Econ Test
Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.
$3.62
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:
-25/20 = -1.25
A monopoly is a market structure that is characterized by?
A single seller of a good or service that does not have a close substitute
An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.
An increase, positive
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
An inferior good
Laws aimed at promoting competition among firms are known as?
Antitrust Laws
Natural monopoly happens when the?
Average total cost curve is decreasing
The only legal restriction concerning price discrimination is that firms cannot use it to?
Drive rivals out of business
In which of the following situations can a firm be considered a monopoly?
When a firm can ignore the actions of all other firms
The principle of voluntary exchange state that if two people voluntarily agree to a transaction they are both
Better off after the transaction occurs
If the cross-price elasticity of demand between two products is -3.0, then the two products are
Complements
Price discrimination is the practice of?
Dividing consumers into two or more groups and charging different prices to each group.
The sum of consumer surplus and producer surplus is equivalent to
Economic surplus
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.
Elastic
If the supply of Good B is perfectly elastic and price falls the quantity supplied will
Fall to zero
The more substitutes that exist for a particular product, the __________ the price elasticity of demand.
Greater
When you compute a price elasticity of demand the answer is always
Greater
The monopolist charges a price that is __________ the perfectly competitive industry.
Higher than
What is a merger between firms in the same industry called?
Horizontal merger
A perfectly inelastic supply curve
Indicates the quantity supplied does not respond to a change in price
At current prices of a highly addictive drug the demand for the drug is highly price
Inelastic
If the price elasticity of demand is 0.33 then demand is __________ over that price range.
Inelastic
The monopolist produces an output that is __________ the perfectly competitive industry would produce.
Less than
Rent controls
Make tenants less mobile
__________ is the additional cost to the firm of producing one more unit of a good or service.
Marginal cost
A monopolist will maximize profit at the level of output where?
Marginal cost equals marginal revenue
In which of the following market structures is the firm's demand curve the same as the market demand for the product?
Monopoly
Which of the following is an effect of a monopoly?
Monopoly causes a reduction in consumer surplus
If an effective minimum wage is imposed, then
More workers will be unable to find jobs
Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of?
Price floor
Prolonged shortages arise if
Prices are not allowed to rise to equilibrium
The difference between the lowest price a firm would have been willing to accept and the price it actually receives is known as
Producer surplus
A numerical limit on the quantity of a good that can be imported is a?
Quota
Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.
Rationing, highest
The cost of saving jobs through trade barriers like tariffs and quotas is
Relatively high
Prolonged agricultural surpluses can arise if governments?
Set the price above equilibrium
If prices rise the quantity supplied will be greater
The longer the time that elapses
The maximum amount that a consumer is willing to pay for a good or service is known as
Willingness to pay
What is the cross-price elasticity of demand for two goods that are unrelated?
Zero
In the long run, the monopolist can earn?
Zero or positive economic profit
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.
increase, 8.0
Along a linear demand curve, the slope __________ while the price elasticity of demand __________.
is constant, changes from one point to another
Black markets may arise if?
Price ceilings exist
A patent gives its holder the exclusive right to a product for a period of __________ from the date the patent is filed with the government
20 years
Which of the following is most likely to increase market power?
Horizontal mergers
Which of the following statements regarding natural monopoly is true?
Natural monopoly is most likely to occur in markets where fixed costs are large relative to variable costs.
When you compute a price elasticity of demand the answer is always
Negative
Economists avoid confusion over units in the computation of elasticity by using
Percentage changes
The price elasticity of supply always has a?
Positive value
In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of?
Price ceiling
Price controls that put a price ceiling on goods and services create __________.
Shortages
Price controls that put a price floor on goods and services create __________.
Surpluses
A tax imposed by a government on imported products is called a?
Tariff
The actual division of the tax burden between buyers and sellers is known as
Tax incidence
Which of the following laws outlawed monopolization?
The Sherman Act
What is the definition of market power?
The ability of a firm to charge a price greater than marginal cost
Which of the following rights is given to the holder of a patent?
The exclusive right to a new product
Which of the following statements about a shortage is correct?
There is no shortage of most scarce goods
Because the monopolist faces a downward sloping demand curve?
There will be deadweight loss
The sugar quota in the United States creates winners and losers. The winners are __________ and the losers are __________.
U.S. sugar producers, U.S. sugar consumers
Governments deal with natural monopolies by?
Using regulation to protect consumers
A __________ is a negotiated agreement between two countries that limits the quantity of a specific product that may be imported into a country.
Voluntary export restraint