive industry are experiencing economic losses, then:

some firms will exit the industry, until economic profit equals zero.

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then:

some sort of collective action by voters will be necessary to fund the park. If no one person values the park enough to pay for its total cost, then the park will only be built if the voters decide to fund it collectively.

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then: the benefit of the park is less than the cost of the park, so the park should not be built. some sort of collective action by voters will be necessary to fund the park. a private firm will have an incentive to build the park. the park will never be built.

Compared with charging a single price, all else equal imperfect price discrimination

sometimes benefits customers with low ability to pay while increasing firm profits.

In sequential games, the player who moves first:

sometimes has an advantage and sometimes has a disadvantage.

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

Which of the following is an example of an activity with an external cost?

speeding on the interstate

Suppose Ginger is going to buy a house and a dishwasher. Assuming the marginal cost of searching for both is the same, one can predict that Ginger will

spend more time searching for the house than the dishwasher.

The term ________ refers to a market exchange that affects a third party who is outside or external to the exchange.

spillover

Suppose a drug company introduces a new drug on the market. Its research, development, and testing costs are ________ and the chemicals used in manufacturing the drug are _______________.

start up costs; variable costs

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

start-up costs; variable costs

If an activity generates a positive externality, the government can increase total economic surplus by ______ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ______ the activity.

subsidizing; taxing

subsidizing; taxing Subsidies are used to increase provision of activities with positive externalities and taxes are used to decrease provision of activities that generate negative externalities.

When a perfect competitor sells additional units, __________, and when a monopolist sells additional units, ___________

total revenues always rise; total revenues may rise, fall, or remain unchanged.

In order to achieve the socially optimal level of output, goods that entail negative externalities should be:

taxed.

As the _______ substitute for low-skill labor becomes available, the demand curve for low-skill will shift to the left.

technology

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us _____ .

that choices must be made; how to make good choices

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

the demand curve facing the firm.

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

the firm should keep expanding production.

If a firm is earning zero economic profit, then:

the firm's accounting profit is equal to the firm's implicit costs.

Once a firm has determined the quantity of output it wishes to sell, the price it can charge is determined by

the firm's demand curve.

If a firm faces a downward-sloping demand curve, then:

the firm's marginal revenue from selling an additional unit of output is less than price.

The ultimatum bargaining game is a game in which:

the first player confronts the second player with a take-it-or-leave-it offer.

CheapFizz now has market power due to

the grant of an exclusive license to sell.

A consumer has a reservation price of $90 for a blender. If the local store is offering the blender for $100 with a $10 rebate and he does not make the purchase, one can surmise that

the hurdle was too high.

A very large number of small sellers who sell identical products imply

the inability of one seller to influence price.

The sum of producer surplus and consumer surplus is:

total surplus.

The tendency for marginal utility to decline as consumption increases beyond some point is called:

the law of diminishing marginal utility

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

Suppose a perfectly competitive firm and monopolist are both charging $5 for their respective products. From this, one can infer that:

the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. Perfectly competitive firms face a horizontal demand curve, so selling an additional unit of output increases revenue by the price of the good. Imperfectly competitive firms face a downward-sloping demand curve, so selling an additional unit of output increases revenue by less than the price of the good.

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that: the marginal benefit from selling an additional unit of output is $5 for both firms. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. the marginal benefit from selling an additional unit of output is less than $5 for both firms. the competitive firm is charging too much, and the monopolist is charging too little.

In perfect competition

the market demand curve is downward sloping while demand for individual seller's product is perfectly elastic.

If the market demand curve does not capture all of the benefits to society of buying an additional unit of good, then:

the market equilibrium will not be efficient.

If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then:

the market equilibrium will not be efficient.

A firm might have a monopoly in a market because

the market is geographically isolated from other sellers.

Compared to a monopolist charging a single price to everyone, perfect price discrimination makes

the monopolist and some consumers better off.

Economists consider monopoly socially undesirable bc

the monopolist produces less than the socially efficient amount

Suppose a monopolist sells one version of its output to consumers and another version to businesses. The marginal cost of the consumer version is $5 per unit while the business version has marginal costs of $5.75. If resale is impossible, one can infer that

the monopolist will charge two different prices and is not practicing price discrimination.

Market competition can provide ______________________ for _____________________.

the needed incentive; discovering technologies.

Refer to the figure above. This firm would maximize its profits by selling

the number of units at which Marginal Revenue equals Marginal Cost.

Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in the rebate form if:

the opportunity cost of the time and trouble of sending in the rebate form is LESS than $10

If marginal utility is positive, then as consumption increases:

total utility will increase

For a natural monopoly, average cost declines as the number of units produced increases over the relevant output range.

true

Which of the following factors would impact a buyer's reservation price for a given good or service?

the price of a good

An increase in the quantity of tea demanded occurs if:

the price of tea falls

When consumers and businesses have greater confidence that they will be able to repay in the future,

the quantity demanded of financial capital at any given interest rate will shift to the right.

A pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits.

A prisoner's dilemma illustrates situations in which:

there is a conflict between the narrow self-interest of individuals and the broader interests of a group.

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

there is a negative externality associated with this good.

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

there is a negative externality associated with this good. Buyers and sellers do not consider external costs, so the market will produce more than the socially optimal quantity.

Suppose this spring the CM Coffee Co. announces they need higher prices than last year to offer sale the same quantity of coffee. We can conclude that:

there was an increase in demand

A commitment problem exists when people cannot achieve their goals because:

they cannot make credible threats or promises.

Superstar professional athletes can sustain their economic rents because:

they have unique talents that they can sell to the highest bidder.

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

they will be unable to earn higher-than-normal profits in the long run.

Market competition may sometimes encourage a firm to innovate out of fear because of the perception that

they will inevitably fall behind other competitors seeking out innovations.

Perfectly competitive firms have no control over the price they charge for their product.

true

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. If the cost of paving the driveway is $2,000 and Lane proposes that they each pay 50 percent of this cost, then Riley ______ agree to Lane's proposal because ______.

will not; if they split the cost, then Riley's economic surplus would decrease Riley's benefit from having the road paved is $900, so he would not be willing to pay $1,000.

If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every day

would be a negative externality.

Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid: $1,000 in monthly rent for office space, $200 in monthly rent for equipment, $3,000 to your workers in wages for the month, and $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was negative $200, then it must be true that:

your implicit costs are $1,000 per month.

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. If mushrooms sell for $10 per bushel, and Moe chooses the profit-maximizing quantity, he will gather:

zero bushels.

Refer to the table below. An output level of 25 units, this firm's accounting profit is ______, and its economic profit is ______. Quantity Total Revenue Explicit Costs Implicit Costs 10 50 36 5 15 75 63 6 20 100 93 7 25 125 125 8 30 150 161 9

zero; −$8

32). Refer to the figure below. Private incentives in this market generate deadweight loss equal to _______. Picture ½ × UW × LM ½ × UV × LN ½ × VW × LN ½ × VW × KM

½ × VW × KM Deadweight loss is generated by transactions between V and W that do not occur at the private market equilibrium even though the social benefit of those transaction is greater than their MC.

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. [table w $24,000 $15,000 $11,000 $23,000] If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to NOT operate a drive-through window.

$9,000 Quick Burger's payoff would fall by $9,000 per month (from $24,000 to $15,000) if it did not operate a drive-through window.

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. [graph w number of shells & $/shell] Cheap Charlie is one of Towneburg's 20 residents. While Charlie enjoys fireworks as much as the next Towneburger, when the fireworks fund-raising campaign kicks off, he claims to hate them. Cheap Charlie is trying to:

free ride. Charlie is hoping the other 19 residents will cover the cost of the fireworks display so that he can enjoy its benefit without paying any of the cost.

Refer to the figure below. From this graph, you can infer that paper production: [graph w Social MC, Private MC, D - tons of paper per year & $/ton]

generates an external cost of $50 per ton per year. The social MC lies above the private MC by $50 per ton.

Refer to the figure below. This graph describes a good that: [graph w Social MC, Private MC, Demand - letters A, B, C, D, E, F, G, H]

generates negative externalities. The social MC is higher than the private MC indicating that the good generates negative externalities.

If either the production or consumption of a good generates an external cost, then the market equilibrium quantity will be

greater than the socially optimal quantity. If a good generates an external cost, then marginal cost to society of another unit of the good is greater than the private cost of another unit, implying that the market equilibrium quantity will be greater than the socially optimal quantity.

This graph shows the marginal cost and marginal benefit associated with roadside litter clean up. Assume that the marginal benefit curve and marginal cost curve each have their usual slope. [graph w intersection @15,15 - bags of litter removed per day & $] A state initiative requiring towns to spend at least $20 per day on litter removal would be ______ because ______.

inefficient; the marginal cost of litter removal would exceed the marginal benefit At $20, the marginal cost of removal is greater than the additional benefit.

A cost of an activity that falls on people not engaged in the activity is called a(n):

negative externality. An external cost, also called a negative externality, is a cost of an activity that falls on people other than those who pursue the activity.

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter Marginal Benefit Kyle $420 Dylan $360 Fran $350 Ronnie $190 Sam $170 Dylan proposes that the city let a private company build the pool and charge residents a one-time fee to use the pool as much as they like. Only residents who pay the fee would be allowed to use the pool. If the private company were allowed to set a single fee, then:

no private company would offer to build the pool. There is no single price that a private company could charge that would cover the cost of the pool.

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good.

nonexcludable A nonexcludable good is a good that is difficult, or costly, to prevent nonpayers from enjoying.

Your state department of transportation is considering installing toll booths with gates on a quiet section of highway. If this is done, a good that is currently a:

nonexcludable good will become an excludable good. Installing tool booths with gates would enable the department of transportation to exclude those who don't pay from using the highway.

If a good can be consumed by one person without reducing its availability to others, then it is a ______ good.

nonrival A nonrival good is a good whose consumption by one person does not diminish its availability to others.

A collective good is one that, to at least some degree, is:

nonrival but excludable. A collective good is a good or service that, at least to some degree, is nonrival but excludable.

The tragedy of the commons refers to the:

overuse of resources that have no price. The tragedy of the commons is the tendency for a resource that has no price to be used until its marginal benefit is zero.

Refer to the figure below. The deadweight loss at the market equilibrium quantity is equal to the area ______. [graph w Social MC, Private MC, Demand - letters A, B, C, D, E, F, G, H]

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